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11
Creating success in rapidly changing environment
GV Gold viewpoint on Russian gold mining industry
Roman SchetinskyDirector, Perspective development
March 2011CERBA CONFERRENCE
2
Disclaimer
The information in this presentation contains forward-looking statements.
Forward-looking statements include statements regarding plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts.
All information regarding reserves and resources is given under the GKZ (State Reserves Committee) Code and JORC Code, CIM-compliant estimate prepared in accordance with the NI 43-101 requirements (2007).
The information and opinions contained in this presentation are provided as of March 2011 and are subject to change without notice.
3
Russian Gold Mining Industry Today
The Industry has already seen its most significant developments:– The majors are known
– Consolidation is mainly over
– New capacities are already in place
Overall stability of the industry. Major Mining houses secured their long-term production plans.
TOP-5 produce about 55% of gold, the following next TOP 15 companies – another 25% (TOP-20 ~80%). Remaining 400 totally produce 20%.
Growth in gold production comes from hardrock assets. Alluvial mining will continue to decrease.
Visible step up in the past (Y2009). What trend is following, up or down?
Key Highlights Russian Gold mining breakdown
52 6279 81 86 83 85 86
110125 123
7980
80 77 73 69 62 59
5453 52131
159 158 159 152 147 145
164178 175
142
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
(т)
Hardrock Alluvial
55%
25%
20%
Leading 5:- Polyus Gold- Kinross
(Kupol)- Petropavlovsk- Polymetal- Severstal
The next TOP 15 companies
Remaining ~ 400 companies
Sources: Russian Goldminers Union, Company sources
Historical alluvial and hardrock production
Sources: Russian Goldminers Union, Company sources
(t)
44
0100200300400500600700800900
1000110012001300
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Growth Opportunities
Possibilities of organic growth are limited in Russia There are no deposits with reserves on state balance
(except probably Sukhoi Log) Exploration in new areas has almost stopped Hard to name properties in “real” pre-production
stage. Many of them are frozen with no intention to be developed
Profits from M&A deals are in favor to capital investments in new projects:
Opportunities to acquire mid-tier producers in Russia Going abroad is a new tendency. Joint ventures in
CIS countries and/or far located parts of the World Efficiency of merging with new companies could be
significantly higher than investing in developing mining projects
High gold prices secure financial stability for companies’ development programs.
Current environment creates opportunities for investments in new projects, targeting to increase overall gold production.
How long will it last? Surely not forever.
Companies try to follow two main approaches: organic growth or M&A strategies.
Cash margins are rapidly increasing
($/oz) The average price in 2010 has risen by 25% to 1224 USD/oz
Gold price
Average Cash costs
Source: Company sources
Development and growth strategies
Organic growth M&A approach
Growth in cash margins
55
300
400
500
600
700
800
900
Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13
Cash margins sharp fall
($/oz)
Source: Virtual Metals, Company sources
Challenges and Threats
Rapid cash costs increase in Russia up to the same level as in the rest of the World.
Quality of the deposits in production stage is constantly decreasing.
High grade ores depletion. Capital expenditures overrun in the most of the
new projects. Mining analysts predict gold price to step down
and reach 1200 USD\oz in 2013 and 1150 USD\oz in 2014.
We believe the 900 USD\oz scenario in a short term could be realistic.
Many projects will shut down, causing production to reduce. This will strongly reflect gold price.
World constraints Gold price forecast
Source: Apeco, Company Sources
Investing current cash margins into new projects will allow to secure companies
mid-term production plans and hardly to raise it
400
600
800
1000
1200
1400
1600
1800
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Long-term range 850 - 1050 USD/oz
Timeframe for investments
6
GV Gold in Russian Goldmining Industry
8th place in Russian goldmining industry
Current production - 125 koz AU p.a. (2010)
Mineral Resource and Exploration Potential – 13.44 Moz Au
Stable position in the Industry
Balanced portfolio of assets
Corporate governance principles
Sustainable development
2 Producing assets
2 Development / Pre-production assets
7 Exploration projects
Annual and interim IFRS reporting since 2003
Audited reserves under international reserve audit classifications in place
Dividend policy implemented
Two international independent non-executive board members
Compliance with Health and Safety policies is strictly monitored
Compliance with all Russian environmental requirements
2010 Revenue – 156 mln USD (E) 2010 EBITDA – 86 mln USD (E) 2010 EBITDA Margin – 55% (E) 2010 Total Cash Costs – 479 USD/oz (E)
Strong financial performance
77
GV Gold Assets Portfolio
Producing/ Expansion – Kuranakh alluvials
Development / Pre-production– Open pit mining and hard rock ore
processing at Kuranakh
Exploration– Chudnoye deposit– Further license acquisitions
Yakutia Region Producing / Expansion
– Golets Vysochaishy Development/Pre-production
– Ykanskoye– Ozherelie
Exploration– Khomolho ore fields– Ugakhan– Leprindo– Further license acquisitions
Irkutsk RegionKomi Region
MarakanLeprindo Khomolkho
Golets
KuranakhChudnoye
Production
Moscow rep office Bodaibo office
MOSCOW
Exploration and development
Bodaibo
88
Golets VysochaishyGroup’s Development Loco
Key Highlights
Located in Bodaibo area, Irkutsk region. Significant growth potential with limited
development risk. Total Resources 2.8 Moz Au, inclusive P&P
reserves of 2.3 Moz Au. Two processing mills operating,
launch of the third plant with annual capacity of 3.5 mpta in August 2011.
Total processing capacity will reach 4.8 mpta in 2012.
All principal Capital Expenditures have already been acrued.
Production highlights:– 116 koz Au (2010)– 150 koz Au (2011E)– 260 koz Au (2012E)
Current resource base secures production till 2020.
Production has a real chance to boost after 2020.
The company is planning to take part in developing Sukhoi Log (located 30 km South
of Golets Vysochaishy), using current facilities to process ores from the well-known
giant deposit
99
Marakan project Efficient Capital Expenditures
Ykanskoye is the next milestone in the Irkutsk project development.
Located to the West of Golets Vysochaishy. Current Resource base – 250 Koz Au,
average grade 3 g/t. In the end of 2010 a pilot processing plant
was launched with capacity of 200 ktpa. Plans to double processing capacities
up to 400 ktpa by 2015. Production plans:
– 15 koz Au (2012E)– 30 koz Au (2015E)
Ongoing intense exploration to increase current resource base.
Ykanskoye deposit Ozherelie deposit
Currently in advanced exploration stage with aggressive exploration plans for 2010 – 2013.
Mineral Resource and Exploration potential 1.2 Moz Au.
Plans to convert not less than 1 Moz Au into Reserves by 2013.
By 2015, production capacity of 100 koz Au p.a.
Plant at Ykanskoye
1010
KuranakhUnlocking the Value
Kuranakh is Russia’s largest placer gold deposit.
Located in the Southern part of Yakutia with well developed infrastructure.
GV gold acquired the 51% stake in Kuranakh in 2008
– Option to acquire the remaining 49% Total Resources of 5.3 Moz Au, inclusive
P&P reserves of 3.5 Moz Au.
New deep digging dredge launch in August 2011.
Expected to switch to open pit mining with a significant increase in production.
Production plans:– 20 koz Au (2011E)– 30 koz Au (2012E)
By 2015 production will reach 100 koz Au p.a.
Key highlights
Development program:
New dredges installation in 2011 and 2013
Installation of the new hardrock processing plant, with a designed annual capacity of
2.0 mtpa, launch by 2015
11
Komi project – Chudnoye depositSource of Additional Future Growth
Relatively new mining region, with high prospective opportunities for greenfield projects.
A convenient geographic location in the European part of Russia with a developed infrastructure.
Ore bodies are represented with a stockwork of gold-bearing fuchsite veinlets in the faulted zone– High grades (4-9 g/t) with non-uniform
distribution Available for open-pit development
– Gold is recoverable via gravity GV Gold plans to continue intense
exploration to grow the current resource base.
Key highlights
Geological map of the licence area and schematic longitudinal geological section
Mineral Resource and Exploration Potential (JORC) – 1 Moz Au
12
Asset
Ore Reserves
(000'oz)
Mineral Resources
(000'oz) Exploration Potential
(000'oz)
Total
(000'oz)Proven & Probable Measured
and Indicated
Inferred
Irkutsk Project
Golets Vysochaishy 2.3 2.9 2.9
Khomolkho Ore Field 1.2 1.2
Ugakhan 0.5 0.5
Ykanskoe Deposit 0.2 0.5 0.7
Ozherelie Deposit 0.1 1.3 1.4
Leprindo 0.04 0.4 0.44
Yakutia Project
Kuranakh 3.6 5.1 0.2 5.3
Komi Project
Chudnoe 0.4 0.6 1.0
Total Mineral Resource Base 13.44
GV Gold Mineral Resource Base
Exploration is the key building block of GV Gold’s operating strategy
1313
M&A Deals – Affordable Opportunities for Future Growth
All aspects of a potential project are carefully considered Ability to use Company’s know-how and previous experience is highly desirable Ability to start processing with potential for gradual production ramp-up
Priority given to high grade ores Environmentally friendly and economically effective processing technologies are preferred
Geography
Infrastructure Adequate transport links and access to power grid Availability of qualified labour force
Technical aspects and mineral reserve base
Open pit mining with low strip ratio (<10 t/t) Ore reserves of at least 0.5 Moz Au and substantial growth potential Suitability for highly efficient mining equipment
Ore processing
Economic requirements
Cash margins of at least 30% Mid-size initial capital expenditure Possibility to start production in 3-5 years
Time required to start/ complete the project
Preference given to the regions of GV Gold presence
- GV Gold has a stable gold mining business
- Development programs for current projects are clear
- Strong financial performance secures possibilities for large scale investments
- Ready for further expansion
The Projects we are looking for:
14
Bodaibo Office:17, Berezovaya St.
666902, Bodaibo,Irkutsk Region,
Russian Federation
Tel/fax: + 7 (39561) 5-71-20
+7 (495) 748-13-04
Moscow Office:8/8, B. Spasoglinishevskiy Per., Office#4101000, Moscow,Russian Federation
Tel: +7 (495) 623-39-63 +7 (495) 623-38-36Fax: +7 (495) 623-44-13
www.gvgold.ru
Thank you for your attention
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