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Interview with Mangazeya Mining CEO Sergey Yanchukov
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September 6, 2019 - 2:39 pm

“Gold mining requires long-term investment decisions”


Владелец группы компаний «Мангазея» Сергей Янчуков

In 2011 and 2012, the price of gold was at its peak. At the same time, the peak of investments was reached by gold mining companies in new projects and exploration. The subsequent drop in yellow metal prices led to a certain reduction in the budgets allocated by companies for development. After a certain time after the price was set at $ 1.2–1.3 thousand per ounce, the companies began to actively invest in development again - since 2017, the industry has renewed the growth of capital costs and investments in exploration. According to S&P Global Market Intelligence, capital investments of the 30 largest public gold miners grew from $ 11.5 billion in 2016 to $ 14.8 billion in 2018, and investments in geological exploration of the entire mining sector over the same period - from approximately $ 7.5 billion up to $ 10.1 billion

- How do the current prices for the precious metal and the situation in the industry contribute to the growth of investments?

- The last few years, the price of gold is quite comfortable for gold miners. It allows you to increase capital investments and increase the volume of investments in exploration. In general, gold mining is a technologically very complex production, which requires large-scale investments and the adoption of long-term investment decisions of a strategic nature. One of the most important features of projects in the gold mining sphere is the rather long terms for their implementation. Five to eight years or even more may elapse from obtaining a license to commissioning a mining and processing enterprise. The investor assumes serious risks associated, in particular, with uncertainty regarding the size of gold reserves, features of the ore dressing technology and the complexity of their composition, which can be distinguished even in one field at different production sites. This has a significant impact on the economic efficiency of the project. The key factors to minimize investment risks in our industry are the correct assessment of the resource base of deposits, thorough and comprehensive technological tests, and geological and technical mapping of deposits.

It should also be noted that recently gold miners are increasingly having to deal with refractory ores, the processing of which requires the use of special sophisticated technologies.

- When and why did you decide to engage in gold mining?

- I was interested in the gold mining industry for a long time, and I started investing in this area since 2011. At first it was a portfolio investment. Over time, I realized that the real sector is much closer to me than the investment business in its purest form, and that I want to focus primarily on systemic organization and operational management of production processes. This determined the further direction of my activity, and in 2013 I became the owner of the gold mining company Mangazeya Gold (Mangazeya Mining).

- At which deposits does your company currently produce gold? What are the results achieved in recent years?

- Gold mining enterprises of the Mangazeya group of companies are concentrated in the Trans-Baikal Territory. Currently, we have two mines operating at the Savkinskoye and Kochkovskoye deposits, and next year we plan to launch a third enterprise at the Nasedkino deposit.

Savkino is an object where gold mining was conducted even before we bought a gold mining company. Thanks to the professionalism of the team and additional investments, we were able to quickly achieve a significant improvement in performance. Already in 2015, we doubled production - 1,045 kg of metal compared to 552 kg in previous years.

In 2018, the first metal was obtained at the Kochkovo deposit, which was discovered by our company's geologists from scratch. This deposit contains two types of ores: oxidized and primary. We set up a heap leaching production cycle at the enterprise, with which metal is extracted from oxidized ore. At the same time, we are actively continuing exploration and technological testing of primary ore. In 2019, we will continue to increase refining capacities at the field and plan to mine at least one ton of gold here.

Active construction of a mining and processing enterprise and other facilities is ongoing at the Nasedkino field. To improve work efficiency, we have created our own project management service and our internal technical customer.

According to available estimates, the total reserves of the Nasedkino and Kochkovskoye deposits exceed 65 tons of gold.

- How much have you invested in gold mining assets today, how much remains to be invested in their development?

- At the shareholder level over all years, we have invested more than $ 150 million - the money went to buy the company's shares, repay its loans and finance current activities. Moreover, the assets themselves generated cash flow, which we also directed to development. Our company makes rather large-scale investments in exploration - more than 1 billion rubles. Since 2015, it has already been invested in exploration at the Savkino, Kochkovskoye and Nasedkino fields. These investments enable us to build capacity for long-term sustainable development.

If we consider the projects separately, then more than 3.5 billion rubles were invested in the creation of a mining and processing enterprise at the Nasedkino deposit before attracting bank financing. In July 2018, we signed a loan agreement with VTB for $ 118.5 million, which are allocated for the necessary capital expenditures upon completion of the project.

Total capital investments in the Kochkovskoye deposit amount to about 2 billion rubles. In particular, we invested about 900 million rubles. in 2018 to launch heap leaching on oxidized ores. It’s still a bit premature to talk about the scale and cost of the future mining and processing enterprise at the Kochkovo field, but, based on the raw material base, we understand that this facility will be larger than Nasedkino.

- What effect do you expect from exploration?

- According to preliminary estimates, over the next several years, the reserves of our deposits in Transbaikalia will exceed 100 tons.

- What indicators do you plan to achieve in terms of gold production in the coming years?

- The production volume in 2019 is planned at a level of more than 1.5 tons with a subsequent increase to 4 tons after reaching the design capacity of the Nasedkino field.

- In addition to these assets, you have a stake in the Ksenievsky mine and the Sochiinskoye field. How is the situation around these investments developing now?

- In 2013, when we first met Lituev (owners of the Ksenievsky mine. - “Money”), no one on the market was ready to invest in Ksenievsky mine, which at that time was in a pre-bankrupt state and mired in courts with banks and other creditors. I bought part of the debts of Ksenyevsky mine, I managed to agree on the restructuring of the other part. My team was actively engaged in operational work, and I allocated several million dollars of loans from my enterprises to replenish working capital. In the end, I went into the capital of Ksenievsky mine, becoming the full owner of a 50 percent stake. When Ksenievsky mine regained its rights to the Ithachinskoye deposit, the Sochiinskaya gold mining company was established, and I began to finance the work of this asset. Now Mr. Lituev is trying through the court to completely deprive me of his share in both the Ksenievsky mine and in the Sochi gold mining company, and also requires a penalty in the amount of 495.5 million rubles. This is probably another risk of investment in the industry in addition to geology and technology - dishonest partners. Although such risks can materialize in any sector of the economy.

As for the Sochiinskoye field itself, in our opinion, it is promising, although it has a difficult geology. The development of such a field will require serious investments. Nevertheless, we remain interested in it and intend to assert our rights to the asset.

- Do you plan to enter foreign markets?

- We always look at different options for business development, but at present we are fully focused on our projects in Russia.

- In the Trans-Baikal Territory, as you know, the employment problem is quite acute, therefore, the development of enterprises is an important social task. How many jobs have your company created in this region?

- Thanks to technical re-equipment, investments in geological exploration, and the launch of deposits, we created about 1 thousand new jobs. In addition to this, the launch of a mining and processing enterprise in Nasedkino will create approximately 500 new jobs in the region.

- Where do you attract qualified specialists? What methods of motivation do you use?

- Despite the fact that most of our employees in the Trans-Baikal Territory are local residents, we also attract specialists from all over Russia who are interested in solving ambitious tasks and participating in large projects. We try to create all the conditions for them for professional development and self-realization, we provide training opportunities, advanced training and career advancement. We offer a very decent level of salary and social package. This is especially important, because for a number of professions in the industry there is a certain shortage of specialists and there is competition between the companies for qualified personnel. Mine workers spend a lot of time on shift, and the company provides them with comfortable living conditions. To do this, we build new shift camps, canteens, provide workers with food,

In addition, sports play an important role in shaping the corporate culture and strengthening the corporate spirit. In Transbaikalia, we created the Mangazeya hockey team, which participates in the championship of the region among amateurs. This year, according to the results of the championship, we won bronze awards. At the Nasedkino mine, the workers themselves, on their own initiative, built a hockey court, poured ice and in the winter conduct regular training there. When I visit the Trans-Baikal Territory, I try to find the time to take part in training and matches with our employees.

In Moscow, we recently organized a futsal team consisting of the children of our workers. Children are happy to train, participate in competitions, and parents and their colleagues are actively ill in the stands.

- You have a diversified portfolio of assets. In addition to the gold mining industry, you are also actively working in the field of construction and development. How do these businesses fit together?

- Gold and development are very well balanced and complement each other. The construction business brings ruble profits, and gold - a currency asset. In addition, development is closely related to the growth of the economy and consumer demand, while the cost of a precious metal usually rises significantly in times of crisis. Gold is an absolutely liquid commodity, the price of which is dictated by the market. Therefore, in the gold mining sector, the main efforts should be focused on the efficient organization of processes and production management. At the same time, in the construction business, we work both with real estate and with consumers. Accordingly, we are faced with the task of creating such a product that will sell well.

Despite the good diversification of the business, we are constantly considering new potentially interesting areas and projects. In particular, now we are carefully studying the possibilities of working in the agricultural sector in the Trans-Baikal Territory. I believe that for Transbaikalia agricultural development may become one of the most important drivers of socio-economic development.

Russian Source: https://www.kommersant.ru/doc/3982392

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