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Interview with Mangazeya Mining CEO Mikhail Gusev
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295 Posts
January 16, 2021 - 10:26 pm
January 14, 2021, 15:00
The past year 2020 was remembered for changes in the gold market - with the establishment of new historical highs in prices, a decrease in demand for it from the Central Bank. Gold mining companies have shown active investment in capacity development and the development of new deposits. A GOK (mining and processing plant) in Nasedkino (Trans-Baikal Territory) was launched at the Mangazeya Group of Companies and a license was obtained for the development of the Mayachnoye site (ibid.). Mikhail Gusev, General Director of the Mangazeya Zoloto gold mining company, spoke about the company's key investment projects, the state of the industry and the difficulties with gold mining in Russia.

Industry and company condition

- How does the gold mining industry in Russia feel now?

- In a nutshell, the industry is in great shape. Growth began about 20 years ago and has not stopped since then: if in 1999 the gold production figure was 123.5 tons, then by 2018 the volume of gold mined increased to 329.9 tons. According to the Union of Gold Producers of Russia, in 2019 the total volume of gold mining and production amounted to 367.9 tons. According to Ernst & Young, at the end of 2019, Russia became the second largest gold producer in the world.

Today, the main contribution to the development of the industry is made by private investors. The influence of the top ten largest companies is most noticeable here. In 2019, they provided about 67% of production and determined the key directions for the development of the industry.

As for the Mangazeya Group of Companies, in 2019 the company increased gold production by 60% compared to 2018. We sense the potential for growth and plan to further increase production volumes. At the end of the three quarters of 2020, we ensured production growth by 28% and increased the company's revenue by 76% due to higher gold prices and increased production volumes.

- The gold market behaves very unpredictably. If with the onset of the pandemic gold was considered the most reliable investment and constantly grew in price, now the situation has changed dramatically. What could be the reason and when to wait for the situation to be corrected? What factors are currently determining the demand for gold?

- It is too early to sum up the results of the year for the industry amid the uncertainty that is currently on the market. Gold mining companies felt the impact of the spring lockdown: although production did not stop, they had to make adjustments to supply schemes, change watch schedules, and invest in a set of measures recommended by the government to protect against COVID-19. Projects at the construction stage had difficulties with the supply of equipment from abroad, installation supervision and commissioning works, since the access of foreign specialists from the manufacturing plants was severely limited. At the same time, according to my estimates, even if there is a decrease in gold production in 2021, it will be offset by a high metal price.

As for gold as an asset, 2020 was a year of very high volatility in financial markets: both the pandemic and the long wait for the results of the US elections affected. In 2020, the price of gold broke a historic record and is now hovering around $ 1880. New adjustments are possible, but in the long term, gold will not lose its reputation as one of the most reliable assets.

- Your company is sharply increasing gold production and in 2021 plans to join the 15 largest gold miners in Russia. How did you succeed and how are you going to further increase the indicators?

- The Mangazeya Group of Companies has several fields at different stages of development. The main event of the year was the completion of construction and the start of commissioning at Nasedkino: the reserves of the field will allow us to operate without interruption for the next 10 years. In addition, we are currently implementing a program for additional exploration of reserves: we are assessing the potential of Nasedkino - up to 30 tons of gold. In the future, we plan to process 1 million tons of ore annually and extract up to 3 tons of gold. As part of commissioning this year, we expect the first 500-600 kg of gold at Nasedkino. It is important for us to establish a full-fledged work of the factory at this stage.

In 2021, within the entire group, we plan to reach the level of production of 2.5 tons of gold. With the indicated production volumes, the Mangazeya Group expects to enter the top 15 largest gold mining companies in Russia. Further growth in production will be associated with the implementation of investment projects.

New investment projects and their prospects

- What are the most important investment projects currently being implemented by your company? How is their progress going and when will they give the first profit?

- Investment plans of the gold mining business of the Mangazeya Group of Companies are associated with two key projects. The company is studying the prospects for the development of the Kochkovskoye field, where exploration work has been completed. The deposit's reserves are over 50 tons of gold. The GOK (ore mining and processing plant) at the Kochkovskoye deposit may be launched in 2025, which will increase the company's gold production by 2.5-3 tons per year.

In 40-50 km from Nasedkino there is the Takinskoye field, where we are conducting active geological exploration. Its reserves are estimated at 50-60 tons of gold. If the expectations for reserves and technology are confirmed in 2021, we plan to start designing the enterprise in 2022. In addition, in September, Mangazeya received a license for geological exploration, prospecting and evaluation of minerals at the Mayachnoye deposit for a period of 5 years, until 2025. Inferred resources for the deposit are up to 10 tons of gold. Mayachnoye is a small object, but, in fact, is a satellite of Savkino and should extend the life cycle of this enterprise by 5–7 years.

- The gold mining plant of the Nasedkino deposit was planned to be launched in 2019, but due to delays in the issuance of documents, this was not possible. When will the deposit give the first gold?

- Throughout the first half of the year, we have been preparing Nasedkino for launch, since April, cold starts have begun. Processes are being debugged along the entire technological chain, which consists of three-stage crushing, grinding, gravity, intensive cyanidation, sorption and desorption. Thanks to careful debugging of technological processes along the entire chain, we brought the gold processing plant (gold recovery plant) to the design gold recovery of about 90%. At the moment, the plant continues commissioning work with an emphasis on debugging automation systems and technological modes.

- Development of the Nasedkino deposit will take about 10 years, and the total investment in the project amounted to 13.6 billion rubles. Is it exclusively the funds of the Mangazeya company or are there government subsidies as well? What are the main sources of financing for your investment projects?

- Investments in the development of Nasedkino were directed, among other things, from the own funds of the gold mining business of the Mangazeya Group of Companies, because we have been successfully working at other Trans-Baikal deposits for many years. In addition, borrowed funds from Otkritie Bank were attracted: $ 200 million was received to refinance the loan portfolio and build a mining and processing complex at the Nasedkino field.

The state has allocated us an infrastructure subsidy for the construction of power grids to the Nasedkino field - 763 million rubles. Reconstruction is completed, power grids are put into operation.

Also, for the launch of the enterprise, a highway with an 80-ton bridge was built at its own expense, connecting the federal highway with the villages of Verkhnyaya Davenda, Kisly Klyuch and Chaldonka; power line; main step-down substation with voltage of 110/6 kW.

Pandemic and depletion of gold reserves in Russia

- The company operates in the Trans-Baikal Territory, where the longest border with China is located. Does this affect work in a pandemic? How does the company cope with the difficulties that have arisen for this reason?

- For a long time, the situation with the coronavirus in Transbaikalia was more than stable compared to the capital and large cities. Significant growth began only in the fall. As for the mining business, there have been and remain some difficulties with the supply of spare parts, installation supervision and commissioning of foreign equipment. But now the work is absolutely regular in compliance with all safety requirements both at the factory and in the shift camp.

- In recent years, there has been a depletion of easily-enriched gold reserves. Many companies are now even taking on the development of "unprofitable" deposits - where the gold content is less than a gram per ton. How do you assess the future prospects of the market development?

- Yes this is true. On average, the gold content in the mined deposits decreases, and the complexity of the technology increases. I think that in the next 20 years, deposits will be developed in difficult logistic conditions, with poor ores or using complex technologies.

- Another problem which stands in front of gold miners - Thrust ore, from which it is impossible to extract gold by traditional methods. In Russia, they already contain 20-40% of gold reserves. How to solve this problem?

- There are more and more refractory ores on the market, which is confirmed by the growing interest in autoclave production. The same "solution" to the problem. “Simple assets” are becoming less and less, competition for them is very high, respectively, the price is too.

Demand for refractory ore deposits is significantly lower, although reserves may be substantial. This is due to the fact that the design and construction of an autoclave requires specific experience and significant investment. If 30-40 years ago there was not a single autoclave in the world, today there are already 15 of them, in Russia two have appeared in the last seven years. The complexity of working with refractory ores also lies in the fact that the technology is not simple and requires detailed study, technological tests, and laboratory tests have to be ordered abroad: Russia does not have the required level of expertise in autoclave ore leaching.

The economy of the autoclave begins to work with large volumes of concentrate processing, therefore, it is necessary to have a significant resource base for making a decision on the construction of an autoclave. Few people agree to this, although the business opportunities are wide: for example, to provide ore processing services to other companies.

- Compared to large world companies, Russian miners receive gold at a lower cost. This makes the market attractive to domestic and foreign investors. Will Russian companies be able to take advantage of such a favorable moment, increase cash flows and carry out some kind of market transformation?

- Firstly, in Russia the cost of gold mining is not the lowest: in Latin America and Africa there are enterprises where it is lower. Nevertheless, against the background of metal prices, a wide range of government programs - including the TOP (Territory of Advanced Development), RIP (regional investment projects), all kinds of subsidies - is also an unconditional incentive for market development. Costs are affected by lower energy prices (although many factories run on diesel) and average wages (payroll accounts for 30–40% of all costs). Of course, this is a driver for market growth.

- Can a private investor, who has no experience in the industry, but only has money, enter the gold mining industry today? Do you recommend this to investors?

- It's difficult, but if you start such a business, you need to enter with a really good team - there is a serious problem with personnel in the industry. We brought specialists from all regions to Nasedkino. The quality of assets is also important: it is a combination of the quantity of reserves, the convenience of their development, technology, geography and logistics. There are many fields in the country that will not be developed for a long time, for example, due to the small amount of reserves and low grades. Or due to inaccessibility.

There are deposits on the market that have been on sale for a long time, licenses are renewed, revoked. There are a number of examples when deposits with reserves of 10 tons of gold are not developed, since small companies cannot afford to pay for costs, and large companies do not take because of the modest size of the deposit.

I will not undertake to advise, but the success is significantly influenced by the experience of the team, a serious attitude to design and construction and responsibility for their work.

Interviewed by Kristina Firsova



419 Posts
January 18, 2021 - 11:08 pm

Guidance for 2021: 80,000 oz

Revenue at current gold prices: C$187 million

Current Market Cap: C$90 million

5 Posts
January 19, 2021 - 2:06 am

......and at the moment around 4.5Mio. oz in the reserve!

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