Russian mines face bleak future as profits shrivel

Depleting reserves and a lack of development capital are creating a crisis in the Russian mineral sector, according to representatives of the Russian Ministry of Economics.

At a conference in Moscow, the ministry reported that Russia cannot meet its demand for many minerals as a result of low quality and slow development rates. The minerals most affected include chrome, manganese, titanium, niobium, lead and zinc.

Of the country’s 49 iron ore mines, only 14 have reserves sufficient to last 10 years. Of the 81 existing non-ferrous operations, only 34 have reserves sufficient for that duration.

Production of nickel, refined copper and zinc topped 100 million in 1990 but, by 1996, had fallen to 58.7 million, 71.1 million and 94.8 million tonnes, respectively.

The ministry says the decline in production is an indication that mining in Russia is not profitable, adding that the sector’s poor performance since 1990 is due to low grades, outdated operations and technology, discouraging taxation policies and low demand.

Mining in Russia is a costly venture, with recoupment periods ranging from five to 15 years. The average profit margin in 1996 was 6%, and since 1990, annual capital investment has fallen by roughly 75%.

Mining companies, which are already strapped for cash, can often afford only a portion of the capital investment required to develop new operations or shore up existing ones. As a result, annual production of copper, zinc concentrate and lead concentrate is expected to fall by 13%, 23% and 39%, respectively, in the current year.

The ministry warns that Russia’s mineral production will fall further if current financing levels to not improve. Should current levels persist, production of commodity-grade iron ore will drop to 57.3 million tonnes in 2005 from 107 million tonnes in 1990. Production of lead, copper and molybdenum are expected to fall by 71%, 58% and 48%, respectively.

— With files from Interfax News Agency