London — Gold mining company GV Gold believes its organic growth possibilities will help it to catapult into Russia's top five gold producers in the next four-five years, Vladislav Barshinov, the company's CEO, told S&P Global Platts in an interview.
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Vysochaishy, (GV Gold) has consistently showed up to 8.5% annual production growth during the last five years, achieved through organic growth alone.
Although its owners see initial public offering as one of the paths to grow further, but they are not absolutely determined to list it at any cost and still prefer to concentrate on using up its organic growth capabilities first.
GV Gold completed 2020 with 272,200 oz output, an increase of 5% from 2019. It is targeting 290,000-300,000 oz this year and plans to ramp up production to over 400,000 oz/year by 2025 year-end.
Svetlovsky greenfield, still in exploration and design stage, is its key development project, with operations there due to start in 2025.
The deposit is situated in the Irkutsk region, near one of the company's flagship assets -- Ugakhan. GV Gold is fully aware of the region and possesses infrastructure, including transhipment hub, which it can extend to support operations at the new plant. The latter will be similar to that at Ugakhan.
This year, the company is about to confirm Svetlovsky reserves and to possibly determine its processing capacity, which is preliminary envisaged at anything between 1.5 million - 3 million mt/year.
The launch of Svetlovsky will reduce GV Gold's total cash costs; these totaled $723/oz in 2019.
Also, GV Gold continues to upgrade the Ugakhan processing plant to increase its capacity and has proceeded to the second stage of the expansion which will see the Ugakhan throughput going from 3.8 million mt/year to 4.4 million mt/year by 2022.
Further upside will come from Yakutia-based Taryn mine, whose output rose 21% (including gold in concentrate) last year and will continue growing.
A technology that will be installed at the company's oldest mine, Golets Vysochaishy in the Irkutsk region, will allow it to extract gold from tailings containing 1 gram, even 0.5 gram, per ton of exhausted ore and overburden. The company will thus recover residue gold from gold-bearing tailings it accumulated over 20 years of mining.
Upgrading these assets will enable GV Gold to achieve production of 380,000 oz even without launching Svetlovsky by the mid-twenties.
Window of opportunity
While the price of gold keeps inflating gold miners' revenues and earnings, GV Gold sees it important not to miss the window of opportunity and spend on things that have been on hold.
"High gold price determines our approach to modernization, geological exploration with a view of growing reserves and investing in the new fields – it is time to pursue these goals most actively," said Barshinov.
The company's management has shareholders' approval to invest in modernization of Ugakhan, where they want to introduce several new technologies and add more concentrators, something that would not have been on the table at a lower gold price.
GV Gold is also confident in having enough resources to carry out Svetlovsky, its most capital intensive project. "We started it when gold traded $1,200-$1,300/oz, so today we are in a comfort zone with it taking into account the price of gold," said Barshinov.
The CEO of GV Gold agrees with banks' forecast which sees gold to settle at or slightly above $2,000/oz this year. "We expect a certain downward trend afterwards, but it is still unlikely to dip below $1,700/oz."
Mergers & Acquisitions
The company has a goal within four-five years to find itself in top five public Russian gold producers, leaning mostly on its organic growth strategy, according to Barshinov.
Mergers & Acquisitions can speed things up. The company has a debt to EBITDA ratio of less than one, which would make any M&A possible as the company can easily take on more debt if needed, he said, but added GV Gold is not conducting substantive negotiations with any party at the moment. The company said its 2020 EBITDA is estimated to exceed $200 million, while their net debt stays below $200 million.
These kind of deals often stumble over high price expectations. "We work on the cost of resources to reserves conversion of $20-$30/oz, and when we are asked to pay $150/oz, we think we will be better off concentrating on our own growth for $30/oz maximum and pay high dividends," said Barshinov.
So far the company had only two landmark M&A deals – with Blackrock and the European Bank for Reconstruction and Development.