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Russian mining majors draft proposal to drive more exploration


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Russian mining majors draft proposal to drive more exploration

Russia's leading mining companies drafted a letter to the government outlining a proposal to allow the largest companies in the sector to conduct regional geological surveys. At the moment, state-run holding company Rosgeologia is the only organization authorized to do this in Russia.

Maxim Khudalov, director of corporate ratings group ACRA, told S&P Global Market Intelligence that Russia's major mining companies are not satisfied with the amount of exploration being done by Rosgeologia. Under the draft proposal, major subsoil users will be allowed to conduct regional geological surveys at their own expense based on a permit to be issued by Rosnedra, the federal agency for subsoil use.

Reports of the letter initially appeared in Russian newspaper Kommersant, which obtained a copy of the document. According to the report, PJSC Alrosa, PJSC Norilsk Nickel Co., Polymetal International Plc and Kinross Gold Corp. were signatories to the letter, which expressed concern over the decrease in funding for geological prospecting and the ensuing drop in exploration.

Kinross and Polymetal confirmed to S&P Global Market Intelligence that the letter had been submitted. Alrosa and Norilsk Nickel did not comment.

Kinross' director of corporate communications, Louie Diaz, told Market Intelligence that Rosnedra supports the proposal.

"This would precede the already established licensing procedure, including claim-staking, that [is] to be applied following the regional geological surveying stage," he said.

He said there have been recent improvements in Russian subsoil legislation and this initial proposal would be followed by further consultations with Rosnedra.

"We are quite encouraged by the recent improvements in the Russian subsoil regulation. For instance, in 2014, the Ministry of Natural Resources introduced the so-called claim-staking procedure for geological exploration that was earlier proposed by Kinross, he said, adding that this new proposal will further encourage exploration and investment in the Russian mining industry.

Alexey Tsoy, the principal consultant at CSA Global, said this latest proposal was not the first of its kind and Kinross had produced a report in 2011 with a similar purpose. For Tsoy, the latest move is more a "sign of desperation than anything else" as "reserves are being depleted and there's no equivalent replacement."

He also highlighted the fact that the complexity of the permitting process does not stimulate junior activity on the Russian market.

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Budgets for exploration in the Russian Federation have been fluctuating over the last 10 years, and metals and mining companies tend to rely heavily on deposits that were discovered in the former Soviet Union. According to Market Intelligence data, budgetary spending slumped to US$325.2 million in 2016 from US$421.2 million in 2015. However, data shows that in 2017, there was a slight rise in activity with investment in exploration growing to US$335.9 million.