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Russia: coal and mining industry
By Gulnara Kenzhebulatova  | Published  04/15/2009 | Market analysis | Unrated
Russia is one of the world’s largest mineral producing countries.

In recent years, Russia has ranked among the leading world producers of such mineral commodities as coal, iron ore, nickel, aluminum, gold, diamonds and copper.

The recent revival of the Russian economy, high oil prices, rising energy use by neighboring countries such as China, the low cost of producing most minerals and an advantageous geographical position to export to both Europe and Asia, have facilitated the rapid growth of the Russian coal and mining industry. Together with the worn-out state of existing mines and technological backwardness of the majority of local equipment manufacturers, this has created new opportunities for U.S. companies.

Market data

Size of the mining industry in Russia

• Extractive industries taken together constitute 33% of Russia’s GDP and account for 60% of federal budget revenues.

• Russia accounts for about 14% of the world’s total mineral extraction.

• Russia ranks among the world’s leading producers of: iron ore, nickel, diamonds, coal, palladium, aluminum, uranium, gold and platinum.

Key commodities

• Coal: Russia holds the world’s second largest recoverable coal reserves and is the third largest exporter of black coal in the world.

• Iron Ore: Russia’s proved iron ore reserves are the biggest in the world; currently the country produces about 15% of the world’s iron ore.

• Nickel: Russia produces over 20% of world’s nickel, most of the raw material mined in Norilsk, Murmansk and Chelyabinsk regions.

• Aluminum: Russia is one of the biggest exporters of aluminum.

• Gold: Russia’s annual gold output is about 200 tons and growing.

• Diamonds: Russia’s proved diamond reserves are the biggest in the world, 80% are in the Republic of Sakha.

• Copper: Russia produces approximately 6-7% of world’s copper annually.

Best prospects

• Highly technological energy- efficient equipment for underground mining.

• Electrohydraulic gear systems for mobile equipment.

• Strata control products.

• Heavy equipment parts.

• Down-the-hole equipment.

• Service and repair centers.

Key suppliers

Most of the equipment that is used in the Russian Mining industry today is manufactured locally. The number of foreign suppliers (mostly German, Chinese, Japanese, U.S. and Polish) is insignificant but has a tendency for growth. This is mostly because the quality as well as the technological level of locally produced equipment leaves much to be desired. Among internationally recognized companies represented in the Russian market are Caterpillar, Atlas Copco, Kamatsu, Liebherr, Sandvik-TamrockDriltech and Bucyrus.

Prospective buyers

Major mining companies

United Company RUSAL is a result of the merger of RUSAL, SUAL, and the alumina assets of Glencore, finished in March 2007. The company operates in 17 countries on 5 continents and employs 100 000 people across its international operations and offices.

It is the world’s second largest aluminum company and accounts for almost 12.5% of entire global output of primary aluminum and 16% of the world’s alumina production.

Nornickel is the world’s leading producer of nickel and palladium, and one of the largest global producers of platinum and copper. In addition to this, the Group also produces a variety of byproducts, such as cobalt, rhodium, silver, gold, iridium, ruthenium, selenium, tellurium and sulfur.

Evraz Group S.A. is one of the largest vertically-integrated steel-making, mining and vanadium businesses in the world. Its steel facilities are located in Russia, Ukraine, Europe, the United States, Canada, and South Africa. In 2007, Evraz produced 16.4 million tons of crude steel, 12.6 million tons of pig iron and 15.2 million tons of rolled products.

OJSC Mechel is one of Russia’s leading mining and metallurgical companies, producing coal, iron ore, nickel steel, rolled steel products, and hardware. Headquartered in Moscow, the company operates facilities in Russia, Romania, and Lithuania. The company was incorporated on March 19, 2003. Its American Depositary Receipts are traded on the New York Stock Exchange.

ALROSA Company Limited is one of the world’s leading companies in the field of diamond exploration, mining and sales of rough diamonds, and diamond manufacture. ALROSA accounts for 97% of all Russia’s diamond production. Its share in the global rough diamond production is 25%.

Polyus is the largest gold producer in Russia. In 1990 Polyus was restructured as a closed joint stock company, then went public. It is part of the Interros holding. The company’s stock is traded on the RTS and MICEX exchanges in Russia and on New York’s OTC stock exchange, as well as on the London Stock Exchange as ADR5. The volume of gold produced in 2007 was 1.2 mln. ounce.

Urals Mining and Metallurgical Company produces 40% of domestic copper and takes up over 50% of the European copper powder market. It also holds 25% of domestic market of non-ferrous rolled metals. The company incorporates about 40 enterprises located in 11 regions and engages over 75 thousand employees.

Major coal mining companies

• Raspadskaya Ugolnaya Kompaniya, Yuzhnyi Kuzbass (Mezhdurechensk, Kemerovo Region) - parts of Evraz Holding;

• Sibuglemet (Novokuznetsk, Kemerovo Region);

• Yuzhkuzbassugol (Novokuznetsk, Kemerovo Region);

• Kuzbassrazrezugol (Kemerovo);

• Yakutugol (Neryungri, Republic of Sakha);

• Russky Ugol (Moscow);

• Siberian Coal Energy Company (Moscow);

• Vorkutaugol (Vorkuta).

Market entry strategies

• Establishing a local presence or selecting a local partner is a minimum requirement for effective marketing and sales distribution in Russia. Due diligence is a must.

• Establishing a joint venture with a local company is highly advisable.

• Consider offering financing options to Russian buyers (Eximbank and OPIC programs, leasing, etc.).

• Procurement of standard items is mainly through established local suppliers.

• Suppliers are located either in Moscow or in proximity to mining areas.

• Larger purchases are procured through a tender process.

Market access issues & obstacles

• No quotas on the import of coal mining equipment.

• Customs tax on imported equipment ranges from 5% to 35%, tax on most mining equipment tends to be on the lower end of the scale.

• Russian standards exist for all kinds of equipment.

• Stringent OH&S requirements for the mining industry, particularly for underground coal mining equipment.

Trade events

• Russian Coal and Mining, June 2-5, 2009, Novokuznetsk, Kemerovo region, Russia.

• Russian and C.I.S. - Mining Congress 2009, November 10-12, Moscow.

 



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