Eurasian mining and investment forecast

On 1st December 2014 in London MINEX Forum made a good attempt at glimpsing at the future prospects of Eurasia’s (Russia and Central Asia) mining in 2015 and beyond. With the economic slow-down in China and waning interests from investors, hopes for the mining industry’s recovery predicted at the start of the year have fizzled out. Many current reports state that the mining industry is undergoing fundamental changes and needs to reinvent itself in order to keep up with the pressing challenges and new realities. Many miners see the way out by embracing innovation which could help them transform their operational productivity while reducing costs.  At the events organised earlier this year in Kazakhstan, Russia and China, MINEX Forum has stirred up multinational discussions on ongoing transformations which will be affecting the future of mining and exploration in Russia and Central Asia in the years to come. The 12-months sanctions imposed on Russia’s leading financial institutions and corporations do not create grounds for optimism in the Russian mining industry. MINEX Eurasia 2014 provided a forum for discussing the key issues in mining in Russia and Central Asia. The impact of sanctions on foreign investment, currency devaluation and the rapidly changing political and economic landscape were discussed in detail and inspired much debate. The panelists came from a wide variety of sectors and offered a plurality of perspectives shaped by different areas of expertise (Fig. 1).

During a panel discussion on funding mining operations in the region, Jeremy Wrathall (Fig. 2), the Head of Global Natural Resources in Investec, suggested that alternative sources of finance are becoming increasingly important for mining companies as institutional investors are less active in the sector. Alex Metherell, Head of Metals & Mining at VTB Capital, noted that there is interest and opportunities for debt finance but private equity is a preferred option for many companies and that equity financing is becoming more popular in the region. Listing was discussed and it was suggested that it is the ultimate aim for many companies as it creates funding opportunities in the long run. The Head of EMEA Listings of the Singapore Exchange, Paulina McGroarty (Fig. 3), said that there is still demand for stock in mining companies and she gave examples of recent listings of Indonesian mining companies on the Singapore stock exchange. However, commodities prices are generally underperforming and not a single mining company has listed on the London Stock Exchange in the past few years. Kazakhstan was mentioned by many of the panelist as the safest country in the region to invest in gold, iron, coal and uranium among others.

The impact of sanctions on the industry was one of the hot topics for discussion. From a legal point of view, Stephen Gentle from Simmons & Simmons commented that each jurisdiction in the region has different rules on sanction enforcement. Investors should, therefore, be aware of all the regions in which the companies operate. In addition, when entering into a new contract the parties should include sanctions clauses or review the existing clauses. It was noted that fund managers are unwilling to invest in Russian entities at the moment but that their attitude to Kazakhstan and some other republics is different. Raising investment for entities in the region was challenging even before the sanctions were introduced but currently many companies are struggling to finance operations.

The panel discussion on changing strategies and operation practices to make mining operation more efficient proposed solutions such as increasing automation, use of innovative technology and changes in legislation. The need to understand the cost base and the changing levels of productivity was emphasized. The implementation of technologies such as the use of WiFi underground to allow miners to send real time data for analysis was recommended. Aliya Aralbayeva, Head representative of Grata Law Firm in the UK briefed delegates on the Kazakhstan’s New Economic Policy Nurly Zhol (Path to the future) to increase resistance of economy to external shocks and drop of prices of natural resources. She also presented on anticipated changes in Subsoil Law which is expected to be passed by the Kazakhstan’s parliament in 2015. The new law proposes to improve investment climate and simplify the process of obtaining exploration right procedures using the “first come – first served” principle.

The conference concluded with a discussion on the key issues that will determine mining and exploration projects in the region in 2015 and beyond. There has been a decline in the investment in exploration projects globally for the past few years and Russia and Central Asia are experiencing the same trend. Kazakhstan is performing better than the rest of the region with only 6 % drop in investment compared to the average of 25 % worldwide. Vasily Alekseenko from SNL Metals and Mining suggested that the trend of underinvestment will be present in Russia for at least another few years. The impact of the devaluation of the rouble was discussed and it was suggested that the current exchange rate makes investment in Russian mining more attractive. Jocelyn Waller, Chairman of RusAnt, raised another argument in support of investing in Russian mining companies. He suggested that Russia is a more mature jurisdiction than the other countries in the region. The discussion concluded with a balanced advice to investors to carefully evaluate the impact of factors such as the current sanctions against Russia as they may have no direct effect on mining even if they affect other industries. It was suggested that it is a good time to invest in mining in Russia as the assets are hugely discounted and the political risk does not affect the industry as much as other sectors.  The 4th MINEX Eurasia conference will be held in London on 30 November 2015.

Authors: MINEX Forum Sekretariat und Simmons & Simmons International Law Firm

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