Natural resources, mining and processing The Chelyabinsk region and mining have been synonymous since the 1500’s. Today, 95 % of Russia's total volume of graphite, 95 % of magnesite, 71 % of metallurgic dolomite and 70 % of talc are mined and processed here. The combined reserves of the region’s iron ore and copper are almost 2bn tons. Chelyabinsk's ferrous metallurgy companies produce 30.8 % of Russia’s steel, 27 % of its rolled metal products and 15% of its steel pipes. Global players like MMK have invested billions to make their factories efficient and steel exported from Chelyabinsk mills plays a key role in the rapidly expanding economies of BRIC countries. Despite global demand and record high prices, the industry has to keep focused. There is intense trans-national M&A activity; competition is fierce, Chinese exports could pose a serious challenge and the sector is prone to sharp cyclical swings. Producers looking for major growth can find it in Russia’s domestic building and automotive sectors. These metal-intensive industries are growing very rapidly and offer solid mid-term potential. Another big prize is Sochi 2014, which presents a unique opportunity to keep the sector strong. Marchmont Capital Partners Natural resources, mining and processing THE SVERDLOVSK REGION THE KURGAN REGION CHELYABINSK Exogenous Iron ore Nickel ore Aluminum ore Gold ore Dolomite Limestone Kaolin and refractory clay KAZAKHSTAN Sand MAGNITOGORSK Cement raw materials Lignite Bituminous coal Endogenous Iron ore Iron-titanium ore Copper ore Gold ore Graphite ore THE ORENBURG REGION Magnesite ore Mica Talc Marble 34 Mineral raw materials Mining and processing the mineral wealth of the nation The mineral resources of the region are concentrated in more than 300 deposits. Chelyabinsk mines and processes more than 95 % of magnesite, more than 90 % of Russia’s total volume of kaolin and graphite, 71 % of metallurgic dolomite, 70 % of talc, 37 % of facing brick. 25 % of zinc, 15 % of its copper and iron. Gold reserves are 453 tons. Ore minerals Graphite Iron ore reserves are concentrated in Graphite is extracted from the Tayginsk de- 24 mines, their total volume amounts to posit. It is used in metallurgic industry, to around 840 million tons. Out of that 80 % produce refractory goods and in machine is siderite ore. There are also deposits of building. Today the Russian market of other types of ferrous industry raw mate- graphite is represented by two large play- rials, such as deposits of titanium, manga- ers. They are Krasnoyarsk Graphite Facto- nese and chromium that are not currently ry, which mines amorphous graphite, and being mined. Uralgraphite, which is the Russian monop- The Chelyabinsk region is also rich in olist for crystalline graphite. It produces 16 ore mining raw materials (graphite, talc, types of graphite including crucible, carbon kaolin), mining chemical raw materials and electrolytic graphite. The company pro- (barite, phosphate) and raw materials duces 12,000 tons a year. The main compet- used in metallurgic industry (magnesite, itors of Russian producers are Chinese and quartzite, metallurgic dolomite, fluxing Ukrainian companies. Chinese and Ukraini- limestone). an mines contain more graphite than Ural There are a number of small chromium mines. Extracting one ton of graphite in the ore deposits. The region also has nine cop- Ukraine costs about half as much as it does per-zinc mines. Four of them are operat- in the Chelyabinsk region, but import du- ing, three are being prepared to enter ser- ties and transportation costs negate some vice and two are owned by the state reserve. of the difference. Ores that are extracted from these mines contain gold, silver, barium, cadmium, sele- Magnesite nium, tellurium and other rare materials. In High quality magnesite is extracted from the course of geological explorations con- the Satka group (Elnichnoe, Satkinskoe and ducted at the end of last century, two por- Berezovskoe deposits). The total amount phyry copper mines and one copper-mag- of Satka group magnesite reserves is 206 netite mine with a total amount of around million tons. 2–3 million tons of magnes- region is home to the Shabrovskoe depos- 800 million tons of ore were identified. ite is extracted annually (2.3 million tons it but the quality of raw materials extract- is extracted by the open pit method, and ed from this deposit is lower than that of Gold 850,000 tons is mined). Magnesite from the raw materials extracted from the Sy- The Chelyabinsk region is also rich in gold. the Satka group deposit contains up to 45 % rostanskoye deposit. The Onotskoe depos- Most of it is concentrated in four hard-rock of magnesium oxide. Magnesite is extract- it located in the Irkutsk region is the only mines and 41 placer mines. The estimated ed and processed by the Magnesit factory, deposit that has pure talc. In 2000 the Mi- amount of hard-rock gold reserves stands at which the only factory in the world that ass Talc Factory was reorganized into a 453 tons. Placer gold reserves are estimated produces refractory goods using magnes- holding company. The actual production at 10.6 tons and geologists feel that there ite raw materials. Around 30 % of the fac- division of this company is represented by is a good chance of discovering new gold tory’s products are exported to CIS coun- Uraltalc. Talc-magnesite extracted in the mines. Some of the hard-rock gold mines tries, the remaining 85 % is purchased by Chelyabinsk region is not exported from are ready to be commercially mined, but cement factories. the Russian Federation. investment is lacking. 19 mineral develop- ers have already obtained licenses and lo- Talc Kaolin cal authorities have increased the quota for Talc-magnesite is extracted from the Sy- Kaolin is fine white clay used as a raw ma- gold extraction to 4.998 tons. rostanskoye deposit. The amount of talc- terial in manufacturing porcelain. Five de- The quota for precious metals extraction magnesite extracted depends on the sea- posits with a total amount of 36 million allows mineral developers to conclude con- son. In warm seasons around 10,000 tons tons of kaolin have been identified in the tracts with affinage companies for produc- a month is extracted, while in cold seasons region. 150,000–200,000 tons of kaolin is tion of chemically pure gold and with banks only 3,000 tons a month. Non-metal ores extracted every year from the Kyshtymskoe, for the sale of precious metals. The region’s are ground and enriched at the Miasska- Zhuravliniy Log and Elinskoe deposits. The gold extracting companies deliver precious ya and Syrostanskaya factories. Both have Zhuravliniy Log deposit contains 7.2 mil- metals for further processing to Kasimov, two mills, but only Syrostanskaya has a mill lion tons of raw kaolin. All of Russia’s elu- Novosibirsk and Ekaterinburg affinage fac- to grind soapstone. The powder produced vial kaolin reserves used in porcelain pro- tories and to the Kyshtym Copper Electro- at these factories is used in manufacturing duction are concentrated in the Ural and in lytic Factory. roof coatings. The neighboring Sverdlovsk the Orenburg regions. Marchmont Investment Guide / January, 2008 35 Natural resources, mining and processing Analysis: Anna Balashova, MARCHMONT Capital Partners Metallurgy is the heart of the region’s powerful economy The Chelyabinsk region produces 25 % of Russia’s total output of rolled metal products and steel. The region’s metal products are in high demand in foreign markets, especially in China. To stay competitive and produce higher quality goods, the leading companies are investing billions. All of this contributes to the sector’s continued powerful growth. Metallurgic companies are fundamental to ly due to two factors – large iron ore re- ter service and two are owned by the state. Chelyabinsk’s region economy. The region serves and close location to coking coal Two porphyry copper mines and one cop- ranks first among Russia’s regions in the deposits in the Kuznetsk Basin and Kara- per-magnetite mine, with a total amount of field of ferrous metallurgy. Two of the five ganda. A large number of other metal de- around 800 million tons of ore, have been Russian leading metallurgic plants are lo- posits have been identified in the region identified recently. cated here. They are the Magnitogorsk Iron (iron, copper, zinc, nickel, gold). There are Aluminum ore is extracted from baux- and Steel Works and Mechel Mining and more than 150 companies developing de- ite deposits near the Suleya station. South Metallurgical company. The region’s met- posits and processing raw materials in the Ural bauxite mines are also located here. allurgic companies account for 26.8 % of region. There are more than 20 deposits Residual processing has also yielded large Russia’s overall steel production and 14.4 % that contain iron ore in the region. The to- amounts of noble, rare, ferrous and non- of steel pipes. tal volume of iron ore reserves in the re- ferrous metals of mineable grades. There are some 241 companies that pro- gion amount to 1,300 million tons, of which duce 61.7 % of the region’s total industrial the Magnitogorskoe and Bakalskoe depos- Billions being invested production output. More than half of the its are the largest. Today metallurgic companies are riding the region’s production facilities and a third Copper-zinc and nickel ores are most- wave of unprecedented growth in both the of its industrial personnel are concentrat- ly used in non-ferrous metallurgy. Copper domestic and foreign markets, This new re- ed in the metallurgic sector. Another spe- ores have been mined for centuries (the ality has forced them to re-think their de- cific industry feature is that 85 % of its fer- Karabashskoe deposit).