Russia will become the world’s second largest producer of gold after gold mining company Polyus launched a new mining and smelting facility at Natalka in the Magadan region in Russia’s Far East, the press service of the Ministry for the Development of the Russian Far East announced at the Far Eastern Economic Forum on August 12.

China is currently the world’s biggest producer of gold, but Russia is catching up with a series of large new gold mines launched this year. In February the government finally granted the license to develop the giant Sukhoi Log gold mine to Polyus, which paid RUB8.5bn (€124mn) for the right. 

Polyus held an SPO in June, selling 10% of its shares to raise $800mn, which the company is ploughing back into developing these mega projects.

Located in the Irkutsk region in the middle of Russia, Sukhoi’s license has been on the docket for nearly two decades and accounts for quarter (28%) of all Russia’s gold resources. It has 1,953 tonnes of inferred gold resources under a B+C1+C2 category, 1,541 tonnes of silver and 799 tonnes of off-balance gold reserves.

Natalka is not as big as Sukhoi but expected mine life is 31 years of open pit mining and the deposit has ore reserves of 16mn oz and mineral resources totalling 34mn, making it the 15th largest gold asset globally by reserves.

"The largest facility in Russia and one of the largest worldwide has been launched in the Magadan Region. The volume of ore processing will exceed 200mn tonnes per year, while the volume of gold production will equal 13mn tonnes per year. This brings the country’s gold production up by 5%, which makes Russia the second-biggest gold producer in the world after China," Polyus CEO Pavel Grachev was quoted as saying reports Tass.

Polyus officially launched the first stage of the new mine on September 5 and full production is expected to commence before the end of 2018, the company said.

Natalka is located in the Tenkinskiy District of the Magadan Region, approximately 400km away from the city of Magadan on Russia’s Pacific coast.

In August 2003, the government auctioned a 38% stake in Matrosov Mine, which controlled the license for Natalka deposit. Polyus won the auction and completed the acquisition of the stake in 2004. Between 2005 and 2008, the company consolidated 100% of Matrosov Mine and, by extension, the Natalka deposit.

Polyus 2Q17 earnings highlights
	1Q16	2Q16	1Q17	2Q17	Change, QoQ	Change, YoY
Revenues	511	571	609	625	3%	9%
EBITDA	330	361	372	383	3%	6%
% margin	65%	63%	61%	61%
Adj. net income	201	204	203	272	34%	33%
Net income	294	205	499	104	-79%	-49%
Company data
Gold sales, koz	400	437	487	496	2%	14%
Average price, USD/oz	1,263	1,291	1,232	1,241	1%	-4%
TCC, USD/oz	357	395	379	378	0%	-4%
AISC, USD/oz	543	566	582	632	9%	12%
ND/EBITDA, x	2.5x	2.1x	2.0x	1.9x	-3%	-9%
Source: Company data, VTB Capital Research