Escape from Copper Mountain

The tale of Usmanov’s Udokan Far-flung Deposit
24.07.2017
1240
0

Ekaterina Karaseva delves deeper into why the "Trans-Baikal Klondike" hasn’t been developed since Soviet times, and how the copper deposit "Eternal Udokan" was passed down and eventually lost in the bowels of Alisher Usmanov's companies


Forgotten treasures

Geologist Elizaveta Burova discovered the Udokan deposit in 1949 and was immediately ridiculed by her colleagues who said that "This is tantamount to a discovery in the depths of the moon." The main problem lay in the difficulties in getting to Udokan. The Baikal-Amur Main Railway Line was specially built to the north for prospecting the rich deposits of ore. However, the development of "Copper Mountain" never began.

The Soviets were proud of their reserves, but their development never surfaced. Since the 1960s several projects have been put forwards, but the price of extraction never reached low enough for any development to take place and other more profitable areas were mined in Uzbekistan and Kazakhstan.

REFERENCE

The Udokan deposit is one of the oldest deposits on the planet and the oldest of the copper sandstone deposits at around 2 billion years. In terms of copper, it ranks third in the world, only behind Oy-Tolgoi in Mongolia and Pebble mine in Alaska. The Udokan reserves are estimated at 20-25 million tons of copper, which is about 60% of Russia’s total reserves.

The issue reappeared in 1992, when the country needed its own raw materials. The first tender for the right to develop the deposit was won by the little-known Russian-American Udokan Mining Company. By 1995, they had carried out a feasibility study for the development of the field, but by default, in 1998, the company lost its development license.

Further study of Udokan was made by the Trans-Baikal Mining Company, the founders of which were the government of the Chita Region (now part of the Trans-Baikal Territory, ed.), East Siberian and Trans-Baikal Railways, and Baminvest. They conducted tests of metallurgical samples of Udokan ore, but never actually came close to starting development.

New owner

In 2008, Udokan was claimed by a consortium of SMR Oleg Deripaska, ONEKSIM Mikhail Prokhorov, Norilsk Nickel, RZD and the Ural Mining and Metallurgical Company. Later, they all abandoned the project for economic reasons. As a result, Mikhailovsky GOK, which belongs to Alisher Usmanov’s Metalloinvest, acquired the license.

The company created a subsidiary enterprise called Baikal Mining Company specifically for the deposit and Metalloinvest has promised to create a consortium with the state corporation Rostekhnologii for the construction of infrastructure and development of the deposit.

1.jpg
Alisher Usmanov

At the dawn of the first economic crisis, the license cost 15 billion rubles. "Metalloinvest" promised invest more than 100 billion rubles. In accordance with the terms of the tender, GOK had to produce at least 36 million tons of ore (in the USSR it was planned even more - 50 million tons) in seven years. Construction of the hydrometallurgical complex on the Udokan deposit was supposed to have begun in 2010, in 2016 the enterprise promised attaining a project capacity of 474,000 tons of copper per year. 

However, the winner of the auction delayed signing the license for many years and did not pay the rest of the 10.5 billion ruble fee. BGK sources explained that Usmanov expected to start developing Udokan with the help of state-owned banks. In fact, he was going to buy a state certificate for state money, the way people who made a fortune in the 1990s often did.

No money still

In 2014, Chinese fund Hopu Investments wanted to redeem their 10% stake in the Norilsk Nickel investment, however their plan failed. In 2017, BGK announced that Udokan would be developed by Igor Altushkin's Russian Copper Company and RMK would acquire a 50% stake in the project.

The government saved Alisher Usmanov from having to explain the missing copper, in the fall of 2014 Rosnedra postponed the beginning of development of the Udokan deposit until 2021. Suddenly, Alisher Usmanov took an interest in Udokan, in a video response to oppositionist Alexei Navalny, he stated among other things "The only participation in the state auction was in 2008 for the Udokan deposit. (For the license) the company paid $0.5 billion. The same amount we spent on technical documentation and we will start developing the field," the billionaire said.

Technical difficulties

The head of the Russian mining operations development division for international mining and consulting group IMC Montan, Andrei Tverdov, said that in the initial stage the company will have to use high-performance equipment that is expensive and difficult to install. Nature adds its own difficulties, the local terrain will interfere with installation and cold winter limits will limit possibilities for using hydraulic escalators.

Among other things, Transbaikalia is seismically active and has an energy supply issue. The deposit is unique in its structure, and there is no proven technology for industrial extraction of copper from such raw materials, the expert noted.

Metalloinvest originally noted that more than 20,000 workers would be necessary for the development of the deposit. On the one hand, it is a plus for the Transbaikal, which suffers from unemployment. The lack of infrastructure creates another problem, as workers don’t want to move to the region. In the Kalarsky district, where the deposit is located, only 9.6 thousand people live. We need engineers and other technical specialists, but this is not only a problem in Chita, but in Russia as a whole, Andrei Tverdov said.

In fact, Udokan is not being developed. From time to time the authorities of the region sign documents on cooperation with the developers, but in reality nothing changes. In April 2016, the General Director of the Baikal Mining Company, Yuri Ryabov, said that in the near future the project documentation phase would begin, a stage which Udokan has been through several times.

Perhaps it's not a matter of technical difficulties. Taking into account the volume of deposits, since the 1990s there have been fears that development of the field would bring down market prices. It would not only hurt other investments but also create problems at the state level.

But so far this problem is not so bad, the keys to the largest deposit are in the hands of the government's trustee Alisher Usmanov. And if begins to be developed, it will be a political decision.

Tags:
var SVG_ICONS = ' ';