GeoProMining brings hi-tech to Soviet-era assets

Posted on Nov 9, 2011 in GPM in the media

Business New Europe
by Ben Aris in Moscow
November, 2011

The Russian government talks a lot about modernisation, but the privately owned diversified mining company GeoProMining (GPM) is actually doing it – simply because it makes them more money.

Siman Povarenkin spent five years as chairman of the hugely successful Vladivostok-based Fesco shipping company, arguably the best run company in Russia’s wild Far East. In 2001, he set up GPM with his partner Sergei Generalov, Fesco’s president, to invest in gold and copper mining in the Commonwealth of Independent States (CIS). “GPM started more as a hedge fund than anything else, but in 2005 we bought some gold and copper mining assets in Georgia and have successfully developed the company from there,” says Povarenkin, seated in his designer office in the heart of Moscow.

In the corner of the room is a giant meat cleaver standing in a Zen sand garden – an artwork by one of Indonesia’s leading contemporary artists. Povarenkin explains that ingraining the company with an international culture is a key part of the company’s philosophy, which is why he recently stepped aside as chairman and promoted Australian-born Russell King from independent director to chairman to inject a little more of the Anglo-Saxon business culture into management.

GPM has built up its business over the last six years largely through acquisitions and today the company has six main assets. The company’s first two purchases took place in 2005 when GPM successfully competed in one of the first public privatisations of mining assets in the tiny Caucasus republic of Georgia, shortly after President Mikheil Saakashvili came to power. It bought Madneuli in a hotly contested open auction, one of the largest mining companies in Georgia, which develops the Madneuli gold-copper deposit. GPM followed this up with the acquisition of Quartzite, a producer of gold and silver the same year. Then in 2007, GPM bought several assets in Armenia: the Agarak Copper-Molybdenum Mine and GPM Gold, which develops the Sotk gold deposit and manages the Ararat Gold Extraction Plant. Finally, at the end of 2008, GPM acquired the Russian antimony and gold mining assets and processing plant Sarylakh-Surma and Zvezda, which exploits the Sentachan antimony gold deposit in the snow-bitten autonomous republic of Yakutia – the coldest place on Earth.

Tech in the tundra

The company’s strategy is simple. It has taken rundown Soviet-era assets and invested heavily in them to create world-class mining facilities using the best technology on offer. “When we took over the assets in Yakutia they were basically stationary. It took two years of investment and extreme efforts of the management team to get the plants back on their feet,” says Povarenkin.

And with dramatic results: for its gold plant in Armenia, GPM bought technology from the Austrian specialist company Exstrata and combined it with Russian technology from the well-known (in Russia) St Petersburg-based firm Mekhanobr Engineering and production soared. The plant is expected to produce 150,000 ounces (oz) of gold annually starting from 2014 compared with the 24,000 oz it produced in 2010.

Russian technology is typically portrayed as an almost medieval, clunky affair, but GPM didn’t have as much work to do as you’d expect: the gap with the best from the West is surprisingly small, claims Povarenkin. “Some of the Soviet-era infrastructure was obsolete or of poor quality, but in mining the Soviets were pretty efficient,” says Povarenkin. “The bigger problem is the lack of infrastructure, but the government is paying a lot of attention to Eastern Siberia and the Far East, and infrastructure has visibly improved in the last few years.”

The use of the new technology has changed the mining game in Russia. In Soviet days, the cut-off for developing a gold mine was a gold density of 5g/tonne of ore, but today – especially after gold price soared to just under $2000/oz this summer – concentrations as low as 0.6/tonne of ore have become attractive. This means simply working the tailings of rich mines abandoned by the Soviets can be used as the basis of profitable gold production in some cases. “Gold has become a financial asset for investors fleeing things like the US T-bills, but even so sales of physical gold have risen 10% faster than the volume sold on the London Metals Exchange in the last year,” says Povarenkin.

GPM keeps applying the same model to all the plants and mines it takes over. Today, the company is the third largest Russian investor in Armenia. When it bought GPM Gold from the Indian company Vedanta Resources in 2007, the plant was at a standstill. GPM started investing heavily in the midst of the financial crisis and breathed new life into the plant. The Agarak mine was in a similar state, but this year both mines are producing again and in profit. The Armenian plants are also the “greenest and most efficient in the world,” boasts Povarenkin.

Gold and copper account for most of the production, but GPM is also a world player in antimony production, which is used in tyre production and increasingly in touch screens for products like Apple’s iPod. “We have the richest antimony resource in the world and we are the biggest player on the market outside of China with around 5% of the world’s proven antimony reserves,” says Povarenkin.

Gold remains the company’s most important product, which accounted for over 50% of its revenue, while antimony contributed just over 10% in 2010. Last year, the company produced 290,000 oz of gold equivalent, but estimates that it has over 9m oz of reserves and 24m oz of resources still to work.