Russian Gold Miners Change Sales Channels and Logistics Due To Sanctions

By Rhod Mackenzie

The Russian gold mining industry, whose major players are all subject to US sanctions, is reorganising its exports by introducing intermediaries into the supply chain. According to a representative from Yuzhuralzoloto, the decrease in margins is insignificant. This is because, technically, the export of gold is much simpler than that of other commodities due to its compactness. A significant issue persists with making payments. Gold miners, despite abandoning the dollar, struggle to pay in the currencies of friendly nations.
Yuzhuralzoloto (UGK) will modify its export chain after the company and its main shareholder, Konstantin Strukov, were added to the SDN list. A company representative stated that they will add intermediate mechanisms and intermediary companies, but there will be no significant changes. The decrease in export margins will be minimal, around tenths of a percent. The representative also noted that exporting gold is easier compared to other commodities. He explained that a ton of gold would take up a meter of space on your desk.

YuGK is one of the largest gold mining companies in Russia, ranking fourth in terms of production volumes and second in terms of resources. The company operates in the Chelyabinsk region, Krasnoyarsk region, and Khakassia, processing the mined ore at its own facilities. The company has measured, indicated, and inferred (MI&I) resources amounting to 40.7 million ounces of gold equivalent (JORC classification).

On February 23, the US imposed sanctions on the company it stated that it will continue to produce and sell gold according to the approved plan. The company states it has no assets outside of Russia and does not interact with American legal entities or citizens. As of 2022, settlements in US dollars have been suspended. According to her statement, when selling gold and purchasing foreign equipment, payments are made in rubles or in the currencies of friendly countries.

The process of making payments is more complex than organizing exports, as payments in both friendly and unfriendly currencies pose certain difficulties, as admitted by a representative of a gold mining company.
“We have implemented a backup plan. We know how to rebuild the financial chain, including the currencies for payment and receipt,” he said in response to a question about the impact of US sanctions on payments. Recently, Russian businesses have encountered payment issues in Turkey and China. Chinese banks are also increasing scrutiny of payments from the Russian Federation.
Currently, all major Russian gold mining companies are subject to US sanctions, including Polyus, Polymetal, Highland Gold of Vladislav Sviblov, Vysochaishy, Russian assets of Geopromining, and gold mining assets of Andrey Komarov. However, these sanctions have not yet had a significant impact on gold exports. Boris Krasnozhenov from Alfa Bank confirms that metal export supplies remain substantial. “It is possible to use intermediaries with minimal impact on sales margins,” he notes.
In the past two years, Russian gold mining companies have been adapting to sanctions, allowing them to maintain their business model with minimal revenue losses. Sergei Kashuba, the head of the Union of Gold Miners of the Russian Federation, confirms this. The mining companies declined to comment, citing the sensitivity of the topic.

Currently, the companies either sell gold to Russian banks, which can export it, or export it themselves after obtaining the necessary licenses. The export of gold is carried out on passenger aircraft in the luggage compartment. Companies exporting gold must now pay foreign exchange duties, which are currently at 5-7% depending on the dollar exchange rate. This duty is factored into the gold prices on the domestic market. Boris Krasnozhenov notes that the price of gold on the domestic market generally reflects a price equal to the profitability of exports, and any differences from external prices are minimal.