Russia's Gold Card.Two decades of Growth in Gold Production.

By Rhod Mackenzie

In 2023 there was a lot of talk in the run up to the BRICS summit in Johannesburg about whether the BRICS would announce a gold backed currency,I was skeptical and I was correct as I did not think it was something the BRICS were ready to do.However that said its not that I don't think gold will have a role to play in the future but not just yet. Now today I would like to focus on Gold and particularly the realtionship between China,Russia and gold

China and Russia are two leading members of the BRICS and most people are not aware that they are also ranked number one and two in the mining of gold on an annual basis,in 2023 China mined 370 tons of Gold and Russia mind 330 tons now that combined total of 700 tons was 25% of all the gold mined on the Planet and that is according to Metals Focus the world's leading authority on precious metals.On the Russian figures I know they are accurate because I compiled them myself as I provide the information on precious metals mining in Russia to them.
Now both China and Russia have substantial gold reserves in their Central banks and have increased them substantailly over the last decade,particularly Russia as it divested itself of its holdings of US dollars in either cash or US treasuries.Russia's gold reserves are at around 2,300 tons and officialy China has something similar although I tend to think that they have substantially more than what is officialy reported and is probably nearer to 6,000 tons.
Now as I have already said both countries mine over three hundred tons per year and in the next few years Russia will increase that figure to more than 400 tons so what I would like to do in this video is explain how Russia has risen to become in the near future the world's leading gold producer.

In order to explain how Russia’s gold industry is where it is today, it is necessary to describe its development over the past two decades. When Vladimir Putin became president in 2000, the gold industry was relatively under-developed in world terms. While there was no doubt about Russia’s production potential – Soviet geologists had discovered gold deposits on a worldbeating scale – most of it was located in the distant and under-populated Siberian and Far Eastern regions. This meant that access to the gold-producing areas was challenging, that labour was relatively scarce, and that power supplies were limited. The mechanisation of the industry had, in fact, been slowed by the availability of forced labour until the mid-1950s. As a result, deposits such as Sukhoi Log, the world’s largest, remained untapped due to their remoteness and the country’s technical limitations. By the end of the Soviet period, the majority of Russia’s mining activity was still focused on
seasonal exploitation of alluvial deposits.
During the 1990s, a shift towards lode mining was underway, supported by the increasing availability of electricity at mining sites. However, conditions were still challenging for producers. The cost of labour, electricity and transport, all of which were previously suppressed by Soviet government, were now borne by enterprises operating in the most remote parts of the country, where costs were highest. The inflow of Western investment and technical know-how, moreover, was not immediate and, in the end, never widely available. Many potential investors avoided the industry for the same cost-related risks, as well as a complicated tax regime.
As a result, even as enterprises reorientated towards more profitable activities, productivity remained low at just a quarter of the Western level in 1997.
Overall, by 2000 the Russian gold industry remained underdeveloped by world standards. On the one hand, it had proven world class reserves and considerable potential with the right level of investment, but the outlook was poor. Aggregate production looked set to decline as costs increased, with limited foreign investment focusing on new lode mining opportunities. On the other hand, the state had, at some cost, decided to play a primarily strategic rather than export -oriented role, which distinguished it from other metals industries.

Under the new government, distinctions emerged in the way the state managed the various natural resources sectors. Most obviously, the Kremlin retained control over the gas and oil industries through the creation of national champions. The leaders of Rosneft, Transneft and Gazprom, state companies, were figures close to Putin, and they were entitled to the most important resources and assets in their respective sectors.
This was not formally the case in the metals and mining sectors, where the largest businesses remained in private hands, with the exception of Alrosa, the state diamond monopoly. At the same time, these leading companies are, like the national champions, typically large, vertically integrated entities, which means that competition is (informally) suppressed, at least at the top of the industry, and good relations with the Kremlin are a pre-requisite for survival. In addition, in some industries sector-dominant companies have emerged, resembling national champions and in the gold mining sector it was Polyus.
Unlike other sectors of the mining industry the gold mining sector was not structured around one or two dominant companies like Norilsk Nickel ( Nickel,Copper,Paladium,Platinum) or UMMC ( copper) when Putin came to power. Moreover, the historical role played by small producers in the Russia Far East (RFE), which even today remains largely cut off from the country, let alone global supply chains, remained important and of considerable value in policy making circles, both in terms of production and
economic development. Indeed, gold companies have often played a pioneering role in the region, establishing a presence in a remote area, which is then followed by infrastructure, jobs and a (notional) contribution to region-wide development. Consequently, the industry developed in its own fashion, albeit shaped by wider industry trends.
Nonetheless, the development of the industry became a government priority and gold was listed among state’s ‘strategic’ minerals. Moreover, the state played an important steering role although, in hindsight, the informal character of Putin’s industrial policy making has been more influential than any formal plan for the sector.
This is most obvious considering Putin’s plans for reforming the 1992 Law on Subsoil, which covers the terms and conditions for prospecting, appraising, exploring and mining resources. Around 2000, many complained that the law was outdated and would need an overhaul to attract investors to a sector that had
endured a decade of neglect. It was not until 2005 that a draft law reached the State Duma with a clearer definition of the rights of both the state and subsoil users, but it was not passed. In the end, the old law has been amended
periodically as expedience required.
Now there are the Five general trends in the industry’s development since 2000 can also be discerned, which distinguish it
from other mining sectors.
First, due to the remoteness of the locations country’s gold resources and the continuing importance of alluvial deposits, the industry has remained relatively open to small-scale and seasonal producers which, when taken together, make a considerable contribution to national production figures. ( around 20% of gold produced is aluvial)
Second, foreign investors – and to a great extent foreign equipment and technology –have played a part in the competitive landscape of the sector as it has developed, although not to the extent that might have been envisaged in 2000
Third, the industry has continually attracted wellresourced investors from other sectors, such that some of the largest stakeholders in the industry are better known for what they have done before they moved in to gold. This is the case even for Suleyman Kerimov, who secured his stake in Polyus after making a fortune elsewhere. Other magnates involved in the gold industry today include those from steel (Aleksei Mordoshov), nickel (Vladimir Potanin) property (Vladislav Sviblov) and banking (the owners of Lanta Bank).
Consequently, and fourth, the industry retains a level of openness and competitiveness (albeit with a high level of intrigue) at all levels, which is not immediately obvious when looking at the structure of the industry (i.e. the dominance of Polyus). Mergers and acquisitions have remained an important feature of the sector. For instance, since entering the gold industry in 2019 (with financial and possibly strategic support from VTB), Sviblov has, according to some, has built a portfolio of stakes in several businesses that collectively make him a top-five gold producer, which is not obvious to the outside observer.
Fifth, the gold industry continues to play an outsize role in some of Russia’s remotest and poorest regions,
which makes its development just as important in Siberia and the Far East as to the federal government.
According to the Russian Ministry for Natural Resources (Rosnedra), Russia’s gold reserves, at over 10,000 tonnes, are located in 6,059 deposits across the country. Over 600 of these are primary deposits (of which 439 are gold ore proper and 181 are complex with multiple other ores), while nearly 5,500 are placer deposits. Regardless of type, over 85 per cent are located in Siberia and the Far East which, as I stated earlier, gives the gold mining industry a specific regional profile, albeit one spread over a still-enormous territory far larger than most countries.
It is a reflection of the development of the
industry that the majority of the country’s significant deposits are also now licenced. Only around 10 per cent of country’s reserves remain unallocated to developers. Some seven regions consistently produce at least 20 tonnes of gold each year. Three of these regions – Krasnoyarsk Krai, Magadan Оblast and the Republic of Sakha (Yakutia) – accounted for over 50 per cent of Russian production in 2021. Indeed, over the last decade, production has increased in all Russia’s leading gold mining regions bar Amur Oblast, (although that region still produces over 20 tonnes a year)
Overall, compared to the late 1990s, the gold industry has been transformed into one that is world class in
terms of production. The bulk of production, moreover, is centred around a few producers . The ten largest producers accounted for over 70 per cent of the country’s production in 2023.

However, as I have already mentioned, a unique role has been played by Polyus, which accounted for over a quarter of total production alone.
If you add Polymetal, the second largest company, these top two miners accounted for around 40 per cent of production. This trend continues down the list of producers: Polyus produced around 2.5 times the amount of gold as Polymetal, which in turn produced more than twice as much gold as Highland Gold and Petropavlovsk together, which are the third and fourth largest producers. These ratios give a sense of the importance of a few companies to the industry and, by extension, the CBR, which relies on Russian producers to support its strategic stockpiling, and which determines how much gold is exported. Nevertheless, the government continues to be ambitious: at the end of last year, Rosnedra stated that, all being equal, gold production could exceed 450 tonnes in the current decade.
Overall the gold industry has developed from an underachieving sector in 2000 to one that has become the world’s most productive. Its amazing to see it achieve this, despite its strategic ambition, but it does some of the world’s most important mines and a handful of the world’s most significant gold companies. Its structure, organisation and participants, are dependent more on the state than international capital flows. This structure is likely to prove resilient through the current crisis, rather than its weakness. Russian miner s are a tough bunch: the gold sectors’ forebears were largely responsible for the expansion of the state into remote parts of East Siberia and the Far East and the industry has maintained reasonable production levels before through periods of extended economic downturn. All the same, after two decades limiting the involvement of Western miners, the industry now faces Russia’s the problem of the substitution of Western technology and equipment but that should be over come with the assistance of Chinese partners and the development of localised production.