Russia holds approximately 15–17 per cent of the world's mineral deposits. These resources are estimated to be worth US$340–380 trillion. Russia holds 33 per cent of global gas resources, 11 per cent of global coal resources and 26 per cent of all raw metals. In addition, the Russian Federation has considerable reserves of non-ferrous and less common metal deposits.

To date, approximately 20,000 mineral deposits have been explored, of which more than one-third are currently being mined or developed. While these deposits account for only 5 per cent of the country's explored mineral resources, they contain over 70 per cent of Russia's total natural reserves.

Oil and oil by-products, natural gas, raw metals and aluminium comprise the largest share of Russian exports (65 per cent).

Privatisation and restructuring

Until the early 1990s, the mining industry in Russia was almost exclusively state owned and funded. Following the collapse of the Soviet Union, the situation deteriorated. The breakdown in trade and economic ties between Russian production enterprises and their CIS partners led to a widespread industry crisis and a significant reduction in mining and natural resource extraction. The industry was also left a legacy of obsolete technology, low productivity and a shortage of electricity to sustain increased extraction.

Mining companies entered the 1990s in a difficult position. Nevertheless, privatisation, management restructuring, foreign investment and record commodity prices have contributed to a dramatic turnaround in the fortunes of the Russian resources sector.

Since 2000, growing international demand for raw materials and energy has enabled the Russian mining industry to recover strongly. New exploration and investment in green field projects are now at record levels. International experts forecast Russia's mineral production to increase five-fold over the next 50 years.

Problems and opportunities

Despite the global upturn, the Russian resources sector still has significant challenges to overcome. A persistent lack of investment in reconstruction and technical upgrades to facilities remains a major problem and one that impedes industry development. Compared to their western counterparts, Russian mining companies are often restricted by technical, technological, structural and managerial lags in both production and refinement.

At a structural level, the Russian Government and the industry are working to achieve stability and efficiency in production through:

• Development of new and existing sources of raw minerals;
• Improved cooperation between production companies and utility companies;
• Improving technical infrastructure and managerial expertise;
• Strengthening company finances.

The reconstruction of existing enterprises and construction of new plants is increasingly accomplished by the use of advanced technology for extraction and refinement, as well as the installation and utilisation of modern equipment and systems.

In order to accomplish these goals, the Russian mining industry is looking to collaborate with international partners in the following fields:

• Investment, including mergers and acquisitions;
• Technology transfer;
• Supply of mining plant such as trucks, loader gears and bulldozers, as well as spare parts, conveyer belts and large truck machinery;
• Leasing and acquisition of mining equipment;
• Business process consulting.

A vast market for Australian expertise and products

As a world leader in the efficient exploitation of natural resources, particularly in mining and metallurgy, Australia is well placed to share its technical expertise with Russian resources clients. Russia is among the world's most significant markets for Australian mining companies with unique expertise or products in areas such as:

• Business process consulting;
• Engineering;
• Mining equipment and plant;
• Project management;
• Software and information technology;
• Spare parts.

A significant number of Australian exporters are already realising the potential of the Russian market, with assistance from Austrade. In 2003 and 2004, Austrade led successful trade missions to Russia's Sakhalin Island oil and gas province that resulted in contracts worth A$70 million.

Australia remains a world leader in mining and metals not just because of its natural resources but also because of its investments in leading-edge information technology and improvements in management infrastructure and worker safety. Active change management has pushed Australia ahead of its international competitors in terms of sales, productivity and profitability. With the rapid evolution of the Russian resources sector, Australian companies have an outstanding opportunity to share the benefits of their experience with their Russian counterparts for mutual profit.

Success story: Wagners

Wagners is an Australian private company that specialises in the supply of quarry products and ready-mix concrete to the construction and petroleum industries. It has expanded into the Russian market and is currently exporting a range of products to Russia successfully.

Gold mining: rapid growth, improving investment climate

Russia's gold mining industry is now among the fastest growing worldwide. Until recently, international investors did not pay much attention to gold mining in Russia because of industry disunity and the obsolete technology used for extraction. However, recent corporate consolidation and improvements in legislation such as the Agreement on Section Production have improved the investment climate considerably.

The gradual introduction of new extraction technology has drawn the attention of strategic and portfolio investors. Unlike the steel and non-ferrous metal industries, Russian gold mining companies need financial help. These companies are therefore trying to improve the transparency of their financial reporting and strengthen investor relations.

The gold mining industry in Russia extracted 181 tonnes in 2004, up from 143 tonnes in 2000 — amounting to a 26 per cent increase over five years. Investment (including foreign investment) rose from US$40 million in 2002 to US$90 million in 2004, with a further rise to US$110 million expected in 2005. The cost price of the gold industry in Russia is on average 23 per cent below the world average.

Active gold ore deposits are located in several Russian regions:

• Krasnoyarsk region (27 per cent of total production),
• Khabarovsk region (17 per cent),
• Magadan area (13 per cent),
• Sakha (Yakut) Republic (7 per cent),
• Buryatiya Republic (5 per cent),
• Irkutsk and Amur areas (3 per cent),
• Sverdlovsk area (3 per cent),
• Chelyabinsk area (3 per cent),
• Other regions (22 per cent).

According to industry experts, the volume of gold extraction in Russia will grow 8.2 per cent per year on average over the next five years. The largest gold-mining companies is GMK (known as Norilsk Nickel), which produces 23 per cent of Russian gold but regards gold as a secondary interest behind nickel. Other significant Russian producers include Amour, Buryatzoloto, Omolon and Polymetal.

Highland Gold, Peter Hambro and Celtic Resources are expected to develop into industry leaders. The Trans-Siberian Company is also emerging in the market. Anglogold Ashanti recently purchased 30 per cent of the Trans-Siberian Company. Celtic Resources is dependent on a Russian partner, ALROS.

For foreign investors, the main restriction in industry development centres on politics. The Russian Government considers gold a strategic national resource and is extremely cautious about allowing foreign investors to develop gold ore deposits directly. Despite this, the gold-mining industry in Russia is an attractive option for foreign investors and companies are fully compensated by economic profitability on capital investments. Furthermore, enabling technologies and know-how are generally welcomed with open arms.

Success story: Gekko Systems

Ballarat-based mining technology company Gekko Systems was enthusiastic about attending Australia Week in Moscow, the largest Australian trade promotion ever held in Russia. Several Russian gold and diamond mining companies immediately expressed interest in large-scale deals for Gekko's innovative extraction and processing technologies. The company is already undertaking a full test work program with one gold-mining client that could lead to the sale of a complete modular gold plant worth up to A$4 million. Technical Director Sandy Gray said Gekko plans to continue using Austrade services and advice as it develops and executes its go-to-market strategy in Russia.