Magadan Region: from gold to oil

Nikolai DUDOV,Governor, Magadan Region:

"The Magadan Region is developing dynamically, which opens up a wide range of opportunities for mutually beneficial cooperation.

Our region is well known as a major producer of precious metals in Russia. In addition to gold and silver mining, the Magadan Region is home to greenfield mining projects to extract non-ferrous metals, as well as iron ore, bituminous and brown coal, electric utilities, fishing, agricultural and tourism projects. I wish to call particular attention to oil and gas extraction projects on the Magadan shelf, slated for launch in the immediate future.

The region is one of Russia’s richest in terms of natural resource potential. Our mineral, fish, and energy resources, along with our highly skilled labor force and stable social and political environment are conducive to the development of economic ties. Our key sectors and the regional economy as a whole have demonstrated strong, sustained growth in recent years, laying a solid foundation for continued steady expansion.

In our efforts to attract investors, we devote considerable attention to creating a healthy investment climate and favorable conditions for doing business in the region. One clear example is the region’s special economic zone, which offers all participants reduced tax rates and the benefits of a free customs area.

Investment activity in the region is proof of our strong investment climate. Total investment in the regional economy increased almost 400% in 2008-2011, with the region receiving RUB 15 billion in investment in 2011 alone. Major Russian mining and energy companies do business here, and we also have substantial experience working with international investors. Business people around the world from Norway to Australia and other Pacific Rim countries show interest in investment projects in the Magadan Region.

The regional government’s approach to investment agreements with business interests has brought excellent results. We offers investors full cooperation in helping them deal with Russian customs, tax, and regulatory agencies to speed up implementation of investment projects.

We in the regional government are doing all we can to create favorable and equitable conditions to help all active participants in the economy work successfully. We are always ready to assist responsible investors who intend not only to invest money in our economy, but also help to support our region’s social programs".

The largest investment projects in the Magadan Region are closely linked to development of the region’s abundant mineral resources, which include gold, polymetal ores and various types of coal. The region is also rich in hydrocarbons, with future production planned via the Magadan-1, 2, 3, and 4 projects.

One project expected to change and boost the regional economy is development of the Yano-Kolyma Gold Mining Province on the border of the Magadan Region and Sakha Republic (Yakutia). The province holds an estimated 4,750 metric tons of gold resources, including up to 1,267 tons of explored reserves in the Natalka gold deposit developed by Matrosov Mine. The Yano-Kolyma province comprises 14 gold deposits, including nine in the Magadan Region. Gold production in the province is expected to reach 15 tons per annum in 2014, doubling to 30 tons in 2018, and leveling off at full capacity of 60 tons by 2023.

Development of the region’s mineral resources is closely linked to development of power utilities and transportation in the Magadan Region. Electricity consumption is expected to double over the next decade, making the External Electricity Supply Project for the Yano-Kolyma Gold Mining Province, with an estimated investment requirement of RUB 29.7 billion, a top priority. In line with the Matrosov Mine development plan, the project is divided into two stages.

The project is also closely associated with a key infrastructure project: construction of the 570 MW Ust-Srednekansk Hydro Power Plant (four generator units of 142.5MW each) in the Srednekansk District. The first 169MW stage of the HPP is scheduled for launch in 4Q 2012.

In parallel with the creation of new power infrastructure, work has begun on construction of a network of federal (interstate) and regional roads and highways. One major project is the Omsukchan-Omolon-Bilibino-Komsomolsk-Anadyr road, the final link in a new transportation corridor connecting the northern regions of the Russian Far East with East Siberia. An upgrade project is under way on the federal Kolyma Highway, the key link between Magadan and the Sakha Republic and the only access to the Sea of Okhotsk for northeastern parts of the republic.

The total funding for these and other projects under the federal dedicated program Social and Economic Development of the Russian Far East and Transbaikal Region exceeds RUB 14 billion. RUB 5.718 billion was spent on the program in 2011, and government spending is expected to rise to RUB 8.5 billion in 2012.

Private investors are invited to consider joining a project to organize the processing of brown coal from coalfields around Magadan. The Magadan Region has two large brown coalfields: Melkovodnensky and Lankovsky. The fields near Magadan are a valuable resource for commercial processing (to produce coal gas for power generation, gasoline and diesel fuel, bitumen, hydrocarbon sorbents, and high quality compressed dry fuel). The fields contain 124 million tons of explored reserves, with estimated resources of 2,765 million tons, including 1,661 million suitable for open-pit mining. The cost of the project is estimated at RUB 25.7 billion.

Among the projects initiated by the Magadan Region government is development of the Oroyek Metals Zone, including exploration to determine the size of Oroyek deposit reserves and construction of a copper smelter. The project is capital intensive, with capex estimated at RUB 32.8 billion, including construction of access roads and power facilities.

The Integrated Northeastern Research Institute, which is part of the Russian Academy of Science’s Far East Division, has proposed several investment projects. One of them involves commercial development of large peat moss deposits and building a peat moss processing facility. The unique properties of frozen peat moss make it suitable for use as fuel comparable to brown coal in heat efficiency, or as a source of synthetic petroleum products or a raw material for organic and mineral/organic fertilizers, as well as medicines, and other applications.

The Magadan Region contains about six billion tons of potentially commercial peat moss reserves. Development of the deposits would cost an estimated RUB 12.3 billion.

The institute is also seeking an investor for a project to set up integrated processing of placer mining tailings in Central Kolyma using modern technological modules. The GDU-1 hydraulic percussion unit enhances the gravity separation capabilities and makes extraction of concentrate from ores 15%-20% more efficient. The project requires investment of RUB 104 million.

State-owned Magadan NIRO Fisheries Research Facility has proposed a project to create and harvest new populations of Pacific salmon in smaller rivers and streams of the Magadan Region. The project envisages building a central salmon incubator capable of breeding up to 40 million salmon fry per annum, and also includes subsidiary farms on 11 smaller rivers to protect young salmon and help them grow, with a total estimated cost of RUB 416 million. The project should help create new salmon populations by introducing young salmon into the food chain. The project operator would breed the salmon, maintain the facilities, and eventually harvest the fish for commercial sale and processing.

Finally, a project to develop the Magadan-1 and Magadan-2 oil and gas fields on the Sea of Okhotsk shelf is scheduled for launch in the near future. One of the Magadan Region’s most ambitious undertakings, the project will require an estimated RUB 416.5 billion in investment and would open a new chapter in the development of the Kolyma Region economy.