“Investments in the Development of Hard-to-Recover Reserves in Small and Medium-Sized Fields Will Help to Avoid Resource Shortages”
New deposits and the development of difficult deposits could replenish the country with mineral reserves, but “if the process is not changed, Russia may face a shortage of necessary resources.” This forecast is given by Sergei Neruchev, an expert in the field of mining, candidate of geological and mineralogical sciences, former deputy general director of the All-Russian Research Institute of Mineral Raw Materials. In the joint project of “Energy+” and the Center for Social Design “Platform” to support expert discussion regarding the prospects of the oil and gas industry, we present his author’s column.
Briefly about the main thing
If the process of replenishing the raw material base is not changed, Russia may face a shortage of resources necessary for the economy and national sovereignty. This can be avoided by attracting investments to develop hard-to-recover resources in small and medium-sized fields. To do this you need:
- amend legislation to allow the use of proven reserves as collateral in banks;
- give access to field development to small and medium-sized businesses;
- reduce bank rates on mining.
Titanium and chromium are in short supply
With all the wealth of Russian resources, without an active exploration policy, Russia could face shortages of some minerals. First of all, we are talking about scarce metals, then oil is under threat. The situation with liquid minerals, such as gold or copper, remains more stable – they have good prospects.
To give examples of shortages, there is a shortage of titanium, which was previously purchased abroad. The development of the domestic titanium raw material base, according to experts, is unprofitable even at fully prepared deposits.
Titanium is a lightweight metal with high corrosion resistance. Used in aircraft, rocket and shipbuilding. Used in the chemical industry for the manufacture of pipelines, pumps, reactors. Used in the production of pulp and paper. Used in the automotive industry, agriculture, food industry.
There are calculations for one of the titanium deposits in the Nizhny Novgorod region, which has all the necessary infrastructure and is ready for mining, but the content of the useful component of the formation there is such that metal mining is unprofitable.
There is a maximum of four years left of the chromium needed for metallurgy at the Rai-Iz deposit in the Polar Urals.
Chromium is an important component in many alloys. Its addition increases hardness and corrosion resistance. Such alloys are used for the manufacture of railway rails, in the production of nozzles for powerful plasma generators and in the aerospace industry.
There are no other chromium deposits prepared for exploitation in the country today.
Uranium, manganese and tungsten are not mined
Examples of commodity risks include uranium, manganese and tungsten. The best raw material base of uranium from the legacy of the USSR remains in Kazakhstan and Kyrgyzstan. There are also in Africa and other countries, but in Russia there is only low quality raw material. We have never carried out intensive work on the development of uranium deposits.
Uranium is a weakly radioactive metal, an isotope of which is used in nuclear reactors and in geology to determine the age of minerals and rocks.
Russia’s largest manganese deposit contains about 80 million tons of ore and is owned by a company that has been in bankruptcy for eight years. There are also small enterprises, but their production volumes do not allow for normal industrial production.
Manganese is a hard and at the same time brittle metal that is used in metallurgy and the chemical industry.
The license to mine tungsten at the Tyrnyauz deposit belongs to Rostec, but at the moment nothing is being mined there and is not planned.
Tungsten is a refractory metal that is used in the filaments of lighting fixtures, as well as in the form of alloys for the manufacture of surgical instruments, aircraft parts and engines.
There are tungsten deposits in Buryatia and the Far East, but they are not currently being developed.
Is everything okay with oil?
It would seem that everything is fine with oil in Russia: we are accustomed to business rather holding back production. Indeed, no shortage is expected in the coming years. However, in the future we may encounter it: if we do not develop production technologies, the oil and gas base risks being close to exhaustion, and the peak of production may be passed in the next five years.
Master difficult stocks
The development of hard-to-recover resources in small and medium-sized deposits could revive subsoil mining of scarce minerals. The development of technology is now making even those deposits that were previously considered poor profitable.
At the same time, it is often unprofitable for large subsoil mining players, such as Norilsk Nickel or Metalloinvest, to engage in small and medium-sized deposits. Their entire production and management chain is designed for large volumes, and reconfiguring the process will require more money than it will bring.
For example, in one of Metalloinvest’s quarries there is gold mineralization – there are approximately four tons of gold there. However, this volume does not allow the company to also engage in gold mining, because rebuilding the chain will be more expensive than these four tons cost.
To solve the problem, small and medium-sized businesses could be involved. Perhaps in the form of ecosystem solutions, combinations of large businesses with small ones. At the same time, in order to involve small and medium-sized businesses in subsoil mining, it is necessary to change legislation and reduce bank rates, which are currently unaffordable for them.
Investments in subsoil
To attract investment in subsoil mining, it is necessary for the subsoil to become property. At the moment there are no property rights to them. They cannot act as collateral in a bank – other working capital is required to obtain financing. Therefore, companies that have earned money in another field often go into the extraction of natural resources, only because they have working capital and have something to put in the bank.
It is impossible to implement a subsoil mining project with borrowed financing—long-term money is needed. Investments in mining require a long payback period: five years will be spent on the geological exploration cycle, another two or three years will be spent on design and construction. As a result, it will take 7–8 years to launch.
Banks do not offer small interest rates – only commercial rates for mining. Since there is no long-term money at low interest rates, the circle of companies that could do this is narrowing.
Small and medium businesses as a solution
The shortage of some metals and a possible shortage of hydrocarbons will remain an urgent problem if we do not begin to develop hard-to-recover reserves of small and medium-sized deposits. To do this, it is important to attract small and medium-sized companies. Now they cannot break into the market due to the fact that proven reserves cannot be used as collateral for obtaining financing, and because of high bank rates.
Traditionally in Russia it is believed that business should cope with its difficulties on its own. However, the current situation shows that only large companies are coping, whose strength may not be enough to cover the deficit. Without long-term strategies in the field of subsoil use that will increase the number of companies involved in this area, the situation may continue to deteriorate.
