Transcript GV Gold - Canada Eurasia Russia Business Association

Creating success
in rapidly changing environment
GV Gold viewpoint on Russian gold mining industry
Roman Schetinsky
Director, Perspective development
March 2011
CERBA CONFERRENCE
0
Disclaimer

The information in this presentation contains forward-looking statements.

Forward-looking statements include statements regarding plans, objectives, goals,
strategies, future events or performance, and underlying assumptions and other
statements, which are other than statements of historical facts.

All information regarding reserves and resources is given under the GKZ (State
Reserves Committee) Code and JORC Code, CIM-compliant estimate prepared in
accordance with the NI 43-101 requirements (2007).

The information and opinions contained in this presentation are provided as of March
2011 and are subject to change without notice.
1
Russian Gold Mining Industry Today
Key Highlights

The Industry has already seen its most
significant developments:
–
The majors are known
–
Consolidation is mainly over
–


New capacities are already in place
Overall stability of the industry.
Major Mining houses secured their longterm production plans.
TOP-5 produce about 55% of gold,
the following next TOP 15 companies –
another 25% (TOP-20 ~80%).
Remaining 400 totally produce 20%.
Russian Gold mining breakdown
Leading 5:
-Polyus Gold

Growth in gold production comes from
hardrock assets. Alluvial mining will
continue to decrease.
Visible step up in the past (Y2009).
What trend is following, up or down?
25%
-Kinross (Kupol)
-Petropavlovsk
55%
-Polymetal
20%
-Severstal
Remaining ~ 400
companies
Sources: Russian Goldminers
Union, Company sources
Historical alluvial and hardrock production
(т)
Hardrock
(t)
159
131
158
159
142
Alluvial
152
178
175
53
52
125
123
2009
2010
164
147
145
54
77
73
79
2002
80

The next TOP 15
companies
69
62
59
81
86
83
85
86
2003
2004
2005
2006
2007
80
79
110
52
2000
62
2001
2008
Sources: Russian Goldminers
Union, Company sources
2
Growth Opportunities


High gold prices secure financial stability for
companies’ development programs.
Cash margins are rapidly increasing
1300
($/oz)
1200
1100
1000
900
800
700
600
500
400
300
200
100
0
Current environment creates opportunities
for investments in new projects, targeting to
increase overall gold production.

How long will it last? Surely not forever.

Companies try to follow two main
approaches: organic growth or M&A
strategies.
The average price in 2010 has risen by 25%
to 1224 USD/oz
Growth in cash margins
Gold price
Average
Cash costs
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Company sources
Development and growth strategies
Organic growth



Possibilities of organic growth are limited in Russia
There are no deposits with reserves on state balance
(except probably Sukhoi Log)
Exploration in new areas has almost stopped
Hard to name properties in “real” pre-production
stage. Many of them are frozen with no intention to
be developed
M&A approach



Profits from M&A deals are in favor to capital
investments in new projects:
Opportunities to acquire mid-tier producers in Russia
Going abroad is a new tendency. Joint ventures in
CIS countries and/or far located parts of the World
Efficiency of merging with new companies could be
significantly higher than investing in developing
mining projects
3
Challenges and Threats
Gold price forecast
World constraints







Rapid cash costs increase in Russia up to the
same level as in the rest of the World.
Quality of the deposits in production stage is
constantly decreasing.
High grade ores depletion.
Capital expenditures overrun in the most of the
new projects.
Mining analysts predict gold price to step down
and reach 1200 USD\oz in 2013 and 1150
USD\oz in 2014.
We believe the 900 USD\oz scenario in a short
term could be realistic.
Many projects will shut down, causing production
to reduce. This will strongly reflect gold price.
1800
1600
Long-term range 850 - 1050 USD/oz
1400
1200
1000
800
600
400
2011
2012
2013
2014
2015
2016
2017
2019
2020
Source: Apeco, Company Sources
Cash margins sharp fall
900
($/oz)
Timeframe for
investments
800
Investing current cash margins into new
projects will allow to secure companies
mid-term production plans and
hardly to raise it
2018
700
600
500
400
300
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Source: Virtual Metals, Company sources
4
GV Gold in Russian Goldmining Industry
Stable position in
the Industry
Balanced portfolio
of assets
Strong financial
performance
Corporate
governance
principles
Sustainable
development

8th place in Russian goldmining industry

Current production - 125 koz AU p.a. (2010)

Mineral Resource and Exploration Potential – 13.44 Moz Au

2 Producing assets

2 Development / Pre-production assets

7 Exploration projects

2010 Revenue – 156 mln USD (E)

2010 EBITDA – 86 mln USD (E)

2010 EBITDA Margin – 55% (E)

2010 Total Cash Costs – 479 USD/oz (E)

Annual and interim IFRS reporting since 2003

Audited reserves under international reserve audit classifications in place

Dividend policy implemented

Two international independent non-executive board members

Compliance with Health and Safety policies is strictly monitored

Compliance with all Russian environmental requirements
5
GV Gold Assets Portfolio
Komi Region
Irkutsk Region
 Exploration
Yakutia Region
 Producing / Expansion
– Chudnoye deposit
– Further license acquisitions
 Producing/ Expansion
– Golets Vysochaishy
– Kuranakh alluvials
 Development/Pre-production
 Development / Pre-production
– Ykanskoye
– Ozherelie
– Open pit mining and hard rock ore
processing at Kuranakh
 Exploration
–
–
–
–
Khomolho ore fields
Ugakhan
Leprindo
Further license acquisitions
Chudnoye
Kuranakh
MOSCOW
Golets
Marakan
Leprindo
Khomolkho
Bodaibo
Production
Exploration and development
Moscow rep office
Bodaibo office
6
Golets Vysochaishy
Group’s Development Loco
Key Highlights








Located in Bodaibo area, Irkutsk region.
Significant growth potential with limited
development risk.
Total Resources 2.8 Moz Au, inclusive P&P
reserves of 2.3 Moz Au.
Two processing mills operating,
launch of the third plant with annual capacity
of 3.5 mpta in August 2011.
Total processing capacity will reach
4.8 mpta in 2012.
All principal Capital Expenditures have
already been acrued.
Production highlights:
– 116 koz Au (2010)
– 150 koz Au (2011E)
– 260 koz Au (2012E)
Current resource base secures
production till 2020.
Production has a real chance to boost
after 2020.
The company is planning to take part in
developing Sukhoi Log (located 30 km South
of Golets Vysochaishy), using current
facilities to process ores from the well-known
giant deposit
7
Marakan project
Efficient Capital Expenditures
Ykanskoye deposit
Ozherelie deposit

Ykanskoye is the next milestone in the
Irkutsk project development.
 Currently in advanced exploration stage with
aggressive exploration plans for 2010 – 2013.

Located to the West of Golets Vysochaishy.

Current Resource base – 250 Koz Au,
average grade 3 g/t.
 Mineral Resource and Exploration potential
1.2 Moz Au.




In the end of 2010 a pilot processing plant
was launched with capacity of 200 ktpa.
Plans to double processing capacities
up to 400 ktpa by 2015.
Production plans:
– 15 koz Au (2012E)
– 30 koz Au (2015E)
 Plans to convert not less than 1 Moz Au into
Reserves by 2013.
 By 2015, production capacity of
100 koz Au p.a.
Ongoing intense exploration to increase
current resource base.
Plant at Ykanskoye
8
Kuranakh
Unlocking the Value
Key highlights

Kuranakh is Russia’s largest placer gold
deposit.

Located in the Southern part of Yakutia with
well developed infrastructure.

GV gold acquired the 51% stake in Kuranakh
in 2008





– Option to acquire the remaining 49%
Total Resources of 5.3 Moz Au, inclusive
P&P reserves of 3.5 Moz Au.
New deep digging dredge launch in August
2011.
Expected to switch to open pit mining with a
significant increase in production.
Production plans:
– 20 koz Au (2011E)
– 30 koz Au (2012E)
By 2015 production will reach 100 koz Au
p.a.
Development program:
New dredges installation in 2011 and 2013
Installation of the new hardrock processing
plant, with a designed annual capacity of
2.0 mtpa, launch by 2015
9
Komi project – Chudnoye deposit
Source of Additional Future Growth
Key highlights





Relatively new mining region, with high
prospective opportunities for greenfield
projects.
A convenient geographic location in the
European part of Russia with a developed
infrastructure.
Ore bodies are represented with a stockwork
of gold-bearing fuchsite veinlets in the faulted
zone
– High grades (4-9 g/t) with non-uniform
distribution
Available for open-pit development
– Gold is recoverable via gravity
GV Gold plans to continue intense exploration
to grow the current resource base.
Geological map of the licence area and schematic longitudinal geological
section
Mineral Resource and
Exploration Potential (JORC) – 1 Moz Au
10
GV Gold Mineral Resource Base
Exploration is the key building block of GV Gold’s operating strategy
Asset
Ore Reserves
Mineral Resources
(000'oz)
(000'oz)
Proven & Probable
Measured
Inferred
Exploration Potential
Total
(000'oz)
(000'oz)
and Indicated
Irkutsk Project
Golets Vysochaishy
2.3
2.9
2.9
Khomolkho Ore Field
1.2
1.2
Ugakhan
0.5
0.5
Ykanskoe Deposit
0.2
0.5
0.7
Ozherelie Deposit
0.1
1.3
1.4
0.04
0.4
0.44
Leprindo
Yakutia Project
Kuranakh
3.6
5.1
0.2
5.3
Komi Project
Chudnoe
Total Mineral Resource Base
0.4
0.6
1.0
13.44
11
M&A Deals – Affordable Opportunities for Future Growth
- GV Gold has a stable gold mining business
- Development programs for current projects are clear
- Strong financial performance secures possibilities for large scale investments
- Ready for further expansion
The Projects we are looking for:
Geography
 Preference given to the regions of GV Gold presence
Infrastructure
 Adequate transport links and access to power grid
 Availability of qualified labour force
Technical aspects and
mineral reserve base
 Open pit mining with low strip ratio (<10 t/t)
 Ore reserves of at least 0.5 Moz Au and substantial growth potential
 Suitability for highly efficient mining equipment
Ore processing
 Priority given to high grade ores
 Environmentally friendly and economically effective processing technologies are preferred
Economic
requirements
 Cash margins of at least 30%
 Mid-size initial capital expenditure
 Possibility to start production in 3-5 years
Time required to start/
complete the project
 All aspects of a potential project are carefully considered
 Ability to use Company’s know-how and previous experience is highly desirable
 Ability to start processing with potential for gradual production ramp-up
12
Thank you for your attention
Bodaibo Office:
17, Berezovaya St.
666902, Bodaibo,
Irkutsk Region,
Russian Federation
Moscow Office:
8/8, B. Spasoglinishevskiy Per.,
Office#4
101000, Moscow,
Russian Federation
Tel/fax:
+ 7 (39561) 5-71-20
+7 (495) 748-13-04
Tel: +7 (495) 623-39-63
+7 (495) 623-38-36
Fax: +7 (495) 623-44-13
www.gvgold.ru
13