Popular local knowledge

Two of the world’s giant mining companies believe that Norilsk Nickel has the in-country knowledge and experience that is essential for success in Russia. First, Norilsk and Rio Tinto launched an exploration and development joint venture in Russia this January. Then BHP Billiton joined in on June 13. Norilsk’s recent progress and future plans are reviewed in IM’s July Operations Focus.

Rio and Norilsk signed their co-operation protocol in the Ministry of Natural Resources. The joint venture exploration and development company is owned 51% by Norilsk Nickel and 49% by Rio Tinto. Initial exploration efforts are concentrating on opportunities in the Siberian and Far-Eastern Federal Districts of Russia.
Rio Tinto chief executive, Leigh Clifford, said: “Rio Tinto has increased its exploration and development activity in Russia over the last few years, and we are now delighted to enter into this agreement with a partner of the stature of Norilsk Nickel. The establishment of this joint venture breaks new ground for the mining industry. Combining the skills and resources of Norilsk Nickel and Rio Tinto will provide an unrivalled platform for exploration and development of mineral deposits in Russia.
“We are pleased that by expanding our long term commitment towards exploration in Russia, Rio Tinto will play a significant role in developing the country’s resource base.”
Norilsk Nickel chief executive, Mikhail Prokhorov, said: “Norilsk Nickel continues to focus on growing and diversifying its resource base and on gaining exposure to international best practices. Entering into this agreement with Rio Tinto will bring together the knowledge and expertise of two leading mining companies to promote exploration in Russia. This country’s mineral wealth remains untapped in many areas across many minerals, and we will pursue the development of new discoveries and known deposits with the potential for significant capital investment and attractive financial returns.

“The aim of the joint venture will be to create a viable economic model of cooperation to accelerate and enhance exploration for new mineral resources in Russia, thereby promoting the mineral wealth and economic development of the regions.”
The combination of these two giants may produce very interesting results. Russia’s mining industry is of course a giant itself. It produces 12% world aluminium output and is the world’s largest exporter of primary material. Russia produced 182 t of gold in 2004, or 7% of world mine output. While in diamonds, the volume of rough production in Russia is 25 Mct, 16% of the world total of 155 Mct.
In other metals, Russia produced 900,000 t of refined copper in 2004; nickel production was 270,000 t in 2004, more than 20% of global output, all from local raw materials. Platinum output was 850,000 oz, 13% of global output, and palladium production was half of world supply.
Russia is the world’s sixth largest producer of coal. In 2004, it produced 61 Mt of coking coal and 148 Mt of steam coal. Annual iron ore production is 97 Mt. Russia is a net exporter of iron ore (20 Mt) and pellets (10 Mt). Russia is one of the world’s major producers of uranium and has a substantial nuclear power programme.
Certainly BHP Billiton sees great potential in Russia, the joint venture announced on June 13 provides for joint identification of attractive mineral exploration and development prospects in Russia, to be followed by the establishment of joint local companies to pursue and develop specific projects. These exploration and development companies will be owned 50% plus one share by MMC Norilsk Nickel and 50% minus one share by BHP Billiton.

The companies will jointly pursue a range of commodities in certain targeted areas, initially concentrating on the northwest of Russia as well as western Siberia. By working together, MMC Norilsk Nickel and BHP Billiton will look to maximize the benefits of their respective strengths. BHP Billiton will complement Norilsk’s local knowledge by applying global exploration and project development expertise and world-class technology.

BHP Billiton chief executive, Chip Goodyear, said: “This is an important step for BHP Billiton and represents a diversification of our geographical base. We look forward to working with our new partner in Russia.”
Prokhorov, said: “We believe in the strong prospects for growth in new resource discovery in the Russian Federation and have taken another step in pursuing this growth. We are excited by the opportunity to work in close partnership with BHP Billiton.”