Newsletter no. 20 – 2016

Valeriy A. Kryukov
Deputy Director, Institute of Economics and Industrial Engineering, Siberian Division of the Russian Academy of Sciences (IEIE RAS) (Novosibirsk), Corresponding Member of the RAS, Professor, Doctor of Sciences (Economics)

The viewpoints expressed in this article are solely those of the author and cannot be attributed to the Norwegian Scientific Academy for Polar Research. The Academy hopes that our Newsletter can stimulate debates among our members and partners, which may be edited and posted on our website.

The main economic goal in the Arctic has always been and still is to explore sources of mineral and natural resources with exceptional geological characteristics and mining potential. Nonetheless, the sources explored and then involved in the economy were not only unique due to their rare and valuable minerals. Those characteristics were able to provide economies of scale to the full extent. This can be applied to the apatite ore deposits on the Kola Peninsula (explored in the 1930s), copper-nickel and polymetal deposits in the Norilsk District on the Taymyr Peninsula (in the 1930s–40s), gold, zinc and lead deposits in the northeastern part of Russia (in the 1940s– 50s), kimberlite pipes deposits in the Republic of Sakha (Yakutia) (in the 1950s–60s), and unique gas fields in the Nadym Pur Taz District in the north of Tyumen Oblast (in the 1970s– 80s). These sources of raw materials were explored exceptionally effectively because of considerable mineral reserves (all the deposits above are among the largest in the world in their categories) and engineering solutions aimed at fast extraction of mineral resources which did not pay much regard to their consequences for the environment.

New sources of minerals are characterized less by reserves/resources potential than by more-complicated regional/geological conditions. Among their features: complex structures of minerals and hydrocarbons (solid, liquid and gaseous ones), great stratification depth (e.g., the exploration of diamond deposits in Arkhangelsk Oblast requires overburden removal), a large distance from previously constructed objects of industrial and social infrastructure, and big environmental risks. As a result, their development requires much higher per capita investments and also new technical, technologic, organizational and economic solutions.

The last important feature is the open character of all the projects, whether previously executed or still pending. The majority of projects exceed the demands and capabilities of the Russian domestic market, by their size and by investment requirements. This is one of the reasons why a significant number of these projects are pursued as joint projects with companies from abroad (especially those that have experience, know-how, technology or investment potential).

For the European part of Russia’s Arctic are typical the following trends:
а) Stagnation in the hard minerals mining industry, and
b) Development in the oil-and-gas sector (especially resulting from creating a “window” to the north of the Komi Republic and the shelf area of the Pechora Sea).

Among “new minerals” are diamonds coming from Arkhangelsk Oblast (along with Yakutia and Canada). OJSC Severalmaz, the youngest mining company in Russia, was founded in 1992 in order to explore the Lomonosov diamond deposit; 95% of its shares belong to the Alrosa Corporation. Nevertheless, new projects (as apatites as diamonds) cannot compensate for the loss of total mining production in the region. Modernization of previously launched mining companies in the European part of Russia’s Arctic zone is leading to a significant reduction in employment.

At the same time for the Siberian (East of Urals) and North-East parts of Russia’s Arctic more typical the following trends:
a) Modernization and reconstruction of previously created assets;
b) Big opportunities to execute completely new unique projects.

Among main assets faced importance of modernization are – Norilsk Nickel and Sakha Diamonds (ALROSA). JSC Norilsk Nickel is one of the world’s largest producers of copper, nickel and rare metals (such as platinum and palladium). Its major mining assets are mines and smelters located in the Kola and Taymyr peninsulas, which work together closely and represent a single process chain. The NSR facilitates collaboration between these territorial units, the Kola and Polar Divisions, respectively. Norilsk Nickel is currently both the main carrier and customer using the NSR to ship and receive cargo. The company possesses ice class vessels, a seaport at Dudinka, and terminals at Murmansk and Kandalaksha; it annually transports over 1 million tons of cargo, including equipment and concentrate for further processing. Apart from that, Norilsk Nickel provides the largest number of jobs in Norilsk, which is the largest city above the Arctic Circle in this region with a population of 178,000 people in 2013, and some monotowns on the Kola Peninsula. In 2014, Norilsk Nickel announced the company’s intention to reconfigure its process chains. Smelting will take place at the Polar Division, whereas refining will be in the Kola MMC. The company also wants to upgrade and expand the Talnakh facilities (Polar Division). The main environmental problem of the old metallurgical plants at Norilsk Nickel’s Polar Division is airborne emissions. According to a study on the most polluted places in the world conducted by Green Cross Switzerland in collaboration with the Blacksmith Institute, the annual amount of emissions into the atmosphere in Norilsk amounts to about 500 tons of copper and nickel oxides, and 2 million tons of sulfur dioxide. The whole modernization program of the Norilsk Industrial District will cost 70 billion rubles (about $2 billion USD). The nickel plant was launched in 1942 and is currently located within the city of Norilsk.

In 2012, one of the attempts to change the monopoly situation in an important region of the land territories of the Arctic was to hold an auction/competition to find out who will have the right to exploit and produce copper-nickel ores in the southern part of the Norilsk-1 field. The winner of the auction was the mining company Russian Platinum (Russkaya Platina) due to its proposal meeting all the requirements of the competition for a deposit of federal significance. Distinctive feature of the mineral potential in the eastern area is its focus on and intention to satisfy the growing needs of a modern high-tech economy. Diamonds (especially meteoritic origin ones which have outstanding characteristics) can serve as raw material to produce highstrength and precision tools. As for rare earth elements, they are now in higher and higher demand in many sectors of modern industry. The explored deposits have two main characteristics: their exceptional combination of between large scale and good quality of mineral resources, and their location in poorly developed areas, both economy- and transportation-wise.

One of the largest deposits of rare earth metals is the Tomtor field, which is located in the northwestern part of the Sakha Republic (Yakutia).  The field is distinctive in its high concentration of minerals. There are 18 types of them, starting from conventional minerals (iron, phosphorus, titanium, vanadium) and ending with rather exotic elements (holmium, ytterbium, and lutetium). The State Register of Reserves lists 10 elements in the Tomtor field, each of which forms an industrial concentration. This deposit in Yakutia is a world leader in the number of unique compounds of niobium with rare earth elements. The Tomtor field is known for its rare elements: niobium, yttrium, scandium and lanthanide group. At current demand levels, reserves of rare elements in the deposit can satisfy the needs of Russia (and those of the world, under certain conditions) for hundreds of years.

Recent decades have seen the discovery of previously unknown types of diamond bedrock. In the early 1970s in the northern part of the Siberian platform, geologists discovered impactites occurring within the Popigai astrobleme lying in the eastern part of the Taymyr Peninsula and the northwestern part of Yakutia. Reserves of impact diamonds there greatly exceed those of the world’s best-known diamondiferous deposits. In the bedrock of the Popigai crater, alluvial deposits of micropolycrystal diamonds also have been found. Impact diamonds, or lonsdaleites, belong to a new, previously unknown type of technical rough diamonds which are not well enough known for industrial development or use.

The northwestern part of Russia’s Arctic land territories, namely Magadan Oblast and Chukotka Autonomous Okrug, possesses significant resources of precious (primarily gold) and nonferrous metals. A distinctive feature of the region is a high degree of resource base development. The most successful projects in gold mining are those executed by the Kinross Gold Corporation of Canada. The company has been operating in Russia since 1995. It is the leading foreign investor in the gold mining industry, the leading Canadian investor in the Russian economy, and one of the largest taxpayers in the Russian Far East. Kinross Gold holds 100% of shares of the OJSC Chukotskaya Mining and Geological Company, which is developing the Kupol mine in Chukotka Autonomous Okrug. Since the company launched production in 2008, total production levels have reached about 3 million gold equivalent ounces.

Combination of the following factors will define future growth areas for investment and business in the land territories of the Russia’s Arctic:
а) The intention to open “new reserves” of traditional types and sources of minerals; a slow path is to search and implement super-efficient projects that would produce economies of scale;
b) Conditions to develop new and more complicated onshore deposits, as well as the fields that were under development for a long time, requiring technological upgrades (Eastern TaymyrKhatanga area first of all) ; and
c) Increasing demand for new, unique types of minerals, e.g., the rare earth elements of the Tomtor field and impact diamonds of the Popigai crater.

Business activity in the Russia’s Arctic will not grow only due to domestic investment. Government assistance will be aimed to obtain the highest effects for the domestic economy by regulating subsoil use. Having experienced a boost in the technological development in mineral sectors in Norway and Canada demonstrate how necessary it is to have a consistent policy for science and technology; to strengthen the role of the government as a customer who encourages new technological solutions and innovative products; to stick to pragmatic involvement of local industrial, service and innovation companies.