CEO of JSC Varvarinskoye Alexander SIMON:
GEOLOGICAL EXPLORATION SHOULD HELP US TO SOLVE ALL PROBLEMS WITH FEEDSTOCK SUPPLY

JSC Varvarinskoye, a subsidiary of Russia’s Polymetal International in the Kostanai region, is a largest gold and copper producer in Kazakhstan. With a very weak market, the company had to significantly cut copper production in 2015 but it resumed the output of gold and copper concentrate in February 2016, as the concentrate containing gold is  far more attractive for potential buyers. CEO of Varvarinskoye Alexander Simon told Interfax-Kazakhstan in an interview about the company’s results for 2015 and its mid- and long-term plans.

- In 2015, we achieved our target for the shipment of finished products and this was one of our main achievements. However, we did not succeed in achieving all our targets. Ore processing and Dore alloy production were slightly below the target, because our central open-pit mine reached deeper horizons, where the ore is harder and more difficult to process. This is a very common problem in the industry. It seems that we faced this problem a little earlier than the other companies. In general, we are quite satisfied with our results for 2015. 

- What are the company’s financial results for 2015?

- In 2015, the revenue decreased by 20% to about $96 million. Profit turned out to be very small as the global commodity prices were very low. The prices for gold decreased by 8% compared to 2014 and copper prices fell even more. Actually, we did not produce copper in 2015. As the demand for gold-copper concentrate was low, we only produced it for four months in the second half of 2015. This year we have been producing gold-copper concentrate since February. As this product contains gold, it is far more attractive for the potential buyers and it is much easier for us to sell gold-copper concentrate than copper concentrate. Today, we do not extract copper ore, because we are going to use feedstock from the existing ore stockpiles to produce copper. In addition, we have a pilot contract for supply of about 20,000 tonnes of copper ore from a new supplier. Hopefully, we will have long-term cooperation with this supplier. 

- How do you deliver ore from your suppliers?

- Today, we have a number of ore suppliers including “Brandt” and “Orion Minerals”. The ore is mainly delivered by road. However, the bad weather that we had at the beginning of the year disrupted the transportation process, which also affected our production. We are now switching to rail transportation. To this end, last year we put into operation a railroad to link the Bataly station and the industrial site of Varavarinskoe. Last year this new railroad only carried 7,000 tonnes and we expect the volume of transportation to increase considerably this year. 90% of the purchased ore or about 450,000 tonnes will be delivered by rail. The new railroad will allow us to significantly reduce the transportation costs.

- Do you plan any new projects for 2016?

- For the current year we do not plan any big projects like the railroad project that we implemented last year. However, we are expanding our research laboratory and are constructing a new building that will house additional equipment. We used to test eight mineral samples a month but now we test about 50 samples. After the new lab building is brought into service this year, we will be able to test 80 samples a month.

Also, we are developing a mineral mapping program in order to learn more about the properties of the ores we will be processing.

The ores from the new deposits and upper horizons are not as hard as our ore. And we need to understand properly how to mix the purchased ores with our ore to keep the efficiency of the mills at a maximum possible level.

In addition to the existing mines, we will launch new mines – North-East and Prirechnyi – in 2017-2018. We are now carrying out exploration projects at these two deposits.

- How are you coming through the economic crisis?

- Of course, it is not so easy but we are trying to be flexible and to adequately respond to any changes in the market. We are now implementing a number of programs aimed to reduce the production costs: optimization of electricity and fuel consumption, more efficient use of machinery and outsourcing non-core services. We have reduced our strip mining operations by 25% and started to buy ore from other suppliers. The laid-off employees were sent to work at the new project Kyzyl in the East-Kazakhstan region. They are mainly operators of excavators, dump trucks, bulldozers.

- Did you have to reduce working hours for the employees or cut their salaries?

- No. Each year we adjust the salaries for the inflation rate. For instance, this year we raised the salaries by 13% starting from April 1 to keep pace with inflation.

- What are the company’s mid- and long-term plans?

- In the mid-term, we plan to develop relations with our ore suppliers. We will be replacing our ore with third party ore. Our target is to increase the volume of third party ore that will be processed at Varvarinskoye up to one million tonnes. In April we announced the acquisition of the Komarovskoye deposit, which lies in the Zhitikara district of the Kostanay region. The deal will be finalized in the third quarter of 2016. Gold content in the Komarovskoye ore is higher than in the Varvarinskoye ore and comes to 1.5 grammes per tonne. The location of the Komarovskoye deposit is another plus, as it lies only two kilometers away from the nearest railroad which runs directly to Varvarinskoye.

Our long-term plans are focused on exploration, which will help us to resolve all problems with feedstock supply. We have our own deposits and, also, there are the southern assets of Polymetal. We expect them to become a reliable source of ore in the long-term. I hope that steady deliveries will begin as early as the end of 2017.

- Thank you for your time!

May, 2016
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