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Your guide to a disrupted world

Nastassia Astrasheuskaya in Novaya Chara

Russian scientists once considered detonating a nuclear explosion as the best way to start mining at Udokan, one of the world’s largest untapped copper resources.

That was in 1965, and technology has moved on, but the deposit — 400km north of the Chinese border in the permafrost of eastern Siberia — still represents a formidable challenge to geologists and engineers. An entire mountaintop has to be removed, and a way found to extract and refine complex copper ore.

Now, though, rising prices and expectations of growing demand are pushing miners to place huge bets on Udokan and another remote Siberian copper reserve, as Russia eyes a chance to develop hard-to-reach resources and become one of the biggest producers of the industrial metal.

The plans show how Russia, highly dependent on its vast fossil fuel resources, is trying to develop more resources associated with renewable energy and the revolution in electric vehicles.

“On a 10-20-year horizon, I believe the share of green energy metals in Russian exports will have to grow at a higher rate compared with the share of oil and gas,” said Yulia Buchneva, a Moscow-based metals analyst at Fitch Ratings.

Alisher Usmanov, one of Russia’s richest men, acquired Udokan via his USM Holdings company in 2008 and backed the development of new technology to extract its copper. Developing the mine will require about $7bn of investment. It is set to go into production in 2022 and raise annual production to 400,000 tonnes by 2026.

“At the moment, there are no projects coming up as large as this one,” Valery Kazikayev, chair of Udokan Copper’s board, said on a recent visit to the mine. “By output, we will be among the top 10 copper producers globally.”

Udokan, said Kazikayev was the last known global opportunity for a mine with significant copper content, above 1 per cent of the rock on average. “There are some [mines] being developed today with 0.3 per cent content,” he added.

At Baimskaya, an even more remote project in the Chukotka region of the Arctic tundra, Kaz Minerals is working on another ambitious investment.

Baimskaya is 3,000km away from the nearest railroad and 700km away from the nearest port. It needs not only roads and a new port; its power will have to come from floating nuclear power plants in the Arctic Ocean. The port might also need its own icebreaker to keep a sea route open.

Despite state help and tax breaks, Kaz Minerals has already raised its estimated investment for Baimskaya by half to $8.5bn.

“We have simple ore, but we have other problems, such as logistics,” Oleg Novachuk, the company’s chief executive, told the Financial Times. “I did not realise there would be this many infrastructure issues when buying the project, but we wouldn’t sell it anyway as our company has experience in managing challenges.”

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The mine is expected to open in 2027 and produce 300,000 tonnes of copper and nearly 500,000 ounces of gold annually over a decade.

Russia has more copper reserves than any country bar Chile and Peru, the number one and two producers globally, according to its natural resources ministry. But it has only been able to mine its biggest assets when the price of a tonne of copper has risen significantly above its long-term average, as is the case now.

The new projects, as well as continued growth at Norilsk Nickel, will allow Russia to more than double its annual output to above 2mn tonnes by 2030 and become the world’s fourth-largest producer, surpassing the US and China, according to the ministry.

It would mean Russia playing a much bigger role in copper markets. Alexander Chernykh, head of the ministry’s research institute for base and precious metals, reckons Russia will export around 700,000 tonnes more of the metal each year.

Not everyone believes copper is headed for a prolonged period of high prices that would make investments such as Udokan and Baimskaya easier to justify.

Rather, some investors and analysts believe the recent boom — prices hit a record high above $10,500 a tonne in May — is cyclical and can be explained by the post-pandemic economic recovery. They believe prices will soften because of slowing growth in China, the world’s biggest consumer of industrial metals.

And while few doubt the copper market will face long-term problems — analysts at BMO Capital Markets forecast a supply shortfall of several million tonnes — substitution with cheaper aluminium and increased use of scrap in some products can help fill the gap.

“Over the next couple of years there is, on paper at least, enough copper supply to meet the world’s needs,” said BMO analyst Colin Hamilton. “However, delivering on this supply is a perennial problem.”

Executives at both Udokan and Baimskaya say that, at current copper prices, the investments are expected to pay off in about a decade. Udokan expects to break even at half the current price — which the company says gives it a buffer against market shocks.

“If we look five years ahead, we are big optimists given the trend for a low-carbon economy. Electrification increases the share of copper in power-producing technologies — wind, solar, EVs,” said Kazikayev. “We foresee some price decrease, but the sustainable trend will only be upward.”

Kirill Chuyko, chief analyst at BCS Global Markets in Moscow, said Russia would become one of the main global suppliers of copper.

“The current copper price reflects the inefficiencies of copper projects in the world, primarily geological problems,” Chuyko said. “Russian producers are doing their best to squeeze out the maximum of the current situation.”

Additional reporting by Neil Hume in London

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