President of Russia Vladimir Putin: Good afternoon, Mr Novachuk.
Tell me about your company. I know that it operates in the CIS and Russia and that you are about to start a big project in Chukotka.
Chairman of the Board of Directors of KAZ Minerals Oleg Novachuk: That’s correct.
Vladimir Putin: Please, go ahead.
Oleg Novachuk: Our company was founded in Kazakhstan. We started by developing deposits with small amounts of copper but large areas. Today KAZ Minerals is the largest copper producer in Kazakhstan. We also have projects in Kyrgyzstan, where we are the second largest gold producer.
When we started exploring potential areas where our experience could be useful, we researched 92 copper projects around the world and realised that Russia’s potential is simply enormous. We made comparisons, and I wanted to report to you about the Baimskoye field, located north of the Arctic Circle in the Chukotka Autonomous Area, which turned out to be the fourth largest in the world.
You can see from this chart that the first largest is located in America. It is called Pebble. The third largest, Reko Diq, is located in Pakistan. Production at the first mine seems to be impossible because they have been trying to obtain a permit from environmental authorities for 35 years. Most likely, production at this mine will never begin. As for Reko Diq in northwestern Pakistan, for 12 years, it has been a subject of litigation between investors and the local government, which does not report to the central government. So, it is also unclear when production will start.
If we forget about these two mines, our field will be the second largest in the world.
Vladimir Putin: What about this one?
Oleg Novachuk: This is Udokan, another deposit in Russia. Essentially, the two largest deposits are located in the right place. I will tell you about our strategy in a bit. Both of these deposits are the right size and located in the right place.
Our Baimskoye field has tremendous reserves, including projected reserves. They amount to 23 million tonnes of copper and 2,000 tonnes of gold. This is possibly the largest copper and gold reserves in the world, since the largest field, Pebble, also contains 2,000 tonnes.
We are planning to develop this deposit for 60 years, and initial production is scheduled for early 2027. We will process 70 million tonnes of ore.
We are planning to build two ore-processing plants with an annual capacity of 35 million tonnes each. They are now seen as the world’s largest. The plan is to produce 400,000 tonnes of copper equivalent annually.
The deposit was discovered in 1972 but has not been developed so far. This can mostly be explained by low copper content in local ores, just 0.5 percent. About 25 years ago, such deposits were not valued, they were not included in balance sheets, and no one even bothered to look at them. By the way, all of the five largest deposits, except Udokan, were not listed among deposits, either.
About 25 years ago, new technologies were developed and large-scale equipment emerged. I will report about this equipment separately. After that, they started looking more closely at these deposits, which became economically viable.
We have another problem here in Russia, and it has to do with infrastructure. Of course, no technology can help when there is absolutely no infrastructure.
The climate, especially in Chukotka, causes the third layer of problems facing such deposits. The problem is that it is possible to deliver a consignment during the four-month navigation season and unload it at a port. However, the deposit is located 600 kilometres away, that is, along a straight line. But the actual distance is even longer. Add to this the marshy terrain in summer, and it is impossible to deliver the shipment.
So, in the end the deliveries are made in winter, when the terrain is frozen. But the navigation season ends and the cargo has to wait. Consequently, I have to buy everything that I need for the next winter season already today, before the contract expires. If anything goes wrong or there’s a miscalculation, the project is delayed by 12 months. And such ambitious large-scale projects as ours …
I just wanted to show you that we have already finished the estimates for this project, and have done the banking, technological and economic feasibility study. We are expecting the project to cost 620 billion rubles or US$8.5 billion. We have already spent 44 billion rubles.
We are planning that tax proceeds worth over one trillion rubles will be added to the budgets at all levels. This would double the Chukotka budget, and the Chukotka Autonomous Area would stop receiving subsidies for the first time.
During construction, we are planning to create about 11,000 jobs, and the project itself is to employ over 5,000 people during its operation.
In addition to this, we are expanding freight traffic volumes via the Northern Sea Route by two million tonnes. These volumes will allow Russia to expand copper production by 25 percent, and national gold output will increase by four percent.
Consequently, this Chukotka project is turning into a vital infrastructure component. Apart from creating jobs for this project, our business will attract other enterprises, including transport companies, public catering companies and service companies. In effect, the project will be surrounded by small and medium-sized businesses, and we have not yet found out how many people will be working alongside us.
Quite possibly, we will be installing broadband internet for the first time in Chukotka’s history. Some areas that I have visited lack not only internet access, they have no telephone lines. As our project requires internet access, the region will also become quite well-off, little by little. I will also report on technologies a bit later.
Of course, we have to accomplish an ambitious task and see to it that this site will be able to use the technologies that we want to introduce there, which requires the creation of the relevant infrastructure.
Of course, I would like to thank you very much for supporting the project to create small floating nuclear power plants. It involves Rosatom and the United Shipbuilding Corporation. We have now established a good partnership with them. These power plants guarantee stable electricity prices for a period of 40 years. This was the most important aspect that attracted us. The nuclear power industry was the only way to estimate the project’s costs and to raise the required funding. We also had some other ideas, but, of course, it is impossible to implement them using some other fuel because prices for all other energy carriers are subject to change.
We have agreed with Rosatom that they will build four barges with the capacity of about 110–115 megawatts each, which means the installed capacity for the construction of floating power plants will be 440 megawatts. One barge will stand in reserve, and three will generate electricity for us.
In addition to this, it is necessary to build a port where these barges will be located. Since we are talking about this, we have thought about this, and we will be building a new port located near us. Originally, we had a plan to use the infrastructure of an existing port: the state planned to construct 860 km of roads to the Pevek port, but it is clear that it would be very difficult to carry two million tonnes by trucks for 800 km.
When I arrived at the site, we mapped out a new one, which is only 400 kilometres from the field – “only” compared with 800 kilometres. Rosatom has offered new technologies. They already have a nuclear power plant in Pevek: the Akademik Lomonosov station. But we are talking about a new generation, that is, they put other, more powerful units there. These are units that work on icebreakers. In fact, this is the same icebreaker, so we considered it possible.
We have agreed that we are building a port, and we are also building a road and 330-kilovolt (kV) power lines thanks to the support of the state: of course, the Russian Government has played a large role here, Prime Minister Mikhail Mishustin, and Yury Trutnev [Deputy Prime Minister – Plenipotentiary Presidential Envoy to the Far Eastern Federal District] is also supervising this project.
Vladimir Putin: Are you included in the Far Eastern concession?
Oleg Novachuk: Yes, we are, but we have several different lines of cooperation.
First, the Prime Minister instructed the Finance Ministry and the Transport Ministry to allocate 20 billion rubles for waterworks in the construction of the all-year-round port, and we are building the cargo terminal worth 15 billion rubles, so we can see we have public-private partnership here.
Regarding the aerial power line, 29 billion rubles of subsidies have been allocated for the construction, but only for the lines, and we have taken on the responsibility for building substations and switching stations. And if it suddenly turns out that the calculations were incorrect and the 29 billion rubles is not enough, then we will add our own funds. This is a partnership, too.
We have also agreed to build an all-year-round road and split the cost in half: we pay 35 billion and the state allocates another 35 billion as a Far Eastern concession. This means the concession will work in such a way that the state gives us a guarantee, we raise a loan, build this road, and then over a period of 12–15 years, the state pays for this loan, and we serve the interest on this loan. It is also a very flexible, very interesting, unprecedented scheme.
This means we have solved all infrastructure-related issues. But apart from the fact that the infrastructure is useful for our project, the most interesting thing is that for the first time we will have an all-year-round port there, so we can forget about the “winter delivery” term.
Right now talks are underway with Rosatom about constructing a personal icebreaker that would be used on our project, as well as three ice-class vessels that would deliver food and everything necessary all year round. This way we would provide for the continental part of Chukotka.
In addition to this, we also have a road that connects our project with Yakutia. I mean this is an already existing road…
Vladimir Putin: How many kilometres?
Oleg Novachuk: About 250 km, if I am not mistaken. This means that Yakutia, this part of Yakutia, will also be connected with the port, and we will be able…
Vladimir Putin: To deliver there for Yakutia, too.
Oleg Novachuk: Yes, we can deliver everything for Yakutia, too.
Right now we are working on other ideas involving the road that I would like to consult with you about. We are thinking about how we can build this, which companies we will attract to interact with Russian ones as much as possible. It is clear that Rosatom will provide 100 percent of maintenance, and we will try to work with Russian companies on the construction of roads and power lines, too.
Vladimir Putin: Okay. Thank you.