(Bloomberg) — The ruble is crashing. Oil is at a five-year low, and economic sanctions have slammed the brakes on the economy. It’s a good time to mine gold in Russia.
With gold typically priced in dollars, and labor and other expenses paid in rubles, Russian mining companies led by Polyus Gold International Ltd. are gaining from the weak currency. It doesn’t hurt that the price of gold has climbed about 7 percent this year as slowing world economies spur demand for the metal.
Russia is the biggest producer after China and its mining companies now have the lowest costs in the world, according to BCS Financial Group, a Moscow-based investment company. What’s more, the country’s central bank is buying up gold from domestic companies as efforts to curb the economic crisis decrease its foreign currency reserves.
“This year may become historically best for the Russian gold producers in terms of margins,” said Kirill Chuyko, head of equity research at BCS Financial Group, in a telephone interview. “Despite the double-digit inflation, their costs may decline as much as 25 percent this year.”
Still, the gains may be less pronounced in the future, according to Natalia Orlova, chief economist at Alfa Bank in Moscow. The central bank’s gold reserves may now be adequate, she said, and its purchases may not climb at the same pace as in 2014.
“By boosting gold purchases, the central bank reacted to sanctions,” Orlova said by telephone. “The regulator just wanted to diversify its international reserves basket away from dollars and euros as relations with the U.S. and Europe turned into a crisis.”
Lower Costs
Because of the falling ruble, the cost to extract gold in Russia was about 15 percent lower than the global average, which GFMS, a research unit of Thomson Reuters Corp., estimates at $736 per ounce.
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Polymetal International Plc, Russia’s second-largest precious metal miner, had average production costs as low as $625 an ounce in 2014, the company said last month. That may fall to $575 an ounce this year.
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