Russian Billionaire's Miner Sees Gold Pain as Buying Opportunity

  • Expects cutbacks, focus on cash as foreshadowing output drop
  • Planned London listing would require gold to hold about $1,200

Russian billionaire Alexey Mordashov’s gold mining company is positioning for a price recovery by buying more assets, defying an industry trend of cutbacks and closures.

Besides expanding existing mines in Russia, Nordgold NV is looking for early-stage projects that improve its reserve base, Chief Executive Officer Nikolai Zelenski said in an interview Monday from the Denver Gold Forum.

While the world’s biggest producers including Barrick Gold Corp. and Newmont Mining Corp. sell assets and cut spending in a bid to contain debt levels exposed by gold’s more than 40 percent plunge from a 2011 peak, Moscow-based Nordgold sees the downturn and the ensuing drop in valuations as a good time to buy.

“That’s why we’ve been making deals in the recent past and we plan to continue to do so in the future,” Zelenski said.

Nordgold is interested in the Sukhoi Log deposit, considered one of Russia’s largest fields with resources of about 1,953 tons of gold. The government plans to sell the licenses for the Siberian deposit next year.

Upbeat Outlook

“It’s huge,” Zelenski said. “We would be certainly interested to look at it.”

His upbeat outlook for gold prices is partly driven by expectations that the industry’s cutbacks and focus on cash generation is foreshadowing a decline in production in the coming years. Global output probably peaked this year, he said.

“Once it’s peaked, it’s very difficult to change the downturn direction,” Zelenski said. “It may last many years.”

Even so, plans for a so-called premium listing in London would probably require gold to hold above $1,200 an ounce for a sustain basis, he said. Gold fell 0.8 percent to $1,123.93 an ounce at 3:55 p.m. in London, while Nordgold global depository receipts declined 0.7 percent to $2.97.

“In this market, we are buyers rather than sellers,” he said, referring to an ongoing buyback program.

‘Beaten Down’

The industry’s pain -- with more more than half not generating free cash flow and leverage levels still high -- may trigger consolidation soon among “beaten down” junior companies, while larger companies can operate for a while longer at low prices, Zelenski said.

Gold would have to get back to $1,400 for companies to start building new mines, he said.

Nordgold, created from a 2012 spinoff of assets acquired by Mordashov’s steelmaker PAO Severstal, has almost doubled in value this year after starting a share buyback in January. It has assets in Russia, Kazakhstan and Africa.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE