Russian gold miners are restructuring exports after US sanctions

The Russian gold mining sector, all of whose major representatives are subject to blocking US sanctions, is restructuring its exports by adding intermediaries to the supply chain. According to a representative of Yuzhuralzoloto, the decrease in margins is insignificant, since technically the export of gold is much simpler than other commodities due to its compactness. A more significant problem remains with making payments – gold miners, even having abandoned the dollar, have difficulty paying in the currencies of friendly countries.

Yuzhuralzoloto (UGK), after the company and its main shareholder Konstantin Strukov are included in the SDN-list, will change the export chain. “We will add intermediate mechanisms and intermediary companies. There will be no significant changes,” said a company representative. According to him, the decrease in export margins will be insignificant – “on the order of tenths of a percent.” “Exporting gold is easier compared to other commodities. A ton of gold is a meter by meter on your desk,” he explained.

USA imposed sanctions against SGC in the latest package published on February 23. The company then stated that it would continue the production and sale of gold in accordance with the approved plan. “The company has no assets outside of Russia and does not interact with American legal entities or citizens. As of 2022, we have suspended settlements in US dollars. When selling gold and purchasing foreign equipment, we make payments in rubles or in the currencies of friendly countries,” her statement said.

The situation with making payments is more complicated than with organizing exports. Payments in the currencies of both friendly and unfriendly countries come with certain difficulties, a representative of a gold mining company admits.

“We are starting to use a backup plan. That is, we know how to rebuild this chain, through which financial institutions, in what currencies to pay or receive payment,” he said, answering a question about the impact of blocking US sanctions on payments. In recent weeks, Russian businesses have been facing problems with making payments in Turkey and China. Chinese banks are also tightening checks for payments from the Russian Federation.

At the moment, all major Russian gold mining companies are under blocking US sanctions. Thus, the SDN-list includes Polyus, Polymetal, Highland Gold of Vladislav Sviblov, Vysochaishy, ​​Russian assets of Geopromining, and gold mining assets of Andrey Komarov. However, so far this has not caused any noticeable problems with gold exports. Export supplies of metal remain significant, says Boris Krasnozhenov from Alfa Bank. “It is possible to use various chains of intermediaries that have minimal impact on sales margins,” he notes.

Over the past two years, Russian gold mining companies have been working to adapt to sanctions, which allows them to maintain their business model with minor losses in revenue, confirms the head of the Union of Gold Miners of the Russian Federation, Sergei Kashuba. Gold mining companies did not provide comments, citing the high sensitivity of the topic.

Mining companies now either sell gold to Russian banks, which can already export it, or export it themselves, obtaining the appropriate licenses. The export itself is carried out on passenger aircraft in the luggage compartment. When exporting, companies must now pay foreign exchange duties (5–7% depending on the dollar exchange rate); the duty is taken into account in gold prices on the domestic market. As Boris Krasnozhenov notes, in general, the price of gold on the domestic market reflects a price equal to the profitability of exports, and the differences from external prices are small.

Evgeniy Zainullin