The gold mining company Solidcore Resources recently received confirmation of its delisting application from the Moscow Stock Exchange. From mid–October, its shares will be traded only on the AIFC’s primary platform, AIX. In the context of the Astana Finance Days taking place in the capital, the head of Solidcore Resources, Vitaly Nesis, told inbusiness.kz on the prospects of financing projects, purchases and exploration of a gold miner in Kazakhstan.
– Mr. Nesis, judging by the report for the first half of the year, Solidcore Resources’ revenue increased significantly due to the sale of Bakyrchik reserves (the Kyzyl project gold deposit in the Abai region. – Approx.) to China – does this mean that the long-standing issues of railway logistics are being resolved? Is the forecast for this year’s production of 475 thousand ounces of gold maintained, or will it be increased to 500 thousand?
– We are still not much ahead of this year’s production program. But still, I don’t see any grounds for revising the forecast for the year yet, we still remain conservative. As for logistical constraints, we have now redirected flows largely through Dostyk, so there are fewer problems. But again, the situation at both KTZ and Russian Railways is very unstable, so we are not relaxing, and honestly, I believe that as the heating season approaches and coal shipments increase, we will again face certain difficulties.
– In the first half of the year, did you sell the stocks that you had stored at Bakyrchik?
– No, they were just mostly on their way.
– So you don’t have such a strategy that you accumulate stocks of high-carbon concentrate from Bakyrchik, which can then be sold to China when gold prices rise?
– That’s a very good question. No, it wasn’t that we were somehow consciously waiting for the gold price to rise. It’s just that you mentioned logistical difficulties, mainly related to shipping through Russian ports in the Far East. This material, which was, let’s say, in transit, we shipped it and that’s it. That is, it wasn’t on purpose. We were lucky, of course, because we got a higher price as a result, but this is luck, this is not foresight.
– The company’s monetary position has improved significantly due to good gold prices. Is Solidcore Resources planning to borrow large sums from Western banks, the Development Bank of Kazakhstan (DBK), the Eurasian Development Bank (EDB) for the purchase of deposits, the implementation of projects of the Irtysh Hydrometallurgical Plant (Ertis MMK – the construction of an autoclave production in Pavlodar? – Approx.), “green” energy and a gas piston station? If so, on what terms? What fields does the company plan to buy in the near future and what might be their cost? Has the budget for Ertis MMK increased from $800 million?
– I’ll try to answer in order. We are not planning to raise money from banks yet, because the current interest rate environment is not very favorable. We continue to carefully study all possible alternatives, and I hope that by the middle of next year we will formulate a strategy for raising money. For now, we will implement an investment program and a program to acquire new assets using the existing cash reserves on the company’s balance sheet. Moreover, in accordance with the dividend policy, we are not going to pay dividends yet. We plan to clarify the budget for the construction of the EGMC in December this year after the completion of the basic engineering stage of the enterprise, which is being handled by the Canadian company Hatch. The current estimate is $800 million, and I hope that if it changes, it will change only slightly.
For some upcoming transactions, of course, I will not announce unsigned and unannounced transactions. I just want to say that we have already signed a term sheet (a preliminary agreement on the basic terms of the deal. – Approx.) We have two significant deals and are actively working on two more. I hope that before the end of the year there will be an official announcement about how Solidcore is taking the first steps towards implementing its aggressive growth program, which includes M&A transactions (mergers and acquisitions. – Note).
– So in general, if we look at your net cash position, these deposits can cost about 70-100 million dollars each?
– Anything can happen. Let’s do this, I’ll give you a range. If you look at the history of, let’s say, the former Solidcore Polymetal International, then the largest deal we had was for $630 million, which was the acquisition of Bakyrchik. But in Kazakhstan, there was a deal, for example, to acquire Komarovsky (a gold deposit in the Kostanay region. – Approx.) for 170 million dollars. And recently we bought out a junior partner in the Baksy deposit (a gold-mining site in North Kazakhstan region. – Approx.) for, if I’m not mistaken, 11 million dollars, that is, the spread can be huge.
– This year, expectations for inflation in Kazakhstan remain high, electricity and railway tariffs are rising. How does this affect the company’s economy? Previously, the financial director of Solidcore Resources Maxim Nazimok complained about the tenge-dollar exchange rate that strengthened in 2023. Does the current value of the national currency remain comfortable for you? What is the cost of production at Varvarinsky (gold and copper deposit in Kostanay region. – Approx.) and Bakyrchik now?
– Literally next week we will publish financial results for the first half of the year with a detailed analysis of our cost (the interview took place on September 5, 2024. – Note), therefore, I will not give specific figures prematurely.
It is clear that under the current market conditions, the profitability of all our assets is quite high. At the same time, we continue to be concerned about inflation in Kazakhstan, especially the outstripping growth of tariffs for railways and electricity. There is very intense competition for skilled labor amid the general boom in the mining and metallurgical industry. Therefore, despite the favorable conditions in the gold market, we remain quite vigilant about the cost structure and believe that, let’s just say, complacency and complacency have no place in our business at any gold prices.
– Usually, Solidcore Resources, back when Polymetal was active, interacted with local authorities and communities, allocated huge sponsorship funds through akimats. Why is there a situation in the village of Prigorodnoye, Kostanay region, regarding the Elevator deposit, which is planned to be launched in an open-pit operation in 2027 by a subsidiary of Komarovskoye Mining Enterprise, where local residents began to oppose the development? Is it true that the mining allotment, where mining is planned, affects the village and is located in less than 1000 m of the sanitary zone from the settlement? Will drilling and blasting operations there really threaten human health? Is the company ready to carry out gas in the village or relocate residents, as it was done, for example, ten years ago at Bakyrchik in East Kazakhstan region, when Polymetal simply bought private houses located close to the quarry at a very good price of 10-15 million tenge per dwelling, as a result, their former owners could buy apartments in nearby cities.
– Again, there are a lot of questions, I will try to answer one at a time. Firstly, the planned development of the Elevator deposit will take place in strict accordance with the legislation of the Republic of Kazakhstan. There will definitely be no violations, and we will fully comply, among other things, with the requirements of the new Subsoil Code. Naturally, when establishing a sanitary protection zone, it will be scientifically proven that there is no negative impact of any production operations, including drilling and blasting operations, on the health of residents of the nearby village.
From the point of view of the social program, yes, we continue to implement numerous projects in the regions and directly populated areas of our location and our work. With Prigorodny, I admit, we missed time a little bit, it took too long to determine the project that would bring the greatest benefit to the residents. I am very satisfied that the decision taken to design and then build the gas supply was positively received by the majority of residents, and from an objective point of view, I believe that this is the right project that will allow some of the economic benefits of the subsurface user to be transferred into the direct daily lives of ordinary people.
As for the purchase of housing, it is clear that the situation in Auezov and Bakyrchik was completely different. Residential houses there were sometimes a hundred and sometimes two hundred meters from the border of the quarry, and it was absolutely impossible to live there, they had to be bought in order to comply with the legislation of Kazakhstan.
In Prigorodnoye, as I have already said, we assume that mining operations will be carried out at a significant distance from the village. We do not foresee any harm or damage to houses. Therefore, we will continue to implement the social program so that the villagers do not even think about selling their own houses, as their lives will be better than before.
– If I remember correctly, in 2019 Polymetal invested more than $20 million a year in exploration in Kazakhstan, with an additional tens of millions of dollars allocated for additional exploration. Currently, 50 million dollars are planned for 2025-2029, according to your strategy. Why is the scale of investments in exploration in our country decreasing, were you not satisfied with the results of what your juniors or geologists were doing?
– Why is it decreasing? It was $20 million, it became $50 million.
– It means that $20 million a year used to be allocated. Then in 2019, you said that an additional $50 million would be allocated for additional exploration.
