Top Zinc and Copper Producer in Russia Plans Sweeping Growth

(Bloomberg) -- Russia’s No. 1 zinc miner and No. 2 copper producer plans a far-reaching expansion of its diversified minerals output, billionaire co-owner and Chief Executive Officer Andrey Kozitsyn said in an interview.

Ural Mining & Metallurgical Co., which sells half the copper it mines for export under long-term deals with traders including Glencore Plc and Trafigura Group, aims to restore output of the metal that’s been lost in recent years to deteriorating ore quality, according to Kozitsyn. It also plans to boost zinc output by as much as 15 percent amid global supply curbs that drove up prices.

Copper may see its first deficit in six years in 2017 with shortfalls through at least 2020, partly on less investment in new mines, Citigroup Inc. said in February. That may push prices up about a third to above $8,000 a metric ton, it said. Copper and zinc were among the best performers last year on the London Metal Exchange, rising 18 percent and 60 percent, respectively.

The copper content per ton of ore at Urals-based UMMC’s deposits has fallen to 1.2 percent from as high as 1.6 percent, Kozitsyn said in Moscow. That led to a more than 5 percent drop in production last year to 350,000 tons, or about 40 percent of Russia’s total output of the metal.

The company plans $1 billion a year of capital expenditure. That includes an effort to restore annual copper production to 370,000 to 380,000 tons over the next three to five years through additional ore enrichment, expanded mining, and processing of tailings and slag, the CEO said. UMMC accounts for about 2 percent of global output of the metal.

Copper Prices

Declining ore qualities for producers around the world will prevent copper prices falling below $4,500 a ton over the long term, Kozitsyn said. UMMC budgeted for $5,000 a ton in this year’s financial plan, he said.

Zinc content has also shrunk, though not as dramatically. UMMC plans to expand production by about 15 percent to as much as 290,000 tons a year in 2021, from 253,000 tons last year, by developing a new deposit, Kozitsyn said.

Copper lost 0.7 percent to $5,874 a ton by 7:57 a.m. in London, while zinc fell 1.5 percent to $2,732.50 a ton.

UMMC, whose main assets are in the Ural region, also produces lead, elements including selenium and cadmium, as well as coal, gold and cables. It’s an unusual level of diversification among Russian minerals companies, said George Buzhenitsa, a Dubai-based analyst at Deutsche Bank AG.

The company was founded in the late 1990s by Kozitsyn, 56, and billionaire Iskandar Makhmudov. Kozitsyn owns 35 percent, the main source of his at least $3 billion fortune, according to the Bloomberg Billionaires Index. Makhmudov controls 40 percent. UMMC’s 2015 revenue, the most recent available, was about $5.1 billion, with earnings before interest, taxes, depreciation and amortization of $1.3 billion.

UMMC also plans to expand output at its Kuzbassrazrezugol OJSC coal mining unit to about 50 million tons annually in the mid-term from about 44 million tons last year, Kozitsyn said.

Unlike many other Russian miners, the company doesn’t plan to sell shares or bonds.

"As a closely held company, we use debt instruments offered by Russian banks and this gives us debt terms that aren’t worse than other options," the CEO said.

--With assistance from Mark Burton

To contact the reporters on this story: Yuliya Fedorinova in Moscow at yfedorinova@bloomberg.net, Alexander Sazonov in Moscow at asazonov@bloomberg.net.

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Tony Barrett, Nicholas Larkin