RE: FITCH - Russian Mining Report15 Mar 2022 20:07
Final page - apologies for loads - however can’t upload link on ortex
Source: Bloomberg, Fitch Solutions
Surging inflation, supply chain disruptions, and uncertainty across the Russian economy are likely to affect miner capex and operations for Q2-4 as well as future investment planning. The steep devaluation of the RUB to over 130RUB/USD from the 65-75RUB/USD range has dramatically increased the cost of imports. Further devaluation and potential rushes of demand for FX from Russian depositors risks the stability of the financial system, and with it the flow of domestic credit to the mining sector. Recently published restrictions on exports to "unfriendly" countries excluded major commodities such as palladium and platinum, but the risk remains that further escalation of sanctions by the US, EU, and other security partners may trigger countersanctions responses intended to raise the costs of the existing sanctions regime by breaking supply chains and lifting inflation even higher. Our Country Risk team forecasts that Russian GDP will contract 5.1% for 2022 and conditions across the consumer economy are rapidly worsening.
Gold, however, faces more acute policy risks because of its role as a monetary reserve. The strict capital controls the central bank has adopted and risk of secondary sanctions on sales of gold that might otherwise support the RUB could spur the creeping 'nationalisation' of gold production. Expropriation risks are low unless miners decide to exit their respective projects, but there may be growing pressure for the government to intervene in production and direct output and sales as needed for the sake of monetary stability. An emergent banking sector crisis led by bank runs from nervous depositors would be a particularly worrisome development for gold production and exports on policy grounds given that the Bank of Russia has significantly increased its holdings of gold since 2014. Secondary sanctions on Russian gold sales could spark similar trends so that the state can find ways of maintaining FX earnings and exports using gold.
Respect to Ukrainians
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