- The two largest Russian gold mining companies are ambitiously expanding their operations at home and abroad
- Almost certainly the increased production will be earmarked for the Russian Central Bank gold reserves
This is an excerpt of an article that originally appeared at Zerohedge
It looks like Russia is stepping up its efforts to secure a continuous increase in its gold holdings.
Two of the world’s largest gold mining companies are actually Russian, of which Polyus Gold is the largest one with an expected gold production of 1.7 million ounces of gold for this year, further increasing in the near future as it plans to bring another Russian mine into production.
What was drawing our attention was the recent announcement by Polyus that it would be ‘hedging more of its gold production’.
As this is a Russian company with Russian mines financed by Russian banks, we would dare to put a lot of money on a bet that the hedge deal involves a Russian bank.
That Russian bank will very likely be Sberbank as it is Polyus’ main financier which has recently re-confirmed its confidence in the company through providing a $1B credit facility.
And guess who’s the majority owner of Sberbank? INDEED, The Russian Central Bank.
So it’s starting to look like Polyus’ hedge program with physical delivery will result in its gold bars being sold to the Russian Central Bank through Sberbank’s hedging program.
On top of that, Polyus was sitting on $1.8B in cash as of at the end of September, and its cash pile is growing at a rate of $2M per day (yes, even at the current gold price).
The question is what will it do with the cash and it’s very likely more gold projects will be added to the portfolio and we wouldn’t be surprised if the company was pushed by the Central Bank and Sberbank to do so.
We wouldn’t be surprised to see Polyus Gold follow the ‘international’ approach of Nord Gold.
Nord Gold has been stepping up its game lately as it entered into two joint venture agreements (in Canada and French Guiana) and it acquired another advanced stage project in Burkina Faso where the company is already operating.
There’s little doubt this is just the starting phase and we expect both major Russian companies to buy more projects and companies to get their hands on as much gold as possible.
All the signs are pointing in the direction of an end game as Russia’s major producers have very strong ties to the Putin regime and the Russian central bank, which is ultimately where the gold will end up.