Nordgold positions for expansion

In contrast to the cutbacks seen in the big players such as Barrick and Newmont, Russian billionaire Alexey Mordashov is manoeuvring his Moscow-based gold mining company Nordgold into a position where it can benefit from a price recovery in gold over the coming years. This positioning is comprised of both an expansion of existing mines in Russia and a search for early-stage projects for acquisition. Nordgold sees the current downturn and the corresponding drop in valuations as a good time to buy.

Chief Executive Officer Nikolai Zelenski announced in Denver this week that the move is partly motivated by a sense that current mining cutbacks have created the conditions for a decline in production in the coming years. Zelenski suggests that global gold output has probably peaked this year and Nordgold’s expansion plans are well timed to benefit from the likely price increases that declining output will result in. Production capability is not something that is easily or cheaply re-established once lost. “It’s very difficult to change the downturn direction” Zelenski said, estimating that “gold would have to get back to $1,400 for companies to start building new mines”.

A forward thinking business oligarch, Mordashov increased his holding in Nordgold late last year after a slump in the price of gold saw the miner’s market value fall by nearly 80% since its 2012 London listing. The additional 2% stake took Mordashov’s interest in the company up to over 86% at the time. Mordashov increased his ownership in April of this year to slightly under 89%, leaving the remaining 11% publicly owned.