The Definitive Guide to Russian Gold Stocks

Built on a foundation of an estimated $200 trillion in hard assets...

It's one of the largest and most profitable industry markets in the world.

And — if you're willing to invest a bit outside of North America — there may be some very interesting investment opportunities in Russia's massive metals and mining industry.

In just a minute, I'll tell you about several of these opportunities; I want to first give you the details of Russia's gigantic mining sector and resource base.

Russia's $200 trillion natural resource base

Russia is exceedingly wealthy in natural energy resources.

The country is home to the world's largest natural gas reserves and eighth-largest crude oil reserves. These resources have enabled Russia to become the world's largest producer of both oil and natural gas, accounting for about 20% of total global production.

Russia also hosts the world's second-largest reserves of black coal; the country is the third-largest coal exporter contributing around 11% to the global coal trade. The country recently inked a $6 billion deal with China to supply 475 million tonnes of black coal over the next 25 years.

Additionally found in Russia are vast reserves of raw industrial materials and non-fuel minerals.

This extensive mineral resource base is the foundation for the Russia's massive metals and mining industry, which is a vital supplier to other major economies in Asia and Europe.

Below you'll find Russia's most up-to-date mineral reserve and mining statistics:

In total, Russia accounts for about 15% of total global mineral extraction.

The metals and mining sector is Russia's largest private enterprise and a bellwether for the overall economy.

But it's the country's gold industry that has caught the attention of investors and the media as of late.

Russia calls for gold mining revival in the Gulags

Throughout Russia's Soviet-Era, the gold mining industry was a total government monopoly. But after the Soviet Union's ultimate dissolution into independent nations in 1991, the new Russian government began to deregulate its mining sector piece by piece.

Too bad the timing couldn't have been worse...

As production began to come under private control in the mid- to late-1990s, gold prices were sitting at the bottom of a 20-year bear market.

As a result, investment in Russia's gold industry quickly dried up, and production eventually fell.

In recent years, however, Russia's gold sector has embarked on a new era marked with heavy Western investment and rising gold production.

Overall, gold production in Russia has trended higher since the collapse of the Soviet Union.

In 1992, Russia produced 4.7 million ounces of gold.

The country has since increased gold production by 38% to 6.5 million ounces of gold last year, making it the world's sixth-largest producer. Russia's top five publicly-trading gold companies produced 3 million ounces of gold last year, supplying almost 4% of the world.

This year, Russian gold production is expected to slightly increase to 6.6 million ounces of gold.

Going forward, Russia's Gold Industrialist Union, the country's principal gold mining lobbyist, expects domestic gold production to increase 20% to 7.9 million ounces by 2015.

The further development and increased production of the Kupol Mine in the far Northeastern Chukotka Autonomous Okrug is expected to be one of the main contributors to this jump in Russian gold production.

The Kupol high-grade gold and silver mine employs both open pit and underground mining methods. The mine is jointly-owned by Kinross Gold (NYSE: KGC) (75%) and the Government of Chukotka (25%).

The Kupol deposit contains reserves of 3.4 million ounces of gold and 44 million ounces of silver.

Gold production from Kupol increased 48% last year to 926,000 ounces from 627,000 ounces in 2008.

However, Kinross recently reported that gold output from Kupol dropped 25% to 193,000 ounces — while cash cost increased 38% to $314 an ounce — during the first quarter of 2010.

Nevertheless, Kinross Gold's confidence is still clearly strong in Russia's gold sector, as evidenced by the recent +$300 million cash and equity acquisition of a few new gold projects in the Chukotka region...

In the deal with two private firms, the company acquired a 228,000 acres of exploration and mining licenses and the Dvoinoye gold deposit, which may contain up to 2.6 million ounces of gold.

The company reports:

The acquisition will further consolidate interests and provide the company with additional opportunities for exploration and mining in a highly prospective region of Russia where Kinross has a strong track record of operational success and community partnership over the past decade.

The Dvoinoye gold deposit and Vodorazdelnaya exploration and mining licenses are located just 100 kilometers north of the company's Kupol Mine.

Kinross plans to transport mined ore from the Dvoinoye deposit to the Kupol mill for processing. By leveraging the existing Kupol Mine facilities, Kinross will eliminate the capital-intensive need for the planning, permitting, development, and construction of an additional processing plant in the Chukotka region.

Another gold region in Russia that's quickly gaining investor attention is the central Krasnoyarsk Territory.

Krasnoyarsk is the top gold producing territory in Russia, supplying about 20% of domestic gold production. The territory is also responsible for producing 80% of Russia's nickel, 75% of its cobalt, 70% of its copper, and 16% of its coal.

Significant gold producers in the Krasnoyarsk Territory include Petropavlovsk PLC and Polyus Gold OJSC.

Company:	Petropavlovsk PLC
Exchange: Symbol	LSE: POG
Share Price:	£11.50
Market Cap:	£2.2 Billion
Website:	www.petropavlovsk.net

Petropavlovsk (LSE: POG) is a mid-tier gold producer focused on the development of low-cost gold mining assets in Russia.

The company recently doubled its proven and probable gold reserves to 6.7 million ounces — with an additional 8.2 million ounces of gold in the measured and indicated resource category, and 3.7 million ounces listed as inferred resources.

In 2009, Petropavlovsk produced 487,000 ounces of gold at a total cash cost of $309 an ounce, making it one of the world's lowest-cost mid-tier gold producers.

This year, the company expects to increase production by 38% to 670,000 ounces of gold, making Petropavlovsk the third-largest gold mining company in Russia.

After that, the company expects to ramp up production to 1.2 million ounces of gold per year by 2015 with new acquisition in the Krasnoyarsk territory.

Shares of Petropavlovsk trade on the London Stock Exchange, the main German exchanges, and the company has an ADR program with the Bank of New York.

However, trading on the German and U.S. exchanges is very thin; it looks like the best way to buy and sell Petropavlovsk is through the London exchange.

Company:	Polyus Gold OJSC
Exchange: Symbol	OTCBB: OPYGY
Share Price:	$26.00
Market Cap:	$9.9 Billion
Website:	www.polyusgold.com

Polyus Gold (OTCBB: OPYGY) is an international mining company that is the largest gold producer in both Russia and Kazakhstan.

Headquartered in Moscow, Polyus Gold’s operating mines and development projects are located in five major gold mining regions of Russia: the Republic of Sakha, the Irkutsk, Magadan, Amur regions, and the Krasnoyarsk Territory.

In 2009, the company produced 1.3 million ounces of gold. With the pre-commissioning of a new mine, enhanced capacities of current operations, and the recent acquisition of new gold producing assets, Polyus is expecting to increase output this year.

During the first half of 2010, the company produced 503,000 ounces of gold (a 5% increase compared to the same period of last year).

Polyus Gold is aiming to become one of the top five largest gold production companies in the world.

By 2015, the company expects to increase proven and probable gold reserve to 68 million ounces and have annual gold production of at least 3.9 million ounces.

Polyus Gold trades on Russia's stock exchanges and in the U.S. and U.K. under ADR programs. Shares of Polyus Gold's U.S. listing (OPYGY) trade much better than Petropavlovsk's ADR, so I would see no problems for North American investors buying the stock.

Other public companies working in Russia's gold sector include:

Where you should invest

About 50% of Russia's huge metals and mining industry is private. So for investors, access to half of the country's mineral assets are off limits.

And the majority of public companies that do have Russian gold assets don't trade on exchanges that are easily accessible to the North American retail market.

In fact with the exception of Kinross Gold and High River Gold Mines, I was unable to find any North American-based and listed companies with significant gold production in Russia...

So despite Russia's massive (and still growing) mining sector and estimate +$200 trillion natural resource base, North American investors have very limited exposure to Russia's gold industry, which means we're probably better off investing in regions where we have more access.

Good Investing,

Luke Burgess
Editor, Wealth Daily
Investment Director, Hard Money Millionaire and Underground Profits

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