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Davron Rustamkulo

KAZAKHSTAN - Energy & Mining

On the Grindstone

Member of the Supervisory Board, RG Gold & Chief Investment Officer of Verny Capital


Davron Rustamkulov has over 18 years of experience in private equity and M&A in the CIS. Rustamkulov joined Verny Capital in November 2012. Previously he was the head of M&A for Ernst & Young in the CIS. Between 2008 and 2009, he managed Morgan Stanley’s Kazakhstan representative office. Rustamkulov graduated from Tashkent State Economic University, majoring in international economics, and has an MBA degree from Tulane University.

TBY talks to Davron Rustamkulov, Member of the Supervisory Board of RG Gold & Chief Investment Officer of Verny Capital, on RG Gold's goal of becoming a top mining player, future expansion plans, and the role of mining in Kazakhstan's development.

What is RG Gold’s growth strategy to achieve its goal of becoming one of the top mining companies by 2017 and increasing production 50% by 2018?

Our strategy is divided into short- and long-term objectives. In the short term, we aim to expand our current capacity and remove bottlenecks in the production of oxide ores. We plan to build another crushing and screening facility that will help increase production by 50%. By 2018 we will produce about 1.5 tons of gold. In the long term, we want to work with primary ores where the main value is underground. We have about 4.2 million oz of gold in underground resources. We need different technologies to mine that and will need to build a comprehensive plant. It is a massive new facility that will require an investment of about USD150-200 million. Once complete, we will produce up to six tons of gold, making us a significant player in the market. We want to reach this objective by 2021. We expect the mine to operate another 15-20 years.

Can you tell us about RG Gold’s operations and major achievements over the past few years?

In 2012, the company was acquired by new owners that were financially strong and business savvy. A few years earlier it successfully developed the Altyntau gold mine. 80km north of RG Gold, it produces over 300,000oz of gold per year. The company invested around USD700 million and successfully exited the project with a significant return on capital. We were confident RG Gold would follow a similar path. The first thing we did was build new and comfortable dormitories and recreational facilities. Health and safety were put forward as top priorities for the entire staff and integrated into all aspects of daily operations. We then developed a second open pit, invested in a new crushing and screening plant to double the production to over 30,000oz of gold per year, completed an upgrade of a hydrometallurgical plant, and built two new core warehouses. We generated enough cash to finance our exploration program. In 2016, RG Gold completed unprecedented exploration work that promises to result in a three-fold increase in resources—over 4 million oz of gold in an open pit. When converted into reserves, this will provide the basis for the company’s future development. We expect JORC-compliant reserves to be reported in the first half of 2017.

What are your future expansion plans and main priorities for the coming years?

Our oxide ores are expected to last until 2021-2022. By that time we plan to design and build a new gold process plant that will allow us to treat primary ore, which requires intensive crushing and grinding before being treated by similar leaching technologies. We plan to retain world-class engineering firms that can help us design, build, and put into operation the most efficient and technological plant. We expect to invest over USD150 million of our own capital and debt financing. By the time the plant is operational in 2021-2022, we will produce up to 200,000oz of gold, which will make us a significant gold producer both in Kazakhstan and the CIS.

Mining exploration can be risky and expensive. How do you overcome that challenge?

Mining is a risky industry; a company runs the risk of not finding anything underground or finding something that is not economically feasible. The right approach is to conduct exploration in stages. Once it feels confident there is something underground, a company can invest more money. That is what everyone does. It helps mitigate risks and manage costs more efficiently. There are various ways to conduct exploration that do not involve digging, for example airborne studies, where we take photos that show magnetic fields and we determine where the prospects lie depending on that magnetic map. When the mining code reforms come into effect, they will help entrepreneurs and those who are prepared to take risks to take them with less obstacles and less investment, along with more certainty that if they find something it will be theirs. Once those risks are managed better, the industry will move forward much faster. Metal prices are going up as well, so that is also a big boost.

How else will the new mining code affect and improve the mining sector in Kazakhstan?

I have not seen the code as it is still being drafted; however, it is purported to liberalize the industry and offer easy, fair, and transparent access to exploration blocks. Many principles will be adopted from a similar code in Australia based on a first-come-first-serve approach and companies will not have to pay large amounts as they enter the sector. Companies will, apparently, have to make certain commitments in exploration, which will grow over time. The new regulations will help companies to do all the right things from the beginning, so there are incentives to explore and operate immediately, rather than just getting a concession and then sitting on it for three years, and so on. It will liberalize the market as well, with more players paying and then playing, so to speak. It will enhance the attractiveness of the mining sector. We support any effort to remove risks in the industry and promote investment into new exploration. This will bring a new dynamism to the industry.



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