Russian REE sector facing serious stagnation

By Eugene Gerden

The Russian REE sector has been faced with serious stagnation this year, which is reflected by slowing down of geological exploration works and the overall deterioration of business environment in the industry.

This is also confirmed by latest data of the Russian Ministry of Natural Resources, according to which not a single new deposit of rare metals (including lithium, vanadium, molybdenum and rare earth elements) was discovered in Russia this year. This is despite significant tax incentives, which have been provided for the development of such deposits, by the state.

According to analysts, large capital costs and unclear demand prospects prevent potential bidders for investing in the pursuit of exploration works and development of the existing REE fields. Due to this, the list of potential investors is limited by large state companies and corporations.

According to data of the Russian Ministry of Natural Resources at present, there are about 50 licenses issued for the geological exploration of REE projects. According to local analysts, many of these licenses are currently abandoned.

In fact, exploration for rare earth metals is included in the existing “road map” for the development of metallurgical industry in Russia.

In accordance with the road map, a particular attention is paid for the development of lithium reserves in Russia, as, according to the Russian Ministry of Industry and Trade, there is a significant shortage of lithium in Russia at present, which leads to the growth of its imports to the country.

According to experts of the Ministry of Natural Resources, the development of rare metal deposits in Russia is still characterized by low economic efficiency due to large capital investments, which are required in the early stages in the development of these projects. In addition, there are no industrially proven technologies for processing raw materials, while many promising deposits are located remotely from infrastructure facilities, being mostly concentrated in the northern Russian territories.

This is despite the fact that in recent years the Russian state has provided serious benefits for the development of REE fields. As part of this, companies developing rare metal deposits have been granted significant tax benefits: the mineral extraction tax has been reduced from 8% to 4.8%, while in the first ten years of development the base tax rate is reduced by 10 times.

Still, as analyst believe the main incentive for the development of such deposits should be a significant growth of domestic demand for rare metals in Russia, which currently remains on a general low level.

The lack of new discovered REE fields in Russia will not prevent the development of already existing large projects, such as the country’s largest lithium deposits, Kolmozerskoye and Polmostundrovskoye in the Murmansk region, and Tastygskoye in Tuva. Recently the Russian government has issued licenses for their development for a joint venture between Rosatom and Norilsk Nickel as well as the Russian state and defense corporation Rostec respectively. The Zavitinskoye lithium deposit in the Trans-Baikal Territory (another major Russian lithium field) is planned to be licensed by the end of the year. In general, the development of domestic lithium base in recent years has become one of the priorities for the Russian state.

According to local analysts, rare metals in Russia are mainly consumed as alloys for rolled metal products or as components of electronic devices. Experts believe that it is difficult to quickly increase production by simply injecting funds into these industries, while one of the possible options to support the industry and major investors could be signing offset contract with the Russian Federal State Reserve Agency (Rosrezerv) to purchase rare metals at market prices. That will allow to liquidate some of risks, which are associated for miners with the current insufficient demand for such metals in Russia.

A similar idea is already included in the “road map” of the metallurgy development strategy, but until now the Ministry of Finance has opposed the purchase of any new categories of raw materials from Rosrezerv.

In the meantime, in order to stimulate geological exploration activity in the REE sector, the Russian state has recently announced its plans to allocate 88 billion rubles (US$950 million) from the budget for the period of 2024–2026.

That has been recently confirmed by Alexander Kozlov, Russia’s Minister of Natural Resources, according to which, a particular attention will be paid to geological exploration activity of lithium, titanium, manganese, niobium and a number of other rare metals.