Weekly Report on Russia's Mining Sector: Privatization of YUGK, Pressure on Coal, and Rising Investment in Geological Exploration

Bottom Line

Investors should pay attention to the ongoing uncertainty surrounding the privatization of YUGK (the repeat auction fell through) and the increasing pressure on coal exporters due to logistics costs and a strong ruble. Against the backdrop of rising private investment in geological exploration (over RUB 450 billion) and plans to increase precious metal production, it is worth considering increasing exposure to companies focused on gold and non-ferrous metals, as well as mining equipment manufacturers, but with caution towards the coal segment.

Key Developments

1. The repeat auction for the sale of the state stake in YUGK did not take place — The sole participant (company "Russian Coals") was not allowed to bid, although the asset retains interest from major gold miners. Portfolio implication: The intrigue surrounding YUGK remains: investors should maintain positions in gold mining companies, as a potential buyer may emerge soon, but high volatility persists. The rise in YUGK shares on the news of the repeat auction showed market sensitivity – speculative movements are possible.

2. Coal exporters are losing profits due to expensive logistics and a strong ruble — According to the Ministry of Energy's estimates, industry losses in 2026 could reach RUB 576 billion (~$8.1 billion). Portfolio implication: This is a signal to reduce positions in coal companies and suppliers of coal mining equipment, as declining revenues could lead to cuts in investment programs. The coal segment remains under pressure.

3. Private investment in geological exploration in 2026 will exceed RUB 450 billion — Of this, RUB 317 billion ($4.46 billion) for hydrocarbons and RUB 136.5 billion ($1.92 billion) for solid minerals. The Ministry of Natural Resources notes an increase in auction efficiency. Portfolio implication: Rising spending on geological exploration creates long-term demand for drilling and geophysical equipment, and is also favorable for service companies. It is recommended to position in securities of companies related to exploration and in mining projects with a confirmed resource base.

4. The government is revising environmental requirements and rules for issuing licenses for alluvial gold — Agencies will develop additional licensing criteria and simplified license revocation mechanisms. Portfolio implication: Tightening regulation could raise barriers for small subsoil users, consolidating the market in favor of large players (Polymetal, Nordgold, YUGK). Investors should expect increased ease of entry for large companies and heightened operational risks for small ones.

5. Expansion of the ASEZ "Chukotka" for the Baimskoye deposit and new investments in projects in Kamchatka — Nordgold acquired a 20% stake in a project in Kamchatka, and the ASEZ "Chukotka" was expanded for the development of the Baimskoye deposit (potential: +25% copper production, +4% gold production in Russia). Portfolio implication: These events confirm the strategic focus on the Far East. It is recommended to pay attention to shares of companies involved in these projects (in particular, Nordgold and potential participants in the Baimskoye project), as well as manufacturers of mining equipment, whose products are in demand for large-scale development.

Sector Pulse

Risk Watch

• Risk of YUGK privatization failure and lack of a buyer — If repeat auctions do not take place, the state may retain the stake, leaving uncertainty around the company's management. Probability: Medium. Impact: High (for YUGK shares and the entire gold mining sector regarding confidence in privatization).

• Deterioration of the financial condition of coal exporters due to the strong ruble and rising logistics costs — If the trend continues, industry losses could exceed the Ministry of Energy's forecasts (RUB 576 billion), leading to reduced investment and possible production cuts. Probability: High. Impact: High (for the coal sector and related industries).

• Tightening of environmental and licensing requirements for alluvial gold — Could lead to temporary production stoppages for a number of subsoil users and a narrowing of supply in the market, which will partially support prices but increase regulatory risks. Probability: Medium. Impact: Medium.

Outlook

Key events and indicators to monitor next week:

• Results of SPIEF-2026 (deals, announcements about new projects, including the mini-metallurgy project "Ferrum").
• Ruble exchange rate dynamics — further strengthening will increase pressure on coal exports.
• Precious metal production data for May 2026 – confirmation of stated growth rates.
• Further steps by MOL/OFAC regarding the NIS deal – impact on Russian shareholders.

Positioning consideration: Increase the weight of gold mining companies with active projects in the Far East and Siberia, reduce positions in the coal segment, maintain long positions in mining equipment manufacturers and service companies amid rising investment in geological exploration.