Weekly Review of Russia's Mining Sector: Divergence Between Commodity Growth and Metallurgical Decline

Bottom Line

Investors should reallocate exposure within the sector: increase weight in assets related to gold, copper, and coal mining, especially in eastern regions and the Arctic, where record performance and large-scale investments are observed, while simultaneously reducing positions in the steel segment due to confirmed structural decline in domestic demand and deteriorating financial metrics.

Key Developments

1. Gazprom Neft's Discovery of a New Oil Field in the Yamal Arctic Zone — The company announced the discovery of a field with geological reserves of 55 million tons of oil, strengthening its position as a production hub in the south of the Yamalo-Nenets Autonomous Okrug. Portfolio implication: Consider increasing exposure to Gazprom Neft as a company with a growing resource base in the strategically important Arctic region, which supports the long-term production profile and reduces dependence on mature fields.

2. Elgugol's 22.6% Coal Production Increase to 35.1 Million Tons in 2025 — The company, part of Mechel, achieved growth thanks to the launch of a new export terminal at the Port of Vanino, which resolved key logistical constraints. Portfolio implication: Increase the weight of Mechel shares in portfolios focused on the commodity sector, as operational improvements and expanded export capabilities directly translate into revenue growth and likely margin expansion.

3. Sharp Deterioration in the Metallurgical Sector's Financial Performance — The sector's revenue decreased by 16.4%, and the EBITDA indicator nearly halved due to an 18% drop in domestic steel consumption, indicating structural rather than cyclical problems. Portfolio implication: Reduce or avoid positions in pure-play steel companies in the near and medium term, reallocating capital to mining subsectors demonstrating growth.

4. Nornickel Begins Construction of Gold Recovery Plant and Implements Unique Mining Complex — The company began construction of a gold recovery plant (GRP) at the Bystrinskoye deposit (launch in 2027-2028) and is implementing the world's first 160-meter mechanized complex for ore deposits, partially using Chinese equipment. Portfolio implication: Maintain positions in Nornickel as a leader in technological modernization and diversification into gold mining; however, factor in the company's forecasted 11% decline in palladium production in 2026 when forming revenue expectations.

5. Historical Production Records in Khabarovsk Krai and Production Growth at Yuzhuralzoloto — Mineral extraction in the krai grew 2.3 times, setting records for gold, tin, and copper. Separately, Yuzhuralzoloto reported a 13% increase in gold production in 2025. Portfolio implication: Seek opportunities to increase exposure to regional gold and copper mining assets, especially with projects in the Far East and Siberia, where the highest growth momentum is observed.

Sector Pulse

Risk Watch

• Deepening Structural Decline in Metallurgy — Further decline in domestic steel consumption and weak exports could lead to continued drops in revenue and profitability for sector companies, triggering revisions to dividend policies and capital expenditures. Probability: Medium. Impact: High.

• Execution and Logistical Risks of Large-Scale Projects — Major investment projects (e.g., Bystrinskaya Mining Company's 50 billion ruble project and Nornickel's GRP construction) depend on timely equipment deliveries, including imports from China, and may face delays and cost overruns. Probability: Medium. Impact: Medium.

• Volatility in Production and Prices of Key Metals — Nornickel's forecasted 11% decline in palladium production in 2026 against a backdrop of unstable global demand creates uncertainty for the company's revenue and may put pressure on its share price. Probability: High. Impact: Medium.

Outlook

Key events and indicators to monitor next week:

• Publication of detailed operational reports from major mining companies (e.g., Nornickel, Mechel) for January 2026 to clarify trends following strong 2025 results.
• Rosstat data on industrial production and extraction volumes by region, especially for Khabarovsk Krai and Zabaykalsky Krai, to confirm the sustainability of record performance.
• News on the progress of deliveries and installation of imported equipment for mining projects (including the mechanized complex for Nornickel) as an indicator of project schedule adherence.

Positioning consideration: Tactically increase the portfolio share of companies with confirmed operational growth and improved logistics (coal, gold, copper), while using any possible short-term strength in the steel sector to reduce exposure.