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4 Feb, 2008 03:47

Back in vogue: investors eye gold producers

2008 is set to be a record year for Russian gold. With prices rising to record levels, gold producers are becoming increasingly attractive to investors. Russia ranks fifth among the top gold producers, but production is rising and is expected to reach alm

The precious metal is coming back into focus with rising inflation around the world and a sliding US dollar, seeing it return to prominence as a hedge in troubled times, as well as its increasing use in jewellery.

In Russia, this means that more producers are in the spotlight, both for their production and as potential takeover targets.

Interest in Polyus Gold, Russia's largest producer, comes in the wake of increasing interest from metals magnates with a range of deals over the past year seeing gold assets being picked up.

Roman Abramovich's Millhouse Capital started the trend when it picked up the Dvoynoe gold field. He was followed by Severstal's Alexei Mordashov's buy-out of London-listed Celtic resources and its range of Russian production assets. Oleg Deripaska is expected to be the next billionaire to enter the industry.

With global prices above $US 900 and the outlook still on the upside, these moves are looking increasingly astute.

“Gold has been associated in the past several months with the save harbour for a lot of investors and, of course, those who have foreseen these developments with regard to the dynamics of the gold price have been rewarded quite handsomely,” says Yaroslav Lissovolik, Chief Economist at Deutsche Bank.

Russia's gold production remains relatively fragmented, with Polyus being the largest player in a field of mid-sized producers which includes Highland Gold, Peter Hambro and Polymetal, and then a range of small producers.

With the world economy looking increasingly fragile, the oldest precious commodity will be increasingly attractive. And as Golds moves back into the limelight Russian producers can expect much more interest from local as well as international investors.