Hands off Russian Gold

Jan. 18, 2004
John Helmer

MOSCOW - Parliamentary sources have confirmed that an official letter from the Federation Council, the upper chamber of the Russian parliament, was sent last month to Prime Minister Mikhail Kasyanov, requesting the government's action to exclude foreign mining companies from the bidding to develop Sukhoi Log, Russia's largest unmined gold deposit, and one of the largest in the world.

The move has been made to prevent Barrick Gold, and other international goldminers, from forming local partnerships and bid for the chance to develop the project. Between 1993 and 1997, a partnership led by Australia's Star Mining and JCI held the licence for Sukhoi Log, and prepared a feasibility study and mine plan. Their licence was revoked arbitrarily in 1997, and this led to Star's bankruptcy. The regional government of Irkutsk, where the deposit is located, and the local mining group Lenzoloto have been unable to persuade the authorities in Moscow to re-award the licence. Although the deposit is reputed to hold more than 30 million ounces, mining is technically difficult, and project costs at the remote site have been reported to range between $500 million and $1 billion.

The Federation Council comprises two representatives of each of Russia's 89 regions, including the governors. Asked who had initiated the proposal to ban foreign miners from Sukhoi Log, Valery Tikhomirov, a representative of Omsk region and chairman of the Council's Natural Resources Committee, declined to respond. The committee's chief of staff Zhaslyk Altinbaev, told Mineweb: "the letter was officially signed and proposed by the Federal Council, not just by the Natural Resources Committee." Asked if the Krasnoyarsk governor, Alexander Khloponin -- a former chief executive of Norilsk Nickel -- had been one of the initiators, he would not say, adding "it doesn&Mac226;t matter who prepared it." Norilsk Nickel is one of the two Russian goldminers currently leading the race for the Sukhoi Log licence, which is expected to be put up for tender after the presidential election in March. The other lead contender is St.Petersburg-based Polymetal.

Oleg Deripaska, who controls Russian Aluminium and a group of other companies active in paper and pulp, autos, insurance, banking, and steel, has also said that he intends to bid for the project. Deripaska is one of the so-called oligarchs who have become targets of tax and other investigations, spurred on by President Vladimir Putin. The principal mining experience of the Deripaska group is at bauxite deposits in Guinea. Sources in Moscow believe Deripaska is seeking a foreign operator as a partner in the gold bid.

Barrick Gold, the big Canadian goldminer, has recently sent experts to review the situation in Irkutsk, and is currently deciding whether to invest $116 million in the London-registered Highland Gold, which has a working goldmine in the Russian fareast, and two projects under development elsewhere in Siberia. Last October Barrick bought a 10% stake in Highland Gold for $43 million, when SA's Harmony Gold sold out.

A spokesman for the Chairman [Speaker] of the Federation Council, Sergei Mironov, a St.Petersburg representative, told Mineweb that Mironov had signed the foreign ban request in a letter to Kasyanov. Mironov, said the spokesman, then postponed Federation Council consideration of the issue until this month, possibly later, while additional information is obtained from Irkutsk. Until now, regional and federal government officials -- who must agree on the terms of the tender, and who have been discussing them for nearly seven years -- have favoured a ban on foreign owned or foreign-controlled mining companies. However, the estimated cost of developing the mine is so high, foreign mining companies may be needed to participate in the project, mine industry sources say.

If the ban is adopted, this would block Barrick Gold and Highland Gold from competing for the licence.

Vladimir Litvinenko, an influential advisor on mining policy to President Putin, recently told Mineweb that Sukhoi Log is a "considerable deposit with a complicated geological structure. Preference should be given to domestic companies. Only in the absence of domestic contenders, foreign investors should be invited on the same conditions as the Russian contenders". Litvinenko is a leading contender for a high ministerial post when Putin appoints his new cabinet. This is not expected until after he wins re-election. Balloting is scheduled for March 14.

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