Newmont’s Uzbek joint venture declared bankrupt

The Uzbek Navoi Economic Court has imposed “supervisory measures” and installed a temporary administrator as part of bankruptcy proceedings against Newmont Mining‘s (NMC-T, NEM-N) 50%-owned Zarafshan heap-leach operation in the Kyzylkum desert, 402 km west of the Uzbek capital of Tashkent.

The court order restricts, among other things, the operation from exporting gold or repaying loans without the permission of the new administrator overseeing the joint venture’s operations. Another hearing is slated for Sept. 29.

Newmont says the bankruptcy proceedings and criminal investigations of the operations and its personnel are part of an effort by the government to effectively expropriate its interest in the asset.

In June, the court ruled that the joint venture owed some US$48 million in back taxes. Newmont has filed an appeal of that decision with Uzbekistan’s High Economic Court. It also intends to pursue international arbitration aimed at recovering its share of the value of the joint venture’s remaining gold reserves.

At the end of 2005, Newmont’s shares of reserves stood just shy of 1.7 million oz., good for around five years of production at current gold prices. At the end of the second quarter, Newmont valued its stake in the joint venture at US$94 million.

Newmont previously expected its share of gold sales from Zarafshan to total around 90,000 oz. during the second half of 2006. The operation sold 122,700 oz. gold in 2005. During the recent second quarter, Newmont’s sales from the operation slipped by 8% from a year earlier to 27,300 oz. The decrease is owing to the timing of flows from the leach pads; ore grade increased 23%. Costs were relatively static.

Zarafshan produces gold from low-grade oxide ore stockpiles generated by the massive Muruntau open-pit gold mine, which has been in operation since the 1960s. Zarafshan is expected to run through mid-2011.

Newmont’s partners at Zarafshan are the State Committee for Geology and Mineral Resources (Goskomgeologia) and the Navoi Mining and Metallurgical Combine.

Shares in Newmont were off US75 at $49.97 at midday in New York on Aug. 18.