Possibilities for foreign investment expanding in CIS

A mining delegation to the Commonwealth of Independent States (CIS) late in 1992 found that investment opportunities are more favorable than in the previous year, although the political risks are still considerable.

Mo Kaufman, a Spokane, Wash., mining geologist who has led groups of North American mining executives to the former Soviet republics on two occasions, said there now appears to be great potential for developing and expanding known deposits, and for discovering new ones.

First-time tire-kickers will find a tremendous database to work with, Kaufman told delegates to a recent mining convention in Spokane.

Before the failed coup of 1991, Kaufman said the old Soviet bureaucracy was offering about 120 properties as possible joint ventures. But Kaufman says they were generally unattractive.

“Now, each republic owns its own resources and they are all in competition with each other,” Kaufman said.

A number of North American mining companies have visited the CIS since more doors were opened to foreign investment. Uzbekistan’s gold potential has already attracted Newmont Mining, which is reported to be in the final stages of putting a heap-leach operation into production to treat dumps from past mining. The joint venture is expected to yield at least 2.8 million oz. gold, to be split equally between Newmont and the Uzbek government. Another popular destination, according to Kaufman, is Kazakhstan, which produced 70% of the old Soviet Union’s lead, zinc, titanium and tin. It also produced more than 60% of its silver and molybdenum, 30% of its copper, and almost all its chromium and phosphorous.

As well, Kazakhstan has coal reserves, large iron deposits, oilfields, and is rich agriculturally.

Kaufman said the delegation met with high-level government officials and found that excellent tax incentives are being offered to foreign investors, including several years tax-free and a tax ceiling of 35%.

The mineral potential of Kazakhstan was also featured at last year’s gold show in San Francisco. It was reported that several companies have signed joint venture agreements.

Minproc Resources, for example, has been investigating opportunities in the republic since early 1990. The company is now involved in a joint venture with Chilewich International and the Kazakh government, to develop the Bakyrchik gold deposit.

The project has measured and indicated reserves of 21 million tonnes grading 9.4 grams gold per tonne. Outlying mineralized areas are expected to bring the total resource to 42 million tonnes averaging 8.2 grams. Minproc said the project entails mining and processing of one million tonnes per year from open-pit and underground mines, to yield an expected production of 220,000-250,000 oz. gold. Total investment of US$100 million would be required for a 1994 startup.

The deposit is refractory, and Minproc’s proprietary Redox process will be used for the processing facilities. An average recovery of 85% gold overall is expected.

When the facilities begin operations, Minproc and Chilewich will receive 75% of the mine’s net profits until total capital costs have been fully amortized. Thereafter, Minproc and Chilewich will receive 40% of net profits. During the first five years of operation, the joint venture will pay no taxes. Kazakhstan, through its operating units, will contribute about US$60 million in equivalent sunk costs (for existing mine infrastructure).