Magadan gold producers struggle through 1997 — Output down but officials optimistic for future

The gold mines of Russia’s Magadan state didn’t perform as well as expected in 1997, according to a report released by The Magadan Regional Committee for Natural Resources.

The report, which is part of an ongoing assessment of the state’s gold mining operations, compares projected 1997 production and exploration targets with actual figures recorded during the year. Although the report states that many of the projects assessed to date have performed poorly, it is cautiously optimistic that overall gold production for 1997 will increase over figures recorded in previous years.

The Susuman mining and milling complex in the central region of the state is reported to host a reserve of 48 tonnes gold, though more than two-thirds of that reserve cannot be mined economically owing to the current low price of gold. Production in 1997 by Susumanzoloto, the company mining the deposit, fell short of expectations; only 3 tonnes of a projected 3.7 tonnes were mined. Production in 1996 was 3.85 tonnes. For 1998, the company plans to produce 3 tonnes gold, as well as attempt to identify an additional 2.3 tonnes of reserves.

The company also owns the Khakchan deposit, which is proving to be smaller than originally thought. The company once estimated gold reserves at the deposit to be 90 tonnes, but have only been able to prove up 3 tonnes. Plans to joint venture the property with an Australian company also have not yet materialized.

Production at the Berelyokh mine in the central region also fell short of expectations. To October, output at the mine was little more than 2 tonnes gold, slightly less than a target figure of 2.3 tons. Production in 1996 was 2.55 tonnes and output in 1998 is expected to remain at current levels.

The Yagodnoye mine is also performing poorly. The mine, which is reported to host a reserve of 23 tonnes, produced only 2.2 tonnes, almost a tonne fewer than anticipated. Output in 1996 was just more than 3 tonnes. Output during 1998 is expected to be 2.1 tonnes. According to the management at the mine, the operation’s woes are attributable to US$1.7 million it owes in back taxes, as well as another US$8.6 million debt payable to the local government. Like many other mines in Russia, the project is responsible for the maintenance and upkeep of three nearby towns. That obligation costs the company about US$3.2 million per year.

Poor performances by the state’s mines translate into idle plants and refineries, the report says. The Karamken gold processing plant has been idle since 1995, when reserves at the feeder mine were depleted. The plant could be reopened, but, as the report notes, it would require the addition of an another circuit in order to process silver concentrate from the nearby Dukat and Lunnoye deposits. The addition of a silver concentrate circuit could cost as much as US$3 million. Concentrates from the region are currently processed abroad under an agreement with Cominco.

On the upside, a gold refinery is currently under construction 77 km north of the city of Magadan. The projected cost of the project, which is being built by U.S.-based Intertech, is estimated at US$14.3 million. Of that total, construction costs are pegged at US$5.4 million, though the state government is attempting to decrease that cost through the exemption of construction equipment firm import fees.

Supply contracts with local gold miners have already been signed, though the state government has said that all gold mined in Magadan will be sent to the refinery for processing. The refinery, which will also process some silver, is expected to come on-stream in March. The refinery is estimated to produce 40 tonnes of gold bullion per year.

Overall, the Magadan region is expected to produce 25 tonnes of gold in 1997, compared with 21 tonnes during the previous year.