Magadan region to consolidate mines — Government assumes more active role in making deals

The government of northeastern Russia’s Magadan region is attempting to consolidate some of its gold mining industry

The government has reached a deal with Severovostokzoloto, the firm once responsible for gold operations in Magadan under the Soviet regime, whereby 30 of the region’s gold producers will now by managed by a single entity.

Those producers were part of the Severovostokzoloto collective before the collapse of the Soviet regime and have operated independently since the early 1990s.

The new entity, to be called Central Company, will be a financial and industrial group specializing in the extraction, processing and sale of gold.

It will have a charter capital of US$7 million.

The regional government is also behind plans to form a state-owned company, Precious Metal Fund, to procure and market gold produced by small-scale miners. In April, the Magadan government passed a law allowing small operations to mine gold under the condition that the operations be kept small and that no heavy machinery be used. The government expects that 400,000 oz.

gold will be mined.

Meanwhile, the Magadan government will try to spin off a 49% interest in Russia’s largest silver mine, Dukat, to a private concern.

Proven and probable reserves stand at 26 million tonnes grading 500 grams silver and 1.1 grams gold per tonne.

Privatization of the mine, which is held 51% by its employees, was to have been sponsored by Vancouver-based Pan American Silver. The company won a tender process in April, and was to spend an initial $250,000, as well as US$134 million over three years for expansion and modernization.

The deal fell apart, however, when the company backed out of negotiations in June. An official of Magadan’s regional government blamed the deal’s collapse on Moscow bureaucrats who made excessive demands of the company.

— With files from Interfax News Agency.