New bill designed to boost investment in Russia

A bill before the Russian Parliament could set the stage for increased foreign investment through “production-sharing” in the country’s natural resources sector.

The bill is designed to attract foreign investment by waiving certain prohibitive taxes on the development of the country’s natural resources, including minerals and oil and gas.

One project that stands to benefit if the bill becomes law is the Nezhdaninskoye gold deposit in Tompon province of the Yakutia republic, in northeastern Russia. According to the natural resource committee of the Duma (or lower house of Parliament), the deposit contains an estimated 15.4 million oz. gold, though Western estimates are closer to 10.7 million oz.

Nezhdaninskoye Zoloto, the company currently mining the deposit, is operating at a loss and will be unable to continue without Western capital and technology. The company posted a loss of US$13 million last year and owes another US$21.4 million, which it is unable to repay. The Duma committee estimates that $300 million is required to rehabilitate the mine and increase annual output to 160,000 oz. gold. A portion of that money would also be required for infrastructure and power generation. The mine, which is surrounded by what amounts to little more than a camp, employs 280.

The complex includes a 20-year-old recovery plant, which has a design capacity of 48,000 oz. per year. In 1996, the plant produced only 5,440 oz.

Many foreign firms evaluated the feasibility of a mining operation there, only to be discouraged by Russia’s heavy taxation. In 1995, a law outlining the terms of production-sharing passed its first reading, subsequently attracting the attention of Irish firm Celtic Mineral Holdings. The company then forged a 50-50 joint-Venture deal with Sakhazoloto, Yakutia’s biggest mining company. In March of this year, the mining licence to Nezhdaninskoye was given to the joint venture, which is known as South Verkhoyansk Mining.

The first stage of the revitalized project, to be completed in 2002, will involve the recovery of 32,000 oz. per year. For its interest, Celtic has contributed US$7 million, as well as a US$3-Million experimental bio-leaching facility which the company says is capable of recovering up to 224,000 oz.

gold per year. The joint venture can earn up to a 24% interest in the project, with the Russian and Yakut governments retaining a combined 74%.

The bill outlines seven such production-sharing projects, including the Yakovlevskoye iron ore project in the Belgorod region and the Kuranakh gold project, also in Yakutia.

— With files from Interfax News Agency.