ANNUAL REPORT FOR THE FINANCIAL YEAR 2006
Defi nitions
“Central Asia Gold”, “CAG” and “the Company” refer to Central Asia Gold AB (publ) with Swedish corporate regis- tration number 556659-4833 and its subsidiary companies.
Business concept
To become a medium-sized profi table gold producer by global standards by using the existing knowledge of and contacts in the central parts of Asia. The Company’s operations may also include other minerals besides gold in the future.
Reporting dates during 2007
Central Asia Gold AB’s fi nancial year runs from 1 January to 31 December. During 2007, the Company will issue interim fi nancial information as follows:
Year-end report: 23 Feb 2007
Interim report (1) Jan–Mar 2007: 30 May 2007 Interim report (2) Jan–Jun 2007: 29 August 2007 Interim report (3) Jan–Sep 2007: 28 November 2007
Annual General Meeting 2007
The Annual General Meeting will be held in Stockholm, at Operakällaren, Karl XII:s Torg, 111 47 Stockholm, starting at 3 pm. Shareholders wishing to participate in the meeting must:
i) Be entered in the shareholder register held by Värdepappers- centralen VPC AB on the reconciliation date, which is 5 June 2007. In order to participate in the AGM, nominee share- holders must temporarily re-register their shares via their nominee into their own names by 5 June 2007. This should be done in good time.
ii) Send a notice to the Company of their intention to attend the AGM at the latest by 7 June, 4 pm. This notice can be made by phone to +46 8 624 26 80, by fax to +46 8 624 37 20, by e-mail to the address agm@centralasiagold.se or by reg- ular mail to the registered address Central Asia Gold AB, Brovägen 9, SE-182 76 Stocksund, Sweden. The notice must contain the attendee’s full name, personal or organisation identifi cation number, address and telephone number. If the shareholder wants to be represented by a delegate, a proxy for the delegate is to be sent to the Company before the AGM.
Cover image:
One of the fi rst gold bars produced in the new Tardan plant.
Contents
Defi nitions, business concept, reporting dates, Annual General Meeting 2
The Managing Director’s Report 4
A few words from the Chairman 7
Overview of operations 8
Gold 12
The Russian gold industry 14
The Tardan gold deposit 16
The Kopto gold deposit 19
The subsidiary company OOO Kopylovskoye 20
Brief description of alluvial gold production in Russia 22
The alluvial gold producing subsidiary company OOO Artelj Tyva 23 The alluvial gold production company Artelj Lena in Irkutsk 24
The alluvial deposit Sivo Pravy Uval 25
The gold mineralization Karabel-Dyr 26
Uzhunzhulsky group of mineralizations 28
The Kavkaz mining deposit 29
Partnership in diamond exploration concessions in Northern Sweden 30
The Russian Tyva region 30
Our Environmental policy 31
Key personnel, Board of Directors and Auditors 32
The share capital and shares issued 34
Financial Report*
Operational key ratios 35
Directors’ administration report 36
Group profi t and loss statement 41
Group balance sheet 42
Parent company profi t and loss statement 43
Parent company balance sheet 44
Statement of changes in equity 45
Cash fl ow statement 46
Accounting principles 47
Notes 50
Audit report 58
Addresses 60
This English text is a translation of the offi cially adopted annual report in the Swedish language.
In case of discrepancies in the translation, the Swedish language version shall prevail.
*The Financial Report includes pages 35–57.
Dear shareholders,
2006 has been an eventful year for our company.
Tardan
First of all we can announce that our mine at Tardan was set into pilot operation at the very end of the year following commence- ment of work at the long awaited processing plant. Although the plant is not large from a global mining perspective, and has a processing capacity of 100,000 tons of ore per year, it is compact, effi cient and contains both Russian and foreign components.
Gravimetric processing is, of course, not rocket science. However vast knowledge is required to ensure the processing plant works optimally to generate the desired quantity of gold over time. We are sure that Nikolai Doroshenko, our experienced Processing Manager, will ensure this, as he has already had much success in his work at our small reference plant in Kopto within the vicinity of Tardan. In the processing plant, the incoming ore is processed through several diff erent stages via crushing, grind- ing, soaking, centrifuging and is then processed on a vibrating table. The gravimetric process releases some of the gold content, which can be directly smelted down into ingots. This section amounts to approximately 50% of the gold present in the ore.
The remaining share of the gold must be chemically processed before it is released. We will be able to commence the chemi- cal processing, the leaching, at the start of 2008 according to our plans. Only then we will achieve true, attractive profi tability at our plant. The fi rst months of work at the new plant show that we will reach expected effi ciency in the gravimetric process.
However, it will take some more time before all steps in the work are fi ne tuned, this includes our on site personnel.
Expansion
As we mentioned in the previous annual report, our company has continuously evaluated acquisition driven expansion. In 2006 we reached a decision to acquire two major existing gold projects – an alluvial gold producer and a previously established mine – both situated in the Irkutsk region, which now is just as impor- tant, if not more, than the Tyva region for our company. Dur- ing the spring of 2006 we decided to evaluate the Kopylovskoye mining project in Irkutsk, which is one of Russia’s leading gold centres. This mine currently contains approximately 240,000 oz (almost 7 tons) of established gold reserves. However consider- able potential for the mine has been identifi ed by our geologists.
The existing gold reserves have only been established to a depth of approximately 30 m despite the fact that the ore bodies are clearly continuing in the depth dimension. Further, the ore bod- ies are also not limited in the strike dimension. It is possible that this deposit is of a considerable size, which means that there is a relatively good prospect of more than 1 million oz (more than 30 tons) of gold reserves. This is in light of the fact that the ore bodies are, thus, not limited in any direction and also that there are a number of geologically similar gold deposits in the vicinity containing very great quantities of gold. In particular, Russia’s largest gold mine, Suchoy-Log, lies approximately 100 km north of Kopylovskoye. This project contains approximately 1,000 tons of gold reserves, the equivalent of 30 million oz.
Central Asia Gold therefore calculates that in Kopylovskoye, we own a potentially world class mining project. Moreover Kopy- lovskoye is not undeveloped. Apart from the comprehensive geo- logical work that has been performed there both in Soviet times and following the downfall of the Soviet Union, there is also a reasonable infrastructure. A road network is open throughout the
The Managing Director’s Report
Share price shown by blue line and right hand scale.
Daily turnover in million shares shown by bars and left hand scale.
MD Torbjörn Ranta
03 6 9 12 15
0.5 1.0 1.5 2.0 2.5 3.0
Apr 05 Oct 05 Apr 06 Oct 06 Apr 07
Share price and number of shares turned over per day
for Central Asia Gold, 29 March 2005–7 May 2007
year. An existing processing plant is also in place with a processing capacity of a few hundred thousand tons of ore per year. How- ever this plant is primarily intended for evaluation work, i.e. large quantities of ore will be processed as a part of continued evalu- ation. Although the plant will already generate certain quanti- ties of gold during the evaluation period, the fi nal development plan will entail the construction of an entirely new processing plant, maybe in conjunction with a capacity increase of the exist- ing plant. We would however emphasize that we do not plan to commence any large scale production at Kopylovskoye before 2009. To fi nish the evaluation, extensive work is required, and this should not be intensively performed but conducted thoroughly and methodically. Our personnel at the Tardan deposit have dem- onstrated that they have been successful in performing evaluation work, planning a factory, managing construction work and set- ting processing plant into production over a two year period. The work at Kopylovskoye in Irkutsk is the same, the only diff erence is that the project is larger in volume.
Project fi nancing of the evaluation stage at Kopylovskoye
The company management and board of CAG are therefore con- vinced that the Kopylovskoye project contains very much more gold than has been established so far. However there is a dif- ference between being convinced and knowing for certain. To achieve the latter degree of certainty an evaluation programme with comprehensive supplementary data collection in the form of trench digging, boring at depth and processing of large quan- tities of ore samples is required. Our geological department has designed a suitable work programme. This is considered to take between one and two years to perform and is cost evaluated at approximately USD 10 million. As CAG currently does not have any excess cash, external fi nancing must be secured to perform the evaluation programme. At this stage in development, we were considering fi nancing in the form of a new issue of shares in the parent company or in the form of obtaining partners at a subsidi- ary company level. After having carefully studied the issue, it was decided that the acquisition of one partner, or project fi nancing, is to be preferred before a further new issue of shares in CAG. To this end, an Extraordinary General Meeting of CAG at the end of April 2007 reached the decision to sell 25% of Kopylovskoye to a consortium of professional investors. The payment for the 25%
interest will be just USD 10 million. Once the transaction is real- ized, our geologists will receive access to the necessary capital for a methodical evaluation of Kopylovskoye without us burdening our stock price with a new issue of shares. On the other hand, CAG’s project ownership has fallen to 75%. It is our understand- ing, expectation and belief that this transaction will prove to be very benefi cial for CAG’s existing shareholders as well as for the consortium of investors involved.
OOO Artelj Lena
A number of new contacts were formed once our own geologists were well established at Irkutsk from the spring of 2006 to per- form verifi cation work prior to the acquisition of Kopylovskoye.
Knowledge and expertise is quickly exchanged when geologists from diff erent areas of the world meet and talk. As a result of this, Central Asia Gold rapidly identifi ed another acquisition object in the vicinity, namely the alluvial gold producing company “Artelj Lena”. This former workers’ collective has historically produced approximately 1 million oz gold (30 tons) and is therefore an
established gold producer. The company was owned until the end of 2006 by its employees. This company has left approximately 6 tons (180,000 oz) of gold reserves. To safeguard employment Artelj Lena subsequently began to reduce the annual gold pro- duction. Artelj Lena suits Central Asia Gold admirably. The com- pany has an experienced local organization located within the vicinity of Kopylovskoye. Artelj Lena also has a machine park that is currently chiefl y utilized only during the warmer section of the year due to seasonal patterns at the location. Finally, when production of the alluvial deposits ends, Artelj Lena’s workers can be transferred to permanent work at Kopylovskoye. It is now therefore the aim of Central Asia Gold, as the new owner of Artelj Lena, to produce the remaining alluvial gold in the shortest pos- sible time. The production plan for Artelj Lena 2007 encompasses 800 kg gold (25,000 oz), of which almost all the gold will be produced during the third quarter of the year.
Amounts and issue prices for directed new share issues in CAG 2004–2007
Other acquisitions
In addition to the two major projects above, Central Asia Gold was also active on the auction front during 2006. As we men- tioned previously, there are regular public auctions of miner- al assets in Russia. This means that the Russian state sells the assets that were prospected during the Soviet period. Occasion- ally there is a very large asset amidst the more ordinary sales. In our case, we successfully participated in 2006 in two auctions in our area in Siberia. In the fi rst case, this concerned the Tyva region, where the Karabel-Dyr deposit was sold. Central Asia Gold had previously attempted to gain a free prospecting licence without success. Instead, a prospecting and production licence was auctioned with a duration of 25 years. Central Asia Gold was the winner of the auction after having paid approximately USD 400,000, which is actually only equivalent to USD 0.3 /oz of gold mineral resources at this site given a total tonnage of resources of approximately 1.3 million oz. The deposit has been the object of comprehensive evaluation work and so far the ores have been successfully enriched in tests. It is true that Karabel- Dyr lies approximately 200 km from Tardan, but obviously there is good potential for coordination as Central Asia Gold has offi c- es in the region and several hundred employees there as well.
Uzhunzhylsky – a deposit in the adjacent region of Khakassia was also purchased at auction. This site is not fully evaluated but approximately 500,000 oz of gold mineral resources have been registered in the initial stage of development. The site was pur-
0.0 0.5 1.0 1.5 2.0 2.5
041115 050316 050620 051013 060620 060930 070201 070507 (20)
0.40 (12) 0.48
(20.52) 0.57
(29.04) 1.21
(78.40) 1.44
(151.50) 2.02
(20.33) (66.96) 2.03
1.86
Issue amount within brackets in MSEK
Issue price without brackets in SEK per share
chased for approximately USD 0.4/oz of gold mineral resources.
It is estimated that both of these auction purchases have very great potential given the capital investments that have been per- formed so far.
Production goal
The report above shows that Central Asia Gold has seriously expanded during the last year. The gold production in 2006 from our two producing deposits at that time, Kopto and Artelj Tyva, was barely 311 kg or 10,000 oz. During 2007 production from both Tardan and Artelj Lena will occur, which means that we are hoping to achieve a total production during 2007 of approxi- mately 1,400 kg. As the majority of the gold in 2007 is pro- duced from the alluvial projects Artelj Lena and Artelj Tyva, the absolutely largest section of this volume will be produced and sold during the second half of the year due to seasonal patterns in the alluvial subsidiaries (production only occurring during May-October each year). If we achieve this production goal, the increase will be considerable in comparison to 2006.
Production shall then further increase in 2008 when the leaching stage at Tardan will commence and we also will hope- fully manage to start production of low grade gold ores at Tardan, as stated in the previous year’s annual report. Consequently, if all goes according to plan, Central Asia Gold is expected to demon- strate increasing gold production for a number of years to come.
Future strategies
At our external presentations we give an account of all our future plans. These are relatively easy to understand. It is true that the Russian gold sector is seriously fragmented. It includes approxi- mately 500 gold producers, many of which are very small, but there are also many medium and large producers. The largest is Polyus Gold, which is listed in London. The company is Norilsk Nickel’s former gold division, which was spun off to Norilsk’s shareholders in the previous year. Polyus produced approximate- ly 1.2 million oz gold (38 tons) in 2006, which corresponds to approximately one fi fth of the total Russian gold production that year. The rest is distributed between the other market players, of which Central Asia Gold, via its Russian subsidiaries, is one.
When it comes to the Russian oil industry there are only a few major players, which has made it diffi cult for acquisition driven expansion in that area. For that reason, the Russian oil compa- nies are very rich after fi ve years with increasing oil prices. The situation in the gold sector is not the same. Almost none of the other Russian gold companies are exchange listed, but are man- aged by private owners who have diff erent perspectives. These private owners often take out signifi cant dividends and leave the companies under fi nanced. This means that the companies cannot expand, which leads to a relatively low evaluation. Central Asia Gold therefore considers that at present it is often better to pur- chase existing Russian gold companies with registered reserves rather than perform larger prospecting projects itself. The acquisi- tion route shall be taken for as long as it is cheaper than “pros- pecting drilling”. However attractive acquisitions will gradually thin out and their prices will rise. It will then become relatively more attractive to perform comprehensive prospecting ourselves.
Financial situation
Each year we use the MD’s report to relate the status of our fi nances, although those eager to fi nd this out themselves may turn directly to the accounting section of this annual report:
hitherto Central Asia Gold has been solely fi nanced by equity, chiefl y created via directed new issues of shares. Gradually every company board must also consider using debt fi nancing. The company board believes that we now have reached the point where production is growing quite rapidly. We will continue to seriously expand over the next years, so more capital is needed.
At the same time, the sale of gold generates a separate internal cash fl ow. The trick is now to choose the balance of how much loan funds we can take out without putting us in a position where we risk not being able to repay the loans. We have already started cautiously and have dipped a toe in the water, so to say, by securing loans equivalent to a couple of million US dollars within the Russian banking system during the start of 2007. We are working further on the issue and intend to secure more loan capital if the conditions are considered right for the company.
We thus want to state that we attempt to optimise capital costs and that more loan fi nancing is to be expected. By saying this, we cannot say that we will not be discussing new issues of shares in the future. This depends on factors such as gold prices and distribution in time of future capital requirements.
Risks
If I don’t mention the work ‘risk’ in the MD’s report, my col- leagues on the board and other ‘class prefects’ will complain.
There are clearly great risks for any company regardless of coun- try, business area and point in time. We accept that this goes with the territory – there is no profi t without taking risks and history has shown this generally to be the case. There are clearly con- siderable risks present for gold companies in an early stage of development in Russia. I will not list all of them as the majority of our readers will know what I am talking about. Instead let us bear in mind the following rule; the day the risks become very low, the sky is blue and life is problem free, on this day it is usually time for selling the assets in question. In actuality, we must consider taking calculable and, not always necessarily low, risks. We thus envision continued intensive growth in our group.
However, as always, it is recommendable to be prepared for pos- sible bumps in the road.
We look forward to meeting you at our Annual General Meeting for 2007, which will be held on the 12th June starting at 15.00 hours at Operakällaren in Stockholm.
Kind regards,
Torbjörn Ranta, Managing Director
400 500 600 700
Jan 05 Jul 05 Jan 06 Jul 06 Jan 07
International gold price in USD/oz, 2005–2007
Dear Central Gold Asia owner,
It is a pleasure for me once again to have the chance to contrib- ute to the annual report for Central Asia Gold, the third issued during the company’s time as a publicly listed company. Time fl ies when one is having fun, as the saying goes. Personally I am of the opinion that the work in developing Central Asia Gold is fun, interesting and challenging every day. It is almost a prereq- uisite for the desire to continue.
Seen from my, Siberian, perspective, 2006 has also been a favour- able year for us. Although the world gold price was very volatile during this period, it still increased from USD 530/oz on the 1st January 2006 to USD 632 /oz at the end of December.
Furthermore, as has also been mentioned in other places in this document, at the end of the previous year we commenced pro- duction work, albeit to a modest extent, at the Tardan fi eld. In addition, we have also completed the acquisition of a number of new projects. It now appears apparent that if we continue at the present rate we will achieve up to a level of one percent of the total Russian gold production at some time in 2008, which for the present constitutes approximately 170 tons per year. You can be sure that we will be celebrating this in Siberia!
However, to misquote Winston Churchill, it is not in any way the end of our company’s history, it is perhaps only the end of the start of our development. We intend to attempt to produce signifi cantly more than one percent of the gold in Russia. Still the construction of gold mines takes time and we must accept that everything cannot happen in one day. However it is now the case that we have a portfolio of gold projects in diff erent stages of development, both mature alluvial gold producers and recently started up mines as well as very big and promising gold minerali- zations. We therefore believe that we shall be able to demonstrate increased production over the next years.
What then are the challenges? One challenge is to continue to obtain capable specialists and other personnel. As is well known, the Russian economy has grown to almost breaking point, in particular with regards to the oil producing regions in Siberia.
This boom not only increases the price of the workforce, which
we touched upon in the previous annual report, but also draws in so many capable people that it can be diffi cult to fi nd the personnel needed regardless of salary off ers.
A second challenge is how to continue to fi nd fi nancing. We are at an early stage and are dependent on risk capital for our continued growth. Hitherto this has gone well, but we have seen an occasionally surprising level of nervousness on the world’s equity markets during the last year. If a real recession occurs the price of money may increase to such level that it will temporarily dampen our ambitions. As this is a classic risk it perhaps should not be too much of a concern.
Instead we must place suffi cient focus on the possibilities. There is still very great potential in the fragmented Russian gold sector, and we, as Russian geologists, have been able to keep our fi nger on the pulse of all the off ers that are fl ying around. Furthermore, it is worth mentioning that we have so slowly started to study the investment possibilities abroad, not only in Mongolia and in Central Asia. We think that Central Asia Gold has a suffi cient organizational size, knowledge and fi nancial network, that we may very well consider taking on a new project outside Russia’s borders. This possibility should not be rushed but we do believe that it could prove benefi cial for the perception of Central Asia Gold if the geographical composition of the gold project portfo- lio is somewhat expanded.
As my fi nal word, I would like to point to the constantly increas- ing number of shareholders in the group. There were approxi- mately 1,700 when we started in 2004. According to the latest statistics, our number of shareholders now exceeds 5,000. It is very satisfying and has benefi ts for our share’s liquidity on the stock exchange.
I am therefore relatively, but not entirely, satisfi ed with the exist- ing development. One can never be too satisfi ed.
Tomsk, May 2007
Michail Malyarenko Chairman of the Board
A few words from the
Chairman
Business concept
To become a medium-sized profi table gold producer by global standards by using the existing knowledge of and contacts in the central parts of Asia. The Company’s operations may also include other minerals besides gold in the future.
Introduction
Central Asia Gold AB is a Swedish mining company, operating in Eastern Siberia in Russia. The group consists of the Swedish parent company as well as of two wholly owned subsidiary com- panies in Russia, of the type limited liability company, namely OOO Tardan Gold and OOO Tomano. The subsidiary OOO Tardan Gold also has four sub-subsidiaries. The fi rst, OOO Mars is 50% owned. This company owns a machine and vehicle park.
The other sub-subsidiary is the alluvial gold producer OOO Artelj Tyva, which is 99.8% owned. In addition 99% of OOO Kopylovskoye in Irkutsk is owned. Finally a small company named OOO Perspektiva is 99% owned. This company does not have signifi cant assets, and is used by the Central Asia Gold group to participate in various public privatisation auctions in Russia. Via OOO Tardan Gold, Central Asia Gold AB will also during the fi rst half of 2007 complete the acquisition of a fi fth sub-subsidiary. This is the Irkutsk based alluvial gold producer OOO Artelj Lena.
The business comprises production and prospecting of gold, at present primarily in the Tyva and Irkutsk regions in Russia.
Goals and strategy
Central Asia Gold AB’s business concept is to become a medi- um-sized profi table gold producer and explorer by global stand- ards. The Company’s operations may also include other minerals
besides gold in the future. In order to justify a place on the world map in this respect, Central Asia Gold will have to achieve at least 1,000,000 troy ounces of extractable gold reserves. (1 troy ounce = 31.1 grams). This would create, among other things, a good balance between administration, exploration and direct production costs.Exploration work is also a central component in the business concept. The company’s Russian geologists are very experienced, and considering that operating costs in Russia to maintain exploration are considerably lower than in the West, while the metals found as a result of the exploration can be sold at world market prices, exploration is an attractive activity.
In other respects too, Central Asia Gold will use its entrepre- neurial attitude to keep down administrative costs in the group, in order to invest the maximum amounts in production and exploration.
Gold production planning
During 2006, the group companies produced and sold 311 kg (ca 10,000 oz) of gold. During 2007 gold production was com- menced at the Tardan deposit and the alluvial gold producer OOO Artelj Lena in Irkutsk was also acquired. Central Asia Gold plans to produce a total 1,250-1,350 kg of gold via the various group companies during 2007.
Central Asia Gold’s choice of strategy and thoughts of the future
Gold companies can operate according to diff erent business models. During the earliest phase, the exploration phase, the exploration company enters. The exploration company has an idea about where minerals may be found, and acquires a licence or a stake and starts trying to prove a fi nancially interesting min-
Assets
According to Russian geological standards, the group companies’ licenses today cover the following gold assets expressed in troy ounces (oz):
1 ounce = 31,1 g
Subsidiary Licence
Licence status
Owner- ship
Reserves C1
Reserves/
Resources C2
2Resources P1
Resources P2
Total gold reserves and resources
OOO Tardan Gold Tardan Assigned 100% 86,000 143,000 184,000 4,354,000
14,767,000
Kopto Assigned 100% 31,000 31,000
Karabel-Dyr Assigned 100% 240,000 1,098,000 1,338,000
Uzhunzhulsky Assigned 100% 235,000 273,000 508,000
OOO Kopylovskoye Kopylovskoye Assigned 100% 7,000 232,000 293,000 40,000 572,000
OOO Tomano
3Sivo Assigned 100% 19,000 19,000
OOO Artelj Tyva Agliyak Assigned 100% 70,000 70,000
OOO Artelj Lena Several Assigned 100% 109,404 80,566 72,000 261,970
Subtotal 291,404 455,566 1,055,000 5,765,000 7,566,970
1
These P2 gold resources have been estimated by the local geological organisations in the Tyva region. They resemble the western resource category
“inferred”.
2
Please observe that according to Russian standards C2 is classed as reserves. Considering the differences between western and Russian standards, C2 is here characterised as “reserves/resources” in order to emphasise that a linear relationship between the Russian and western categories does not exist.
3
Since April 1, 2005 the Sivo license has been subject to a joint venture agreement. According to this agreement the Russian junior mining company OOO GRK Oreol (“Oreol”) is the operator of the license and is responsible for complying with the license demands as well as fi nancing the working programme. The net revenues from the gold sales (after deductions for royalties and refi ning fees) are split between OOO GRK Tomano (“Tomano”) and Oreol according to a formula. During 2005 the split is 5% to Tomano and 95% to Oreol. During subsequent years the split will be 7% and 93%. The license, however, remains the property of Tomano. The development programme for Sivo Pravy Uval has not yet started.
Overview of operations
eralization using various methods. It costs a certain amount of money to carry out this exploration work, and the risks are very high. Sometimes the work leads to good results, and sometimes to no results at all. However, the return on capital invested can be very high if the work goes well.
During the next step, the evaluation phase, when a minerali- zation is proven, a company – perhaps the exploration company above, or another company – must evaluate the mineralization through a great input of work in order to prepare it for the pro- duction phase. During this phase, money needs to be invested in a work programme covering measurements of various kinds, drilling deep into the deposit and working out a development plan which shows the fi nanciers that the operation will give a good return on the capital required to go into production.
The fi nal stage covers the production phase. The deposit has now been evaluated and fi nancially viable recoverable reserves have been proven. The task now is to carry out the development programme from beginning to end. Now, infrastructure such as roads, housing, machines and other equipment must be bought and be brought into operation. A more comprehensive external fi nancing is also needed in order for the project to get through this phase in peace and quiet.
The time elapsed from the start of the exploration phase to the beginning of the production phase is usually a number of years, perhaps fi ve years. It is therefore necessary to take long term decisions during each stage.
Of course, each stage costs money. If we are talking specifi - cally about gold, it costs a certain number of USD/oz to develop a mineralization. To subsequently convert a mineralization to recoverable ore reserves also costs considerable amounts of mon- ey in terms of USD/oz. When fi nally the ore reserves are shown to be in existence, it will cost a further number of USD/oz to get them into production.
Central Asia Gold has so far taken steps 2 and 3 in their depos- its in Central Asia. This is because the gold company sector in Russia is very fragmented, with many small independent actors, and a large number of mineralizations and deposits developed during the Soviet era, paid for by Soviet state money, are avail- able. For this reason, Central Asia Gold judges that it is currently more interesting to buy up existing mineralizations and deposits than to try to prove them by starting exploration of our own.
However, this situation will change within a relatively short time, as unlicenced deposits are bought up and as the fragmentation of the Russian gold sectors decreases.
Below we describe two diff erent groups of exchange listed gold companies to give the reader a slightly better understanding of how gold is assessed during the various stages of development.
Firstly, the global evaluation matrix that Central Asia Gold’s company management use to study primarily gold producers in diff erent areas of the world is shown. The matrix comprises some 20 companies and the assessment day is the 15th May 2007. The fi nal three columns to the right show the market capitalization divided by, on the one hand, purely gold reserves, then divided by gold reserves + measured and indicated resources, and fi nally the market capitalization is divided by gold reserves and all cat- egories of gold mineral resources. If we limit the analysis to the medium size companies in the matrix, i.e. excluding the major global giants, the medium sized companies’ reserves on the above date are on average assessed as 239 USD/oz (market capitaliza- tion/gold reserves). If measured and indicated resources are add- ed, the market capitalization/oz is reduced to 149 USD. Finally, if all gold reserves and gold mineral resources are included, the value is reduced to 86 USD/oz.
The various stages naturally demonstrate that the more secure the gold assets in question are, the higher their valuation is. This is quite logical.
Let us now do a new analysis and focus on companies only doing exploration and appraisal work, i.e. they do not yet have any registered gold reserves. Next matrix comprises some 20 companies. Most of them are from the United States and Cana- da. If eliminating extreme values their average oz of gold mineral resources (all categories of resources) was at the same date as above by the stock markets valued at 32 USD.
Several conclusions can be drawn from this: fi rstly there are many gold companies on the world’s exchanges who are not active in gold production, but only in the appraisal of gold min- eralizations. Secondly these companies are predictably assessed on average. Thirdly a great many medium sized gold producing companies’ gold mineral resources are seemingly rather conserv- atively valued by the stock markets. The cause for this may be that the market focuses on the fi nancial potential of a company’s gold reserves and only secondarily considers the company’s gold mineral resources.
As a consequence, the following ideas have been developed by the board for Central Asia Gold: CAG has both gold reserves and gold resources. The latter are valued signifi cantly lower than the gold mineral resources mentioned above. CAG has in many cases also acquired its gold mineral resources at very modest prices.
Finally there are a few gold mineralizations in CAG that have still
Central Asia Gold AB (publ)
(Sweden)
OOO Tardan Gold (Tyva in Russia)
OOO GRK Tomano (Buryatiya in Russia)
100% 100%
Karabel-Dyr licence
50%
OOO Mars (Tomsk in Russia)
99.8%
OOO Artelj Tyva (Tyva in Russia)
99%
OOO Kopylovskoye (Irkutsk in Russia)
99%
OOO Perspektiva (Tomsk in Russia) Uzhunzhulsky
licence
99%
OOO Artelj Lena*
(Irkutsk in Russia)
Kavkaz
licence * Ongoing purchase
The Organisation Structure of the Central Asia Gold Group
not been the focus of active work and which are independent of the group’s gold production – Karabel-Dyr, Uzhunzhulsky and Kavkaz. Many factors suggest that in the event of a separate quo-
tation, these should in the long run be able to achieve a valuation that is higher than that implied via Central Asia Gold today.
CAG may thus in the future reach a decision on a separate quotation of sections of its gold mineral resources.
Valuation table regarding global gold producing companies as at May 15, 2007
Major producers
Mcap, MUSD
Mcap/
Assets
Mcap/
working cap P/S P/E
Mcap/oz prod. p.a.
Mcap/oz reserves
Mcap/oz res. + M&I resources
Mcap/res M&I + inferred resources
Agnico-Eagle 4,290 282% 82% 9.2 25.3 17,453 279 197 175
Goldcorp Inc 17,632 98% 69% 10.3 26.1 7,900 444 314 204
Kinross Gold Corp 7,668 421% 67% 10.7 neg. 4,510 169 135 117
Newmont Mining Corp 18,266 117% 60% 3.7 23.0 3,096 200 – –
Centerra Gold 2,077 262% 66% 5.7 34.3 3,542 297 165 135
Arithmetic average 236% 69% 7.9 27.2 7,300 278 203 158
Smaller exploration/prod companies
Alamos Gold Inc 603 384% 86% n.a. neg 4,307 – 230 203
Apollo Gold Corp 65 125% 55% 2.5 neg 1,244 66 – –
Glencairn Gold Corporation 187 266% 77% 2.4 neg 1,458 273 159 134
Bolivar Gold Corp 319 323% 71% 4.6 neg 2,279 258 105 67
European Goldfi elds Ltd 714 229% 73% n.a. neg – 145 50 –
Gabriel Resources Ltd 680 201% 96% n.a. neg – 80 34 30
Kingsgate 456 332% 78% 7.4 32.7 3,074 253 114 95
Red Back Mining 525 382% n.a. 6.6 neg 3,548 482 287 255
Galahad Gold 191 191% 92% n.a. neg – – 50 14
Arithmetic average 270% 78% 4.7 2,652 223 129 114
Scandinavian juniors
Scanmining AB 226 179% 60% 9.1 neg 7,056 425 370 –
Lappland Goldminers AB 150 628% 85% n.a. neg – 159 – –
Gexco AB 37 542% 97% n.a. neg – – – 76
Central Asia Gold AB 117 174% 68% 4.1 neg 2,609 156 65 16
Crew Gold Corporation 1,142 144% 39% 25.4 neg 2,854 584 278 166
Arithmetic average 333% 70% 12.9 4,173 331 238 86
Russian related gold companies
Buryatzoloto 99 175% 70% 1.5 14.0 648 129 – –
Celtic Resources PLC 177 118% 100% 10.2 3.9 4,778 – 81 –
Trans-Siberian Gold 40 59% 79% n.a. neg n.a. – 11 –
Oxus Gold 370 216% 78% 162 27.4 4,206 123 87 59
Highland Gold Mining Ltd 573 148% 67% 5 neg 3,421 72 37 –
Peter Hambro Mining Ltd 1,737 382% 66% 9.8 57 6,139 329 179 56
Polyus Gold 8,043 184% 89% 13.5 40 6,093 161 84 –
Arithmetic average 183% 66% 33.8 28.5 4,214 162 80 58
The CAG parameters are calculated based on the market capitalization as at May 15, 2007 and given the fi nancial situation as at year end 2006. Finally, the table assumes that CAG reaches a full year 2007 gold production of 1,400 kg. The CAG gold reserves and gold resources are given on page 8 of this annual report.
The data in the table is gathered from the websites of the various companies. Due to the very large amount of data and the frequent changes of the data, it should be recognized that there exists a considerable uncertainty as to the parameters of the individual companies. The resulting average valuation param- eters for this population should though be more representative. The parameters are naturally only representative as at the date of the valuation table.
Valuation table regarding global gold exploration companies as at May 15, 2007
Gold Exploration companies
Working areaMcap, MUSD
Mcap/
Assets
Equity/
assets
Mcap/
equity
Mcap/res M&I+inferred resources
Acrex Ventures Ltd Canada 6 276% 99% 2.8 5
Amarc Resources Ltd British Colombia 44 608% 89% 6.8 –
Ami Resources Ghana 6 296% 93% 3.2 –
Axmin Inc
Central African Rep,Mali, Sierra Leone, Senegal198 247% 98% 2.5 55
Barker Minerals Ltd British Colombia 14 168% 96% 1.7 –
Bayfi eld Ventures Corp Canada, Mongolia 11 10,334% 71% 146.1 –
Canasil Resources British Colombia, Mexico 26 1,380% 98% 14.1 –
Cassidy Gold Corp Guinea 48 513% 94% 5.4 69
Vista Gold Corp US, Mexico, Bolivia, Indonesia, Australia 261 282% 94% 3.0 14
Pan Nevada Gold Corp North America 9 – – 3.2 8
Cheasapeake Gold Corporation Mexico, Nicaragua 139 474% 98% 4.8 –
Conquest Resources Ltd Canada, Tanzania, Zimbabwe 5 129% 95% 1.3 22
Continental Minerals Tibet 144 138% 61% 2.3 33
Dynasty Metals & Mining Ecuador 143 622% 96% 6.5 31
Eaglecrest Explorations Bolivia 51 159% 98% 1.6 –
Eastmain Resources Canada 60 257% 95% 2.7 48
Frontier Pacifi c Mining Greece, Peru, USA 117 384% 99% 3.9 –
Arithmetic average 1,017% 92% 12.5 32
A Kraz ore truck unloads a batch of ores at the storage next to the processing plant.
Next the front loader ships the ore batch in to the fi rst crusher.
After the fi rst crushing stage the conveyer takes the ores to a second crusher.
Magnets on the conveyer remove magnetite in the ores.
The crushed ores either go in to the plant to next stage of the process or, as here, get stored in an interim storage.
After crushing the ores get dispatched to the mills for milling.
In the centrifuges the free gold gets separated. After a while the gold concentrate is ready for the shaking tables. The gold concentrate is now located in the closed part of the processing plant.
The entrance to the closed part of the processing plants goes via metal detectors.
The closed part of the processing plant is being monitored via video cameras by the security department
Here we see the gold on the shaking tables. In the ovens the gold concentrate gets smelted to gold bars.
Photos from the Tardan gold deposit in April 2007
Gold
The history of gold
As far back as 4,000 years ago, approximately one ton of gold per year was mined from gold deposits found in what is now modern-day Egypt, Sudan and Saudi Arabia. The fi rst coin with gold content was cast in around 9th century BC. It is thought that the fi rst pure gold coin was created in the 7th century BC, on behalf of King Croesus of Lydia. During the glory days of the Roman Empire, new deposits were discovered in Portugal, Spain and Africa. It is estimated that the production during that time amounted to fi ve to ten tons of gold per year. Gold min- ing diminished dramatically from the 6th century until the 15th century. During long periods of time, annual worldwide gold production was less than one ton.
However, in the middle of the 15th century, interest in gold increased again. An important source of gold was derived from the mines of West Africa (today’s Ghana), where fi ve to eight tons of gold were mined per year. The Spanish conquests in South America (Mexico and Peru) in the early 17th century also entailed an increased supply of gold. Towards the end of the century, between ten and twelve tons of gold were mined every year, mainly from these regions. During the 18th century, sub- stantial quantities of gold started being mined in Russia as well, which resulted in an increase in yearly worldwide production to approximately 25 tons towards the end of the century.
One year before the California gold rush (1847), worldwide pro- duction had increased to approximately 75 tons, almost half of which came from Russian mines. The discovery of gold in Cali- fornia signalled a turning point in the history of gold. In 1853 alone, 95 tons of gold were taken from these mines. At about the same time, substantial gold discoveries were also made in Aus- tralia. Worldwide production increased rapidly and after a few years amounted to nearly 300 tons per year. The large deposits at Witwatersrand in South Africa, discovered in 1886, entailed a further rise in production. Already by 1898, South Africa had surpassed USA as the world’s leading gold producer. Nearly 40
% of all gold mined to date comes from South African mines.
The Kalgoorlie (Australia) deposits, newly discovered in 1893, contributed to the increased production, as did the discovery of alluvial gold in the Canadian Klondyke region. The production of gold fell in many countries during the early part of the 20th century. The gold price rises at the end of the 1930s resulted in a brief recovery, but it wasn’t until the price of gold rose dra- matically in the 1980s that production again increased. Many older mines were reopened, and intensive exploration resulted in numerous substantial gold discoveries. Between 1980 and 1990, the production of gold in the western world rose from 962 to 1,744 tons per year, and has since continued to increase to a yearly level of some 2,500 tons at the turn of the millennium.
Supply and demand for gold
Gold is unusual in the sense that it is a commodity as well as a monetary asset. Since gold is in principle indestructible, all the gold that has ever been produced still exists in one form or another. At the end of 2006, the gold consultancy company Gold Field Mineral Services (”GFMS”) estimated that there was
a total existing amount of 158,000 tons of gold in the world.
Of this, 64% is estimated to have been mined and manufactured after 1950. The greatest consumption of gold by far is associ- ated with the jewellery industry. During the past few years the demand in this industry has exceeded the total mine produc- tion of gold. Because of its many special characteristics, gold also has an industrial use. Considerable quantities are used within dentistry and within the electronics, space and pharmaceutical industries.
The supply of gold to the market occurs via mine production, via recycling of gold and through gold sales and gold loans from offi cial reserves. The offi cial gold reserves in various central banks and other offi cial institutions are estimated to account for nearly 25% of the total existing gold reserves.
The world’s gold production is falling
The world’s primary gold production fell during 2006 by 79 tonnes or 3% and totalled 2,471 tonnes. This was the second year in succession to experience a global fall in production and was the lowest production level for 10 years. Despite growth in China, Asia was the area where mine production fell most heavily, primarily in Indonesia and Papua New Guinea. Pro- duction also fell in North America, with Canada accounting for 60% of the decrease. Canada’s gold production has fallen by 40% since its top level in 1997. In Africa overall production fell, primarily in South Africa and Tanzania, whilst countries such as Mali and Ghana increased their production. The CIS countries (the former Soviet Union) also reduced their production. Latin America was the continent that increased its production, where new mines constituted the major section of the increase of 35 tonnes (7%) in countries such as Argentina, Mexico, Brazil and Venezuela. Amongst the countries that reduced their production most compared with the previous year were South Africa, Aus- tralia, the USA and Canada. The four countries contributed to a reduction of 67 tonnes.
The world’s gold production 1980-2005
Source: World Gold Council
The gold price
The average world gold price increased during 2006 to USD 604, its second highest level after 1980 when the average price
3,0
2,5
2,0
1,5
1,0
0,5
0
1980 1985 1990 1995 2000 2005
Other countries CIS less Russia Canada Indonesia Other Asia Russia Peru China Africa less South Africa Other Latin America
USA
Australia
South Africa tonnes, thousands
was USD 614. This means an increase of 36% compared with 2005. The gold price in May 2006, USD 725, was the highest for 26 years. GFMS calculates that the gold price will increase during 2007. The underlying reasons for this is that the US dollar continues to be weak, there is increased fi nancial instability and increased international political insecurity.
Geographic breakdown of production, gold grade and production costs
Gold is produced in mines in all the continents of the world except in the Antarctic. The gold consultancy company Beacon Group identifi ed some 900 gold-producing mines all over the world in 2002.
During a long period in the 20th century, South Africa domi- nated as the number-one global gold producer. In 1970 it pro- duced 1,000 tons, which was 70% of the global volume at this point in time. Thereafter, South Africa’s proportion has fallen, but it is still the world’s greatest gold nation, with 12% of world production in 2006.
The 20 largest gold producing countries
The gold grade of the ores varies globally depending on the particular ore bodies. Generally, the gold content at the larg- est South African mines amounts to 8-10 g/ton, while smaller South African mines produce 4-6 g/ton. Much of the gold in the world is produced in open-cast mines, where the gold content of the ore is generally lower than in deep mines, with gold content of 1-4 g/ton.
Production costs the world over vary a lot, depending of wheth- er it is a case of mines or open-cast, how deep down the gold deposits are, the type and characteristics of ore bodies and the
Global estimated cash production costs
USD/oz. Source: GFMS
100150 200 250 300 350
2001 2002 2003 2004 2005 2006
0 200 400 600 800
1971 1977 1983 1989 1995 2001 2006
The gold price in USD/oz 1971–2006
South Africa
USA
China
Australia
Peru Rest of the world
Canada Indonesia
Russia Colombia Venezuela Philippines
Mexico Chile Argentina Tanzania
Brasilia Mali Papua New Guinea Ghana Uzbekistan
gold content. The average stated cash production costs for com- mercial information-producing larger western mining compa- nies for 2006 amounted to just under 317 USD/oz.
The global trade in gold
The global trade in gold consists primarily of a larger proportion which is traded OTC (over the counter), i e directly between various market actors. This part of the market is further divided into spot transactions and various types of derivatives, such as forward contracts and options. The OTC market is open around the clock, and the main centres for such trading are London, New York and Zurich, where the large transactions generally take place (central banks and mining companies). The minimum trade size in this market is 1,000 troy ounce (oz). In Dubai and other Far East cities, OTC transactions are also concluded, but on a smaller scale. OTC trading is organised manually by tel- ephone as well as via an electronic trading system.
A smaller proportion of the trading takes place via exchanges
such as NYMEX, TOCOM or Istanbul. To facilitate price setting
on the market, a reference price for gold, the so-called “London
fi x”, is set twice daily (at 10.30 am and 3 pm). Settlements on
the market are organised in a similar way as on the international
currency market via accounts in various banks. The standard
size is a “London Good Delivery Bar”. The settlement currency
is normally US dollars. The underlying market comprises the
158,000 tons of gold (as at the end of 2006) multiplied by the
current market price. At the end of the fi rst quarter of 2003, the
total market value of the gold market amounted to 1/10 of the
market capitalisation of the New York stock exchange. However,
since the market consists of only one homogenous product, the
liquidity is fi rst class. Determining the exact turnover rates and
prices is a slightly complicated task (due to the large propor-
tion of OTC trading). However, the gold industry organisation,
World Gold Council, estimates that the turnover rate of the
underlying market is three times a year (i. e. the value of all gold
sold during a year is three times higher than the value of all gold
that exists).
Offi cial Russian gold production calculated by the Russian Union of Goldminers decreased slightly during 2006 by 2.2%
and totalled approximately 164 tonnes. According to the interna- tional gold consultancy company GFMS, the actual decrease was 1% and the total volume was 173 tonnes. As usual the statistics available are neither precise nor complete. However the decrease for last year has been established statistically and, as shown in the graph, a further minor decrease in production is expected for Russia in 2007. This means that Russia is now the world’s sixth gold producing country.
Russian gold production 1991–2006, tons
Source: Russian Union of Gold Miners
99% of Russian gold production is distributed across 14 regions (of a total 89 in Russia) and since 2003 the leading region has been Krasnoyarsk followed by the Sacha Republic (Yakutia), which thus surpassed the Magadan region in 2006. The Irkutsk region, where Central Asia Gold has a number of gold depos- its, is the fi fth largest gold region. Unlike oil reserves, of which approximately 2/3 are located in western Siberia, the eastern areas of Russia (eastern Siberia, the far east and north east) have the largest gold deposits.
The leading gold producing regions in Russia, 2006
Region Production, tons
1. Krasnoyarsk 31.5
2. Sacha (Yakutia) 19.9
3. Magadan 17.3
4. Khabarovsk 15.7
5. Irkutsk 14.5
6. Amur 14.5
Source: Russian Union of Gold Miners
Industrial structure – reduced fragmentation
The Russian gold sector is highly fragmented. There are cur- rently more than 500 registered gold companies, and the 20 top companies accounted for about 58% of the country’s total pro- duction in 2006. This should again be compared to the Russian oil sector, where the four largest companies account for more than 60% of the production. However, a consolidation has already commenced and the clear leading producer is Polyus Zoloto, formerly Norilsk Nickel’s gold division, whose shares since 2006
have been listed on the London stock exchange. Polyus consti- tuted 23% of Russia’s total gold production in 2006. The second largest gold producer, Polimetall, has been listed on the Moscow stock exchange, RTS, since February 2006. The number of small gold producing companies continues to decrease. During 2006 the number of companies producing <100 kg decreased by 28%
and the number of companies with production in the range of 100-500 kg was reduced by 10%.
Russia’s 20 leading gold producers 2006
Production, tons Foreign ownership
1. Polyus Zoloto 37.5
2. Polimetall 7.8
3. Pokrovsky Rudnik 6.4 Peter Hambro Mining
4. Russdragmet 5.0 Highland Gold Mining
5. Buryatzoloto 4.7 High River Gold Mines
6. Yuzhuralzoloto 3.9
7. Lanta Bank 3.0
8. Susumanzoloto 2.8
9. Omsukchansk 2.8 Bema Gold Corp
10. Amur 2.7
11. Vitim 2.4
12. Chukotka 2,0
13. Seligrad 2.0
14. Arlan 2.0
15. Sovrudnik 2.0
16. Nirungan 2.0
17. Omchak 2.0 Peter Hambro Mining
18. Zapadnaya 1.7
19. Uralelektromed 1.6
20. Solovevsky Priisk 1.5
Total production of 20 leading producers
95.8
Total Russian production 2006 164.3 Share of the 20 leading producers 58 % Source: Russian Union of Gold Miners
Foreign ownership of Russian gold assets does not seem to be such a sensitive issue as it is in the oil and gas sectors where the latter is practically monopolised through Gazprom. In 2006 companies controlled by western owners accounted for about 16% of Russian gold production. This is in contrast to Aus- tralia, for example, where the percentage of foreign ownership has increased from 20% to 70% during the past six years. Now only one of the ten biggest Australian gold producers remains in domestic hands.
Distribution of Russian gold reserves and gold production
Russian gold production is characterised by a relatively high per- centage of alluvial gold (gold embedded in old river sands). The share of alluvial gold production in total gold production was about 40% in 2006. However alluvial production has decreased and reduced by 10% compared with 2005, whilst mine gold
The Russian gold industry
0 50 100 150 200
91 94 97 00 03 06
production increased by 3%. Historically the alluvial produc- tion has accounted for some 80% of total accumulated Russian gold production. As regards gold reserves, the reversed pattern can be observed. The alluvial share of total existing Russian gold reserves (estimated at 9,000 tons) is calculated at around 18%, at the same time as mine gold accounts for 54% of total gold reserves. The residual percentage, 28%, pertains to com- plex deposits, which also contain other minerals besides gold.
Including the base of gold resources, total Russian gold assets are estimated at 26,000–35,000 tons. The relatively high percentage of alluvial production can probably be primarily explained by a historic lack of long-term fi nancing on the domestic market.
This is because alluvial production is far less capital intensive than mine production.
Like the situation in the Russian oil industry, the reserve life of the Russian gold sector (total gold reserves divided by the annual gold production) signifi cantly exceeds the reserve life in the West. Russian gold reserves are estimated to have a lifetime of 85 years at the current production rate; this can be compared with a lifetime of 15-20 years for countries such as the USA, Australia and Canada.
Just like Russian oil reserves, Russian gold reserves are classifi ed in a state register, the so-called GKZ commission, at the Ministry of Natural Resources (Minprirody). This is also represented at regional level. The Russian reserve categories A, B, C1 and C2 roughly correspond to the Western reserve categories “proven and probable”. Similarly, the Russian resources categories P1, P2 and P3 roughly correspond to the Western resources categories
“measured, indicated and inferred”.
Production costs
It is diffi cult to fi nd comprehensive statistics for production costs in Russia. Polyus Gold, which constituted 23% of Russian pro- duction in 2006, can be taken as a good approximation. Polyus has a good balance between alluvial and mine production. Polyus Gold generated a cash operating cost per oz of 284 USD for the fi rst half of the year 2006. This can be compared with the estimated global average cash operating cost of 317 USD/oz
for 2006 according to the consultancy company GFMS. Rus- sian production costs are now rising, as more remotely located deposits are developed. Furthermore, infl ation is currently run- ning at more than 8% on an annual basis, and at the same time in nominal terms the rouble has strengthened or is stable against the US dollar (real appreciation of the exchange rate), which also has a direct impact on operating costs expressed in USD.
Refi ning gold
About ten companies in Russia enrich gold and other precious metals to fi nal market quality. These companies compete and together have a capacity that signifi cantly exceeds current pro- duction volumes. Therefore the cost of refi ning is low, amount- ing to some 1% of the market price. The most modern facilities are the ones in Prioksk (south of Moscow) and in Krasnoyarsk (eastern Siberia). These two units plus another three had a “good delivery status” on the LME in London in 2002. That enables these refi neries to sell gold at a certain premium compared to the average price on the LME.
Legal factors
The main law regulating the Russian mining sector is the “Fed- eral Law concerning Mineral Resources” enacted in 1992 and amended in 1995. Russian minerals always remain in state own- ership. A license holder is only granted the right to exploit the minerals. Precisely as in the oil sector these licenses can pertain to exploration, production or both. An exploration license is currently awarded for a fi ve-year term, a production license for 20 years and a combined license for 25 years. The working pro- gramme included in the license must be approved by three bod- ies – the GKZ-committee (see above), the state Russian mining inspection (Gozgortechnadzor) and also by the environmental authorities.
A second legal act of signifi cance is the “Federal Law regarding Precious Metals and Gems”, which was enacted in 1998. This law in principle says that the rights to any precious metals and gems produced belong to the holder of the production license (unless otherwise explicitly stated in the license agreement).
Foreign gold producers in Russia 2000–2006 (kg per year)
Company 2000 2001 2002 2003 2004 2005 2006
Peter Hambro Mining (GBR), total including
1,550 2,814 2,225 3,758 7,509 8,195 8,375
Pokrovsky Rudnik 1,550 2,814 2,225 3,758 4,701 5,740 6,383
Omchak 2,808 2,455 1,992
Highland Gold Mining (GBR) 2,999 4,799 5,697 6,005 6,143 5,041 5,026
High River Gold Mines (CAN) 3,770 4,705 4,802 4,811 4,898 4,874 4,720
Bema Gold Corp (CAN) 303 3,429 3,624 2,612 2,804 2,778
Kinross Gold Corp (CAN) 13,630 13,502 12,515 5,474 3,949 4,696 1,212
Angara Mining 14 1,096
TOTAL 21,949 26,123 28,668 23,672 25,111 25,524 23,207
% of Russian gold production 17 18 18 15 16 17 16
Source: Russian Union of Gold Miners
The following text is essentially a translated extract from the information memorandum published by the Russian authori- ties in connection with the privatisation of the Tardan mine in 2003.
Introduction
The Tardan gold deposit is located in the Kaa-Cheem territory in the central part of the Tyva region (Siberia). The deposit is 78 km away from the administrative centre of the region – the city Kyzyl. 60 km is accessible by asphalt road and the remain- ing 18 km by gravel roads. The deposit is situated on the right bank of the creek Bay-Syut in low altitude mountain terrain with absolute altitude marks of 1,433 m at the peak and 800 m at the lowest point of the Bay-Syut creek. The northern hillside is covered by Siberian forest terrain (taiga) whereas the southern side is a plain (step).
Geologically the deposit is situated in the contact zone between granodiorite rocks from the early Palaeozoic age with volcanic – carboniferous – rocks from the middle Cambrian age. The area of the ore fi eld is 2 square km. Skarn has acted as a “trap” for the gold mineralization.
A total of 14 ore zones have been detected. Their thickness varies from 1 m to 30–50 m, and they are several hundreds of metres long. Their distribution is defi ned by a zone of fractures running in a north-west direction.
Horizontally, the length of the ore bodies varies from 20 to 150 m. The same parameters apply in the vertical direction. The thickness of the ore bodies varies from 0.1 to 12.8 m, whereby six ore bodies, each with a thickness of more than 4 m, account for 27% of the gold reserves. In addition, 14 ore bodies with a thickness of 2–4 m account for 57% of the gold reserves of the deposit. In total, 41 ore bodies have been identifi ed, 31 of which contain gold reserves.
The Tardan gold deposit
The Tardan deposit in winter
Number of penetrations of the ore bodies Number of
ore bodies
Number of penetrations
Ore reserves
000 tons Gold, kg
3 10 304.9 3,191.4
44.40% 43.30%
5 10 to 5 108.8 2 048.4
26.30% 27.80%
10 4 to 3 130.2 1 437.2
18.90% 19.50%
7 2 56.2 570.1
8.10% 7.70%
5 1 10.2 112.5
1.50% 1.50%
Total 610.3 7 359.6
Source: The Russian privatisation authorities.
The mineralization is of the type sulphide ore. The sulphide con- tent amounts to 5-6%.
The gold content in the ores varies from 2 g/ton (minimum industrial level) to 30–50 g/ton. In one sample, 280 g/ton Au (gold) was established. The average content based on the samples has been determined to be 10.7 g/ton.
Apart from gold, the ore contains silver (Ag) in low concentra- tions – up to 4–10 g/ton In one sample, the analysis showed 269 g/ton Ag. The average content is 8.9g/ton. In addition, it includes copper ranging from 0.1–1.8% Cu with an average content of 0.3%. The correlation coeffi cient for Au/Ag is 0.5–0.6 and for Au/Cu 0.7–0.8.
• The technical aspects of developing the mine are favourable.
• The bulk of the gold reserves are accessible from the surface or through underground corridors.
• The water level in this part is low and will not demand any draining measures.
• The quality of the side wall rock seems to be good.
The exploration of the mine took place in 1965–1979. The surface parts of the ore bodies were investigated by trenching. Moreover, underground drifts and shafts were made at levels of 60–100 m below the surface. The information from the trench and under- ground work has been supplemented with information from the diamond boreholes drilled at lengths of 120-170m. The diff erent prospecting works from the Soviet period are tabulated below:
Surface trenches: 47,252 cubic metres Underground drifts and shafts: 3 876 metres
Drilled wells: 20,158 metres
Diamond drilling was done during the Soviet era in a grid of 30–40 m x 40 m and in some cases 20 x 40 m. The exploration work did not proceed deeper than 100 m below surface.
Gravimetric enrichment on its own is not suffi cient to achieve satisfactory recovery of the gold. Instead, cyanide leaching must be carried out as well. Comprehensive concentration tests car- ried out in 2005 by the research institute Irgiredmet in the city of Irkutsk showed a recovery coeffi cient in excess of 90%, which is very satisfactory.
The latest independent reserve analysis was carried out in 1994.
This study was based on the preconditions for the calculations made by the Russian research institute Ginalmazzoloto in 1992, namely:
• cut-off grade of gold of 2 g/ton
• minimum thickness of ore bodies of 1 m
• minimum gold grade in blocks included in the calculated reserve is 5.4 g/ton
• low grade blocks surrounded by blocks with fi nancially viable gold grades were included in the reserves if the gold grade was at least 4.1 g/ton
• a waste rock intersection of maximum 2 m was accepted in the bore holes, trenches and other intersections from drifts and shafts.
Reserves/resources in the mining district Tardan
12per 1994
Reserves/resources category Ore, 000 t Gold, kg
Average gold content (g/t) The Tardan deposit
C1+C2 687 7,371.8 10.7
P1* 554.7 5,935.3 10.7
The Soruglugchemskoye deposit
P1 179.9 1,418.6 7.9
The Kopto gold deposit
P1 91.2 1,015.6 11.1
The Barsuche gold deposit
P1 77 1,213.0 15.8
Subtotal for mineral
resources in the category P1 902.8 9,582.5 10.5 Total gold reserves
and gold resources in
the Tardan mining district 1,589.8 16,954.3 10.7
1
Based on estimates of resources to a depth of 800 m, the maximum depth of underground corridor extraction.
2
