ANNUAL REPORT FOR THE FINANCIAL YEAR 2007
Translation
This English annual report is a translation of the Swedish annual report for 2007. If any discrepancies exist in the translation, the Swedish language version shall prevail.
Defi nitions
“Central Asia Gold”, “CAG” and “the Company” refer to Central Asia Gold AB (publ) with Swedish corporate registration 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.
Dates for fi nancial information during 2008
Central Asia Gold AB’s fi nancial year runs from 1 January to 31 December. During 2008, the Company will issue interim fi nancial information as follows:
Year-end report: 28 February 2008
Interim report (1) Jan–March 2008: 28 May 2008 Interim report (2) Jan–June 2008: 28 August 2008 Interim report (3) Jan–Sept 2008: 30 November 2008
2008 annual meeting
The annual general meeting will be held on 12 June at Opera- källaren, Karl XII's Torg, 111 47 Stockholm, starting at 15.00. Share- holders who wish to participate must:
i) Be entered in the shareholder register held by Värdepappers- centralen VPC AB on the reconciliation date, which is 05.06.2008.
In order to participate in the AGM, nominee shareholders must temporarily re-register their shares via their nominee into their own names by 05.06.2008. This should be done in good time.
ii) Notify of their participation to the Company by 9 June at 16.00. This notice must be delivered to the Company by phone +46 8 624 26 80, by fax +46 8 624 37 20, by e-mail to the address agm@centralasiagold.se or by regular mail to the registered address Central Asia Gold AB, Brovägen 9,SE-182 76 Stocksund. Notifi - cation must include the complete name, personal ID number or corporate registration 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:
Three-dimensional image of the Kopylovskoye deposit with established gold reserves in red and expected extension of the ore zone at depth in blue. The six inclined lines are the core drilling that was performed by Central Asia Gold during autumn 2007.
Contents
The Managing Director’s Report 4
A few words from the Chairman 7
Overview of operations 8
Gold 10
The Russian gold industry 12
The Tardan gold deposit 15
The Kopto gold deposit 17
The subsidiary Kopylovskoye AB 18
Brief description of alluvial gold production in Russia 22 The alluvial gold production company Artelj Lena in Irkutsk 23 The alluvial gold producing subsidiary company OOO Artelj Tyva 24
The Kavkaz mining deposit 25
The gold mineralization Kara-Beldyr 26
Uzhunzhulsky group of mineralizations 28
The alluvial deposit Sivo Pravy Uval 28
Partnership in diamond exploration concessions in Northern Sweden 29
The Russian Tyva region 30
The Irkutsk region 30
Our Environmental policy 31
The share capital and shares issued 32
Operational key ratios 33
Key personnel, Board of Directors and Auditors 34
Directors’ administration report 36
Accounting principles 47
Notes 50
Auditor's report 59
Uzhunzhulsky
Tardan Tomsk
Kopto
Kavkaz Kopylovskoye
Kara-Beldyr
Dear shareholders,
Gold Price and Share Development
So another year has passed for Central Asia Gold. The year 2007 was the third year of true work at the fi elds in Siberia. It was a year with several, paradoxical eff ects; the world gold price increased by nearly 35% in dollar terms and achieved the highest level ever in nominal value (834 USD at the end of December), whilst the shares of the majority of medium sized gold companies in the world, including Central Asia Gold’s, fell thoroughly. The reason for this was fi nancial unrest, which spread in the world during the second half of 2007 on the heels of the American loan crisis. Proper corrections were there- fore made to shares and other instruments throughout the world, as the global investors started to reduce their exposure to risky instru- ments in favour of more certain ones. Expressed in gold terms, this means that the global gold investors dropped gold shares in favour of the less risky gold ingots. It has long been the case that when the risk aversion decreases, gold shares fare better than underlying gold ingots and vice versa.
Are Central Asia Gold’s company management and board therefore satisfi ed with the development in 2007, during which the CAG shares fell by 38%? No, clearly not, but as someone once said, pov- erty and misery are easier to endure if they are meted out equally to everyone else. The adjoining table shows the price development during 2007 for a number of Swedish and foreign gold and mining companies, which all endured a stock exchange decline during the last year. The table shows that Central Asia Gold’s experiences were hardly out of the ordinary during 2007.
The Managing Director’s Report
The Tardan deposit
The most important event of the year at subsidiary level has been the start of the processing plant at the Tardan deposit. After two years of evaluation work this commenced in all earnest in April 2007, and the gold in the ground fi nally started to emerge to the surface.
However this is only the start, and during 2008 we now plan to start constructing the next stage, the leaching plant (heap leaching), which it is estimated will increase the extraction coeffi cient of the Tardan gold to 85%-90% from today’s approximate 50%.
During recent years our geologists have conducted comprehensive evaluation work, and this will continue for the next few years as well. The fi rst stage in the reserve work will be the performance of a new gold reserve account by the Russian authorities, the Rus- sian Reserve Committee, in summer 2008. As previously explained, Central Asia Gold’s geologists evaluate that approximately 10 tons of gold reserves will be registered at the Tardan deposit. The older fi g- ures from the Soviet period for a similar area as the one in question were only half this – approximately 5 tons. We hope and believe that our geologists are correct in their evaluation.
The next stage will be to continue the geological evaluation work at the rest of the total license area in the region of Tyva, which comprises a total 520 km2. Our internal business plan includes an increase of Central Asia Gold’s gold reserves in the Tardan area to approximately 30 tons (more than 1 million oz) during the period 2008 – 2011.
With regards to the construction of the leaching plant, a new plan-
ning study (feasibility study) is being conducted by a Russian plan-
ning institute. It will be concluded during summer 2008, following
which construction will commence. We expect to try to attempt building the fi rst stage during 2009 and to set the leaching in process immediately thereafter. According to the preliminary timetable the fi rst leached gold will thus be obtained early in the same year. During 2010 we plan to extend the capacity and thereby increase produc- tion further. We consider it incautious to give an exact production prognosis for the coming year in writing in this report but we can confi rm that we hope and believe that Tardan will be able to produce signifi cantly more than one ton of gold per year once the leaching plant is fully constructed. In such a case it will be more than we esti- mated when the construction of Tardan was started several years ago.
Kopylovskoye
The company management and the board are greatly optimistic about our Kopylovskoye mining project in Irkutsk. The project is presented in greater detail on page 18 of this annual report. It is located in the Bodaibo district, which is a part of the Irkutsk region. Russia’s very largest gold deposit named Suchoy Log is located here. This is a global fi nd with a currently established 1,000 tons (30 million oz) of gold reserves. The majority of projects in its vicinity, including Kopylovskoye, are considered to be satellites. Approximately 7 tons (approx. 240,000 oz) of established gold reserves had been found down to a depth of 30–40 m when we purchased Kopylovskoye. No suffi ciently thorough evaluation work had been performed deeper than this. Central Asia Gold proceeded on the hypothesis that the gold reserves established at the top of the deposit continue down- wards and laterally. In such a case the reserves can be expected to increase by several times. At the time of writing we have been able to perform 3,000 m diamond drilling down to an absolute depth of approximately 100 m. These drill cores do not reveal the exact gold content but rather the rock type. So far the geological image is homogenous with regards to depth, i.e. the rock types at 100 m are similar to those at the top of the deposit where gold reserves have been established. This supports our hypothesis of signifi cant increases in reserves. The measurement of the exact gold content at this depth will be determined at the end of 2008 when our new RC-drilling rig is delivered. In the middle of 2009 we therefore expect to fi nd out whether Kopylovskoye contains a few million oz of gold in the ground or not. We feel we are right to be convinced about this by the way things are already proceeding.
Other projects
There are a number of other gold mineralizations; Uzhunzhul, Kavkaz and Kara-Beldyr, in our group next to Tardan and Kopylovskoye. We performed some evaluation work during 2007 at the fi rst two. The results were very positive, although we are still at an early stage:
At Uzhunzhul in Khakassia 2,700 m of diamond drilling was per- formed during the year and 3,000 samples were taken from the drilling cores and from the excavated trenches. These samples have allowed us to complete the fi rst diffi cult stage in a gold deposit’s life cycle, namely to establish the presence of a signifi cant gold miner- alised zone with high gold contents and great width. This does not mean that we have gold reserves ready for production but that we have taken a short step on the way to this goal. We would add that the case behind the decision to acquire the Uzhunzhul license was that it bordered to a producing deposit. The gold mineralised zone detected is considered to be a continuance of our neighbour’s ore zone.
A limited but important programme was performed with very posi- tive results at the Kavkaz deposit in Irkutsk. Historically Kavkaz was
Share price shown by blue line and right hand scale.
Daily turnover in million shares shown by bars and left hand scale.
The gold price in TSEK/oz 2002–2008
The gold price in USD/oz 2002–2008
Share price (SEK) and volume of shares turned over per day in Central Asia Gold during the period March 29, 2005 – May 7, 2008
International gold price, 2002–2008
2 3 4 5 6
2002 2003 2004 2005 2006 2007 2008
200 400 600 800 1000
2002 2003 2004 2005 2006 2007 2008
0 3 6 9 12 15
0,5 1,0 1,5 2,0 2,5 3,0
Apr 05 Okt 05 Apr 06 Okt 06 Apr 07 Okt 07 Apr 08
The gold spot price in USD/oz compared with AMEX Gold Mining Index (normalised)
Share price development for international mining companies
2007
2008 to 8th April Global gold giants (share price in USD)
Barrick Gold (number 1 in the world) +35% -2%
Newmont Mining (number 2 in the world) +11% -10%
Gold companies in Russia and the CIS area (share prices In USD)
Polyus Gold -2% 7%
Highland Gold +19% 8%
Trans-Siberian Gold * -37%, 20%
Oxus Gold +3% -47%
Scandinavian gold producers and other mining companies (share prices in SEK)
Central Asia Gold -38% 5%
Crew Gold -30% -16%
Lappland Gold Miners -20% -35%
Endomines -43% 9%
IGE -58% -27%
Gexco -84% 14%
Boliden (Sweden's largest mining com-
pany) -50% -20%
Lundin Mining (Sweden's next largest
mining company) -29% -25%
* Share price development in British pounds
considered to contain limited recoverable gold reserves with a high gold grade located in quartz veins. The width of the gold mineralised zone was considered to be somewhat more than a meter. Central Asia Gold’s geologists always proceeded on the hypothesis that the gold mineralised zone is signifi cantly wider, but with a lower gold content. These circumstances were proven during 2007. Precisely the same situation, i.e. the presence of a wide (50 m) gold miner- alised zone, was proven during the year at the Kara-Beldyr deposit.
This was also a deviation from the historical analysis. The evaluation work during the previous years had demonstrated a mineralization zone with relatively high content but with limited width.
The alluvial subsidiaries
The two alluvial subsidiaries produced approximately 870 kg gold during 2007. As we have noted in previous annual reports, alluvial gold production is less profi table due to the almost constant low gold content in the ground. In return relatively little capital is involved. A positive cash fl ow was obtained from both of the subsidiaries in the preceding year. In the future it is estimated that the two subsidiaries will continue to be of importance for our group, but this is con- ditional on Russian infl ation not increasing sharply further. How- ever a new and more profi table future can be achieved for Central Asia Gold’s alluvial subsidiaries if the production experiment that is described on page 23 of this annual report is successful. This con- cerns the potential to extract deluvial gold.
A fi nal word
As we stated in the introduction to this section, the year 2007 was poor in terms of the stock market performance. It was not pleasant.
However the value of stock market corrections is that they are gen- erally followed by upswings in the market, as lightning seldom strikes the same place twice within a short period of time. Another down- to-earth way to express this is that "the sun will follow the rain". Let us hope that this rule continues to apply. The Central Asia Gold share price in the middle of April 2008 is now around SEK 1.25, i.e. it has risen by a little since the end of December 2007, and so a little sun- shine has already shone on Central Asia Gold and the stock market.
Here is how we stand during the fi rst half of 2008. During the year we will obtain a large number of sample results from various diff er- ent projects. Ahead of us we see a very exciting scenario of, hope- fully, reserve increases. We believe the greatest change will occur at the Kopylovskoye project.
Financially we have a tolerable cash fl ow from our three producing units. Once the construction of the leaching plant has commenced we will need to acquire certain external fi nancing. So far as possible this will occur via increased loans but certain equity will probably also have to be brought in. We will return to this question when all details regarding the leaching plant have been settled.
Much may therefore occur during the coming year. Nothing is cer- tain, and as I always stress in this regard there are risks in being a mining company in its early stages. The only completely predictable truth is that the future cannot be predicted. We should consider this to be fortunate, as it would be quite dull if the opposite were true.
Torbjörn Ranta
Managing Director Gold price shown by blue line andAMEX Gold Mining index (normalised) by gold line 500
750 1000
Jan 07 Apr 07 Jul 07 Okt 07 Jan 08 Apr 08
Shareholder colleagues,
The Code
As chairman of the board of CAG AB, this will probably be one of my last written greetings to you. From the 1st July 2008, CAG AB and other companies listed on the NGM exchange must adjust to the Exchange Code. This code is comprehensive in its prescriptions concerning the control of companies or "corporate governance".
Amongst other matters, the code contains much information on the procedure for appointing a board, and it places more emphasis than the previous requirement on the independence of the board’s mem- bers. In CAG’s case, this probably means that I will retire as chairman of the board at the latest on the Annual General Meeting 2009, but will hopefully in such case remain as a standard board member. We will shortly see which exact board compositions our main share- holders recommend. However no dramatic, practical changes are expected as all leading personnel in company management will be present at all events and will report at the board meetings.
Following this administrative point of order, I would like to take up two cases for discussion in my report as chairman in order that all shareholders will better understand how Central Asia Gold’s position appears on the market:
Production requirements and partnership
Firstly, the possession of a mineral license in Russia means that the license holder must perform a comprehensive work programme and then enter production within only a few years. It is not an alterna- tive to remain calm and bide our time as the gold price increases.
We were therefore forced to put the Tardan mine into production in 2007, and this we have already done.
A few words from the Chairman
In addition to Tardan, we now also have four other mining projects that require investment at the same time. Can Central Asia Gold per- form all these work programmes alone, at express speed and thereby fi nance them itself? No, it will not be possible because we do not possess the resources. Instead we will concentrate our resources on a couple of them and will seek partners or sell off the projects in the other cases. We believe that we have purchased the majority of the project cheaply, and in particular we have purchased it when the gold price was at a rather low level. The market value of this port- folilo should therefore exceed its book value, although this cannot be taken for granted.
Concentration of the Russian gold sector is accelerating
We have, as the majority of you know, predicted a concentration of the hitherto relatively fragmented Russian gold sector in just a few years time. During 2007 this trend became more pronounced. Two signifi cant new players emerged; namely the major Russian steel companies Severstal and Evraz. Severstal is dominated by the busi- nessman Mr. Mordashov and Evraz by a businessman better known in the west, Mr. Abramovich, who also owns Chelsea Football Club in England.
During autumn 2007 both of these groups started to make a number of major acquisitions of Russian gold projects. Severstal placed a bid for the London listed gold company Celtic Resources, whilst Mr.
Abromovich and partners took over control of the similarly Lon- don listed gold company, Highland Gold, via a directed new issue of shares. A number of other less well-known companies have also thrown themselves into the game, and the price of Russian gold assets has increased. The structural change is, on the whole, posi- tive. This transformation will be of signifi cance to Central Asia Gold sooner or later, hopefully by continuing to increase the value of our current eight diff erent Russian gold projects.
Belief in the future
Finally I would stress that I maintain a positive outlook for the future of our company Central Asia Gold. Developing gold mines is diffi cult and demands much patience. Risks are always present but the poten- tials are great too, and our group produced more than a ton of pure gold during 2007. I estimate that in even the most moderate future scenarios our production will continue to increase; a situation that should benefi t our share price. However I cannot and do not wish to guarantee anything for the future. The stock market conditions are just as we envisaged in last year’s annual report diffi cult to predict.
With kind greetings from Siberia, Michail Malyarenko
Chairman of the Board
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 ("CAG AB") is a Swedish mining company, operating in eastern Siberia in Russia. At the end of 2007, the group consisted of the Swedish parent company and of three subsidiaries.
Furthermore, the various subsidiaries own a total nine sub-subsidiary companies: The various group companies work in gold production and/or gold prospecting and in addition perform support functions (transport operations). All subsidiaries and sub-subsidiaries in Russia are of the limited liability type (OOO).
The parent company is of an administrative nature and provides the subsidiaries with fi nancing, and is responsible for developing strate- gies, stock exchange listing, investor relations, etc. The actual indus- trial operation is managed at subsidiary level.
Vision and strategy
Central Asia Gold AB’s business concept is to become a medium- sized profi table gold producer and explorer by global standards. 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 admin- istration, exploration and direct production costs. The objective is to achieve extractable gold reserves of at least 2 million ounces.
Exploration work is also a central component in the business con- cept. 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, explora- tion is an attractive activity.
In other respects too, Central Asia Gold will use its entrepreneurial attitude to keep down administrative costs in the group, in order to invest the maximum amounts in production and exploration.
Gold production planning
During 2007, the group companies produced and sold 1,073 kg (ca 34,500 oz) of gold. During 2008, Central Asia Gold plans to produce approximately a total 1,250 kg of gold (ca 40,000 oz) via the various group companies.
Central Asia Gold’s choice of strategy and thoughts of the future
Gold companies can operate according to diff erent business mod- els. 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 mineralization using vari- ous 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 mineralization is proven, a company – perhaps the exploration company above, or another company – must evaluate the mineralization through a great
Assets
According to Russian geological standards, the group companies’ licenses are today estimated to cover the following gold assets expressed in troy ounces (oz):
1 ounce = 31,1 g
Subsidiary Licence
Owner- ship share
Gold reserves C1
Gold reserves/
Gold minerali- zation resourc- es C2**
Gold minerali- zation resources P1
Gold minerali- zation resources P2
Total gold reserves and resources
OOO Tardan Gold Tardan 100% 79,700 143,000 184,000 4,354,000 4,760,700
Tardan Mining
district 100% 500,000 500,000
Kopto 100% 31,000 31,000
Kopylovskoye AB Kopylovskoye* 75% 5,250 174,000 219,750 30,000 429,000
OOO Artelj Tyva Agliyak 100% 62,540 62,540
OOO Artelj Lena A number of 100% 106,380 41,600 54,650 202,630
OOO Kavkaz Kavkaz 100% 33,300 84,200 117,500
OOO Uzhunzhul Uzhunzhulsky 100% 235,000 273,000 508,000
OOO Kara-Beldyr Kara-Beldyr 100% 240,000 1,098,000 1,338,000
Total 253,870 391,900 1,048,600 6,255,000 7,949,370
* During autumn 2007, 25% of Kopylovskoye AB were sold out for MSEK 70. Central Asia Gold's net reserves/mineralization resources are shown above.
** 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.
Overview of operations
input of work in order to prepare it for the production phase. During this phase, money needs to be invested in a work programme cover- ing 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, per- haps 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 mineraliza- tion. To subsequently convert a mineralization to recoverable ore reserves also costs considerable amounts of money 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 mainly taken steps 2 and 3 in their deposits 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 available. 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. This situation is about to change however as unlicensed deposits are purchased up and frag- mentation in the Russian gold sector is reduced.
The organisation structure of the Central Asia Gold Group as at spring 2008
* As described on page 23 of this annual report, a just over 5% minority has arisen in Artelj Lena during early 2008. Following year end 2007, the modest minorities in the sub-subsidiaries OOO Artelj Tyva, OOO Kara-Beldyr, OOO Perspektiva, OOO Uzhunzhul and OOO Kavkaz Gold were transferred to Central Asia Gold AB free of charge, and thus these subsidiaries are now 100% owned at a group level.
75% 100% 100%
100% 100% 95%* 50% 51% 100% 100% 100%
100%
OOO Kavkaz Gold
(Irkutsk) OOO
Kopylovsky (Irkutsk)
OOO Artelj Lena
(Irkutsk)
OOO Mars (Tomsk)
OOO TKM (Tomsk)
OOO Kara-Beldyr
(Tyva)
OOO Uzhunzhul (Khakasien)
OOO Perspektiva
(Tomsk) Kopylovskoye
AB (Stockholm)
OOO Tardan Gold
(Tyva)
OOO GRK Tomano (Buryatien) Central Asia
Gold AB (publ)
(Stockholm)
OOO Artelj Tyva
(Tyva)
MOSCOW STOCKHOLM
St. Petersburg
Tomsk
Irkutsk Kyzyl
Abakan Novokuznetsk
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 mining 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, substantial 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 produc- tion had increased to approximately 75 tons, almost half of which came from Russian mines. The discovery of gold in California sig- nalled 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, sub- stantial gold discoveries were also made in Australia. Worldwide pro- duction increased rapidly and after a few years amounted to nearly 300 tons per year. The large deposits at Witwatersrand in South Afri- ca, 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 discov- ery of alluvial gold in the Canadian Klondyke region. The produc- tion 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 dramati- cally in the 1980s that production again increased. Many older mines were reopened, and intensive exploration resulted in numerous sub- stantial 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 mon- etary 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 2007, the gold consultancy company Gold Field Mineral Serv- ices (”GFMS”) estimated that there was a total existing amount of 161,000 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 associated with the jewellery industry. During the
past few years the demand in this industry has exceeded the total mine production of gold. Because of its many special characteris- tics, gold also has an industrial use. Considerable quantities are used within dentistry and within the electronics, space and pharmaceuti- cal 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 18% of the total existing gold reserves.
The world’s gold production is falling
The world’s primary gold production fell during 2007 by 10 tonnes or 0.5% and totalled 2,476 tonnes. This was the second year in suc- cession to experience a global fall in production and was the lowest production level for 11 years. In 2007 China become the country to produce most gold in the world and thereby overtook the fi rst place from South Africa, which had been the world's largest gold producer since 1905. Asia was also the only region in the world that increased its production during the year, which increased by 65 tonnes. Pro- duction fell in other regions and was most severely reduced in Africa, where the downturn amounted to 29 tonnes. Production in South Africa fell by almost 9%, the chief cause of this being lower gold con- tents; the country's average contents were reduced by 10% during the year. Even Latin America reduced its production by a total 23 tonnes, despite growth in countries such as Brazil and Mexico. Peru expe- rienced the most severe downturn in Latin America and reduced its production by a total 32 tonnes. The CIS countries (the former Sovi- et Union) and Oceania reduced their production by 4 tonnes each.
Amongst the countries that reduced their production most compared with the previous year were South Africa, Peru and the USA . The three countries contributed to a reduction of 70.5 tonnes.
The world’s gold production 1980–2005
Source: World Gold Council
The gold price
The average global gold price increased during 2007 to USD 695, the highest average gold price ever and thereby surpassed the previ- ous highest level from 1980, when the average price was USD 614.
This means an increase of 15% compared with 2006. The highest price level during 2007 was USD 841.
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
The gold price in USD/oz 1971–2007
Source: World Gold Council
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 iden- tifi ed some 900 gold-producing mines all over the world in 2002.
During a long period in the 20th century, South Africa dominated as the number-one global gold producer. In 1970 it produced 1,000 tons, which was 70% of the global volume at this point in time.
Thereafter, South Africa’s proportion has fallen, and in 2007 China took the lead as the world’s greatest gold nation, with 11% of world production.
The 20 largest gold producing countries
Source: GFMS
The gold grade of the ores varies globally depending on the par- ticular ore bodies. Generally, the gold content at the largest 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 pro- duced in open-pit mines, where the gold content of the ore is gener- ally lower than in deep mines, with gold content of 1–4 g/ton.
Production costs the world over vary a lot, depending of whether 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 gold content. The average stated cash production costs for commercial information- producing larger western mining companies for 2007 amounted to just under 395 USD/oz.
15 largest gold producers
* Estimate Source: GFMS
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 vari- ous market actors. This part of the market is further divided into spot transactions and various types of derivatives, such as forward con- tracts 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 transac- tions are also concluded,however on a smaller scale. OTC trading is organised manually by telephone 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 mar- ket via accounts in various banks. The standard size is a “London Good Delivery Bar”. The settlement currency is normally US dol- lars. The underlying market comprises the 161,000 tons of gold (as at the end of 2007) 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 proportion 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).
0 200 400 600 800
1971 1977 1983 1989 1995 2001 2007
China
South Africa
Australia
USA
Peru Rest of the world
Canada Indonesia
Russia Colombia Venezuela Philippines
Tanzania Chile Argentina
Mexico Mali Brasilia Papua New Guinea Ghana Uzbekistan
AngloGold Ashanti
Newmont Mining
Gold Fields
Freeport McMoRan Goldcorp
Barrick Gold
Newcrest Kinross*
Navoi MMC*
Harmony Gold Zijin Mining
IAMGOLD Buenaventura Polyus Rio Tinto
Offi cial Russian gold production calculated by the Russian Union of Goldminers decreased slightly during 2007 by 0.9% and totalled approximately 163 tonnes. However production is expected to increase during this year and the prognosis for 2008 is 168 tonnes.
Falling alluvial gold production will mean that mining production is expected to increase by almost 10 tonnes, which corresponds to an increase of 11%. Russia is the world's sixth largest gold produc- ing country.
Russian gold production 1991–2007
Source: Russian Union of Gold Miners
99% of Russian gold production is distributed across 14 regions (of a total 84 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 deposits, is the fourth largest gold region and thus passed Chabarovskii krai in 2007. 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, 2007
Region Production, tons
1. Krasnoyarsk 32.0
2. Sacha (Yakutia) 18.9
3. Magadan 14.9
4. Irkutsk 14.9.
5. Chabarovskij 14.8
6. Amur 14.7
Source: Russian Union of Gold Miners
Industrial structure – reduced fragmentation
The Russian gold sector is highly fragmented. There are currently around 460 registered gold companies, with the 20 top companies accounting for about 61% of the country's total production in 2007.
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 lead- ing producer is Polyus Zoloto, formerly Norilsk Nickel’s gold divi- sion, whose shares since 2006 have been listed on the London stock exchange. Polyus is responsible for 23% of Russia's total gold produc-
tion In 2007. The second largest gold producer for 2007 was Peter Hambro Mining Plc. The number of small gold producing companies continues to decrease. During 2007 the number of companies pro- ducing <100 kg decreased by 3% and the number of companies with production in the range of 100-500 kg was reduced by 15%.
Russia’s 25 leading gold producers 2007
Production, tons
1. Polyus Zoloto 37.8
2. Peter Hambro Mining 8.4
3. Polimetall 7.3
4. Yuzhuralzoloto 5.0
5. High River Gold Mines 4.7
6. Highland Gold Mining 4.6
7. Susumanzoloto 4.1
8. Vysotjajshij 3.2
9. Amur 2.9
10. Severstal 2.4
11. Solovevsky Priisk 2.2
12. Vitim 2.1
13. Seligrad 2.1
14. Kinross Gold Corp 2.1
15. Tjukotka 2.0
16. Zoloto Kamtjatki 2.0
17. Sovrudnik 2.0
18. Inrungan 1.8
19. Zapadnaja 1.8
20. Angara Mining Priisk 1.6
21. Dalnevostotjnye resursy 1.4
22. Ojna 1.2
23. Uralelektromed 1.1
24. Central Asia Gold 1.1
25. Vostok 1.0
Total production of 25 leading producers 105.9
Total Russian production 2007 162.8
Share of the 25 leading producers 65%
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 2007 companies controlled by western owners accounted for about 15% of Russian gold production. This is in contrast to Australia, 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 percent- age of alluvial gold (gold embedded in old river sands). The share of alluvial gold production in total gold production was about 40% in
The Russian gold industry
0 50 100 150 200
91 94 97 00 03 07
2007. However alluvial production has decreased and reduced by 6%
compared with 2006, whilst mine gold production increased by 1%.
Historically alluvial production 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 exist- ing Russian gold reserves (estimated at 9,000 tons) is calculated at around 18%, at the same time mine gold accounts for 54% of total gold reserves. The residual percentage, 28%, pertains to complex 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. Rus- sian 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 cor- respond 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 production in 2007, can be taken as a good approximation. Polyus has a good balance between alluvial and mine production. Polyus Gold gener- ated a cash operating cost per oz of 350 USD for the year 2007. This can be compared with the estimated global average cash operating cost of 395 USD/oz for 2007 according to the consultancy company GFMS. Russian production costs are now rising, as more remotely
located deposits are developed. Furthermore, infl ation is currently running at more than 10% 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 met- als to fi nal market quality. These companies compete and together have a capacity that signifi cantly exceeds current production vol- umes. Therefore the cost of refi ning is low, amounting 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 “Federal Law concerning Mineral Resources” enacted in 1992 and amended in 1995. Russian minerals always remain in state ownership. 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 programme included in the license must be approved by three bodies – 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 Pre- cious Metals and Gems", which was enacted in 1998. This law in principle says that the rights to any precious metals and gems pro- duced belong to the holder of the production license (unless other- wise explicitly stated in the license agreement).
Foreign gold producers in Russia 2000–2007 (kg per year)
Company 2000 2001 2002 2003 2004 2005 2006 2007
Peter Hambro Mining 1,550 2,814 2,225 3,758 7,509 8,195 8,375 8,405
High River Gold Mines (CAN) 3,770 4,705 4,802 4,811 4,898 4,874 4,720 4,683
Highland Gold Mining (GBR) 2,999 4,799 5,697 6,005 6,143 5,041 5,026 4,623
Kinross Gold Corp (CAN) 13,630 13,502 12,515 5,474 3,949 4,696 1,212 1,942
Angara Mining 14 1,096 1,594
Central Asia Gold 311 1,073
Bema Gold Corp (CAN) 303 3,429 3,624 2,612 2,804 2,778 110
TOTAL 21,949 26,123 28,668 23,672 25,111 25,524 23,207 22,349
% of Russian gold production 17 18 18 15 16 17 16 15
Source: Russian Union of Gold Miners
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.
Here we see the gold on the shaking tables. In the ovens the gold concentrate gets smelted to gold bars.
Patric Perenius, board member of Central Asia Gold AB, holds 20 kg of gold ingots in his hands.
Photos from the Tardan gold deposit in April 2007
The text below is partly based on the information memorandum that was published by the Russian authorities in connection with the privatization of the Tardan deposit in 2003. Thereafter, Central Asia Gold has gathered new data in connection with the ongoing development programme. The geologic analysis from the soviet period therefore gradually changes.
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 remaining 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 1,433m 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 northwest 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 bod- ies, 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.
Number of penetrations of the ore bodies
(The geological estimates below originate from the Soviet period until 2003, when the deposit was privatized.)
Number of ore bodies
Number of penetrations
Ore reserves, 000 ton
Gold reserves, 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 content amounts to 5–6%.
The gold content in the ores varies from 2 g/ton (minimum indus- trial 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 in the early 1990s to be 10.7 g/ton.
Apart from gold, the ore contains silver – from fractions up to 4–10g/
tonne (in one sample 269g/tonne) – and the average content is 8.
9g/tonne. In addition, it includes copper ranging from 0. 1–1.8%
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 sur- face parts of the ore bodies were investigated by trenching. Moreo- ver, 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 120-170 m. 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 performed during the Soviet time in a grid of 30–40 m x 40 m and in some cases 20 m x 40 m. The exploration work did not proceed deeper than 100 m below surface.
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 boreholes, trenches and other intersections from drifts and shafts.
The Tardan gold deposit
Gold reserves/resources of the Tardan mining district * **
Reserves/resources average gold 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 gold 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 15.8
Subtotal mineral assets
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
* Resources to a depth of 800 m, the maximum depth of underground corridor extraction
** Central Asia Gold obtained the license for the Tardan mining district (Tardansky rudny uzel) via the OOO Tardan Gold subsidiary at an auction in 2007.
Source: The Russian privatisation authorities.
According to these stricter requirements, the gold reserves were calculated in 1994 as:
Reserve category
Ore,
000 ton %
Gold reserves,
kg %
Average gold con-
tent, g/t
C1 + C2 687 100% 7371.8 100% 10.7
C1 247.8 36.10% 2769.8 37.60% 11.2
Source: The Russian privatisation authorities.
Work from 2004 and current, ongoing reserve calculation
Comprehensive sampling and analysis work was performed dur- ing 2004–2007. The work programme during this period included 9,700 m of core drilling and a good 15,000 m of hammer drilling (drilling broad, shallow boreholes with light drill rigs). In addition a good 173.000 m3 of surface trenches were excavated. Consequently a very large number of samples have been analysed.
The valuation works that has been performed hitherto has chiefl y concentrated upon the largest ore bodies at the Tardan deposit. Due to this work the section of the deposit that has been investigated has been partially redefi ned. For the most part, the result so far is that the new ore bodies have been defi ned with a greater tonnage than was fi xed during the Soviet period but in return the average gold grades are lower. The geological evaluation work at the Tardan deposit and the number of larger deposits surrounding the Tardan Mining Dis- trict (Tardansky rudny uzel) license will continue during the next years in parallel with an increase in gold production. In the fi rst stage, a new reserve calculation for the Tardan license' s largest ore bod- ies will occur during spring/summer 2008. Central Asia Gold's data material will shortly be sent to the geological authorities, whereafter
the authorities will perform their examination and registration of the new reserves in the summer. Central Asia Gold's calculation is approximately 10 tons of gold reserves (a good 300,000 oz). This fi gure is expected to then considerably increase as a result of the planned evaluation input during the period 2009-2011, which will concern both the fi rst Tardan license and the mineralizations in the Tardan Mining District.
Gold production and processing
A gravimetric enrichment plant has been built at the Tardan deposit with an annual processing capacity of 100,000 tons. In parallel, a number of residential, offi ce, storage and service buildings were built around the factory in 2006–2007. Furthermore, a sanitation system and heating system were constructed to make the buildings habit- able at all times during the year. A 26 km long electricity cable has also been extended to the closest municipality to provide the mine with electricity. In addition new roads and water wells have been established.
The processing plant itself initially takes the form of a number of crushers. Thereafter one rod mill and two ball mills are connected.
Centrifuges are the next stage in the treatment. Thereafter the con- centrate is treated on a shaking table. In this process the free gold in the gold concentrate is released. This constitutes approximately 50% of the gold present. In connection with the shaking table small- er melting furnaces were also installed, which can smelt the gold concentrate into Doré-class bars. These are then sent on for further refi nement in a larger smelting works.
Capacity utilization gradually increased during the year. In total, approximately 53,000 tons of ore were processed during 2007, which produced 194 kg (6,2000 oz) of pure gold. The average extraction coeffi cient was approximately 45%, however this varied during the period due to factors such as the gold content of the ore, the size of the grains of gold, the share of free gold and the presence of other minerals such as magnetite. The production plan for the Tardan facto- ry is 350 kg of pure gold for the 2008 accounting year. The contents in the various sub-blocks diff er and therefore monthly production will vary during the period.
The construction of the leaching plant at Tardan As per the above, the new reserve calculation at the Tardan deposit continues. At the same time, an evaluation study (pilot study) of the new leaching plant will be performed by an appointed Russian plan- ning institute. The evaluation study is expected to be completed dur- ing the summer 2008, and construction is planned to start directly thereafter. The leaching plant will increase the extraction coeffi cient of gold at the Tardan deposit to approximately 80%-90% from todays approximately 50%.
The preliminary timetable for the leaching plant means that the
fi rst stage of this factory, with leaching basins with a capacity
of several hundred thousand tons of ore per year, will be fi nished in
the middle of 2009. During 2009 only leaching of the waste sand
from the high content ore bodies that are processed in the Tardan
plant is planned. During 2010 the leaching capacity will be increased
and our target is to reach a capacity of 1million tons per year. How-
ever the evaluation programme will provide more exact information
on this. In this way gold production at the Tardan deposit, if all goes
to plan from now on, is expected to more than double during 2009
The Kopto factory, which is situated only 6 km from Central Asia Gold's larger Tardan deposit, was closed to continuous operation at year end 2006. Henceforth it will be used for test enrichment of ore samples. The fact that the Kopto factory is no longer used to produce gold for commercial purposes has not led to any consequences for the group accounts. This is because the majority of the equipment has been moved to the nearby Tardan factory, which is in continu- ous operation.
The Kopto gold deposit
The Tardan deposit from above during summer 2007
since it will continue to increase during the following year when the
low content ores at Tardan will also be processed.
The Tardan 2 mineralization
The Tardan 2 mineralization is one of a number of mineraliza- tions at the so-called Tardan mining district license. The license was purchased at an open auction in summer 2007. The license area amounts to 520 km2. Tardan 2 is located in connection to the fi rst license block at Tardan where gold is now produced. The Tardan 2 mineralization was classifi ed as a quartz vein project during the
Soviet period, but it was deemed to be less interesting due to the limited size of the quartz veins. Central Asia Gold's geologists have approached the object from a diff erent viewpoint and estimate that the side rock is also gold bearing. A number of interesting anoma- lies have been detected at the object during the geophysical work.
The size of these anomalies indicates that the object may be con- siderably larger than the adjacent Tardan. A limited number of sur- face samples have been collected, which show high gold contents.
A large number of trenches were excavated there during summer 2007 and a large number of samples have been taken.
The Kopto deposit as seen from Tardan
Kopylovskoye is a gold deposit located in Irkutsk, which according to Russian geological standards currently contains a good 7 tons of gold reserves (approx 240,000 oz). The project's potential is, how- ever, expected to be very great, as the current reserves have only be calculated to a depth of approximately 30 metres due to previous problems when taking bulk samples at a greater depth.
The infrastructure at the fi eld is good. A road to Kopylovskoye is open throughout the year. There are high-tension electricity lines throughout the vicinity. The city of Bodaibo lies at a distance of 120 km with a population of approximately 15,000 inhabitants, from which a workforce can be procured.
Irkutsk is one of the dominant gold regions in Russia. In the vicin- ity of Kopylovskoye lies Russia’s very largest gold deposit, which is named Suchoy-Log. This project contains a good 1,000 tonnes (30 million oz) of established C1 and C2 gold reserves. A number of other gold fi elds with more than 1 million oz of gold reserves are located in the region.
At an extra general meeting of Central Asia Gold AB held in spring 2007 a decision to sell 25% of the ownership share in the Kopy- lovskoye license was approved for a sum of MSEK 70 (then equiva- lent to approx USED 10 million). As a part of the transaction, the Russian license company (OOO Kopylovsky) was legally transferred from the Russian subsidiary OOO Tardan Gold to a newly estab- lished Swedish subsidiary named Kopylovskoye AB. The MSEK 70 was received in two tranches during autumn 2007. The transaction has resulted in a capital gain of TSEK 25,968 in the group's accounts for 2007. A 25% minority share in the group accounts for Kopy- lovskoye AB-sub group thereby arose.
New data review
During autumn 2007 diamond drilling of 6 boreholes totalling 1,400 m of bore cores was performed. Core drilling, which cur- rently covers a few hundred metres per month, will continue during 2008 and is performed by a regional drilling contractor. The analysis of the drill cores clearly shows that the gold mineralised zone con- tinues from the surface down to at least an absolute depth of 100 m (the depth to which drilling has occurred so far). During the fi rst
The subsidiary Kopylovskoye AB
quarter of 2008 20 bulldozer trenches (prospecting lines) of a total 3,800 m have been completed. The distance between the trenches is 80 m. The majority of the trenches have been excavated east of the ore body. The hitherto established length of the ore body is a good 300 m, with a width of 50 m. The new trenches make it possible to collect surface samples and simultaneously perform hammer drilling (large volume samples down to a depth of 45 m) in the mineralized zone in a line network at intervals of 80 metres over a stretch of approx. 1,200 m east of the currently established ore body border and westwards over a stretch of 160 m. Sample taking at the bottom of the trenches in the prospecting lines # 328 and #316 has begun with the aim of establishing the optimal sample size.
New sampling unit and certifi ed external laboratory In order to facilitate an eff ective analysis of the large number of necessary samples, CAG has built its own sampling unit in the Bodaibo region. Under a full workload, approximately 30 employees will work in three shifts to prepare the samples. The work, which will start during the fi rst and second quarter of 2008, will focus on establishing the optimum size of the samples. The process occurs via crushers and small gravimetric mini-processors, which prepare the sample reliably and rapidly. In this way, the samples are concen- trated with a start weight of approximately 25–35 kg down to an end weight of 300–400 g, and are then sent to a modern labora- tory in the Tchita region in eastern Siberia for fi nal analysis. The laboratory is certifi ed as per western JORC standards. The sampling programme has already commenced.
New powerful RC drilling rig ordered
The ideal sample size of 25-35 kg will be taken at depth via RC drilling. RC drilling is at present unusual in Russia and RC drilling contractors in the Irkutsk region and nearby regions have not yet been procured. Central Asia Gold has therefore ordered a new RC drilling rig from Atlas Copco, however this will not be delivered until the fourth quarter of the year. The boom in the global mining industry has caused the lengthy delivery time. The capacity at the ordered drilling rig will facilitate collection of samples down to a depth of 200–300 m.
The current processing plant can be used for pilot production of gold.
Upon the acquisition of the Koplovskoye license an experimental processing plant was found to be in place. High voltage electricity is already in place and the processing plant has been used to prepare ore samples during the evaluation programme for 2000–2004. The plant consists of crushers and mills for a gravimetric process. The process- ing plant has been analysed by Central Asia Gold's technicians. Fol- lowing a minor upgrade of the plant it can be put into operation.
The cost of this is expected to be modest. The plant may be used to establish gold contents in the deposit via large bulk samples. This programme will also result in certain gold quantities that can be sold on the market. The pilot production programme will be analysed and determined during 2009. Thereafter, building will commence on a large scale industrial production plant with an annual capacity of at least one million tons. Large-scale gold production is expected to start by the end of 2010 at the earliest.
The existing processing plant at the Kopylovskoye deposit
Drilling rig The trench The surveyors determine the position of the trenches
Topography Taking earth samples continues in the cold The bulldozer that excavated the
Kopylovskoye trenches
Core drilling Bore cores Young geologists describe the bore core
Crushers in the sampling unit Separators in the sampling unit The Kopylovskoye work team
Images from Kopylovskoye
Potential
It must be stressed that the Kopylovskoye project remains in an eval- uation phase. The risks continue to be great. However its potential is considerable. The data that have hitherto been collected support the hypothesis that the ore-bearing zone continues to a depth of at least 100 m. The ore body is completely open in length. The established gold reserves only exist in a zone with a depth of approx 30 m from the ground surface. CAG therefore estimates that the Kopylovskoye project has the potential for at least 1 million oz gold reserves.
The bore cores from bore hole 504 at Kopylovskoye.
Established C2 gold reserves
Gold prospective blocks
License border
Exploration lines with 40 m distance
The Kopylovskoye deposit viewed from the side, where the red marked block shows the established gold reserves and the blue marked area shows the extension of the ore reserves in the depth dimension Three-dimensional image of the Kopylovskoye deposit with established gold reserves
in red and expected extension of the ore zone at depth in blue. The six inclined lines are the core drilling that was performed by Central Asia Gold during autumn 2007.
The Kopylovskoye license area viewed from above with the block containing gold reserves marked in red
Es G Li Ex
