Big risk? Big opportunity!
Two trips--one right after the failed 1991 coup, to the then Soviet Union, and the second, one year later, to the CIS--showed many and profound changes during this short interval. From an investment perspective, the old, 1991 Soviet-bureaucracy was offering a list of about 120 mining properties throughout the Soviet Union which they were interested in joint venturing. The tracts were generally unattractive with severe technical or logistical problems. Now, with each republic owning its own resources, they are all competitive with each other. The investment opportunities are far greater and more favorable, though the risks are still considerable.
The following are impressions gained from meetings with numerous Russian, Kazakh and Uzbek mining and trade groups, and visits to several mining operations, some world-class and others mediocre.
A 1991 visit to the Viems Institute, something akin to the U.S. Geological Survey (USGS), indicated a willingness to discuss joint ventures. However they were limited to drilled out properties of dubious quality located throughout the then Soviet Union. At this time it was unthinkable for a foreign company to come in and conduct preliminary exploration of any kind.
A 1992 visit to, TsNIGRI, a kind of combined geological and mining group, almost a cross between the USGS and U.S. Bureau of Mines, now active only in Russia, was refreshingly different. Among other things, it was disclosed that under the Soviet system, gold development was encouraged in the Asian republics, and largely ignored in Russia. Accordingly, Russia now will welcome foreign investment to develop known gold reserves. Also, exploration by foreigners is no longer taboo. Interestingly, virtually the whole CIS has been geologically mapped at 1:200,000 scale, almost 40% of it at 1:15,000 scale, and there is extensive aerial magnetic coverage. There are also extensive records on mineralized areas. So there really is a tremendous data base.
Magadan is a Pacific seaport with a population of 150,000--located about 9,000 km and eight time zones east of Moscow. It is hard to believe that both Moscow and Magadan, and all the territory in between, are in one country much less in one republic (Russia). The Magadan Oblast is a huge region of more than 1.2 million |km.sup.2~ with a population of only 450,000. It is an extremely cold land, recording the lowest temperatures known in the northern hemisphere. Much of the country resembles interior Alaska and the Yukon. The principal industry is gold mining; this region historically produced about one third of the former Soviet Union's total gold production. Lesser industries include commercial reindeer breeding, agriculture, and fishing.
The itinerary included a visit to the Karamken underground gold mine, a flight north to Susuman to examine large gold placer operations and to meet with the Berelekh geological expedition, and meetings in Magadan with the top management of the giant combines which manage and control the region's mining industry.
The most poignant impression that remains is the fact that Magadan, Karamken, Susuman--and indeed all of the settlements in the region--originated as slave labor camps. No one knows how many people died here, but it probably was in the millions. It is said that these settlements are built on bones.
The Karamken underground gold mine exploits a modest sized gold-quartz lode, producing about 96,000 oz/yr gold and 451,200 oz/yr silver. Karamken illustrates a great weakness of old Soviet industry. The equipment is antiquated and the operations are far too labor intensive. A similar North American mine might employ 100-200 people, while Karamken has 900. Individually, however, the personnel are generally excellent. The Susuman dredge-placer operations are large, and reserves are said to be 1.5 times the past production of Nome. This would mean about 7.5 million oz gold. Overall, gold production in the Northeast is probably on the decline. It is doubtful that a mine like Karamken would be profitable when taken out of a command economy. The main hope for profitable gold production from this region will be the placers, if run efficiently, and possible new discoveries.
Even under Communism the city of Magadan was bustling with a genuine desire for freedom and independence. There was little love for Moscow which took all the gold and gave back little in return. It was hoped that the region would become a free economic zone. Aside from serving the existing industries, the excellent, deepwater, Pacific Rim seaport of Magadan should offer great potential for the establishment of new manufacturing enterprises.
Norilsk, located at 69|degrees~N latitude, in arctic Siberia, is like Magadan, a city built on bones, having been the site of perhaps the most notorious of Stalin's gulags. It is said that more than one million died here during the early years of the Norilsk mining operations. I saw the haunting ruins of one of the prison camps high on a mountain at the edge of what is now a great open-pit mine.
Norilsk, a city of over 200,000 population, is the consummate company town. Virtually every enterprise and every building is owned by the gigantic Norilsk Nickel Combinat, and almost everyone works for this massive enterprise. The city itself is enigmatic. While it was a great feat of engineering to create such a large city with so many beautiful buildings in this harsh Siberian wilderness, there have been no environmental controls on the area's three smelters, which cough up huge amounts of S|O.sub.2~ and other harmful emissions. Norilsk has thus become one of the major industrial ecological disaster areas of the world. Workers have been lured here by high wages and abundance of consumer goods, but when the wind blows the wrong way, people have grave doubts about their well being.
The Norilsk orebodies are undoubtedly some of the largest and richest lode deposits in the world. They do bear a resemblence to the major nickel-copper-deposits at Sudbury, Ontario. They consist of gigantic bodies of disseminated- to solid metal-sulphides found in certain layers near and below the bottom of two basic intrusive formations. Immediately overlooking Norilsk, where one of the intrusives is exposed at surface, there is a huge open-pit mine. Several miles to the northeast, where the other intrusive is found at depth, there are six underground mines, some of them deeper than 6,000 ft. The lodes contain copper, nickel, cobalt, platinum-group elements, gold, and silver. The platinum-group content is said to be the highest grade known in the world. The CIS is a major producer of nickel and platinum-group elements, and the Norilsk Combinat turns out a large percentage of this total, as well as 30% of its copper and 70% of its cobalt.
This district has been producing on a large scale since the early 1960s, and known reserves are said to be sufficient for 150 years of future production. One of the underground deposits, the October mine, is probably the most remarkable metallic lode in the world. It is said to be more than 1 km X 500 m X 45 m. Production is more than 5 million mt/yr ore, and a large percentage of it is direct smelting ore, grading more than 20% copper, several percent nickel, and more than 30 g/mt platinum group. Concentrating ore was said to average 4% copper, 2.7% nickel, and about 5 g/mt platinum which is said to be 1:3 platinum:palladium. How big and rich is Norilsk? Sudbury is by far the largest non-ferrous metal producing district in North America. Norilsk's production is thought to be 2-2.5 times that of Sudbury. In a recent statement nickel expert, Dr. Naldrett, concluded that Norilsk has 2 times the nickel, 5 times the copper, and 10 times the platinum of Sudbury. My guess is that the gross value of the orebodies in the Norilsk district, using contemporary metals prices, must exceed $250 billion, and is very likely considerably more.
The Norilsk deposits present an enigma to western geologists. First, the host basic intrusions occur in a Permian-Triassic flood-basalt environment. And second, the intrusions are far too small theoretically to have produced the huge quantities of metal sulphides that are found in the deposits. Particularly puzzling is the October massive-sulphide body which is found in shales underlying the intrusive.
Visits to key mining, milling, and smelting facilities were disappointing. The Norilsk ore deposits are so large and rich, that no matter what anyone does, it would be difficult not to keep them from operating profitably. So, undoubtedly, the Combine operates on a profitable basis, but the production facilities appear sloppy and inefficient, even when the technology is up to date.
This is truly a remarkable new country of about 16.7 million people; the ratio is 40% Russian, 36% Kazakh with the remainder Ukrainians, Tartars and others. Its capital, Alma-Ata, located at the juncture of the Kazakh steppes with the high Tien Shan mountains is a beautiful city of slightly less than 1 million population. Being clean and modern with its streets lined by hardwood trees, it should offer great potential as a tourist destination.
The Kazakhs, descendants of nomadic Asian herdsmen, are a rugged people, definitely not the types that you would want to pick a fight with. Led by a pragmatic ex-Communist president, Nursultan Nazarbayev, they are now in control of the country's destiny. And what a destiny it might be! This vast land of more than 1 million |mi.sup.2~ produced 70% of the former Soviet Union's lead, zinc, titanium and tin; more than 60% of its silver and molybdenum; 30% of its copper; and almost all of its chromium and phosphorous. Along with these commodities, the country has immense coal reserves and large iron deposits near Karaganda in central Kazakhstan, the 9-plus billion bbl, Tengiz oil-field, and is rich agriculturally.
The Kazakh copper production comes principally from two types of deposits. The largest producer has been Dzhezkazgan, sandstone-copper mineralization in which mining, both by underground and open-pit methods, has been going on for many years. A U.S. Bureau of Mines publication gave 1984 reserves at 400 million mt, grading 1.54% copper. Production is stated to be 250,000 mt/yr copper, and existing reserves are good for many more years. The other important producers are porphyries which generally contain byproduct gold, such as Kounrad, Boshchekul, and Aktogay. Boshchekul is said to have reserves of 1 billion mt, grading 0.67% copper with significant recoverable gold and silver. Aktogay mines 23 million mt/yr with stated reserves for 200 years.
A visit to the Karagayly Pb-Zn-Cu-Ag-Au-Ba mining area revealed the workings of a typical old Soviet mining operation; good people trying to work marginal deposits with old, shoddy equipment. The deposits themselves are interesting in that they are steep dipping skarns with no obvious intrusive control, and the association of barite with this type of deposit is unusual. Mining is by open pit. The milling facility looked horrible. The presence of significant barite is important to the district's viability because of the demand for drilling mud by the large Kazakh oil industry.
Most interesting at Karagayly was a visit with the geological expedition's geologists. As in most parts of the former Soviet Union, these expeditions are responsible for exploration in their designated areas. In this case it is an area of 50,000 |km.sup.2~. They described numerous occurrences in this region, some partially tested and some not, including more than 300 copper showings, and interesting base metal-gold deposits.
Meetings with high-level government officials in Karaganda and Alma-Ata indicated that the republic is attempting to restructure its heavy industries into corporations, and eventually hopes to create a free economy. There is, however, no immediate move toward privatization. They are particularly interested in improving their ability to produce value added end products from their abundant mineral resources. They welcome foreign investment, and are currently in negotiation on many projects, from development of new ore deposits to improvement of existing facilities. At this time foreign companies will be dealing with government entities, and such investments are guaranteed by the Kazakh government. For those who want to explore for new ore deposits, it is now possible. Excellent tax incentives are being offered to foreign investors, including several years tax-free, and a tax ceiling of 35%.
Like Kazakhstan, Uzbekistan is another emerging resource-rich country. It is more populous (more than 20 million) and considerably smaller in area (173,000 |mi.sup.2~) than Kazakhstan. Its people are 69% Uzbek with 11% Russian, and the remainder a mixture of Tartars, Kazakhs, Tajiks and others. The Uzbeks appear to be a mixture of Asian and middle-eastern people, and traditionally were agriculturists, unlike their nomadic Kazakh brethren. Tashkent, situated along the old silk trade route, offers a far more middle-eastern flavor than does Alma-Ata, though both the Kazakhs and Uzbeks are predominantly Muslim.
Again we met with high-level Uzbek officials in regard to mining investment, and visited two Uzbek mining operations, the giant Almalyk porphyry copper-gold mine, and Muruntau, one of the largest, if not the largest, gold mines in the world.
Almalyk has had very substantial past production from an open pit 3.5 X 2.6 km by 600 m deep. Reserves are stated at 2.7 billion mt grading 0.36% copper, 0.004% molybdenum, and 0.35 g/mt gold. The deposit has a higher grade core which will assay about 15% higher than the average reserves. Current production from the porphyry deposit is at 23 million mt/yr, and there is substantial production of peripheral Pb-Zn-Ag ores. This major complex includes concentrating, smelting, and end-product plants. The Almalyk porphyry deposit occurs in two types of intermediate intrusive formations, in the area where the older intrusive has been intruded by the younger one. A traverse from the top of the pit down into the ore revealed only a thin zone of oxidation at this locale with no zone of secondary enrichment.
Muruntau, located in the Kyzyl-kum desert about 250 mi west of Tashkent, produces about 1.8 million oz/yr gold from 17 million mt ore along with substantial byproduct silver from a huge open pit currently 3 X 2 km and almost 300 m deep. Production to date, initiated in 1967, has totalled 300 million mt ore. Much of the early mining probably extracted ore grading from 4-5 g/mt Au. Past production could thus be in the range of 40 million oz gold. Current reserves are thought to be sufficient to keep the mine running at its current rate through the year 2046, though underground mining will be initiated during this period. Accordingly, I would estimate that future production could exceed 97 million oz gold. This combined past and future production would put Muruntau only behind South Africa's gigantic Witwatersrand district in the ranks of the world's gold producers.
The gold occurs with pyrite and arsenopyrite in low sulphide quartz vein networks and stockworks localized in slightly metamorphosed and considerably altered shales and quartzites of Cambrian-Ordovician age. The primary control for the mineralization is probably a major shear zone. The ore-bearing rock is generally unimpressive in appearance. I have walked over miles upon miles of similar appearing low sulphide bearing rocks in parts of the western cordillera.
Unlike other former Soviet mines, Muruntau appears to be an efficient, world-class operation with modern equipment. Its remarkable 1-km-long milling facility with a resin-in-pulp recovery system appears squeaky clean.
Interestingly, Muruntau is the site of the first major American mining joint venture in the CIS. Denver-based Newmont Mining Corp. is in the final stages of putting a heap-leaching operation into production which will treat low-grade dumps created by the Combinat's past mining. These dumps contain 165 million st averaging 0.034 oz/st gold, and it is expected that the joint venture will recover 2.8 million oz gold over 15 years to be split equally between Newmont and the Uzbek government. Perhaps the most significant facet of Muruntau is that the gold no longer goes to Moscow. It now all belongs to the Uzbeks, and Uzbekistan now ranks as the world's eighth biggest gold producer with the sixth largest gold reserves.
Like neighboring Kazakhstan, Uzbekistan is seeking foreign investment. A number of joint venture possibilities are being offered on mine expansion programs, and on new mine developments. As there is no movement toward privitization, all of these opportunities are with government entities, and all such investments are guaranteed. Generous tax incentives are also being offered, such as initial tax-free periods.
CONCLUSIONS AND SUGGESTIONS
There is little doubt that the CIS contains the greatest mineral resource base remaining in the world. There appears to be great potential both for developing and expanding known deposits, and for discovering new ones.
Soviet geologists have extensively explored the former Soviet Union, so there is a tremendous data base to work with. Obviously there are many investment opportunities. Just the thought of evaluating them boggles the mind.
No one can predict what the political situation will be, so investment by foreigners is fraught with risk. But in reality, these risks are no greater than in many other countries.
For those putting their feet into the water for the first time, a good place to start is in Moscow at organizations like Viems and TsNIGRI. Here one can get a general geological and mineral resource overview of the whole CIS. The next step is visits to the heads of the Ministries of Industry for the different republics. Here you can get a more detailed overview of each republic's resources, and areas where they particularly seek foreign investment. For those interested in exploring for new deposits, you will eventually end up with geologists of the regional expeditions such as Karagayly. Here is where the best action probably lies.
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|Title Annotation:||mining investments for Russia, Kazakh and Uzbek|
|Publication:||E&MJ - Engineering & Mining Journal|
|Date:||Feb 1, 1993|
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