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New Report on Russian Gold Sector.

Russia has large gold reserves, but mine output has fallen steadily since the breakup of the former U.S.S.R. A new report entitled "Gold in the CIS", says this is due to many factors including the falling grade and reserves of placer gold deposits, weak domestic demand, high levels of taxation on gold mining organizations, rising production costs, and poor management.

Prolonged and intensive exploration exhausted placer gold deposits in several areas. The average grade of gold placers has fallen from 2.8 g/mt gold to 1.06 g/mt. Sources believe that placer output has peaked and will fall to 70 mt/yr by 2000.

According to the report, gold mining organizations have faced a severe shortage of funds in recent years due to the continued rise in prices for fuel and raw materials. In order to support the sector the state needs to reduce mining taxes and value added tax (VAT). Heavy taxation is deterring foreign and domestic investments and are reducing the global competitiveness of Russian output. The continual reorganization of the gold sector has also been detrimental.

Nevertheless, a rise in domestic demand could stimulate production. A decree on the market for precious metals and jewels signed by President Yeltsin in March 1998 began the liberalization of the gold market. The state monopoly on purchasing gold has been broken and now the commercial banks are permitted to sell precious metals.

MENATEP, UNEXIMbank and Rossiisky Kredit Bank have been most active in the gold market. MENATEP, for example, is collaborating with gold mining organizations in Amur Oblast, Irkutsk Oblast, Chukotka autonomous district, and Krasnoyarsk Krai has advanced credit to cooperatives exploiting placer gold deposits.

Following the financial crisis in August 1998, the Ministry of Finance decided to issue securities to finance the mining of 50 mt gold in 1999. The entire issue of gold-redeemable certificates, estimated at $500M, will go to the Central Bank of Russia. Money raised from the issue will finance gold mining. The increase in gold reserves held by the Central Bank will back an increase in the money supply.

Roskill's report says that in order to further stimulate the domestic gold market, private purchases need to increase. In 1997, commercial banks sold 210 kg gold to individuals. Roskill believes that this could rise to 10 mt/yr gold if VAT on these transactions was abolished. Higher sales would allow banks to finance mining.

The report also examines Uzbekistan, Kyrgyzstan, Kazakhstan, Armenia, Takjikistan, Georgia, Ukraine, and Azerbaijan.

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Publication:E&MJ - Engineering & Mining Journal
Article Type:Brief Article
Geographic Code:4EXRU
Date:May 1, 1999
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