Highland Gold wins no-contest gold

John Helmer

MOSCOW - London-listed Highland Gold has announced that it has acquired the mining licence for the Taseyevskoye gold deposit in the southeast Siberian region of Chita. There were no contest, several sources told The Russia Journal. According to Valery Braiko, head of the Russian Goldminers Union, "there was no rival at the auction because two affiliated companies were bidding." They have been identified as ZAO Mnogovershinnoye and OOO Darasunskiy Rudnik. "This deposit is interesting for Highland Gold for its geographical position and volume, and not interesting to Polymetal," Braiko noted.

Polymetal of St. Petersburg, which had worked at the site for several years, did not bid. According to spokesman Albert Avetikov, "Polymetal did not participate because we decided that the volume of reserves is too small to be potentially interesting."

According to a Highland press release, the deposit's reserves, as listed with the Russian reserves authority, are 1 million oz of gold and 559,423 oz of silver (C1, according to the Russian classification scheme), and 626,939 oz of gold and 3.3 million oz of silver (C2). Highland said it bid $25.5 million for the 20-year licence. The licence terms require the company to start gold production in 66 months. Highland also claims it will "review the results of the previously conducted feasibility study and expects that the resource statement is conservatively stated."

Highland is the latest in a long string of western and Russian companies to have investigated the deposit, which had been regarded as mined out during the Soviet period. Mining operations at Taseyevskoye were carried on between 1948 and 1992, primarily underground. Over this time, according to project documents, 240 metric tons of gold were produced at the deposit, with an initial average grade of 13.6 grams of gold per ton of ore. In the last decade of active mining between 1983 and 1993, when an open-pit was used, the grade fell to 2.3 grams per ton. Following the collapse of Soviet funding for goldmining, mine operations came to a halt in the summer of 1994.

The region then appealed to foreign investors, and initially an Australian-Canadian junior miner named Armada took up the licence. Snowden Mining did a reserves analysis, followed by a feasibility study by Kvaerner. Test-drilling established the reserve figure cited by Highland in today's press release. But Armada and its project company Balgold fell short of meeting the terms of the licence agreement, and from 1998, in the period following the collapse of the international gold price, as well as the rouble, Armada sought an international buyer.

In December 2000 Balgold and the project were acquired by Troy Resources of Western Australia. According to Balgold and Troy sources, however, the Chita regional government "prevented [them] from undertaking any substantial physical work" at the mine site. Despite a new reserves study, lifting the estimate from 47 to 95 tons, and promising a 3-ton (96,450 oz) annual production figure in the first five years of mine resumption, Balgold's licence was revoked in 2002.

As they lobbied to restore the licence, Balgold sources said they believed Polymetal was behind the Chita administration's refusal to renew their licence. Alexander Nesis, the controlling shareholder of Polymetal, responded by denying that he or his group had any interest in acquiring the project. He acknowledged, however, that in a document dated August 7, 2001, Polymetal had agreed to restore an ore-processing mill at the mine site at Baley, dispose of environmentally threatening wastes, and conduct additional research on the deposit. At the time, Nesis said "we haven't made any investment decision". Alexander Smirnov, spokesman for Polymetal, said at the time that "the company is getting ready to start works on restoration of the mines and open pit, which were not used for a long time, and were filled with water. Besides the task of preparing the mines for operation, there is also the task of preventing ecological damage and lead to the poisoning of the aquifer."

According to Highland's announcement, "the exact capital expenditure required to bring the mine into production will be known once the full potential of the deposit has been gauged." Polymetal told The Russia Journal that the terms of its temporary licence, which expired a year ago, oblige Highland to compensate Polymetal for the cost of its research and clean-up work at the site.