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17 Jul, 2007 03:50

Russian red tape blamed for gold mining stall

Russia's top gold producer Polyus has unveiled the world's biggest gold bio-processing mill. But the industry is threatened by restrictive and outdated state controls, experts say.

Russia's largest goldmine blew through the first ore, for the world's biggest gold bio-processing plant, which opened on Monday. Located 400 km from the nearest railroad in the depths of the Siberian taiga, the factory will grind 5 MLN tonnes of ore from the Olimpiada mine into 25 tonnes of pure gold each year. Polyus is banking its future on the project.

“Olimpiada mine is our flagship operation and it actually gives more than two thirds of our production output. So we are very straightforward about developing this site,” says Denis Davydov, Polyus Communications Director.

But Olimpiada is a ray of light in an otherwise underperforming industry. Despite sitting on by far the world's largest reserves along with South Africa, Russia lags behind in gold production.

“Exploration in Russia unfortunately has been basically dying out because it has not been attractive to come into Russia and do real grass-roots exploration. You receive an exploration licence, then you have to do exploration on that licence, essentially defend a dissertation in front of the government that you've found something, only then can you convert that exploration licence into an exploitation licence. That's a very long, expensive, arduous process whereas in the west, for example in Canada, you do a stake and claim where you literally walk out into the tundra and you put a pole into the ground and say I want these coordinates and they're yours,” Timothy McCutcheon, partner at DBM Capital.

However the Natural Resources Ministry denies even the existence of a problem.

“We don't need to complicate our system with new laws. If abroad it is very easy to get an exploration licence we believe that in Russia exploration companies must justify their request, submit it to the Natural Resources Ministry with all details such as exploration limits. The request then proceeds in accordance with established rules, after which we hold an auction for the rights, and so on,” says Nikolay Mitelenko, ministry official.

Experts say the regulations are a hangover from Soviet laws, when the entry of Western experts and competition were out of the question.

Gold exploration is a massively risky business without state's interference. The government is facing increasing pressure to remove Soviet-era regulations, and open up the vast natural resources of this country.