Go figure. I thought I was the only one following this company. Glad to see others interested. Interesting article with a favorable spotlight on ING.
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Publication Date: Wednesday July 23, 1997
Surveys Page 5
by Sander Thoenes
Copyright The Financial Times Limited 1997
* by Sander Thoenes
Confidence has been damaged
Scandals cause companies to become more cautious over investment
Gold mining has never been a neat and tidy business, but the lurid scandals that have hit the industry of late have made even Kazakstan's tremendous gold resources lose their lustre. An exploration hoax, a hijacked tender and a shareholder fight have given investors cold feet.
Kazakh officials and gold miners were innocent in the largest scandal to rock the gold industry -- the Bre-X hoax in Indonesia. Along with poor gold prices, the revelation that the Bre-X exploration data had been faked has been a key factor in driving down share prices for gold mining companies.
Smaller mining companies, who run most of the exploration and production projects in Kazakstan, have been worst hit. "Bre-X has made it much more difficult for junior companies to pick up exploration cash in lesser known parts of the world," says Mr Richard Wilkins,
commercial director of Oxus Resources, an exploration company with several sites in Kazakstan, Uzbekistan and Tajikistan.
A quarter of the $1bn invested in central Asian gold projects since the break-up of the Soviet Union has been generated directly from the Vancouver and Toronto stock exchanges, where Bre-X shares were listed.
But Kazakh officials and Placer Dome, Canada's second largest gold group, are very much to blame for the Vasilkovskoye saga, arguably the largest mining scandal to hit the former Soviet Union.
Placer elbowed out competitors, including Dominion Mining, to take a stake in the giant Vasilkovskoye deposit in 1995. Dominion had spent several million dollars exploring and proving reserves at Vasilkovskoye, and thought it had exclusive rights for exploitation. Not only was the project snatched away from Dominion, but the government used its data when the project was put out to tender. Placer then deserted the project on finding that the deposit would be
expensive to develop.
Placer is keeping the sore open by suing to retrieve a $35m refundable
deposit that was due for repayment by July 4 last year. Kazakstan had planned to have a new investor by then to replace and repay Placer, but a highly publicised tender, designed to restore trust in
Kazakstan's government, failed to attract substantial bids. In January the government turned down the winning bid from a consortium of Teck Corporation of Canada and First Dynasty, a venture of Canadian mining entrepreneur Mr Robert Friedland.
Mr Norman Keevil, Teck president, says the fall in the gold price caused the government to pull back in the hope of getting better offers when the price improved. None have come in as yet but a leading gold company is said to be interested in the project.
Playing for time, the government has started separate arbitration
proceedings against Placer, claiming damages arising from alleged 'breaches of agreement'. It claims Placer Dome and its local partner said they would spend $270m to develop a mine at Vasilkovskoye.
Placer says it was made clear in the original agreement that development of a mine would take place only after due diligence established the project would be economically viable.
Bakyrchik, the largest existing gold mine in Kazakstan, is in the midst of a shareholder brawl. Bakyrchik, which is estimated to hold 10.5m troy ounces of gold at an average grade of 6.94 grammes per tonne, has been run by a joint venture since 1993.
Innovative gold processing technology failed to deliver, forcing investors to shut down and build a more traditional plant. Shares in Bakyrchik Gold, the mine's original investor, crashed to 5 per
cent of their highest value, making potential investors think twice before putting cash into another gold venture in Kazakstan. Shares lost almost half their value in one day earlier this month when Bakyrchik announced a refinancing package under which Bakyrchik Gold would lose control of the gold mine to Indochina Goldfield, another venture of Mr Friedland.
The refinancing deal may yet be torpedoed later this year by Bakyrchik
shareholders, who feel Indochina has pushed down the share price to take over the mine cheaply. They are looking for another financer but nobody has publicly expressed interest.
Indochina Goldfields offered to pay $65m to cancel Bakyrchik's debt, pay the next tranche of its fee to the government and provide immediate working capital requirements. Indochina also guaranteed a further $45m loan to help finance future working capital. In return, Indochina would increase its stake in the Bakyrchik mine from 15 to 80 per cent. Bakyrchik Gold's holding would be cut from 85 to 20 per cent. Indochina also holds 29.9 per cent of Bakyrchik Gold and has
provided its key executives.
Bakyrchik would be the first large gold mine in the former Soviet Union tocome under full control of foreign investors. "This deal has completely devalued the company," one shareholder complained.
"The Bakyrchik board has put up no credible fight. Minority shareholders are being totally screwed."
But the news is not all bad. Undeterred by scandals and low gold prices, some big mining companies are looking to Kazakstan's deserts.
Santa Fe Pacific Gold, now part of Newmont Mining of the US, recently lifted its stake in Kazakstan's Sharaltyn exploration project to 100 per cent from 50 per cent at a price of $3.05m. The project covers a 7.5m acre licence area in north eastern Kazakstan. Newmont would not say which other projects it is looking at in Kazakstan.
LaSource SAS of France, 60 per cent owned by Normandy Mining Group of
Australia, last month bought 21 per cent of Oxus Resources, a small production and exploration company with several territories in Kazakstan. It also started exploring on its own.
Mr Mike Nossal, new business manager for LaSource, credits Kazakhstan's far reaching privatization of state gold mining and exploration companies, as well as a wholesale of state-held stakes in numerous sites, for drawing in the bigger companies. "That's something the other countries of Central Asia have not yet broached," says Mr Nossal. Kyrgyzstan or Uzbekistan still demand 50 per cent or more of any gold venture.
An added boon to smaller gold mining companies is that government officials have been rescinding numerous defunct exploration licenses, handed out to well connected but poor local officials in the early days of Kazakstan's independence. This has made many of the more promising sites available. Kazakstan has tried to compensate for the loss of direct revenue with taxes, to the annoyance of some ventures. The government has also recently separated exploration licenses from production, forcing investors to take risks on exploration before they know the tax pressure on the field's development. A new natural resources tax law, which would provide some security, has been
long in the making.
"It's nice to know in advance what the royalties will be," Mr Wilkins says. "Then we can plan ahead." It will take years for the Bre-X and Vasilkovskoye scandals to fade from memory, however, and until then, few gold miners will be planning projects in Kazakhstan.
(END)
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