News: Kazakstan Goldfields Corp -
Status of Kazakstan mining operations
Kazakstan Goldfields Corp
KGFC
Shares issued 34883134
1997-08-15 close $0.14
Monday Aug 18 1997
Also Central Asia Goldfields Corp (CGZ)
Mr A. Thomas Griffis reports
The following is the present status of KGFC's mining operations in Kazakstan in
light of recent and previously announced notifications from the government of
Kazakstan. KGFC, through its 75% ownership of the Kazakstan entity Gold Pool
joint venture, manages and operates JSC Kazakhaltyn which owns the Aksu,
Jolimbet and Bestobe mines in Kazakstan. Central Asia holds the remaining 25%
carried interest in Gold Pool.
The Department for State Property of the government of Kazakstan has issued
notification that it has unilaterally terminated the management contract of Gold
Pool for the management of JSC Kazakhaltyn. The reasons stated were due to the
temporary suspension of operations at the three mines and the loss of gold
production.
As specifically permitted under the management contract, KGFC has temporarily
suspended operations at the three mines since their present economic viability has
been strained by high local smelting and refining costs (in excess of $110 per
ounce), frequent power shortages and the inability of a local smelter to process
more than 25% of the company's concentrate: all events of force majeure which in
the company's view would not lead to a breach of the terms of the management
contract.
Under the terms of a management contract dated March 10 1996 between Gold
Pool and the Department for State Property, the company agreed to assess the
operations of nine former mines of JSC Kazakhaltyn and stabilize only the
economic mines. The company was to the stabilization of the operations and retain
the revenues from gold production. As well, KGFC was granted the right to
purchase the state-owned enterprise JSC Kazakhaltyn from the government of
Kazakstan upon an investment of approximately US$20 million.
On April 4 1997, having invested the required amount, KGFC advised the
Department of State Property that it intended to exercise its purchase option for
JSC Kazakhaltyn and presented a business plan for an 18 month investment of up
to US$70 million for mine capital and refurbishment and a gold processing facility
to replace reliance on the local smelter for processing. Contrary to the right of
KGFC under the management contract to suspend uneconomic operations, the
government has stated that it requires Gold Pool to restart the presently
uneconomic mines and complete its proposed capital investment prior to
advancing to direct ownership under the privatization process.
As recently as May 4 1997, the State Property Committee provided written
notice, with a detailed summary and confirmation of KGFC expenditures to date,
that KGFC was fully complying with its obligations under the management
contract. Since then, KGFC has provided extensive reports addressing in detail all
of the government's questions and concerns which have arisen as KGFC moved
toward completion of the privatization process. Over the past month, however, all
requests for governmental meetings made directly and through KGFC counsel in
Kazakstan have met with no response. Nevertheless KGFC will continue to seek
meetings with the appropriate government officials in order that the outstanding
issues may be resolved enabling KGFC to advance its business plan, as well as
complete financing plans presently under discussion.
The company remains ready to work with the government, as well as the staff and
miners of the Enterprise who have worked with the company directly on these
properties, to resolve the outstanding issues. The privatization and attendant equity
and debt financing, required to bring the mines into a state of viable and economic
operation by moving forward with the presently planned on-site carbon-in-leach
processing system, will continue to be pursued by KGFC.
The company has previously stated, both directly and through its counsel in
Kazakstan, that it fails to see any provision of the management contract that has
been breached by KGFC. In any event, the management contract clearly provides
for an arbitration process if any dispute between the parties to this agreement
should arise.
In response to the Department of State Property's notification, KGFC has in turn
instructed its counsel in Kazakstan to commence the arbitration process to
consider this outstanding issue of alleged breaches, in accordance with the
procedures agreed to under the management contract. The company also intends
to pursue any other remedies available to it, particularly to preserve the
considerable financial investment it has made in these properties.
(c) Copyright 1997 Canjex Publishing Ltd. |
