Cameco signs Kyrgyzstan deal

In a bid to diversify, Saskatchewan uranium producer Cameco (TSE) has signed a deal with the Kyrgyzstanian government to develop the Kumtor gold deposit in the eastern mountains of the former Soviet republic.

The decision to proceed follows the completion of a feasibility study which envisions an open-pit operation with a production rate of 500,000 oz. per year.

The deal lays to rest fears that were generated in April when Kyrgyzstan’s parliamentary speaker suggested that the deposit be put up for tender, contravening Cameco’s existing contract.

An initial agreement in December, 1992, gave Cameco the right to evaluate and earn a 30% interest in the Kumtor project and fund the first US$45 million of development costs if the project proceeded.

The new agreement outlines the conditions of development and the business relationship between Cameco and the state-owned Kyrgyzaltyn Co., which owns the remaining two-thirds interest in the project. Under this arrangement, Cameco will receive a management fee for operating the mine, as well as special tax concessions.

Geological gold reserves at Kumtor are estimated at 16.6 million oz. Of that total, 6.8 million oz. have been identified as proven, probable and minable by open-pit methods at a grade of 0.11 oz. per ton. The deposit will have a stripping ratio of 5-to-1 and gold will be recovered by conventional milling. The feasibility study envisions a 1997 startup and a lifespan exceeding 20 years, assuming underground reserves are mined once open-pit material is depleted.

During the open-pit phase, which is expected to last more than 10 years, cash operating costs are projected to be US$160 per oz. The viability of underground mining will be assessed at a later date.

Total expenses are estimated at US$300 million. Now that the project has been given the green light, Cameco Chairman Bernard Michel says the company will focus its attention on insurance and financing. Although the agreement allows Cameco 18 months to arrange financing, Michel is confident a package can be completed by year-end.

Kumtor is expected to have a significant impact on the economy of the mountainous nation, employing up to 700 people in the construction phase and a similar number during operations. Nearly 80% of employees are expected to be hired locally; the remainder will be primarily Canadians. Spinoff jobs are estimated to reach 1,500.