Kazakstan kills Gold Pool contract

Things are getting ugly in Kazakstan: Just weeks after cancelling World Wide Minerals’ (WWS-T) contract to manage uranium operations in Stepnogorsk, the Kazakstani government’s State Property Department has unilaterally terminated Gold Pool’s contract to manage and operate state-owned JSC Kazakhaltyn’s Aksu, Jolimbet and Bestobe gold mines in the north-central portion of the country.

The Gold Pool joint venture is owned by two Toronto-based firms: Kazakstan Goldfields (kgfc-c), which holds a 75% interest, and Central Asia Goldfields (cgz-m), which holds the remainder.

The government said its action was in response to the suspension of operations at the three mines and the subsequent loss of gold production.

For their part, Kazakstan Goldfields and Central Asia, in a joint news release, stated that, under the agreement, they were specifically permitted to suspend operations at the three mines.

The firms said the mines’ present economic viability had been strained by high local smelting and refining costs (in excess of US$110 per oz.), frequent power shortages and the inability of the local smelter to process more than 25% of the companies’ concentrate. In the companies’ view, these events are of a force majeure nature and do not breach the terms of the management contract.

Under the terms of the agreement signed in March 1996, Gold Pool agreed to assess the operations of nine of JSC Kazakhaltyn’s former mines and stabilize only the economic ones, with Gold Pool funding the stabilization and retaining the revenues from gold production.

Also, Kazakstan Goldfields was granted the right to buy Kazakhaltyn upon an investment of about US$20 million. Following completion of that required investment, the firm announced last April that it intended to exercise its purchase option and presented a plan for an 18-month investment of up to US$70 million both for mine refurbishment and construction of a gold processing facility to end its reliance on the local smelter.

The Kazakstani government, in turn, stated that it required Gold Pool to restart the uneconomic mines and complete its proposed capital investment prior to obtaining direct ownership under the privatization process.

Kazakstan Goldfields and Central Asia said that over the past month, all requests for meetings with the government have been ignored. They also stated that they remain ready to work with the Kazakstani government and will continue to seek out additional funding for the operations.