OPINION — Investing in Russian projects

The mining industry in Russia has benefited from a recent increase in investments.

The Australian company Star Technology Systems plans to spend US$250 million by 1999 on the Sukhoy Log project, which consists of four adjacent gold vein deposits in eastern Siberia. Four open pits and four mills are envisaged, with a projected annual production of 52 tons of gold. The operating company, Lenzoloto, currently extracts 10 tons of gold per year from its alluvial deposits; this new project will make Lenzoloto the largest gold-mining enterprise in Russia.

Minatom, the Russian ministry in charge of uranium projects, plans to participate in Sukhoy Log. Also, Russia’s Council of Ministers will soon be making a development decision regarding financing and investment policy as it pertains to foreign partners involved in Sukhoy Log. This document will serve as a precedent for joint mining projects.

Some 230 km south of Sukhoy Log, in the Udokan deposit area, Toronto-based Armada Gold has shown an interest in the Chinakh deposit and its large reserves of copper, gold, silver, platinum and palladium mineralization. The new Baikal-Amur railway and a powerline are nearby. In addition, Armada has an open-pit mining project (Taseevskoe) and a tailings project on the go. Chinakh and Udokan are in the northern part of the large and rich Zabaikal metallogenic province which hosts scores of deposits containing gold, platinum, silver, copper, lead, zinc, titanium, tungsten, molybdenum, uranium and rare-earth metals.

Eastern Siberia also hosts deposits of industrial minerals. For example, there is a large area of mica mineralization in the northern Irkutskaya region. There are also deposits of potassium feldspar (microline). A large talc deposit is being mined in the Sayany mountains by underground (75%) and open-pit (25%) methods.

In the same region is a deposit of large-crystal graphite that is close to the quality of Madagascar’s deposits. The graphitic content of the ore ranges from 25% to 60%.

Until 1991, information about this deposit was classified and output was limited to 500 tons of crystalline graphite per year (which was used mainly by the defence ministry). For example, electric carbon brushes for generators and electric engines of the Soviet aerospace industry were manufactured from graphite mined at this deposit.

(The graphite of the Zavalievskoe deposit in the Ukraine, the main supplier of crystal graphite in the former U.S.S.R., was used for all other purposes. The major part of the Ukraine deposit has been mined out; remaining reserves, lying beneath buildings or other structures or under a river bed, will be expensive to extract. It follows that the Sayany graphite deposit may be the only alternative to Zavalievskoe, and investments into it would be encouraged.)

While there are distinct advantages to investing in Russia’s mining industry, there are difficulties which should not be ignored.

Foremost among these are legislative in nature — rights covering land use and reserves, approval procedures and requirements, environmental laws, etc. At present, approval for most projects lies with local national authorities and local branches of the State Committee for Supervision of Safety of Mining Works.

Cargo transportation and communication problems are another area of concern. The railway is the main means of transportation, but rail operations are currently unstable because of the collapse of the economy. Additional time is required when terms of delivery are drawn up. Telephone communication facilities in Russia, especially in Siberia, are outdated compared with Western standards; satellite communication is advised.

— The author, who resides in Toronto, has 20 years’ experience in the exploration and mining of mineral deposits in the former Soviet Union.