Placer looks to Central Asia

An agreement with the government of Kazakhstan will see Placer Dome (TSE) branch into Central Asia.

Placer, through subsidiary Placer Kazakhstan (PK), signed a binding agreement with the Kazakh government to joint-venture the Vasilkovskoye gold property and a surrounding area measuring some 280 sq. km in the northern part of the former Soviet republic.

The government had planned to put the project out to bid, but decided to forgo the time-consuming auction process in favor of a deal with Placer Kazakhstan.

The Vasilkovskoye deposit was discovered in the 1960s, but lack of capital prevented it from proceeding to production. Based on the 1,680 holes drilled to date, as well as 25 km of underground workings excavated for sampling purposes, the deposit is believed to contain a geological resource of 138 million tonnes grading 3.03 grams gold per tonne at a 1.5-gram cutoff. Placer envisions an open-pit operation in conjunction with carbon-in-leach gold recovery.

PK and the Kazakh government will each hold a half interest in the joint venture, with PK retaining the right to boost its interest to 75%. PK, in turn, is owned 55% by Placer Dome and 45% by Consolidated Mines of Kazakhstan, giving Placer an effective 27.5% interest in the property. Consolidated Mines, which acted as an intermediary in the deal, is owned by a group of private investors, including several Kazakh nationals. “We get over 3.5 million oz. of gold for US$80 million,” says Hugh Leggatt, a spokesman for Placer.

Placer’s move marks an endorsement of its confidence in the new country, which gained its independence in 1991 following the breakup of the Soviet Union.

Leggatt acknowledges the political risk of entering into such a deal, but is quick to point out the potential benefits of acquiring an interest in a deposit of this advanced stage and size. “We know we are stretching the envelope a bit here, but if we want to continue a strong growth path we can’t stick with the easy deposits,” he says.

The agreement requires Placer to make an initial payment of US$35 million to the Kazakh government and place a further US$45 million into escrow. The escrow funds will be released when a formal agreement has been signed. In addition to each partner’s joint-venture obligations, the formal agreement will address terms for the export of gold, the repatriation of capital and earnings, and the implementation of a satisfactory taxation regime. Following a due diligence and the signing of the formal agreement, Placer will proceed with a feasibility study.

If the due diligence produces a negative result or if satisfactory joint-venture terms cannot be reached, Placer can reclaim its US$35-million payment and the US$45-million bond.

The agreement also allows PK to earn a half interest in any new ore discoveries within a 7,000-sq.-km area around the Vasilkovskoye property. To do so, it would be required to spend at least US$5 million over five years.