Mining in the Russian Far East, June 11, 1998

Source: This report prepared by Commercial Assistant Svetlana Osipenko, US Consulate - Vladivostok. Approving officer: Rich Steffens, Principal Commercial Officer, US Consulate - Vladivostok.

International copyright, U.S. & Foreign Commercial Service and U.S. Department of State, 1998. All rights reserved outside of the United States.

Contents

Sakha - A Treasure House of Diamonds and Gold
Kuranakh
Kyuchus
Nezhdaninskoe

Magadan - a legacy of convict labor
Kubaka
Julietta [Dzhuletta]
Natalka
Dukat

Kamchatka - a new gold industry
Aginskoe
Asachinskoe

Amur - gold flake
Pokrovskoe
Bamskoe

Primorskii krai - tungsten and boron
Glukhoe

Khabarovsk - gold fields
Ayano-Maya area
Mnogovershinnyi

Summary

1. Though regional mineral resources are enormous, the Russian Far East's mining industry remains undeveloped and undiversified. Although reserves of gold and diamonds have attracted limited foreign investment, foreign firms, wary of high business risks, have been reluctant to invest substantial sums in RFE mining projects. As a result, geological exploration remains limited, and most existing mines operate with out-of-date technology and aging equipment. This report provides general information on the major mining regions of the Russian Far East (RFE). End summary.

Sakha - A Treasure House of Diamonds and Gold

2. The enormous, remote, and bitterly cold Sakha Republic (also known as Sakha) is the second-largest producer and exporter of diamonds in the world and Russia's biggest supplier of gold. Logistical challenges, high costs, regulatory hurdles and physical remoteness have slowed international participation in development of the Sakha mining industry.

Sakha diamonds

3. Sakha's diamond-mining industry produces 98% of the Russian Federation's production, and Russia produces 26 percent of the world's diamonds. The Sakha diamond industry is situated in western part of the republic in Mirnyi district, where diamonds are extracted from both veins and placers (superficial gravel or similar deposit containing particles of gold). Two diamond pipes, Botuobinskaya and Nyurbinskaya, were recently discovered in Nyurba district.

4. During the Soviet period, Moscow controlled all rough diamond exports. In 1992, the Sakha Republic and Russian Federation signed a special agreement that gave the republic the right to keep 20% of all mined diamonds as long as they are processed locally prior to export. Moscow keeps control over the other 80% of production.

5. Diamond mining is monopolized by the joint-stock company Almazy Rossii-Sakha, which is jointly controlled by the Russian and Sakha governments. Nearly all diamond exports are directed through De Beers Corporation's London-based Central Sales Organization. On July 21, 1997, Russian President Eltsin signed a decree "On the procedure for taking uncut natural diamonds and gem diamonds into and out of Russia and some aspects of the operation of the domestic market for uncut natural diamonds." This decree enables further direct cooperation between Almazy Rossii-Sakha and De Beers with the condition that the price, volume and assortment of rough diamonds sold on the world market be "jointly regulated." The companies were directed to develop "a common strategy of sustaining prices of cut diamonds and diamond jewelry and stimulating the world consumer market for them." In accordance with this decree, the state-owned foreign trade association Almazyuvelireksport and Almazy Rossii-Sakha will have sole rights to sell Russian uncut diamonds. The Russian Ministry of Foreign Economic Relations and Trade, in agreement with the Ministry of Finance, will issue special export licenses for uncut diamonds. Diamonds will be imported and exported only through specialized customs check points. The export of semi-processed diamonds will be prohibited. Under the decree, uncut diamonds will be imported only by Russian organizations with licenses to cut and polish them using federally-approved procedures. Imports of rough diamonds will be duty-free.

6. The Sakha government and Almazy Rossii-Sakha are working together closely to further develop this industry. In 1991, to develop a diamond processing industry, the Sakha government established the Tuimaada Diamond joint-stock company (Almazy Rossii-Sakha controls most of its stock). Almazy Rossii-Sakha has established a wholly-owned subsidiary, Alrosa-Nyurba (to explore and mine diamond fields in southern Sakha), in order to attract Russian and foreign investment in Russian diamond mining.

Key Contacts:

Republic of Sakha (Sakha)
Ministry of Foreign Relations
30 Lenin Prospect
Yakutsk, Russia 677011
Tel: (4112) 242-451, 264-589
Fax: (4112) 241-939, 242-451
Contact: Vitalii Petrovich Artamonov, Minister

Republic of Sakha (Sakha)
Ministry of Industry
11 Kirov Street
Yakutsk, Russia 677022
Tel: (4112) 426-044
Fax: (4112) 426-157
Contact: Mikhail Lvovich Brouk, Minister

Republic of Sakha (Sakha)
Committee for Precious Metals
Tel: (4112) 264-211
Fax: (4112) 261-656
Contact: Kim Petrovich Argunov, Deputy Chairman

Almazy Rossii-Sakha
10/12 Pervii Kazachii Pereulok
Moscow, Russia 109017
Tel: (095) 230-66-93/92
Fax: (095) 230-66-31/35
Contact: Vyacheslav Anatolevich Shtyrov, President

Almazy Rossii-Sakha (representation in Yakutsk)
8 Ammosov Street
Yakutsk, Russia 677018
Tel: (4112) 425-612
Fax: (4112) 243-328
Contact: Gustav Afanasevich Yakovlev, Vice-President

Tuimaada Diamond
43 Prospect Prospect
Yakutsk, Russia 677007
Tel: (4112) 445-045, 446-801
Fax: (4112) 445-045
Contact: Mikhail Viktorovich Filippov, General Director

Republic of Sakha (Sakha)
Geology Committee for Mineral Resources Management
13 Kirov Str.
Yakutsk, Russia 677892
Tel/Fax: (4112) 426-206
Contact: Petr Romanovich Shishigin, Chairman

Sakha republic gold

7. The RFE accounts for almost 70% of Russia's gold output. The richest gold deposits are located in the Amur, Kamchatka and Magadan oblasts, and the Republic of Sakha. Until recently, RFE gold mining was managed by four large state organizations: Amurzoloto, Primorzoloto, Yakutzoloto, and Severovostokzoloto. Each organization consisted of lower-level operating units and ore-dressing complexes (referred to as "GOK"s - gorno-obogatitelnyi kombinat). Within each GOK were individual mining operations: placer mines (priisk) and bedrock mines (rudnik). Dating back to Tsarist times, Russia has also had independent mining teams (artels) that operated outside of state structures. Today, these four major organizations have broken up into many smaller independent units. These independent companies are plagued by high fuel costs, high taxes, and inadequate financing. Most seek foreign capital to further develop mines.

8. Over the last five years, Sakha produced 25% of Russia's gold. Gold is mined in the Central-Aldan, Verkhne-Indigir, Allakh-Yun and Kular gold fields. The cost of gold production in Sakha is higher than world averages because of high transport and energy costs. Erratic supplies of electricity disrupt mining operations and further add to costs. Sakha mining officials pin their hopes on attracting foreign capital to enable them to develop large gold mines.

9. Several foreign firms have begun gold mining operations in Sakha:

10.

11.

Magadan - a legacy of convict labor

12. Up until the Brezhnev era, Magadan oblast (region) was a distant place where convicts and political prisoners were sent to work in mines. Today, 70 percent of Magadan's industrial output is still the extraction and processing of raw materials. In 1997, the oblast produced 26.1 tons of gold, compared with 20.8 tons in 1996. Magadan's industry is now in a crisis brought on by high electricity and transportation costs, inadequate equipment, and the declining quality of the local ore base. New deposits are mostly hard rock, and exploitation of these will require substantial capital. Local observers expect eventual restructuring and reorganization of the local mining industry to attract greater capital into hard rock mining.

13. The Magadan oblast administration has issued a decree on "Extraction of gold by individuals," which gives individuals permission to extract precious metals without using heavy machinery. To obtain a private mining license, an individual must complete an application and pay fees in the district of gold extraction. The extracted gold will be sold to special agents. The oblast administration is building a gold refinery in the settlement of Khasyn (Kolyma Gold Refinery), as the RFE does not have of its own. Two Russian banks, Rossiiskii Kredit and Zenit, are financing this project. Equipment supplies, from America's Intertech Corporation, are to cost USD 7.8 million. The refinery, which should be completed in March 1998, will process all gold mined in Magadan oblast (projected capacity is 40 tons per year) and prospectively, gold mined in the Oimyakon District of Sakha (negotiations remain ongoing for the Sakha gold).

Key Contacts:

Administration of Magadan Oblast
6 Gorky Str.
Magadan, Russia 685000
Tel: (41322) 24-911, 23-134
Fax: (41322) 20-425
Contact: Valentin Ivanovich Tsvetkov, Governor
Aleksandr Alekseevich Titkin, Deputy Governor

Department of Foreign Relations
Administration of Magadan Oblast
Tel: (41322) 26-482
Fax: (41322) 20-425
Contact: Lyubov, Aleksandrovna Kakorina, Chief

Natural Resources Department
Administration of Magadan Oblast
17 Koltsevaya Str.
Magadan, Russia 685000
Tel: (41322) 5-78-69, 5-78-54
Fax: (41322) 5-78-65
Contact: Viktor Berdnikov, Chairman

Severovostokzolotorazvedka,
State Mining Geological Corporation
12 Proletarskaya Str.
Magadan, Russia 685000
Tel: (41322) 2-38-60
Fax: (41322) 2-08-29, 2-38-61
Contact: Evgenii Aleksandrovich Voloshin, Director

14. Magadan is home to several mining projects:

15.

16.

17.

Kamchatka - a new gold industry

18. Many believe that Kamchatka's mining industry began in 1994 when the Kamchatka geology committee announced international tenders for the exploration of two gold reserves: the Aginskoe reserves in central Kamchatka and the Asachinskoe and Rodnikovoe reserves in southern Kamchatka. According to early estimates, these deposits contain an estimated 198 tons of gold and 650 tons of silver. In southern Kamchatka, environmental groups strongly oppose the use of heavy machinery to extract placer gold deposits. Despite some potential, the development of Kamchatka's gold mining industry awaits detailed geological surveys of the major deposits. The oblast government hopes to attract foreign partners to invest capital in the necessary surveys.

Key contacts:

Kamchatka Oblast Administration
Department of Economic Relations and Tourism
Tel: (4152) 11-23-68, 11-20-92
Fax: (4152) 11-23-55
Contact: Aleksandr Mikhailovich Potevskii, Chairman

Kamchatka Oblast Administration
Department of Mineral Resources
Tel: (4152) 11-26-35
Fax: (4152) 11-23-55
Contact: Aleksandr Evgeneevich Gorbunov, Chairman

19.

20.

Amur - gold flake

21. Mineral deposits in Amur oblast (region) could become a resource for the development of the territory's industries. The total value of all Amur's mineral resources has been estimated at USD 360 billion. Oblast specialists believe that gold is the most important resource here. The territory produces 11.5 tons of gold per year. Gold flake constitutes 95% of Amur's gold production. Existing mines are located mostly in developed areas and do not require much capital investment. The northern part of the oblast is the richest in gold. Soon, precious metals may be extracted from deposits in the basins of the Malomir and Berezitovyi streams. The Malomir gold deposit was to be placed for an exploration and investment tender of USD 115 million in the second quarter of 1998. Malomir deposit reserves are estimated to contain 145 metric tons of gold. other deposits are situated in the Tynda area, along the Baikal-Amur Railway line. The Amur oblast is the first in Russia to conduct tenders for sale of gold drilling licenses. From 1993-1994, after license sales, fifty local gold flake sites and 2 gold ore deposits were opened.

Key contacts:

Committee for Natural Resources of Amur Oblast
Tel: (4162) 44-36-91
Fax: (4162) 44-95-25
email: pak@geocom.amur.su
Contact: Valerii Anatolevich Pak, Chairman

Administration of Amur Oblast
Committee on International and Economic Relations
Tel: (4162) 44-36-52, 44-38-03
Fax: (4162) 44-39-62
Contact: Valerii Grigorevich Kulikov, Acting Chairman

22. Several projects are ongoing in Amur oblast.

23.

Primorskii krai - tungsten and boron

24. Primorskii krai has plentiful reserves of lead, zinc, tungsten, boron, spar, tin, gold and silver. diamond deposits were discovered recently, but remain unexplored due to a lack of financing. The main exploiters of gold deposits in Primorye are Primorskii Enterprise and Okean Artel, along with a number of smaller companies that hold licenses for gold extraction, but which are not currently operating as they search for investors and capital. In March - May 1998, the Primorskii Geological Committee (Primorgeolkom) plans to announce an open tender for a gold deposit in Glukhoe, four coal deposits and two placer gold deposits (estimated at less than 100 kg). Foreign investors are welcome to take part in bidding (on condition that 60% of the companies' staff consist of Russian employees).

25.

26. Primorye has unique reserves of tungsten - 80% of all Russian output; boron - 100%; tin - 40%; lead and zinc - 60%; and spar - 100%. Four tungsten lode deposits for industrial mining are located in the Krasnoarmeiskii and Pozharskii districts. Two of them (Vostok-2 and Lermontovskoe) are controlled by Primorskii GOK and the Lermontovskaya Ore Company. Primorskii GOK is not currently operating because of high costs for rail and other transportation, making it unable to match world market prices (which were two to three times lower in 1995). Lead and zinc deposits are located mainly in the Dalnegorsk and Krasnoarmeiskii regions. Nine are being exploited by the companies Dalpolimetall (in which Glencore International has a 52% stake), Vostok, and Khrustalnyi GOK. Thus far, Dalpolimetall has sold its production to Japan, Korea and Thailand, rather than in Russia, due to the insolvency of local buyers. Boron deposits are mined by the Bor joint-stock company. Primorskii spar is mined by Yaroslavskii GOK. The Vosnesenskoe and Pogranichnoe deposits contain enough spar for 20 years' worth of extraction. There are about 32 tin deposits in Primorskii krai, but fewer than half of these are actively exploited. Most active in tin mining are Khrustalnyi Ore-Mining Company, Dalpolimetall, and Vostok Company.

Key contacts:

Administration of Primorskii krai
Department of Economic Relations and Tourism
Tel: (4232) 22-79-37, 22-54-05, 22-88-50
Fax: (4232) 22-10-19, 22-56-93
Contact: Vladimir Alekseevich Stegnii, Director

Administration of Primorskii Krai
Committee of Natural Resources
Tel: (4232) 22-31-17
Fax: (4232) 26-03-65
Contact: Vladimir Dmitrevich Shlemchenko, Deputy Chief

Stanum Company, Ltd.
(former Khrustalnyi GOK)
Tel: (42375) 9-11-65
Fax: (42375) 9-24-64
Contact: Yurii Ilyich Poida, Director

Vostok Mining Company
Tel: (42373) 94-965, 94-901
Fax: (42373) 94-965
Contact: Vladimir Fedorovich Ovsyannikov, General Director

Lermontovka Mining Company
Tel: (42357) 35-335
Fax: (42357) 21-701
Contact: Viktor Maerov, General Director.

Khabarovsk - gold fields

27. Khabarovsk krai (territory) has a great variety of minerals, though their development is limited. Only 34 out of 118 mineral deposits are explored and registered, and only 24 are exploited. To develop the mining industry, new technologies in extraction and processing of minerals are needed. The gold mining industry is one of Khabarovsk krai's main industries. Annual gold output is eight tons, 72% of which is extracted from gold fields, while the rest is gleaned from ore deposits. Ore deposits are located in the northern and central parts of the krai (including the Mnogovershinnyi, Krutoe, Komsomolskoe and Urevskoe deposits).

28. The Amur Gold Mining Company is the largest artel in Khabarovsk krai (it mines about 45% of all gold extracted in the region), and it mines gold and platinum in Ayano-Maya district. Annual extraction of platinum is 3 metric tons. The Vostok Gold Mining Company is the second-largest artel in the region in terms of production: the company mines about 1.6 metric tons of gold in Ayano-Maya and Tuguro-Chumikan (southern part of the Khabarovsk krai) districts. Both the Amur and Vostok companies are trying to make gold mining profitable, and are closing mines where gold extraction costs more than the amount the Russian Federal government is willing to pay for gold - currently 64,000 rubles (USD 10.6) per gram. Both companies are prospecting for other placer gold and platinum deposits that could be developed profitably.

Key contacts:

Administration of Khabarovsk Krai
Department of Economic Relations
Tel/Fax: (4212) 32-41-21
Contact: Sergei Ivanovich Lopatin, Director

Administration of Khabarovsk Krai
Department of Natural Resources and Resource Industry
Tel: (4212) 33-50-80
Contact: Gennadii Egorovich Pocheverin, Chairman

Dalgeolkom of Khabarovsk Krai (Geological Committee)
Tel: (4212) 33-51-79
Contact: Valerii Borisovich Troyan, Chairman

Artel Staratelei Amur, Ltd., Joint-Stock Company
10 Vostochnoe Shosse
Khabarovsk, Russia 680014
Tel: (4212) 37-33-20, 37-33-21
Fax: (4212) 37-33-20, 22-18-87
Contact: Viktor Andreevich Lopatyuk, General Director

Artel Staratelei Vostok, Ltd., Joint-Stock Company
Tel: (4212) 37-22-26, 37-14-88, 37-22-28
Fax: (4212) 37-14-88, 37-22-28
Contact: Gennadii Iosifovich Malyshevskii, General Director

29.

30.

31. Khabarovsk krai's tin and copper deposits are mined by the Solnechnyi GOK joint-stock company and the Amgun Cooperative Association. Both open-cut and underground mining techniques are feasible. Solnechnyi GOK exports all of the copper concentrate and tin. Some of their buyers are Marubeni (Japan) and Euromin (Sweden). There are about 20 copper deposits that are less heavily-surveyed due to lack of available funds.

Tanya Shuster Sr. Russia Specialist, Russian Far East Specialist
Business Information Service for the NIS (BISNIS)
Tel: 202/482-4655 x23
Fax: 202/482-2293
www.bisnis.doc.gov/

Economic | Foreign Policy | Maps | Russia | Security | Database

Voices from Asia: Editorials and Opinion from Asian Newspapers | Asia-Pacific Distance Calculator |