28.01.2010

Difficult gold of Kazakhstan

By Sergey ABAKSHIN

If anything that shines were golden, the gold would be much cheaper

Miguel de Sevantes

Global economics situation pushes all kinds of players to revise their relations with gold. In 2008 the troy ounce (31,1035g) moved up 40% from $700 point. In 2009 the price grew up to $1130 already. Estimates on this year are controversial enough, but common trend of valuations is going closer to the opinion, that part of the gold assets wouldn’t heart to anybody, whether it is a state, bank, company or a private individual. And then the high-ranked functionalists are significantly becoming warmer to the yellow metal. They probably would start to sort out different problems of gold-mining industry of the country. And there are lots of them.

2010 01 28 goldCenturies are going after centuries, and millennium – after millennium, however, the gold is still the gold. Instead from oil reserves, mined from the deeps of the earth and annually going to the end, the main volume of valuable yellow metal is proceeding to a next year. That’s why we can encounter both gold mined in Namibia in Pharaoh era and latest bars from Yubileyniy gold reserves in Aktobe district. But no matter how much aurum (gold in Latin) is mined, human kind needs mire and more of it. At that, there isn’t much easy gold on the planet left, and mining of hard gold is becoming much more difficult.

According to the data from Agency of Statistics of the Republic of Kazakhstan, there are 10 336 kilograms of fine gold were produced in 2009, which is 26% more than in 2008. Overall production of crude and semi-finished gold, or gold in form of powder in 2009 resulted 22525 kg (8% growth).

However, gold mining system is arranged in such way, that the precious metal is more profitable to send on export then to sell it on local market. When gold is sold in Kazakhstan, it is VAT’ted, whereas it is missed for foreign supplies. Refining, that means final refinement of gold until pure 999 and 9999 type costs 2-2.5 times more in the republic than in Swiss. That’s the reason why local manufacturers usually refining gold until Dore bead (gold-silver alloy, in which gold contains around 95%), and then exporting it for final refinement in Switzerland.

Liquidity of gold and gold products on local market of the republic has significantly grown during the last years. For instance, there are more shops and saloons have engaged in purchasing gold jewelry products. But full-fledged market of physical gold wasn’t established yet. In its final appearance, all of its flows would operate inside the country: mining, refining, sales in form of bars, coins and jewelry, possibilities of gold investments from the side of various players, including pension funds and etc. Yet these questions haven’t been solved systematically. No doubt that establishment of normal market of physical gold inside Kazakhstan is not canceling its connection to global gold market at all; but this interaction will be on qualitatively different level.

And then Grigoriy Marchenko, chairman of National Bank of the Republic of Kazakhstan, has stated in the middle of January about necessity of establishment of gold market in the country. National Bank chairman is a state official, but his thoughts are strictly bankers. The bankers yet aw that for the last few years gold has grew up very significantly. At that, if US dollar and Euro are still becoming lighter in terms of its purchasing power, then a kilogram of gold is still 1000 grams, as it was two or three decades ago. You always can put gold in a vault or take it out of it, whereas companies’ stocks are simply transforming into air.

Grigoriy Marchenko is voting for increasing of gold share in country’s reserves. But nobody in Kazakhstan yet overturned VAT on gold bar sales, but this is heavily cramping the functioning and development of the gold market. The system has already established in the way that all of the gold produced in the country is being exported abroad. But if it is needed for jewelry production or investments, then it is again bought up abroad. In the last years the gold came to positions of one of the best assets for investments; however Kazakhstan found itself on the hard shoulder of this process. Now it is needed to improve the situation to prevent staying in role of observer at least during next wave of gold prices increase.

Gold-mining industry of Kazakhstan can be quite definitely described as developed. There is almost no easy gold left in the country, but we can’t simply mine hard gold without the advanced technologies. There is most northern gold-mining enterprise on the planet functioning under Semey city, where gold ore beneficiation is implemented with instrumentality of special bacteria. The technology was created in South African Republic, and then successfully adopted in Kazakhstan too.

Gold-bearing horizons are becoming poorer. For instance, if gold containment in ore is around 5-6 grams per ton, it is needed to mine much more of it than with 10-11 g/ton containment. However, depletion of ore, its more and deeper deposits, tax disarrangement and personnel – it is far too incomplete list of problems of gold-mining industry of the country. There is also a corporate raid.

Even in Soviet era, when the state tried to be involved in anything – washing people in bathes, fed with ice cream, cut hair in barber shops, gave kvas (because all these objects were in state property) – in some moments it tried to avoid conflicts with common sense. To decrease its own expenses in regions with low density of population, poor with resources and infrastructure (both production and social), the state delegated its privileges to private initiatives. Thanks to that niche, in 1985 Balkhash prospectors team was established.

In mad 90’s, when gold-mining manufactures, based on soviet standards of administration, have gone into nowhere one after other, Balkhash team showed amazing vitality and ability to effectively work in real sector of economy. In 00’s it, transformed into Mining Company JSC ABS-Balkhash, has been engaged into mining industry as completely established cluster. It has its own geological exploration service, mines, beneficiating and isolation facilities, logistics, and systems of production life supply. For example, Priozersk gold isolation facility has been built I 1995 with advanceв technologies, i.e. in the period, when Kazakhstan was mainly broken not build.

Domestic gold producers had revved up production in low gold prices period, estimating to cover everything, when prices pendulum will perform its cyclic move towards the increase. However, when global conjuncture on yellow precious metal became advantageous, then ABS-Balkhash was awaited not only by consumers, but raiders too.

By virtue of lack of normal stock market in Kazakhstan, the gold producers were incurred in debts with banks. Bankers consortium placed its own financial directors, who blocked payments into production and sent money only on repayments. And then, jumped over financial improvement, ABS-Balkhash was declared bankrupt in the court on February 2005 and sold through auction.

As early as in the second half of the 90’s (i.e. before assets growth in the 00’s) Canadian company Killbourne Engineering estimated ABS-Balkhash price at $105 million. However, technologies of well-orientated bankruptcy are existing for the matters to decrease of real price times down. With credit debts over $30 million the company was estimated on $20 million. In October of 2005 company property was offered for tender. The auction was moved in dates for three times. Finally, the assets were split on 13 lots and offered for sale by Dutch method.

More than three thousand employees who lost their jobs have gone in search of incomes to other places. The company functioned in low population areas with weak infrastructure, and that is the reason why local life lines have stopped with its liquidation. An aid, which was assisted from gold-miners to nearby rural areas, has stopped. Aktogay and Moyinkum districts, which tax committees filed the action, then lost a lion’s share of their tax incomes. The republic budget has also lost major source of income.

New owners of ABS-Balkhash assets, bought for nothing, have no idea what to do with it. Only well-prepared professionals can start gold-mining process again, even given all production complex. But in this situation, gold mines have one owner; facilities have the other, power supply lines (which became useless) – the third, etc. It can’t be now a working picture. The only consolation is that the gold is safely lying in the earth for the needs of following generations.

A proper gold-mining industry is possible only with state management, fully-fledged and interested in its existence. Indeed, difficulties of gold ore deposits access, lack of water for production needs and expensiveness of technologies – all these are secondary issues. The main thing is that the owners should have property warranties, and rules of the game in gold-mining – clear and stabile, for good of all participants. And everything needed in this direction is to start and finish.

6 comments

  1. Anonymous

    Алтын —

    это всегда здорово. Но пока дайцте котлету бумажками, на котрой амеркотский президент

  2. Anonymous

    Very good reading actually, enjoyed it. But the author is again included his party piece — about some company, and because of that the article seemed too biased and payed by third party.

  3. jesus

    Abakshin is smart arse.

  4. Anonymous

    Котлета капусты никому не помешает нынче то...

  5. Ободзинский

    Золота валом. Макенны нет на вас: )))

  6. фарид

    Статья явно заказная и глупая , вокруг и около.