Exports: The Final Hurdle

ALMATY, Kazakhstan -- Finding gold in Central Asia is the easy part. The challenge is getting it out to world markets.

But a Canadian venture, the Kazakhstan Gold Field Corporation, has set a precedent by becoming the first Western company to export gold from Kazakhstan.

Western gold producers have set up numerous ventures in Central Asia, many small, dogged by delays and short of cash. Restrictions on gold exports have been one major obstacle to financing, but recent shipments of gold from Kazakhstan, Tajikistan and Uzbekistan indicate that this barrier is gradually being lifted.

Over the past month, KLM Royal Dutch Airlines has flown two shipments totaling 3,500 troy ounces of Gold Field's sponge gold, which is 80 percent pure, to Johnson Matthey in Britain for refining to 99.999 percent purity.

Most mining ventures in Central Asia refine locally but Gold Field, which runs three mines in Kazakhstan, balked at doing so. According to Western miners, the one refining plant in Kazakhstan charges Western ventures about 30 times the world rate.

In all of Central Asia's republics, governments insist on having first choice on the gold produced there and demand a discount; although they rarely exercise this option, it undermines confidence in the producer's ability to make a profit. The National Bank of Kazakhstan was the first central bank to give up its monopoly and is now competing with commercial banks, which has brought down its discount to 1 to 2 percent.

Gold Field will still have to offer its refined gold to an auction in Almaty but will not have to physically fly it back to Kazakhstan. And it is free to reject any offer at the auction, according to Nusha Kakenov, department head at Kazakhstan's Industry and Trade Ministry. In an indication that Kazakhstan may liberalize exports even further, it recently exempted a mining venture owned by Bakyrchik Gold and Indochina Goldfields from the obligation to go through the auction at all.

"The precedent is now in place for a modern mining agreement," said Robert Friedland, chairman of Indochina, which together with Bakyrchik Gold owns the Bakyrchik mine, Kazakhstan's largest (Story, This Page). "The government is taking a very mature attitude toward foreign investments."

In Tajikistan, two ventures suspended operations until the government agreed to their conditions for exporting, but the smaller of the two will have to re-apply every time it wants to ship gold out.

In Uzbekistan, Newmont Mining, a U.S. company, processes gold tailings and has been exporting locally refined gold to London. The Uzbek Central Bank needs to bid against world banks but Newmont pays for the cost of repatriating the gold.

Cameco's Kumtor has yet to test the policies of Kyrgyzstan but has been guaranteed sale without discount by the government.

-- Sander Thoenes