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. Last Updated: 07/27/2016

Gold Miners In, Out of Russia

Foreign mining companies have long cast their eyes hungrily at Russia's rich gold reserves. The problem they find is the cost of getting them out of the ground.

Last month was crunch time for two ventures by British companies. RTZ-CRA, the world's leading mining company, decided after three years of prospecting a large gold deposit in Chelyabinsk to pull out of Russia altogether. But another London-based firm, Zoloto, opted to go ahead with a potential $60 million investment in Russia's Far East.

"It was not an economically viable project. There was too little gold to cover the heavy operating and energy costs it required to extract it," RTZ-CRA spokesman John Hughes said. The company had spent $3 million on a feasibility study for this project.

RTZ-CRA was to have had a 55 percent stake in a joint venture with the Russian mining company Yuzhuralzoloto, which initially intended to produce 64 tons of gold over 15 years.

Although Hughes did not rule out a future project in Russia, he said the company was closing its Moscow office because it had no other potential feasible ventures in line.

Zoloto chairman Peter Hambro was sympathetic to the difficulties RTZ-CRA had encountered.

"Everybody I know who has done mining in Russia has inevitably faced higher costs than they had planned," Hambro said in a telephone interview from London.

Nevertheless, after completing a three-year, $3.5 million feasibility study, Zoloto has decided to go ahead with a project in the Amur region in the Far East expected to yield an initial 100,000 ounces of gold a year when mining of the open pit begins in mid-1998.

"We expect a return on investment in five years," Hambro said, explaining that Zoloto would rely primarily on Russian staff and equipment rather than expensive expatriate employees to contain costs.

The first stage of investment would cost $47 million, he said. A second stage, seven years later, would double output and cost an additional $14 million.

Mike McGarr, an expert from the Institution of Mining and Metallurgy in London, said foreign exploitation of Russia's gold reserves is still at an early stage.

"At the moment, most foreign companies in Russia are looking around to see what are the prospective projects and just want to keep a finger on the pulse," McGarr said.

It is difficult to assess the number of foreign gold mining firms active in Russia because most are not registered under their original name. A representative of Australia's Star Mining said he suspected there were not more than a half dozen firms.

Russia ranks as the world's fifth leading gold producer, after South Africa, the United States, Australia and Canada. In 1995, it produced 142.1 tons of gold and output is rising, according to London-based Goldfield Mineral Services.

The Star Mining representative, who asked not to be named, said there are still vast resources in Russia for mining companies to exploit, but that they often were inaccessible.

He cited "logistical, political, permit, climate and environmental reasons" as the main obstacles to foreign investment in Russia's gold mining industry.

"Some of our problems came from the Russian legal and administrative frameworks as it has been often difficult to secure a title or the right to exploit a mine," said John Hughes from Zoloto.

Zoloto will have to turn over 15 percent of its gross profits to local and federal authorities in royalties, in addition to other taxes, Hambro said.

But although Russian mines are often located in remote areas of the country, Hambro said deposits are the most geologically well-documented and researched in the world.

"I was very impressed by the Russian know-how in mining," he said. "They do great quality work but suffer chronic shortages of capital and that's what we can give them."