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. Last Updated: 07/27/2016

State Set to Issue Sukhoi Log Decision by May 30

The Russian government is set to issue a decision by May 30 on whether to re-privatize Russia's largest unexploited gold deposit, Sukhoi Log -- a move which could wipe out up to $70 million worth of investments by the Australian firm Star Mining.


State Duma deputies Alexei Mikhailov, chairman of the Duma's committee on natural resources, and Vera Savchuk, head of the Duma's Committee for Precious Metals and Precious Gems, said at a press conference Tuesday they anticipated a May 30 decision and predicted that Star's chances looked slim.


On March 31, the Russian Supreme Arbitration Court declared invalid the 1992 privatization documents for Lenzoloto, Star Mining's partner and the mining firm that holds the rights to Sukhoi Log. As a result, Lenzoloto has ceased to exist.


Mikhailov and Savchuk offered two possible scenarios for the Lenzoloto-Star Mining venture: Either the Russian government will issue documents restoring the company's right to the deposit, or it would call for reprivatization through an open tender.


In light of the government's recently publicized intention to liberalize Russia's precious metals and gems industry, both deputies said the risk was high that the latter option will prevail, despite the fact that a new tender would take at least a year to organize.


Star Mining has invested some $70 million in the Sukhoi Log mine since 1992, first as a minority shareholder in Lenzoloto, and then, shortly before the court's ruling, as a 49 percent shareholder in a newly formed company with Lenzoloto called the Sukhoi Log Co.


If Lenzoloto and Star Mining lose in a new tender, Star Mining's projected 49 percent stake in the new venture, as well as its investments to date, would be lost.


One company that could step in is the Russian mining firm Yevrozoloto, Mikhailov said.


"Sukhoi Log is the biggest unexploited gold mine in Russia," German Pikhoya, general director of Yevrozoloto, confirmed in a telephone interview. "We have been looking at it seriously already since the beginning of the year."


Star Mining's three main shareholders, the London-based funds Mercury Asset Management, M&G Group Ltd. and the Robert Fleming Fund, sent a letter three weeks ago to President Boris Yeltsin and other government officials warning that if the issue was not solved soon, they would stop investing in the country's stock markets.


But Mikhailov said such a letter would not weigh much on the balance of the government's final decision.


"The ball is not in our court right now," Graham Allis, director of Star Mining, said by telephone from London.