Barrick to vie for massive Russian deposit?

Russia plans to sell its massive Sukhoi Log gold deposit, described as the largest in the world, early in 1998 in a bid to privatize the project.

The tendering process is said to be dominated by two conglomerates. One of these involves Toronto-based Barrick Gold and partner Evrozoloto, a Russian jewelry manufacturer; the other is a joint venture consisting of Australia’s Star Mining, South Africa’s Johannesburg Consolidated International (JCI), Standard Bank London and Russian-based Lenzoloto.

Sukhoi Log Mining, a unit created by Lenzoloto and Star, has proposed relinquishing its licence to mine the deposit, which is situated near the city of Irkutsk.

In 1992, an attempt was made to privatize Lenzoloto, following which that company, together with Star, JCI and Standard Bank began preparations to develop the Sukhoi deposit. However, the Russian government then declared that the privatization was illegal.

Lenzoloto officials deny that the licence to mine the deposit has been revoked, and the Russian government could face protracted litigation and delays in determining the ownership of the Sukhoi Log deposit.

Of primary concern to Russian authorities is the long-term future of the mine, which supports the nearby mining community of Bodaibo. The tender will likely be awarded to the bidder that can best demonstrate an ability to raise the necessary financing and start production quickly. The winner will be required to compensate Lenzoloto and Star for the costs incurred in preparing a feasibility study and producing a mine plan.

The Star/JCI/Standard/Lenzoloto conglomerate has reportedly made an undisclosed offer.

Meanwhile, Russian officials have questioned the feasibility of a Barrick/Evrozoloto partnership in light of Barrick’s closure of four gold mines, and its plans to open two gold mines in South America by 1999.

A report published in mid-1997 by the Royal Bank of Canada and Dominion Securities predicts that Barrick’s annual gold output will drop to 2.5 million oz. by 2001 from its current rate of 3 million. The Betze-Post and Meikle operations in Nevada account for two-thirds of the company’s production, and one analyst says the company may not be prepared to handle a large stable of expensive projects.

Barrick thinks otherwise, and, to present its case, sent a lobby group to Irkutsk in mid-September. The delegation was headed by former Canadian prime minister Brian Mulroney, who is also a member of Barrick’s advisory board.

Current Canadian politicians are also attempting to sell the virtues of Canadian mining companies to the Russians. When Prime Minister Jean Chretien visited Russia in October, he reportedly promoted the strengths of Canada’s numerous gold producers.