Big bang at BamskoyeBig bang at Bamskoye
By: John Helmer
Posted: '09-FEB-05 07:30' GMT © Mineweb 1997-2004
MOSCOW (Mineweb.com) -- One of the biggest, and potentially most expensive contests for an undeveloped Russian gold deposit, will be decided by the Amur region government and the federal Ministry of Natural Resources on February 25. "When you go to auction," says Peter Hambro, chairman of Peter Hambro Mining of London , "the guy with the biggest checkbook is usually the winner." He is speaking of Bamskoye. The fact that there is to be a contest at all, Moscow mining sources say, is remarkable, because Norilsk Nickel has been waving its checkbook in front of potential bidders, in the hope of persuading them not to bid.
Norilsk Nickel has confirmed that Maxim Finsky, the executive in charge of gold acquisitions, met recently with Leonid Korotkov, the governor of Amur, and confirmed that the Norilsk Nickel group had formally lodged an application to bid at the auction for Bamskoye. A source at Polyus, the principal goldminer in the Norilsk Nickel group, told Mineweb a week ago that "inside the company I didn’t hear anything about the Bamskoye deposit, and I hardly think anyone [at Polyus] will will start buying assets.” Days later, a spokesman for Polyus claimed that it had lodged an application to bid in a fortnight's time.
Bamskoye, located in the Tyndinskom area of Amur, in the Russian Fareast, was first prospected in 1997. But the initial licence-holder ran out of cash, and lost its licence as a result of heavy debts and inability to meet the licence conditions. Public data on the deposit indicate that, according to the Russian classification system, C1 and C2 reserves and resources are estimated at 81 metric tons (2.6 million ounces), worth at today's price about $1.1 billion. The ore grades between 5 and 6 grams per ton.
Albert Avetikov, spokesman for St.Petersburg-based Polymetal, told Mineweb that his company is unlikely to bid, as it has concentrated its mining projects in Magadan, Khabarovsk, and Chita regions, and is unwilling to make a foray into foreign territory, where other companies, notably Peter Hambro Mining, are already well entrenched with the governor, and other local interests. Hambro told Mineweb he is unwilling to say much at this stage, in order to avoid pushing up the auction price. According to the auction terms that have been announced, the starting price will be Rb20 million ($710,000), and will go up in Rb1 million steps. The Russian press has been speculating that the winning bid should be around Rb150 million ($5.4 million). Others believe this is much too low. Amur regional officials refuse to respond to questions on the auction, the bidders, or the deposit.
Goldminers have said that the trend in Russia to date has been for the domestic mining companies to concentrate their operations in one or two regions, and for other companies to agree tacitly not to challenge the regional leader. In Amur, Peter Hambro has been the leader to date. In Khabarovsk, Highland Gold's Mnogovershinnoye mine is the leader.
Norilsk Nickel has concentrated in Krasnoyarsk, where Polyus operates the Olympiada mine, Russia's biggest. Starting in 2003, Norilsk Nickel began to expand in Magadan and Irkutsk, partly in pursuit of the biggest of Russia's unmined gold lodes, Sukhoi Log. In part also, the Norilsk Nickel strategy has been to mop up as many Russian assets as are available, in order to create an internationally sized gold reserve for swapping or merging with an offshore miner. It was that strategy that led to the March 2003 acquisition of a 20-percent stake in Gold Fields for $1.16 billion, and then to last October's agreement to back Harmony Gold's hostile takeover bid for Gold Fields. The strategy of building up a gold asset base, in order to move it offshore, has attracted official disapproval, and now threatens to draw a Kremlin veto, not only over the Gold Fields acquisition, but of the Sukhoi Log bid as well.
If Norilsk Nickel falters, smaller Russian goldminers, especially those who can draw on funding from foreign goldminers, are positioning themselves to expand by consolidating their own pools of reserves, abandoning the non-competitive stance in the regions, and lobbying their credentials with the Kremlin for Sukhoi Log. For foreign goldminers like AngloGold Ashanti -- which has already taken a shareholding stake in London-listed Trans Siberian Gold, and has been quietly preparing new equity bids for IG Alrosa and Polymetal -- domestic asset-building may be the only allowable step to take, if the federal government excludes foreign companies from the bidding for Sukhoi Log. This exclusion was hinted at again by an official in Moscow last week.
In the Sakha region, IGAlrosa is the dominant goldmining company; it is now winding up its negotiations with London--listed Celtic Resources and Barrick Gold of Canada to create a serious new challenger to Norilsk Nickel's ambitions. When the merger with Celtic is finalized -- reportedly within a month -- the new combination of IG Alrosa, Celtic, and Barrick will become the second largest goldminer in Russia.
Alexei Mikhailovsky, deputy general director of IG Alrosa, told Mineweb that this year he expects consolidation of several Russian goldminers, and increased concentration of assets. He expects this will produce sizeable independent challengers to Norilsk Nickel for the Sukhoi Log deposit; some of these expanded independents will have close ties to foreign miners, such as Barrick and AngloGold Ashanti. The contest for Bamskoye, Mikhailovsky said, should be interpreted as a fresh attempt by rivals to add assets and bargaining value in the face of the coming takeover pressure.