Moscow, 5 June 1997 (RFE/RL) - Russian prime minister Viktor Chernomyrdin has ordered concluding the settlement of ownership of Sukhoi Log, the world's largest unmined gold deposit, by the end of this month.
In New York last week, investors attending an annual investment in mining conference said the way the Russian government resolves the Sukhoi Log dispute will influence whether American and Canadian investors will favor Russian gold-mining projects.
The text of Chernomyrdin's order, which was signed on May 30 and issued last week, confirms "the need to support the gold mining industry in the Bodaibo District, Irkutsk Region, to support state interests, to protect the shareholders' rights..."
But Chernomyrdin still appears hesitant to decide himself what is to be done. Instead, he is passing the buck to the shareholders, including the foreign investor group, which has spent over $60 million so far on the project.
The government has ordered a meeting of shareholders "in order to approve the new version of the founding documents, proceeding on the basis of the existing share distribution between the shareholders in the charter capital as of March 31, 1997."
The prime minister's order also recommends that the meeting "determines other measures to execute the decision of the Supreme Arbitration Court of the Russian Federation." On March 31 the court ruled invalid the privatization process that formed the Lenzoloto joint stock company. This threw the Russian gold industry into confusion. Lenzoloto has announced the special shareholders' meeting will be held in Moscow on June 28.
That meeting should settle whether Star Mining Company of Australia, and its partner JCI Limited of South Africa, will keep their 31 percent stake in Lenzoloto, and implement the agreement registered in March, ahead of the court ruling, to exchange that stake for a 49 percent shareholding in a newly established unit to mine Sukhoi Log. That unit is called the Sukhoi Log Mining Company.
The government's decision remains unclear on the key question of how much of a stake the Star-JCI group should be recognized as holding, and what should happen to the balance of the shares.
Lenzoloto officials, backed by some government ministers, believe the Star-JCI group have a right to their full 31 percent Lenzoloto share, notwithstanding disputes over compliance with the charter capital payment terms. These disputes delayed the lifting of secrecy restrictions over the exact size of the $20 billion gold reserve at Sukhoi Log, which had been promised Star This triggered in turn delay in payment of Star's charter capital contribution.
The latest Russian move reflects an acknowledgment by the government that the Star investment and Lenzoloto's survival should not be threatened by the court judgment. Officials concede that, apart from a modest investment by Cyprus Minerals-Amax Corporation of the United States, investors have been wary of committing funds, despite the proven quality and size of several Russian gold deposits in central and eastern Siberia.
A delegation of Star and JCI executives, together with Standard Bank of London, which is the group's financier, arrived in Moscow Wednesday to meet government officials on this issue. Star executive, Graeme Ellis, said he is confident the details of an agreement can be worked out.
At the same time, a challenge to the Star-JCI stake from American Barrick Resources Corporation of Canada Barrick Resources Corporation of Canada appears to be waning. Russian sources reported last month that Barrick had signed a letter of intent with Evrozoloto, directed by Valery Rudakov, the former head of the Soviet gold industry. Their intention, sources familiar with their deal say, was to bid for shares in the Sukhoi Log project, if Star's stake was cut back to 5 percent, and if the government decided on an open tender for the rest.
However, Rudakov has now declared: "Our plans are not in conflict with the activities of Star and its main shareholder, JCI."
Backing for the star-JCI group has also come from governor Yury Nozhikov of the Irkutsk region, which is a big shareholder in Lenzoloto. He has called an early election for July, in part because of dissatisfaction with the way the federal government has delayed investment flowing into the project.