It’s gold that glitters in lifeless Kyrgyz economy

KUMTOR, Kyrgyzstan: Kumtor Operating Company may not be among the world’s largest gold producers. But when it sneezes, Kyrgyzstan’s moribund economy catches the flu.

Believe it or not, the Central Asian state’s joint venture with Canada’s Cameco Corp. employs just 1,650 people, but it alone accounts for 10 to 14 percent of gross domestic product in a country of five million.

“There are few countries in the world that report their GDP with or without a company,” said Kumtor President Andrew Lewis.

“There was an expression when I first arrived: ‘When Kumtor has a bad month, the country has a bad month.’ I believe that’s still very valid. We are the largest foreign direct investor.”

Kyrgyzstan’s GDP of two billion dollars is now roughly half the size of its 1991 peak level and is dominated by agriculture.

The once heavily subsidised economy, recovering from a coma after most industries died along with the demise of the Soviet Union, did not grow in 2002 when accident-stricken Kumtor cut its output by 30 percent.

In 2003 GDP rebounded by 6.7 percent but without Kumtor, it would have risen just 4.9 percent.

Kumtor, in operation since 1997, produced 677,552 ounces of gold in 2003, up from 528,550 ounces in 2002 when its open-pit mine was hit by a huge rock slide.

“In 2003 we were back into a normal operating mode,” Lewis said. “As we get deeper into the mine, the grade of the ore is decreasing. We will see the gold output reducing this year to just over 600,000 ounces and next year to 500,000 ounces.”

Cameco, the world’s leading uranium supplier, originally invested $452 million of its own and borrowed funds in Kumtor, one of the world’s 10 largest gold fields. Cameco has 33 percent and Kyrgyzstan 67 percent in the nation’s flagship venture.

Kumtor’s total gold reserves are estimated at 300 tonnes. To date, the mine has produced over 140 tonnes of gold.

Investment: John Kazakoff, Kumtor senior vice president in charge of operations, said the field’s ore was “refractory” and forecast an average gold content of some four grams per tonne for 2004.

He said four million dollars would be invested annually in a hope to find richer ores and boost output. “If there was no such hope, we would not be funding exploration works,” he said.

“Kumtor”, leaping to the eye from billboards in the capital Bishkek, is a magic word for many in this impoverished nation.

In the permafrost area high in the stunning Tien Shan mountains, the field was discovered by Soviet geologists in 1978. It now accounts for over 90 percent of Kyrgyz gold output, 30 percent of its industrial output and a third of all its exports.

“I am very confident...we will be able to extend the life of the mine through to 2010. It all depends on what gold price you plug into the financial and production model,” Lewis said.

World gold prices currently hover at around $390 per ounce after hitting a 15-year high of over $430 in January.

“As long as the dollar remains weak, the gold price will stay high,” Lewis said, adding that Kumtor’s 1995 feasibility study was based on an average world price of $350 per ounce. “If the price falls, we will suffer together.”

Cameco has announced plans to unbundle its gold assets into a new public company, Centerra Gold Inc. that will rank as Canada’s number four gold producer, and has said it will list it on the Toronto Stock Exchange in the second quarter of 2004.

Centerra, with operations at Kumtor and Boroo in Mongolia, is expected to produce 720,000 ounces of gold this year.

Lewis said streamlining of Cameco gold assets was a major boon: “In terms of the future, it’s very positive, because it gives us access to capital markets for the exploration and potential expansion of the operation, and its prolongation.”

The smell of gold: As if reluctant to give up its gold riches, Kumtor lies at an altitude of some 4,000 metres above sea level. Visitors are dazzled by the white wilderness of its Arctic tundra and get short of breath in the rarefied air.

Operations at the giant mine — some 60 km (40 miles) from China’s border — run round-the-clock every day, and vehicles never shut off their engines for fear they may not be able to restart them again in the thin air and biting frost.

At the final stage of operations, workers in silvery heatproof suits and helmets pour dazzling bright-orange molten gold from a crucible into moulds.

Kumtor produces daily gold worth some $1 million. Its bars of the Dore alloy containing some 85 percent of gold are refined at production facilities of Kyrgyz state gold firm Kyrgyzaltyn.

Kazakoff was fiercely proud of Kumtor’s state-of-the-art gold extraction factory. “This is my dear brainchild. I designed every lamp and bolt here,” he said. “To those complaining of the smell here, I say: ‘This is the smell of Kyrgyz gold’.”—Reuters

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