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Problems of Gold Mining in Russia

23 november 2009

On November 3, 2009, the Committee on Natural Resources, Wildlife Management and Ecology held parliamentary hearings at the Russian State Duma during which the participants discussed “Ways to Improve the State System of Licensing Subsoil Use.”

In the field of precious metals and gems the most aggravated situation is in the gold mining industry. In spite of the upward trend registered in the field in recent years (for instance, during 8 months of 2009 gold output increased by 17 tons or 10% compared to one year ago), the potential of this branch of the Russian industry is far from being used to its full extent due to a range of problems.

First, there are procedural problems waiting to be solved and associated with issuing licenses for gold-bearing areas within subsoil. It is notable that opening the parliamentary hearings Valery Prozorovsky, Vice-President of the Committee on Natural Resources, said that the problems related to subsoil use may bring about crisis phenomena in the near future.

He pointed to some primary tasks to improve the situation in this field. Among other things these included (1) correcting the strategy of managing the subsoil fund; (2) making licensing more simple; (3) increasing the number of subsoil sites permitted for geological exploration; (4) increasing transparency in the state system of issuing licenses for subsoil use.

These barriers are of real influence: some mining partnership teams have decreased their output due to depletion of gold wealth – as for example was the case with placer gold mined at the gold fields of A/S Kamchatka which decreased its output by 21% this year.

Secondly, in 2008 the Prosecutor-General’s Office demanded to cancel some of the orders issued by the Federal Agency on Subsoil Use as there were suspicions that they enabled private intermediary companies to be paid for lobbying and approvals. As a result document circulation (by far not rapid) was essentially slowed down.

Thirdly, there are urgent problems related to advance payments. Many gold miners would like the Ministry of Finance to advance money for any future gold panning season on a stable basis at the end of the previous year. However, the world economic crisis resulted in cancelling the three-year budget which permitted to advance money to placer miners at the end of the current year for the next year.

Finally, the fourth important problem – according to the law on private security activity, starting from 01.01.2010 placer miners will have to cancel their own security agencies, hand over weapons and employ private security agencies, which will lead to significant additional costs.

It should be kept in mind that in 2009 it is planned to produce 180 tons of gold (of which 50 tons will be mined at placer gold fields), in 2010 – 195 tons, and in 2011 – 210 tons.

The proposals of the gold activists are basically boiled down to the following:

It is necessary to accelerate submission to the State Duma of federal bills on improved procedure related to contests and auctions for the right to use subsoil.

It is necessary to develop a technique for estimating damage caused to the state by the activity of subsoil users (to reduce abuse).

It is necessary to diversify channels of advancing money for gold mining within reasonable limits.

It is necessary to establish a single body to control and support the gold mining industry removing disagreements of its three major participants: the state as the owner of subsoil interested in its planned development; the private gold mining companies (striving for maximum gain); the regional authorities which need to fill their local budgets and develop their social sphere.