Big changes needed to resolve critical situation in Kyrgyzstan’s mining industry

mining-433

BISHKEK (TCA) — Kyrgyzstan’s mining industry has been deteriorating for years and the situation has become critical but the government has not paid much attention to it. For more than 20 years since independence, the industry’s management capacity has been worsening, members of the Association of Miners and Geologists of Kyrgyzstan said at a press conference in Bishkek.

To resolve the situation, the Association proposed introducing changes in the legislation — to develop a Mining Code, to change the terms of licensing, and prevent the termination of gold production at the Kumtor gold mine.

The Association assessed the situation in the mining industry and offered advice for its development in the book “The mining industry, a source of economic development.” The Association has published similar books annually to draw the attention of the authorities to the problems in the industry but the Government has ignored them.

Late in June, the Government established the State Committee of Industry, Energy and Mining, and the former head of the Agency for Geology and Mineral Resources Duyshenbek Zilaliev was appointed the Committee’s chairman. Earlier, the Economy Ministry was in charge for mining policy development and the Geology Agency implemented it. Now one state body is responsible for both policy and management, which is a step forward.

However, experts do not understand the approach when the new committee will be simultaneously in charge for industry, energy and subsoil use. The Association believes it is necessary to create a separate body which would be responsible for the mining industry only.

Licensing

The Association proposed amending the procedure of issuance of mining licenses, which should be carried out in two stages.

At the first stage, a contest would select a winner to get the right to develop a field. At the second stage, the winner should present a feasibility study of the project including environmental, economic and technical assessment. As a result, the deposit’s cost will be determined along with the projected profit from its development. In addition, it is necessary to conduct outreach work with the local population. Finally, after the projected profit has been calculated, it is reasonable to divide it between Kyrgyzstan and the investor.

Then it will be possible to sign a general agreement and start to work. There would be no pressure and artificially created discontent of the local population, as it often happens now. The Government will be able to regulate the situation in the industry.

The licensing process must have a certain deadline. Currently, investors have to wait for their licenses for months and years, and corruption is not ruled out in the process.

Auctions and Mining Code

The Association of Miners and Geologists believes that it is unacceptable to conduct auctions for deposits, because they are sold at unreasonable prices.

It is important to conduct an economic evaluation of every deposit. Experts cited the example of the Jerooy gold deposit. According to their estimates, the final development of this project could give more than $1 billion profit, while the mine was sold for $100 million which is only the historical cost. So the billion-dollar project was sold to the investor for the cost price, and there is no state share in the project.

A drafted bill on the subsoil cannot solve the problems in the industry, because it is imperfect. The country needs a Mining Code, which should provide for the taxation of land and its transformation. There is no inventory of mineral resources so far.

Kumtor

It is necessary to prevent the closure of the Kumtor gold mine, the Association says. The Kumtor operation may stop in 2020 because of the irresponsibility of the investor and the Government of Kyrgyzstan, they said.

The Kumtor open pit mine, located in Kyrgyzstan, is the largest gold mine in Central Asia operated by a Western-based producer. It has been operating since May 1997 and, as of March 31, 2016, has produced approximately 10.51 million ounces or 326.79 tons of gold. Kumtor Gold Company is a wholly-owned subsidiary of Canadian-based Centerra Gold Inc. and is the operator of the Kumtor project responsible for the entire production cycle.

According to the National Statistical Committee of Kyrgyzstan, Kumtor’s share in the country’s GDP was 6.8% in 2015, and its share in the total volume of industrial production was 22.5%. In 2015 Kumtor produced more than 16 tons of gold.

The Kumtor mine could operate more as its reserves allow it. According to the feasibility study, the deposit can produce 716 tons of gold. The investor has extracted 300 tons of gold in the open pit. In three years, it will be necessary to switch to underground work, but this option is not being considered because of the high costs.

The Association has repeatedly addressed the Government to create an interagency commission to consider this issue, but there has been no response so far.