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By John Helmer in Moscow

Part-2 investigation of the Russian gold assets backing OTC traded gold shares – ABV Gold, Aurus, and Golden Share

Alexei Ivanovich, the hero of Fyodor Dostoevsky’s novel, The Gambler, played roulette – desperately, but more fortunately than Dostoevsky himself. In Pyotr Tchaikovsky’s opera, Queen of Spades, the heroine played the card game faro – fatally. In the time when Boris Yeltsin was Russia’s president, a 19th century form of gambling returned to become a popular obsession across the countryside. The organizers were called napyorstochniki — literally, “thimblers”. For in Russia, the classic shell game has been played, not with walnut shells, but with three thimbles.

The pea is the same. Now you see it to bet on; now you don’t – and you have lost your money. Watch carefully, for in this tale, under the nimble fingers of the napyorstochniki will go a stock of 40 to 80 tonnes of gold, mineable from a tailings pile, and worth from $1.1 billion to $2.3 billion, only to disappear, as if they never were. Then the gold reappears, this time in a remote hard-rock location of northeastern Siberia, now worth almost $4 billion – only to prove unfindable, as soon as the thimbles are upturned.

This is the second episode of a story that is already well known to penny-stock investors and goldmining bloggers in Canada and the US. In the first episode, a Montreal-based company called ABV Gold (ticker ABVG), claiming billions of dollars worth of Russian gold assets, proved unwilling or unable, when asked by Mineweb, to verify the gold and other precious metal assets on which its share price and value announcements to the Over-the-Counter (OTC) market were based: http://www.mineweb.com/mineweb/view/mineweb/en/page66?oid=44654&sn=detail

In the past month, before and since the Mineweb story appeared, roughly 100% of ABVG’s 40 million shares have been turned over. The share price hit a peak of 25 cents in August last year, then fell to zero in December. The current price is 1.4 cents. Chief executive of ABV Gold, Daniel Ryan, issued his own report to Mineweb this week, saying the company has a “letter of Intent [which] calls for a working interest in the Russian Mine starting in 2nd quarter of 2008. It would be ideal to completely merge the Russian Mine into ABV Gold, but the value of the reserves are very high for ABV Gold considering our low market cap of $2,500,000 USD ($0.01 per share). Naturally, if we are able to justify a higher market cap before the merger, we would be able to increase our working interest and therefore create substantial value to our shareholders” —
http://www.mineweb.com/mineweb/view/mineweb/en/page66?oid=44763&sn=Detail

Ryan has not disclosed the location, ownership, licence status, independent expert valuation, or official reserves status of the Russian property. But Ryan told the market investors should have confidence in the expert reports and valuations that have been commissioned for the property. According to Ryan’s market statements, there are two sources of this expertise, both Russian and based in Moscow – the Central Research Institute of Geological Prospecting for Base and Precious Metals (TsNIGRI) and BK Arcadia.
Mineweb was told by the director of TsNIGRI that he has never heard of Ryan or ABV Gold. Arcadia told Mineweb it doesn’t disclose its clientele, but that it doesn’t appraise goldmining properties. Ryan then responded that “BK-Arkadia as well as TnNIGRI [sic] …are also under a confidentiality agreement and therefore will not reveal the identity of the Russian Mine until such time as it is announced to the public. In addition, the reports were requested by a third party and by the actual company and owner of the deposits. ABV Gold and or my self did not have any direct contacts with either of the entities.”
The third party has revealed itself. It is the affiliate of another OTC-listed company called Aurus Corporation (AURC). A website address www.auruscorp.com leads to several claims about, and purportedly by, TsNIGRI and Arcadia. According to Aurus, a report signed by Dr. A.I. Romanchuk, verified substantial metal quantities, including iron, gold, silver, and platinum, contained in what are described as pyrite ash dumps, accumulated over the last 70 years at a chemical combine near Moscow. The report, titled “Expert Conclusion – Strategy & asset Value of JSC Krong”, undated, claims gold reserves held by Krong amount to 40 tonnes (1.3 million oz); worth at today’s gold price more than $1.1 billion.
The Aurus website confirms that it has engaged TsNIGRI to undertake this assessment. “The board”, says the website “foresees the necessity to have a very thorough audit made of its gold and rare earth minerals in the tailings of the Krong deposit. This report shall not only advise its shareholders of the assets of the Company, but also permits access to financing and the potential of expansion…” A link is also published to a contract, dated last September 19, between Krong and TsNIGRI, apparently for this audit: http://www.auruscorp.com/JOROBOP.pdf
There is a just one problem, thimble-sized. Igor Migachev, general director of TsNIGRI, told Mineweb he has never heard of Aurus; Krong; another Aurus company called Zabaikalgeoprom; or the pyrite dump, which Mineweb has located at the chemical combine at Roshal, a town not far from Moscow. Migachev says the contract document and the report document are “fake”; they have been forged, he charges. According to Migachev, “we have worked, and we are still working in the US with only with one company – Traivelli Corporation. We have worked with gold in Alaska. We did some projects for them in the US, and also some projects on oil in Siberia. We have never heard of Zabaikalgeoprom, Aurus and Krong.”

Regarding the so-called Krong reserves near Moscow, Migachev told Mineweb: “this is an old story that there is goldmining next to Moscow and in central Russia. In reality, there are sand-gravel pits where you can theoretically mine gold. It’s approximate content in the mix is 10-80mg per tonne. We’ve calculated the economics, and it is reasonable to get gold from there, if you process 1 million tonnes of this mix per year. It is a very costly, low efficiency goldmining process. It could attract none of the current goldminers. There are no other places which could be called ‘tailing dumps’ around Moscow. I think they are misleading their audience by talking about these pits.”

Arcadia was asked to verify the purported contract it signed with Krong, which is also posted by Aurus at: http://www.auruscorp.com/BK%20APKADUR.pdf
This is dated November 1, 2007; it carries signatures of Valery Borisov for Arcadia, and Samuel Chobonyan for Krong. Chobonyan is identified on the Aurus website as the chief financial officer of Aurus. Arcadia told Mineweb it is investigating, and in the meantime it is refusing to confirm or deny that it has been working for Aurus or Krong.

The Aurus website claims that Krong and its assets were acquired in 2006. Financial reports for 2005 and 2006 for Krong, posted on the Aurus website, indicate that its assets at December 31, 2006, totaled just over $18 million in value. No billion-dollar pyrite tailings appear to have been counted, although the auditor’s note claimed “the Company’s main activity is extraction of precious metals (gold, silver) and processing technogenic tailings”. The notes also report that Krong has an agreement with “Roshal chemical combine [giving] the right of the contract to development of 40 million tons technogenic tailing, comprising gold, platinum, silver, iron and others rare-earth metals. According to experts of the Ministry of natural resources of the Russian Federation cost of taken metals makes the order of 4,5 billion dollars.” Reported revenue for Krong for 2006 was $3.4 million. After-tax income was reported as $285,698. This appears to have been generated by what another auditor’s note refers to “extraction of gold on the site of resources located in Jagodninsky district of the Magadan region.” Other statements on the Aurus website confirm this is an alluvial operation.

Mineweb attempted to verify the pyrite tailings at the Roshal Chemical Combine. Its listed telephone numbers are not answered, except for one, which is now a local court. There a court official said: “the combine itself is bankrupt now. Its property is rented by various private firms; the phone numbers were given to other users. It is not working for a long time already.”

The Aurus website indicates an email contact procedure, but there is no office address or telephone listing. However, it is impossible to reach the company by email. The contact window of the Aurus website repeatedly failed to deliver messages, reporting “Server Object error: ASP0177. Then followed a message ID number, and the text: Server.CreateObject Failed.”

The chief executive officer of Aurus is identified by the company as Fyodor Fyodorovich Dovgan. He also runs a Russian company called Dovgan & Co. Founded in 1990, this is identified in the Russian corporate registration archive at the Yagodninsky district of Magadan region, where the purported Aurus alluvial workings are located also. Dovgan has told investors in Aurus that, if they buy his shares, “placer gold provides a quick return on working capital. The supply of new, efficient machinery will increase the volumes of processed rock mass and gold output in existing enterprises.” Dovgan appears to be the controlling owner of at least 8 Russian licensee companies, Zabaikalgeoprom, its 2 subsidiaries, and Aurus.

In announcements Dovgan has authorized for Aurus, there appears to have been an increase in the size and value of the so-called Krong reserves to “approximately 80 million tons of technogenic tailings containing rare-earth minerals as well as iron”. The claim is now that these tailings hold 80 tonnes of gold (2.6 million oz): http://www.auruscorp.com/sites_krong.asp?sec=sites

In the past 52 weeks, the Aurus share (AURC) has gone from a low of 2 cents last March to a high in May of 18 cents. The company says about 120 million shares have been issued. After hitting lows and peaks in September, the share price has been dropping steadily, and is currently at around 3 cents.

Dovgan refuses to respond to questions telephoned to his Dovgan & Co. office in Magadan . A secretary identifying herself as Svetlana told Mineweb that Dovgan is away and she promised to call back. Several days have passed, and there has been no response. Dovgan’s spokesman said she was not able to identify the company’s or Dovgan’s e-mail address. She added that the company has no internet access, and is not able to receive e-mails.

The telephone listed for Krong, registered at a Magadan city address since 1997, also rings unanswered.

In investor blogs and other internet sites for North American goldmining share-buyers, it has been speculated recently that Ryan’s announcement of a deal by ABV Gold for a “Russian mine” is a deal he is negotiating with Dovgan. ABV Gold claims regarding the proving of its reserve valuations by TsNIGRI and Arcadia appear close to the claims issued about the same institutions by Aurus. Asked by a blogger if “you intend to acquire 10% of the Krong assets of Aurus Corporation for 300 million dollars. Is this true, or just internet rumors?” Ryan replied: “ABV Gold Inc. has nothing to do with Aurus Corporation.” Ryan was then asked by Mineweb to explain how the same claims made by ABV Gold regarding TsNIGRI and Arcadia have already been issued by Aurus? Ryan responded: “I’m not aware of it.” To determine whether Ryan was fudging on the multiple names for Dovgan’s and Aurus’s property and licence companies, Ryan was asked if he had any relationship with Dovgan, Zabaikalgeoprom, or Krong. He refused to reply, and hung up.

Ryan was also asked how he had gotten into goldmining. “I’m not in the gold mining business,” he said. “I’m in the finance business.” A former Aurus shareholder told Mineweb: “Companies [like ABVG and AURC] are looking for small Russian businesses to ‘reverse merge’ them into Pink Sheets shell companies. Then they pump these shells, selling shares to naive investors, short the stocks using Canadian and Frankfurt exchanges, make a lot of money, and leave the bag holders to deal with empty shells. Sometimes they get caught; usually they don’t.”

As Mineweb has already reported, ABV Gold has been unable to document location, licence, reserves status, or value of the assets it claims to be negotiating for; Ryan’s claims refer to gold, iron, silver and platinum, and suggest he is talking about the Krong pyrite tailings. ABV Gold says “we can estimate the value of the reserves to be anywhere between $3 and $4 billion.”

The Russian partners identified by ABV Gold, Kamzas and DRSU, are known to be far too small to have access to reserves of this order. Kamzas is a small alluvial prospector. Noone in the mine licensing administration of Krasnoyarsk and Khakassia, where these prospectors purportedly operate, recognizes the name, DRSU.

But there may be a third thimble in this game. In October last, a Moscow investment company called Finam arranged what it called at the time a “Private Equity Placement Offering Outline to Memorandum”. The new corporate name for investors was Golden Share Capital Corporation. An investor has posted these details, including a text of the “offering outline”:
http://investorshub.advfn.com/boards/read_msg.asp?message_id=25075722

First registered in Nevada in 2007, Golden Share claims in the Finam outline that its affiliated Russian companies are Mayskaya prospecting association and Dovgan & Co. Mayskaya, it is claimed, is licensed to operate placer workings in Magadan, and has been consolidated into Dovgan.

According to Finam, last October’s plan was to register Golden Share in Russia. Dovgan & Co’s financial results, reported by Finam for the first half of 2007, indicate unaudited revenues of just over $5 million, and net income of $116,829. Gold production claimed in the memorandum for 2006 was 2,500 kg. According to the same document, the principal asset being moved from Dovgan & Co. and Mayskaya into Golden Share is the Shturmovskoye deposit, in Magadan. This is on Dovgan’s home territory — Yagodninsky district.

The text claims that the Shturmovskoye deposit has been evaluated by the State Reserves Committee (GKZ), and has “GKZ Approved Mineral Reserves” totaling 225 tonnes of gold; that’s 7.2 million oz. The cited GKZ classifications are C1, which is based on preliminary drilling, at 168.6 tonnes (5.4 mn oz); and C2, aerial and magnetic anomaly prospecting, with an additional 56.2 tonnes (1.8 mn oz). The Shturmovskoye deposit, according to the document, “ranks fifth in the world of largest gold mine deposit sites”.

GKZ does not respond to public or press enquiries. It is a subdivision of the Rosnedra agency of the Ministry of Natural Resources, which is in charge of licensing. A source at Rosnedra told Mineweb there are no proven reserves for Shturmovskoye whatsoever. A check is under way to determine the C1 and C2 estimates. The leading gold and silver miner in the Magadan region, Polymetal, told Mineweb it has not heard of Shturmovskoye.

With one exception, an American, the principals listed in the management and board of Golden Share are almost all Russian, and they are directly connected to Aurus, Krong and Dovgan. The president of Golden Share is Valentin Chegenev. Sources say he used to be the owner of Krong, and is still a substantial shareholder in Aurus. One of the reported independent Golden Share board members listed in the Finam memorandum is Vladimir Kuznetsov; his title is given as “FINAM Investment Company, Director of Corporate Equities/Financing Department.”

Finam was asked to clarify its relationship with Golden Share, and whether it raised the $50 million which Golden Share’s principals had been hoping for. A Finam spokesman told Mineweb: “We signed the agreement for a private placement for GSCC, but it was not implemented yet. The agreement for consultancy services was signed in the autumn of last year. Although the GSCC shareholders are still thinking about the way forward for company development and money raising, it has not given the green light for the project.” He confirmed that Golden Share was acting with Mayskaya and Dovgan & Co.

When Finam was asked to provide a copy of the investment memorandum and corroborate Kuznetsov’s standing, the spokesman revealed that Kuznetsov is no longer with Finam, and that he left last month. “He was the one who was working on the Golden Share project, and since he left, the project has come come to freeze point. Nothing is done on it now, and there is person in charge.” Finam also denied that a formal investment memorandum was drafted, suggesting that there might have been a “consultancy report” instead. No text is available.

Investor sources believe the idea is, or was, to establish Golden Share as a Russian company, and then move it later on to the US market. They are not certain whether the same Canadian movers of Aurus and ABV Gold are behind Golden Share, or whether the scheme is being copied by others. Has anyone in North America, or in Russia, made money?

Mineweb has found noone identified as responsible for Aurus or ABV Gold or Golden Share, who is willing to answer questions, and explain how the same Russian assets appear to be moving from one company to another – without genuine corroboration of quanityt or value. Without referring to specific companies or specific assets, a North American source says of the game in general: “it’s very hard (impossible) to make any money estimates. They are making money by selling shares including ‘naked shorting’; that’s when shares are produced from the air. The managements of attacked companies suddenly discover that there are 30, 40, 50 million extra shares in a float, not covered by anything. These crews just print shares, sell them in Canada or Germany, and then start driving the stock price down to cover cheap — or they never cover.”

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