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By John Helmer in Moscow

Contest for Tajik gold licenses warms up President Rahmon, as Chinese miners fuel the bidding.

A group of Tajik men were recently taken by surprise, in the woods outside Moscow, when they spotted an animal they had never seen before. “Small bear!” “Small bear!” they shouted in excitement to a Russian nearby, summoning her to come quickly.

The Russian ran to the scene, for sightings of bears are rare near Moscow – unless the creature has escaped from a zoo or circus. A young bear on its own, apart from its parent, or human handler, is even rarer. But as soon as the Russian followed the pointed fingers of the Tajiks to the high branch of a tree, it became clear the animal they were looking at was – a squirrel.

It turns out that in the Tajik language, which is a form of Persian, there is a word for squirrel (sanjab), but few Tajiks have ever spotted one. The nearest counterpart is much bigger – a small bear.

If you are looking for gold in Tajikistan, Tajiks aren’t the only ones to say they see a small bear, when in fact there’s nothing more than a squirrel. For mining investors and gold bugs in London, the record of gold sighting, and proving, in Tajikistan has proved until now to be disappointing – with short bursts of excitement that have tended to peter out.

One of those occurred in July, when Altima Partners, a hedge fund working out of an office in Carlton Gardens – down the road from Anglo American’s headquarters – placed GBP2.8 million in a Tajik mining venture called Saddleback Gold. In recent days, Tajik officials, Kazakh mining sources, and sources in Moscow all confirm that Saddleback Gold does not have exploration or mining rights to any Tajik gold. According to one ministerial source who counts, this is not going to change.

A recent visit to Dushanbe, the Tajik capital, by Saddleback director and promoter, General Sir Mike Jackson, former chief of the British Army, has failed to overcome opposition to granting Saddleback the licenses it claims, or wants, to enter the Tajik gold sector. Instead, the sector is opening up to a contest between Chinese mining companies, Koreans, Kazakhs, and Russians. UK-listed Kryso Resources and Toronto-listed Gulf International Minerals are the only western miners seemingly in serious contention.

According to the current CIA fact book for Tajikistan, gold trails last on the list of natural resources with which the mountainous, landlocked region, in Central Asia, is endowed. The CIA list is: hydropower, some petroleum, uranium, mercury, brown coal, lead, zinc, antimony, tungsten, silver, gold. The US Geological Survey (USGS) has been issuing regular reports on the mineral deposits and mining output of Tajikistan for several years, but its Soviet-era estimates of reserves have been dwarfed by those of Tajikistan’s neighbours, Russia, Uzbekistan, Kyrgyzstan, and Kazakhstan.

According to USGS and other publications, Tajikistan was producing 2.9 tonnes of gold (93,235 oz) in 1990, before the collapse of Soviet administration the following year. In 1994, this output had dwindled to 1.5 tonnes (48,225 oz). A decade later in 2004, again according to published USGS figures, Tajikistan produced 2.7 tonnes (86,805 oz) of gold; 5 tonnes (160,750 oz) of silver. The same sources list the gold producers, in order of production capacity, as Tajikzoloto (“Tajik Gold” in Russian), a state enterprise which combines a number of prospecting groups with licenses to explore for gold, and work placer deposits in the central and southern areas of the country; the Zerafshan Gold Company, with the Jilau and Taror deposits in northern Sogd region; the Darvaz (aka Darwaz) joint venture, working the Yak-Suyskoye deposit; and the Aprelevka joint venture, run by Gulf. Altogether, the USGS estimated gold output capacity of these mining operations at 9.5 tonnes (305,425 oz). Silver production was listed at the Bolshoy Kanimansur deposit, operated by the Adrasman mining group. Its annual production capacity was given as 15 tonnes (482,250 oz).

Borrowing from Soviet-era geological studies, a World Bank report of 1994 suggested that there were “more than thirty known deposits of gold” in Tajikistan. About 150 tonnes of gold had been identified, according to Soviet prospecting categories, of which 25 tonnes “is easily processable alluvial gold found in Darwaz.”

The World Bank reprinted a tabulation of reserves and production, prepared by the Tajik Ministry of Industry that year. This listed proven reserves of 56 tonnes at Taror; 40 tonnes at Choreduob; 24 tonnes at Jalal; 25 tonnes at Darwaz; and 5 tonnes at other, unnamed sites. In all, 150 tonnes – 4.8 million oz. Inferred resources were given as another 248 tonnes (8 million oz).

There was an important qualifier: “the mineral resources at Choreduob, Taror and Khojand, which have the largest and richest deposits, contain high amounts of arsenic. Since there is no economic and environmentally benign extraction and refining technology, these large deposits cannot presently be extracted.” There are other qualifiers, too. Much of the big silver deposit at Bolshoy Kanimansur cannot be mined unless a town of more than 20,000 people is moved.

In June of this year, the Zerafshan Gold Company (ZGC) had a significant change of ownership. Avocet Mining, the UK-listed owner of 75% of ZGC (the Tajik government holds the remaining 25%) sold out its interest to the Xin Jiang Zijin Mining Company, a wholly owned subsidiary of Hong Kong-listed Zijin Mining. Zijin, one of the largest gold miners in China, paid $170 million. What Avocet left behind at ZGC – today the single largest gold miner of Tajikistan – was a shrinking rate of production (36,330 oz in FY 2005-2006), but reserves or resources estimated to be 2.8 million oz at Jilau, and almost 8 million oz at Choreduob. Avocet admits, however, that it has lacked “full licensing from the Tajik government” to proceed to develop the latter deposit.

Zijin’s move into Tajikistan is one of several which Chinese mining companies are pursuing. Their rivals include Kazakhs and Koreans.

As a Russian source describes the competition, “the size of the gold and silver estimated in the Soviet period, multiplied by the current price of gold, has encouraged a rush of sorts. Investors tend to overlook the technical difficulties; the lack of infrastructure, like roads and power. If they are public companies, investors are often misled about the extent to which prospectors and miners have the appropriate government licences, and thus legal title, to the gold assets they claim to be backing the value of their shares.”

Government ministries which supervise the precious metal sector, and supervise licence awards and compliance, include the Ministry of Finance, the Ministry of Industry, and the government’s chief geologist. But towering above them all is the Tajik President, Emomali Rahmon.

Politically, the president’s role as chief policy-maker and source of patronage in the country is unchallenged. But Rahmon has a large family, which includes sons-in-law, nephews, and a brother-in-law, all of whom have official roles to play, as well as informal advisory roles, which include introducing new business to the president, for his approval and endorsement. The Rahmon kin and clan compete among themselves for the president’s favour, a situation Rahmon himself encourages for self-protection.

In a report of June 2004, entitled “Country Financial Accountability Assessment”, the World Bank pointed out that, although most state owned enterprises report to, and are supervised by government ministries in Dushanbe, two of the most important state owned enterprises in the country are run directly by the president. Mineweb has already reported on one – the Tajik Aluminium Plant (Talco): here

The second is Vostok Redmet. This is the enterprise operating Tajikistan’s sole gold refinery. Originally constructed in the Soviet period to process uranium, which was mined across the northern border in Kazakhstan, and shipped south through Uzbekistan, the refinery ceased work when Kazakhstan halted uranium shipments, and Uzbekistan blocked transit. Additional gold refining capacity has been added at Vostok Redmet; in addition, the enterprise appears to hold development rights for a number of gold deposits. Rahmon’s unusual position in charge of Vostok Redmet – a position the World Bank study of 2004 recommended for reform – gives him access to the entire flow of gold, dore, and export proceeds for the country.

The process of licensing precious metal deposits is currently what one source describes as “arranged tenders”, in which government ministers, regional governors, and the extended family of the president make recommendations. But it is Rahmon, who has the final say. Mining ventures are structured, the source told Mineweb, so that the licence award usually goes to a joint venture set up between a foreign investor and a Tajik partner. In addition, a private equity position is usually held in the foreign stakeholding company by Tajik influentials. The process of presidential approval is complex, slow, and, in these circumstances, no-one can ever be quite certain of what might happen next.

What has made Gen. Jackson’s recent involvement in the licensing of Tajik gold prospects so visible is that Alastair Ralston Saul, Saddleback’s founder and Jackson’s old regimental friend, has encouraged Tajik officials, as well as western investors, to believe that Jackson enjoys presidential support. In fact, despite public announcements issued as Jackson arrived in Dushanbe, Saddleback chairman Michael Reeve told Mineweb Jackson had not met President Rahmon, nor his influential brother-in-law, Hasan Saduloev. When Mineweb asked Reeve to say what gold or other mining licences Saddleback holds in Tajikistan, he declined to reply. Ralston Saul’s record was reported in Mineweb: http://www.mineweb.com/mineweb/view/mineweb/en/page34?oid=27007&sn=Detail

Jackson, who also acts as a consultant to Numis Securities in London, refused to answer questions. Numis declined to say if it is engaged as broker or nomad or in some other capacity to Saddleback, or has issued any analytical reports on gold mining in Tajikistan.

Mining has a presidential priority now in Tajikistan, says an international miner. “I believe that there are substantial prospects worth investing in. I also believe it is the direct, clear approach to mining there, which will be successful in the long run.”

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