Gold Fields seeks Kyrgyz accord

Reuters.

South African miner Gold Fields hopes an exploration deal in Kyrgyzstan has bought time to find something just as valuable as the copper and gold it seeks: the support of the local population in this volatile corner of Central Asia.

Its joint venture in the former Soviet republic has resumed drilling eight months after horsemen armed with petrol bombs and sticks stormed its remote camp, beating a security manager and issuing death threats to local residents.

The world's fourth-largest gold miner now plans to replicate its experience in the Peruvian Andes, where it built a mine in a region where community opposition disrupted rival projects.

“We've learnt over the last five years that it's critically important to get community support for projects,” Gold Fields Chief Executive Nick Holland told Reuters. “It's probably even more important than government support in the first instance.”

Faced with growing resource nationalism in developed nations and stable emerging markets, international miners are venturing into increasingly risky environments in search of their next big deposit. Countries previously off-limits are now on their radar.

Though Soviet geologists identified hundreds of metal deposits in Kyrgyzstan, only one major mine - Centerra Gold's Kumtor - has been constructed in the two decades since independence.

That mine contributed 12 percent of GDP and more than half of Kyrgyzstan's exports last year. But even Kumtor has had its problems as protesters have sporadically disrupted production by blocking the roads that carry crucial supplies to the mine.

Revolutions have unseated two Kyrgyz presidents since 2005. The country, which is on a drug trafficking route out of Afghanistan, ranked near the foot of Transparency International's latest 183-country Corruption Perceptions Index.

Almazbek Atambayev, who in December became the first Kyrgyz leader to assume the presidency without a revolution, has vowed to weed out corruption, which includes the trading of licences for mines that are not developed.

New legislation requiring public auctions of new mining concessions has yet to be tested. More important, development of new mines must overcome strong local opposition in communities such as Aral.

The farming community of 5,000 people, in a valley 260 km (163 miles) west of the capital Bishkek, is the closest settlement to the four exploration licences held by Talas Copper Gold.

The joint venture, which Gold Fields operates with Toronto- and AIM-listed Orsu Metals , has spent about $20 million over five years and holds the rights to explore the region until the end of 2015.

“This is mainly a copper project, but there's also enough gold to warrant interest,” chief geologist Viktor Adyrkhayev said. “Given the volumes of ore, the project would take no less than 10 years and would require around 2,000 employees.”

Many residents of Aral are worried, though. Who will get these jobs? And how will mining transform their community? While the Kumtor mine is hidden 4,000 metres above sea level, far from the nearest settlement, Aral is only 2 km from the company's camp.

Nurkali Abdyldayev, a 48-year-old mathematics teacher in the village school, said he was concerned that blasting at the pit and convoys of ore-bearing trucks would disrupt pastoral life.

“The deposit is very close to the village. We want to live in a clean home.” His voice rising, he added: “Our state is corrupt. They will plough everything out from under us and leave.”

RECONCILIATION

Opposition to the project boiled over in the early hours of Oct. 8, when local men rode on horseback into the camp. The security manager was beaten as he fled a burning farmhouse. It was the second attack on the camp within a year.

Unable to guarantee the safety of local residents in the face of subsequent death threats, the company ceased drilling and began work instead on an agreement with the local community.

The agreement, signed in January, gives local residents priority when staff are recruited and will compensate landowners for any damage that may occur in the course of drilling. In return, residents agreed to resolve any disputes through talks.

There is a twist in the tale. Three suspects were detained by local police. After discussions within the community, six more local men confessed to the attack and agreed to refurbish the burnt-out farmhouse at their own expense.

The nine men appeared in court in January. Eight were put on three years' probation, and charges against the ninth were dropped. Talas Copper Gold withdrew its compensation claim and has hosted the men at the camp as they rebuild the farmhouse.

David Grant, general director for Gold Fields Kyrgyzstan, said that resolution of this conflict, including rebuilding the house, was “a strong, visible sign of reconciliation, which indicates that this project has much more positive times ahead”.

Holland said he believed environmental concerns were the root of local opposition, even though some mining executives in Kyrgyzstan have blamed officials for whipping up anti-mining sentiment for political gain.

“We don't believe there's any clandestine objective to drive people out. There's genuine concern: it's a pristine area and they want to make sure mining is done responsibly,” he said in a telephone interview from Bishkek after meeting the president.

“People have been opposed to mining because they haven't understood the benefits,” he said. “It's a fledgling industry in this country.”

The example to follow in Kyrgyzstan, said Holland, was the Cerro Corona mine in Peru. Gold Fields built the mine in the volatile region of Cajamarca, where mass protests have stalled Newmont Mining's $4.8 billion Minas Conga project.

“It took two years of detailed collaboration and discussion,” Holland said. “We've trained a lot of people who are operating the mine for us. We used a lot of local contractors to help build the mine.”

ENVY

At Taldybulak, the most prospective of its four licence areas, Talas Copper Gold will drill holes to a depth of 800 metres, up to three times deeper than the Soviets ever searched.

A scoping study released in 2010 envisages an open-pit mine that would produce a copper, gold and molybdenum concentrate. The total estimated resource is 11.7 million ounces of gold equivalent, although these resources are not proven.

Pensioner Erkinbek Malayev chairs the committee formed this year to represent the community's interests and act as a go-between with the company. While agreeing to drilling, he is not convinced a mine will be in the best interests of the village.

“It's not worth continuing this project if it harms the village,” he said. “People are thinking of their children and how they will live.”

But many in Kyrgyzstan see mining as the quickest route out of poverty for an economy subsidised by cash sent home by hundreds of thousands of migrant workers. Per capita GDP is less than a tenth of that in oil-rich neighbour Kazakhstan.

“If the people decide Kyrgyzstan has no other route to development, we need to do this. We cannot live forever in debt,” said Malayev. - Reuters