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Russia's storm in a copper
pot
By John Helmer
MOSCOW -
Rival proposals for the development of the Udokan copper
deposit in southeastern Siberia are being reviewed at
the Russian prime ministry, ahead of a decision that is
expected this month.
The decision will also
signal how President Vladimir Putin is thinking of
balancing the increasingly contentious rivalry between
Russians who want to commit to selling their raw
materials to China, Japan, and other Asian buyers; and
those Russians who want to avoid dependency on
single-country buyers, not to mention the raw material
exports themselves.
Udokan, which has been the
focus of Russian, Chinese and international mining
interest for a decade, is believed to contain 27 million
tons of copper. The focus of current lobbying by mining
and regional interests is whether the tender for the
mining license should be open to all bidders
internationally, or restricted to Russian companies.
Hanging on the outcome of that decision, industry
sources say, is the future of Russia's copper producers
in the Urals, who say that they are running out of
concentrate to process, and want to ensure that if
Udokan is mined, the copper concentrate does not cross
the border to feed China's competing smelters.
Andrei Kozitsyn, general director of Ural Mining
and Metallurgy Company, told Asia Times Online that his
group is bidding to mine Udokan in order to supply its
smelters with concentrate. It is opposed to allowing
foreign mining companies to compete for mining licenses
because they would "prefer to produce and export
concentrate". Choosing between the two, Kozitsyn said,
"has strategic importance for Russia".
Potential
bidders for Udokan currently include Ural Mining,
Kazakhmys (a Kazakh company linked to Samsung), Norilsk
Nickel and Chinese copper companies.
In 1992,
Australia's Broken Hill Proprietary Ltd (BHP) lost a bid
for the right to do a feasibility study at Udokan as a
preliminary to deciding whether to go ahead with a mine.
The Australian major lost out to the Arter Group, a
group of Russian companies headed by a small
entrepreneur from Chita, Andrei Chuguyevsky. He won the
mining license in January 1993. Chuguyevsky's foreign
partners, however, failed to provide the promised
financing, and the Stock Exchange in Sydney intervened
to suspend trading in the shares of a company claiming
to hold a stake in the deposit.
Chuguyevsky then
offered participation in the project to Anglo American
Corporation and Bateman International of South Africa.
Eight years later, Chuguyevsky lost the license for lack
of investment in the project. Chuguyevsky has told Asia
Times Online that the mining project is uneconomical at
current copper prices. Bateman, a well-known mine
engineering firm, has been a consultant to Ural Mining
for feasibility work on the project.
Kozitsyn
says that "at the moment, Russian copper smelting
facilities are loaded by almost 100 percent. Only
Norilsk Nickel has reserves of raw materials in copper
for another 60 to 70 years of production, while Ural
Mining and Kyshtym Copper do not. Currently, 30 percent
to 35 percent of copper production at Urals-based copper
smelters comes from reprocessing of copper scrap. This
cannot last long. If the ban on exports of copper scrap
is lifted - and this will have to happen if Russia joins
the World Trade Organization - scrap will be exported,
and production of copper at Urals smelters may decrease
by up to 30 percent."
Kozitsyn cited a study by
the European Union's Tacis group in 1999, which
reportedly found that accessible reserves of copper in
the Urals region will be used up within a decade.
Without the new source of concentrate that Udokan
represents, Kozitsyn said, the Ural smelters would be
forced out of operation. For this reason, he said that
Ural Mining is backing a closed tender for the new
mining license, with the understanding that the copper
concentrate produced should be processed domestically.
According to Kozitsyn, the State Agency for
Mining Technical Supervision (Gosgortechnadzor), the
Chita region (where Udokan is located), and the federal
Ministry of Industry and Science are backing a closed
tender. The Ministry of Natural Resources and Ministry
of Economic Development and Trade favor an open auction.
So far there is no definite sign that any of the
international copper miners would bid if the latter
option is chosen, although domestic miners may seek to
establish foreign ties to boost their chances. To award
a mining license, both the regional authority and the
federal Natural Resource ministry must agree.
Ural Mining is claiming that Russian law does
not allow foreign miners to work on deposits containing
more than 30 percent of the country's reserves of a
particular mineral. Kozitsyn told Asia Times Online that
he believes this applies to Udokan, but concedes "there
is room for different interpretations".
Ural
Mining is proposing a multi-stage plan for developing
the mine at Udokan. In the first four-year period,
Kozitsyn said, investment of about $250 million would be
required to start the mine and build an ore-treatment
mill with capacity for 15 million tons of ore per annum.
According to this plan, by 2008, Ural Mining would
deliver one-thirds of its concentrate supplies from
Udokan. With an annual output of 340,000 tons, Ural
Mining is the second largest producer of refined copper
in Russia, following Norilsk Nickel with output of
474,000 tons in 2001.
(©2003 Asia Times Online
Co, Ltd. All rights reserved. Please contact content@atimes.com
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