Page 1 of 2 Europe keeps mum on Russian cobalt
By John Helmer
MOSCOW - Kosh-Agach is a steppe word meaning "so long, tree". It's the
world's end, the driest and direst place in far-eastern Russia at a remote
corner where the frontiers of Mongolia, Kazakhstan and China meet. It is also
the location of a large reserve of rare metals, including cobalt. So rare is
cobalt that since 2008, Russian law doesn't allow foreigners to dig it out of
the ground, sell it or export it without special permission.
So why has the European Bank for Reconstruction and Development (EBRD) spent
US$30 million so far on investing in a project, details of which it insists on
keeping secret?
The EBRD is financed by 61 shareholding countries of Europe, North America and
Australasia, plus the European Union and the
European Investment Bank. The EBRD's website claims the bank "seeks to develop
a sound investment climate based on an effective legal and regulatory framework
and promotes corporate governance, including sound management practices, a firm
stance against corrupt practices, disclosure of information, and clear and
consistent accounting and auditing practices". On January 8, 2008, this is what
the minutes of the EBRD board of directors reported as happening at Kosh-Agach:
The
Board approved an equity investment of up to USD 30 million (EUR 21.4 million)
to Imperial Mining Holding Company. The equity investment will be used to
finance preparation of a full feasibility study (including a full
international-standard EIA [environmental impact assessment]), implement
preparatory work for the development of Karakul cobalt-copper deposit in Altai
region of Russia, and expected acquisition of nearby satellite deposits.
The minutes record that the decision was taken by the then-president Jean
Lemierre, three of his deputies, including the EBRD's chief lawyer. Voting in
favor were 22 directors and 21 alternates. The director for Russia voted in
favor; her name is Elena Kotova, and she is still the Russia director.
Almost all equity investments, mine project loans and cash disbursements the
EBRD has made in Russia are heavily documented in the bank's public record
before they are approved at board level. EBRD says that from its inception in
1991, it counts 613 projects altogether in Russia, and has paid out 12.4
billion euros (US$15.6 billion). To count only mining and natural resource
projects, there have been 25. Five of these focus on timber, gold, zinc,
iron-ore and mineral water; all the others involve energy resources, such as
oil and gas. There is no reference to Imperial Mining or the Karakul cobalt
mining project.
Counting the EBRD's equity investments in Russia since 1991, there are more
than 40 projects in total. The money has gone for shares in banks, brokerages,
venture funds, regional development funds, a truckmaker, carmaker, railway
operator, airline and a shipping company. The list is interesting because at
least two of the banks in which EBRD invested - Tokobank and Inkombank -
disappeared in scandalous circumstances. Again, there is no reference to an
equity interest in Imperial Mining or the Karakul cobalt mining project.
EBRD's complete list of 395 project, disbursement and investment
identifications since 1991 range from sausage factories to bakeries, telephones
to bottles, sewers to supermarkets - but not a reference to Karakul cobalt. [1]
In short, unlike any other EBRD payout to Russia for mining resources, there is
just a two-sentence record that the board approved it - and nothing else. EBRD
spokesman Anthony Williams was asked to say whether the equity investment EBRD
has made in the venture is in a Russian company; whether EBRD believes the
license it has spent $30 million to exercise carries mining rights, or is
limited to exploration and proving; and finally, whether EBRD knows that,
according to Russian law on mining strategic metals, cobalt is prohibited for
mining by a foreign company without Kremlin permission.
Williams answered: "I have no comment to make on this issue." Rarely can so
little mean so much that EBRD wants to keep secret.
But first, consider the Kosh-Agachinsky region, in the southeast corner of
Russia's Altai territory. [2]
A travelogue reports that the steppe hereabouts is "extremely interesting and
exotic for the traveler from the viewpoint of its landscape, flora and fauna,
with a slightly undulating plain at the altitude of 1,700-1,900 meters above
the sea level, surrounded by mountain ridges covered with snow. Severe climate,
dry and windless, means that the permafrost runs to 90 meters in depth.
Wormwood and thorn bush are the only obvious vegetation."
Cobalt is more interesting. The metal is used in diverse industrial and
military applications. The most serious of these is in superalloys, which are
used to make jet engine parts. It is almost always mined as a by-product of
other more abundant metals. More than half of the world's supply is produced as
a by-product of copper mining and refining in the Democratic Republic of Congo
(DRC) and Zambia. Cobalt production in Russia and most other countries is a
by-product of nickel mining. Although some producers can increase or decrease
the amount of cobalt mined or refined, most cobalt production is ultimately
dependent on the production of copper and nickel.
The global bust for commodities and metals that began in the autumn of 2008
resulted in reduced demand for and supply of cobalt. According to a report from
the US Geological Service (USGS), the world availability of refined cobalt
during the first half of 2009 was 13% lower than in the first half of 2008.
This decline was primarily because of a decline in 2009 production from China,
and the closure of a Zambian refinery in late 2008.
During the second half of 2009, a strike at a company in Canada resulted in
reduced production of refined cobalt from that country. Beginning in late 2008,
production of cobalt-bearing concentrates and intermediate metals was hurt by
cutbacks at many nickel mines around the world, and at some copper-cobalt
operations in DRC. Financing, construction and startup of proposed brownfield
and greenfield projects were delayed because the demand for the metal was
falling, along with prices; and banks weren't ready to lend to new mines.
The chart shows cobalt falling like a stone - down 73% from the May 2008 peak
to the December 2008 bottom. Since then the price recovery has been modest.
Vale (Brazil), BHP Billiton (Australia), Xstrata (Switzerland), Teck Resources
(Canada), Antofagasta Plc (UK) and Katanga Mining (Switzerland) are the biggest
of the mining companies which produce cobalt.
Norilsk Nickel, Russia's sole miner of cobalt (the two other Russian producers
of copper do not have cobalt by-production) says as little as possible about
its cobalt reserves or output. The last financial report for 2009 gave no
information at all. The 2008 report indicated that the main company had signed
contracts to provide up to 6,500 tonnes of cobalt per year for refining at the
OM Group's Harjavalta plant in Finland, which Norilsk Nickel had taken over the
year before.
Output numbers appear from time to time when Norilsk Nickel executives let them
slip. In 2004, when a new Russian cobalt refinery was being planned, its annual
capacity was said to be 2,500 tonnes. In the first half of 2008, when the OM
refining deal was disclosed, cobalt production for that period was said to be
1,160 tonnes.
Norilsk Nickel's annual report for 2009 skips cobalt production for the year,
but notes that revenues were down on account of falling price. "The main reason
for the decline in revenue from the sale of by-products was a sharp fall in
sales prices of rhodium - from USD 6,600 per ounce in 2008 to USD 1,600 per
ounce in 2009, and cobalt - from USD 73,000 per tonne in 2008 to USD 32,500 per
tonne in 2009." The report fails to disclose revenues from cobalt sales.
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