OREANDA-NEWS. November 30, 2010. ‘It is today when Kyrgyzstan can develop its economy using its gold reserves’ – IBC chairman Hugh McKinnon stated, reported the press-centre of IBC.   

‘International price of gold is on record levels – USD 1,389 per ounce. However, despite the fact that Kyrgyzstan is rich in gold, advantage of such price surge can be considered more in a long-term perspective’ – the IBC chairman noted.

According to Hugh, ‘the state has issued dozens of licenses permitting gold extraction and production. However, commercially large-scale development is carried out only by two companies – Centerra Gold Inc, which develops the major Kumtor deposit and produces around 17 tonnes gold a year, and state corporation Kyrgyzaltyn, which develops Makmal, Tereksai and Soltonsary and produces around 800kg gold a year.’

Hugh McKinnon states that ‘average-scale and minor deposits deserve more attention today –they could produce the same amount of the precious metal”.

“But on most of them, development was not even launched due to a low world price of gold, change of investors and problems with local communities. Most of the gold deposits were planned to be in operation 10 and even 15 years ago. Development of only three of the deposits – Andash, Jerooy, Taldy Bulak Left Bank – would give USD 32mln as royalty and sales tax to the state budget each year.  This is a direct loss of profit to say nothing of indirect losses: local labor is not employed and auxiliary production is not developed, experienced labor force migrates to other countries’ – the IBC chairman stresses.

Alongside with that, Hugh McKinnon thinks that it is not late now to start the work: ‘Though there is no immediate republican budget filling possible now, it is a good moment to start attracting finance to the mining industry’.

‘Today, due to the gold price rising trend, investors pay their attention to the precious metal market, especially, the business associated with gold production. They are interested in assets of the companies who are in this industry.  For example, Kentor Gold has today USD 100mln available cash for geological exploration and mining. Kazakhmys has started developing the Bozymchak deposit, Phul Gold Mining launches production at Ishtamberdy.  Several investors contend for Jerooy.  The mining sector is in general a specific industry. It is affected in the first turn by a geological factor, then – by availability of funds, which in its turn depends on the market demand for the metals, and only after these – by political risks.   That is why, if we witness outflow of investors from other sectors of the economy, there is no such in this sector’- the IBC chairman comments.

‘Another issue – how long this situation will last. The current gold price uptrend started in 2008, however, it will not last forever. Over the last 40 years, it is the fourth such price surge. On the whole, the metal market is capricious.  For example, in 2008-2009, following the construction crisis there was a catastrophic drop at the copper market, the price of which plummeted from USD 4 to USD 1.2 per pound. 

The similar situation was observed at the silver market 25 years ago, when, initially, the price of silver went up from 4 to USD 22 per ounce, and then in the similar fashion fell rapidly down to USD 6 per ounce. Even national banks were buying silver. And then there was a stall. In my opinion, it is the moment for Kyrgyzstan to place its stake on its mineral reserves.  It should start developing the mining and production-associated industries.  Of course, much depends on how the country will use the money received.   But there are good examples with Chili, Australia, which once started developing its natural resources and constructed a strong and developed economy with a current balance between industry, agriculture and servicing sector’ – Hugh McKinnon summarizes.