Map of Chukotka with Kupol gold mine. Map © UAF
Russian mines that haven’t been in operation since the days of the Soviet gulags are being reopened in an effort to capitalize on the rise in the price of gold and recoup losses caused by the fall in the price of oil, Russia’s primary export. The Kupol mine lies within the federal subject of Chukotka, all the way in the tundras of the far Siberian northeast. Here, natural resources are plenty: reindeer outnumber people 4 to 1 [1], and besides gold, large reserves of silver, oil and natural gas also exist.
Yet perhaps the region is most famous for being under the control of Governor Roman Abramovich, the owner of Chelsea FC. He has poured $2.5 billion into the region in an effort to stimulate its economy, which is almost entirely dependent on gold exports. After South Africa, Russia has the second largest gold reserves in the world. However, it was only the fifth-largest producer of gold, demonstrating that the country has room to further exploit its mineral resources. Chukotka was therefore a natural location for intensifying the mining efforts.
Five years ago, construction of the mine site began in Kupol, which is 220 kilometers away from Bilbino, the closest large city. The mine is situated over the Kayemraveem ore belt, which contains both high-quality gold and silver. According to Kinross, the mineral deposits are estimated to hold 4.4 million ounces of gold and 54.2 million ounces of silver, on top of 1.7 million inferred ounces of gold and 22.2 million inferred ounces of silver. Inferred deposits mean that the ore is not necessarily accessible due to geological obstacles.
Currently, the Kupol mine is 75% owned by Bema Gold Company, a Canadian company based in Vancouver, and 25% owned by the regional government of Chukokta. Bema itself was purchased by Kinross, a Canadian gold mining corporation with operations all over the world, in February 2007. You can view the company’s website on the mine here, along with a technical report. Thus, despite all the brouhaha you might see take place in the media or even in diplomatic staterooms between Canada and Russia over Arctic policy, there is a good deal of economic cooperation going on behind the scenes.
Kupol mine, © Kinross
One Year Gold Prices Spot Chart, © Kitco
More gold mines are expected to open in the near future as Russia tries to capitalize on the commodity’s steadily rising price. However, this strategy is also demonstrative of a failure to develop a services-based economy, one which will not be so vulnerable to swings in commodity prices and depletion of resources. Already, Russia’s largest gold mining company, Polyus Gold, experienced a 14% drop in output in the first quarter of 2009 due to a decrease in its gold ores.
But Russia isn’t the only Arctic country looking to exploit its mineral resources. In Alaska, just below the Arctic Circle, analysis has shown that the Livengood ore deposit is home to 7.6 million ounces of low-grade inferred and indicated gold. The project might run up against some obstacles, however, as many environmentalists are worried that gold mines could leach into the water and destroy wild salmon populations.
By the way, for an interesting article on Siberia, which is home to Chutkotka and many other sparsely populated Russian regions, check out Ian Frazier’s in-depth article on his epic travels in the region, published in the New Yorker last week (registration required).
News links
[1] “Reindeer herders battle alcohol on Russia’s edge,” Reuters
“Remote Russian region builds on billionaire’s legacy,” Reuters
“Abramovich’s Billions Give Hope to Bleak region,” The Moscow Times
