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Gold Explorers Positive Climate in Kazakhstan

Commodities / Gold & Silver Stocks Dec 01, 2010 - 04:11 PM GMT

By: Jeff_Clark

Commodities

Best Financial Markets Analysis ArticleJeff Clark, Casey’s International Speculator, interviews Dr. Sergey Kurzin

The following is an interview Jeff Clark, co-editor of Casey's International Speculator, conducted with Dr. Sergey Kurzin, a Casey Explorers' League honoree. The Explorers' League regularly inducts serially successful mine finders with at least three economic discoveries under their belts - a true accomplishment considering that most explorers don't even have one economic find throughout their careers.


We haven't interviewed Dr. Sergey Kurzin since his induction into the Explorers' League in October 2008. As you'll read, he's had his head down in Kazakhstan but is now ready to speak publicly about his company, Orsu Metals (T.OSU), a gold-copper exploration and development company operating in Kazakhstan and Kyrgyzstan. Sergey is one of the most knowledgeable people we know about the politics in that region, including Russia. Here are his latest thoughts on his company and copper...

JEFF CLARK: It's been two years since we talked, Sergey. Tell us what you've been doing.

DR. SERGEY KURZIN: I've been cleaning up the mess at our Varvarinskoye project, which we acquired from the merger with European Minerals. It was a very complicated arrangement with the banks, who could not agree with each other, and a very unforgiving, hostile, off-take agreement. On top of that, the output was hedged at $575 gold - can you imagine that at current prices? But the main problem was the deposit itself - the grades were 30% below what was stated in the reports. That's why my head was down, to renovate this company. Now with this cleared up, we have put all our existing projects together and brought them to an advanced level.

Jeff: You've been operating in Kazakhstan and Kyrgyzstan for 20-plus years now. Tell us about the business climate there.

Sergey: Well, the business climate, like everything, has its ups and downs. But one can quite comfortably operate in Kazakhstan. If you have a contract with the government, meaning a license or title, and you comply with the requirements of the contract, you don't have a problem. You just get on with your business. When metal prices moved higher and people were making big profits, they increased taxation in Kazakhstan, as a lot of other countries did, but the climate is still positive.

Jeff: Would you consider Kazakhstan a pro-mining jurisdiction?

Sergey: Yes. Kazakhstan is predominately a natural resource country. It is a giant country with a low population. It has oil in the west and north, and metals in the central region and onwards to the east. They have oil, gas, uranium, gold, copper, zinc, chrome - what did I miss? All the metals you basically want are in Kazakhstan.

Jeff: What about the politics in Kazakhstan?

Sergey: Politically, it is stable. Perhaps it is not an identical democracy to the United Kingdom or Canada, but it is still a democracy as they understand it, in terms of consistency of legislation. Meanwhile, Kyrgyzstan has just had elections, which went peacefully. The new government is democratically elected and has the support of both the United States and Russia, so I think it is going to be okay.

Jeff: How have you been able to navigate the political waters better than most other companies operating in that region?

Sergey: Well, thank you, that is a compliment. The fact is we've done quite a few positive things in Kazakhstan with my previous company, Oriel Resources. We took the Voskhod deposit through all the usual stages of development, obtained all the essential approvals at the regional and district level, and created jobs. I have partners in Kazakhstan who I have been working with for eighteen years. They know what they are doing in this part of the world, so in conjunction with them, we are working quite well.

Jeff: So it's important to have strong local partners.

Yes, it is usually because they don't have reliable, trustworthy, long-term relations with a local partner. If you are in Canada, you don't need such a partner. But in Kazakhstan - which is part of the former Soviet Union - there is a certain way people look at things. They were never part of the British Commonwealth or anything like that, so they look at things differently. I am a Russian by birth and an ex-Russian citizen and lived there for 30 years. I have a lot of people with a Russian background working in the company that help navigate these waters.

Jeff: How did Orsu secure property rights in Kazakhstan?

Sergey: We have a contract with the government and work in accordance with the contract, complying with all the terms and conditions. As long as you do this, you are in good shape.

Jeff: Speaking of Russia, how would you assess mineral exploration in the Russian Federation?

Sergey: Well, that is a very interesting question. As you know, Orsu Metals is not in Russia at the moment. Why? Because there is a federal law that controls strategic assets and creates risk for explorers. But to be honest - in my personal opinion - it has nothing to do with strategic assets. It has everything to do with Russian companies trying to reduce competition.

Jeff: How are they doing that?

Sergey: By keeping them from developing big strategic assets. I believe the Russians already realize that this law is a mistake, because it puts off major Western companies to mining. I think they are currently reconsidering the situation.

Jeff: What do you base that judgment on?

Sergey: Putin and his speeches. But Russia is a large country and pretty slow historically. How fast they will react, I don't know. But they're talking about it. At the moment, I am not sure if it is worth establishing yourself in deep Siberia for a project of less than 50 tonnes of gold - just over 1.5 million ounces - which is on the border of what's considered a strategic asset. It would be too expensive and too difficult logistically.

The problem Russia faces with all its restricting legislation and bureaucracy is basically the absence of any new exploration in the whole country! They still exploit and use what they had twenty years ago before the Soviet Union collapsed. So everything that was worth developing is basically taken. There is a lack of new projects, the existing ones are too expensive, and those still undeveloped are usually not worth the effort.

Jeff: Your flagship project is Karchiga in Kazakhstan. I read that you recently increased your interest from 70% to 94.75%.

Sergey: Yes. Karchiga is a copper play. There is a little bit of gold, but we are not even considering it. And Karchiga is the most advanced Orsu project, but not necessarily the largest. It has a lot of advantages, like the location being forty kilometers from the Chinese border. It is a well-defined area and within an historic copper mining belt.

It is not expensive to develop. We hope to use a lot of Chinese equipment, which will give us some interesting project finance opportunities with potential Chinese off-take agreements. And the infrastructure is good. There are hard paved roads on the Chinese side and a couple of smelters in the vicinity. Electricity is 10 kilometers away, water is plentiful, and the landscape is very gentle. Our contract with the Kazakh government is good until 2022.

As of Q1 2010, we have a 43-101-compliant indicated resource of nine million tonnes at 1.87% copper and an inferred resource of 1.83 million tonnes at 1.6% copper. That's about 400 million pounds of copper, over a billion dollars worth. We expect to complete our definitive feasibility study in September 2011. So this is a good project to turn a company into a producer. We've done projects more complicated than this in Kazakhstan, and it is our firm target to complete construction by Q1 2013.

Jeff: I saw that China is investing $13 billion in Kazakhstan.

Sergey: Kazakhstan is full of natural resources, which China desperately needs for its development and growth. It's easier to bring it from Kazakhstan than import it from South America or Africa. Kazakhstan has a thousand-kilometer border with China. Our Karchiga project is only forty kilometers from the border, so it's a given synergy. And copper in particular is one of the key metals for infrastructure.

Jeff: So why should I buy shares of Orsu now?

Sergey: Because we have a major resource. Six million ounces of gold equivalent. And our enterprise value is $30 million. What is that, $5 an ounce? It's a pretty strong case, I think. The company will grow, too. We will acquire added projects and are progressing the existing ones. We are strongly undervalued. If you can discount all the risks, we should be trading at five or six times where we are now. The fact is, we have a track record and a very good technical team. I've been on the road and there was big interest in Toronto, New York, and London. We've been very well received. I think the stock will see some movement. Nothing happens instantly, as you well know, so give me some time.

Jeff: We will. To wrap it up, Sergey, what do you see going forward with copper and gold?

Sergey: I will answer simply. I think that gold, for the foreseeable future, is not going down because it is a barometer of people's fear. But I'm even more bullish on copper because it is essential. Gold is an artificial thing, a safe haven, and insurance against currency devaluation. But copper - especially in Kazakhstan where you are next door to China - has a strong future. And don't forget, India is not far away. Of course there will be hiccups, but the overall trend in copper is definitely up, in my opinion.

Jeff: Thanks for your time, Sergey. We'll be watching as you develop Orsu.

Sergey: Thanks a lot.

[Finding junior mining stocks to invest in is easy… and so is losing your shirt in the process. Finding winning stocks, on the other hand, requires asking the right questions. Learn all about “The 8 Ps of Resource Stock Evaluation,” Doug Casey’s secret of success, in our FREE special report. Click here to read it.]

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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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