Can you give us some historical background information on Oxus Resources Corporation here in Uzbekistan, your main activities and your structure today.
Oxus Resources Corporation was created specifically to focus on the massive mineral potential of the Central Asian Republics. The principals of OXUS have been involved in the region since 1991, having previously worked with the Zeravshan Gold Company in Tajikistan and, prior to that, the Tajik Development Agency, set up in cooperation with the Government of Tajikistan. Having established ourselves in the region, and recognizing its potential, in early 1996 we decided to set up a new company, OXUS Resources Corporation. The objective of this company was to put together a portfolio of mineral projects in Central Asia but not just limited to one of the Republics.
Since 1996 we have looked at quite a lot of projects and we have now developed a portfolio that comprises three principal projects; two in Uzbekistan and one in Kyrgyzstan, plus exploration territory spread throughout the Central Asian Republics. In the current gold market in particular exploration budgets are necessarily curtailed. Therefore the three projects that we're focusing on are either at advanced feasibility stage or ready for construction. The first project is Amantaytau Goldfields here in Uzbekistan, which is the project formally belonging to Lonmin Plc. This project is ready for construction. The second project, also here, is Khandiza which is a polymetallic zinc, silver, copper and lead deposit in South East Uzbekistan, for which we have now received agreement from the Uzbek Government to develop it as the first 100% foreign owned concession rather than a joint venture. Our third key project is the Jerooy gold project in Kyrgyzstan, which is the second largest gold deposit up there. It is 67% owned by OXUS in partnership with the Kyrgyz Government. Amantaytau Goldfields is a fifty-fifty Joint Venture with the Uzbek government here, although Oxus has management of the project.
Uzbekistan is the 9th largest gold producing country in the world. What has been the contribution of OXUS to the development of the mining sector in Uzbekistan?
Our principal contribution is still to come. That perhaps will manifest itself in three ways: Firstly, Amantaytau Goldfields, if everything goes according to plan, will be in production, pouring gold by the end of next year. That actually will represent the first new mine to go into production with foreign investment in Uzbekistan. Newmont Mining is of course the pioneer in foreign investment in the mineral sector here but that joint venture is processing waste dumps from an existing Uzbek mine. Amantaytau Goldfields will be a brand new mine, so this would be a first.
The second of course, would be, that being relatively new, unknown and a small company at this stage, if OXUS is seen to succeed here, I think that will be a tremendous boost to many other companies that will now think that they can work in Uzbekistan as well. Hitherto the main investments in this country have tended to come from the major multinationals. We are probably bucking that trend. The London Stock Exchange listing that we are proposing later this year will further strengthen that. The Uzbek Government is showing a great interest in what we are doing. They know this is the very first time a company is listing on any major exchange, anywhere in the world, with Uzbek assets at the forefront. They are very conscious that this is as a much a marketing exercise on their country as on us and the projects.
I must say that they are giving us complete cooperation and they have been extremely professional to work with. We've also received full assistance from the Uzbek Embassy in London. We have also been making a short film about our activities here and the country itself in order to assist the marketing for that listing. Again we have had full cooperation from the Government who have allowed us unrestricted access to areas that I wouldn't have expected, including the gold refinery which is London accredited. We therefore have been filming the pouring of London good delivery bullion here in Uzbekistan. I think the whole process of our listing and successful gold production will act as a catalyst to bring other companies here. Typically the mineral sector needs the smaller companies who can operate in a more flexible manner and tend to pioneer certain markets, particularly emerging markets, prior to the arrival of the larger companies. Having said that, Oxus has every intention to grow into a larger company itself, and we now have the platform on which to build in order to achieve that. Nevertheless I think that we will play a significant role in helping to expand the Uzbek mineral sector.
The third area as I have already eluded to is on our other project, Khandiza, where we are negotiating the first 100% owned concession. That is significant because that is much more of an internationally normal way of structuring a foreign investment. We will 100% own the operating company rather than having a joint venture with the State. This is in the base metal sector and I am not going to predict whether that will set a precedent and ultimately lead to concessions being granted in the precious metals sector, but one has to potentially bear that in mind. If nothing else it will help attract companies into the base metal sector, if they are aware that one can negotiate and operate a 100% owned project. It will give some very positive signals to the international investment community.
Could you elaborate on the Amantaytau Goldfields ?
Amantaytau Goldfields is a very significant project with excellent exploration potential. We will develop it in two phases. The first phase will be a simple open pit, heap leach operation. Simple metallurgy, simple technology, nothing new. In fact the same technology that Newmont is using in their joint venture here. That will put us into production initially somewhere in the region of 170 thousand ounces a year. Although the current production schedule would show that declining over a ten year mine life, we are confident that further exploration of the significant oxide potential within the license area will change that. The license area is 190 square kilometers and there are 21 gold deposits within that area. Our bankable feasibility study has only focused on three of them. So we are confident that as we put the drill rigs to work we will not only be able to extend the mine life of the oxide phase well beyond the initial ten years but will also be able to sustain production at something closer to the initial level. It is high grade and highly profitable. The cash costs of production, meaning the operating costs per ounce, are coming in about $113 dollars an ounce which is very good worldwide. The direct production cost is expected to be in the region of $177 dollars per ounce, that is after amortizing all capital expenditure. When you apply the various Uzbek taxes and other non operating type costs, we have a total cost per ounce of gold production from that first phase of $203 dollars an ounce which is very good. What this means is that even at today's gold prices, we are getting more then adequate returns to make sure that this project goes ahead. | How many people are going to work in the mine? What is the total number of staff?
That will depend also on the second phase. The current proposal is that we commence the operation with the first phase open pit heap leach at relatively low capital expenditure, simple technology and it gets the whole thing up and running. It puts OXUS into production and it gives the Uzbeks a new mine, employment and everything else that goes with it.
Three or four years down the road the intention is to commence the second phase which will be a larger underground mine processing the high grade sulphide ores. That will require different technology and will be much more in the region of a $100 million project whereas the first phase is a $35 million project. The second phase will add a further 200 thousand ounces gold production per year to Amantaytau Goldfields.
We currently employ around a 100 people in Central Asia and the majority of them are locals. Ten are professional expatriates and the rest are a mixture of professional and administrative local staff split between our various offices. Our main Central Asian headquarters is here in Tashkent and we have another office in Bishkek, Kyrgyzstan to support the Jerooy project. We also have a technical office here in Samarkand and two project offices, one at Amantaytau Goldfields and a small one at this stage at Khandiza.
When we go into construction on the first phase those numbers are likely to swell to 300. Typically a new mining project also generates significant knock on potential in terms of indirect employment in service and supply related industries. I think that the whole project will have a reasonably favorable impact on employment in the Navoi region. There is no shortage of skilled and educated work force there anyway. That whole region of the Kyzylkum desert is a mining province really pioneered by the Soviets and the Uzbeks. The Muruntau mine was discovered about 40 years ago and I believe it's been operating now for over 30 years and it still has a long way to go. On the back of that, everything that was required has already been put into the desert nearby. So you have the town of Zaravshan. There is infrastructure, power, water, road, rail, an airport, all of which assist us because the infrastructure requirements that would be needed from us are relatively small. That is another attraction of this deposit and another reason why we can kick it off so quickly.
How would you characterize the investment climate in the country ? What are the strenghths and weaknesses when investing in Uzbekistan ?
I think that the investment climate at this point in time, for a mining company at least, is the best in Central Asia. The Uzbeks have made an effort to differentiate significant project investments where the capital expenditure is large and up-front prior to any return coming back, and to treat such investments differently. They have created the Republican Foreign Investment Program which has significant tax and other advantages to the foreign investor. I am not aware of anything similar to that in the neighboring republics, although the Kazaks have taken significant steps to privatise the mineral sector.
I think it would also be true to say that the Uzbeks are a little slower to sign deals and to examine and negotiate with than some of their neighbors, but I think it is worth waiting for. They do examine things in great detail. They understand them and they have got significant specialists so there is very little that we can give them that they can't analyze fully in their own right and come back with sensible questions. And when the Government has agreed and signed off on it, it happens. So you have this real degree of certainty. It took us a while to get our principal decree signed off by the Cabinet of Ministers. But when the decree came it was worthwhile and everything thereafter has gone tremendously quickly. There are clear lines of authority and when the Government agrees to do something it gets done and the ministries are, generally speaking, cooperating fully because they have received their operating instructions. We find that very comforting, and it means we know where we stand and we can feel confident that our partners are working with us as a team and we are going towards the same goal. We also made sure that we understood this goal in advance. There is absolutely no point in giving them an economic model that they don't understand because it will only lead to arguments and suspicion that you are hiding something. You have to have a situation where both sides are satisfied by the results of the negotiations, in other words 'win - win'. There are so many significant projects in this country, in this part of the world, that in most cases it is easy to structure win-win situations so that you don't have arguments later on.
The Foreign Investment Program for example provides up to 7 year tax holidays, and a maximum rate of profits tax thereafter of 16%. There are clear exemptions on the importation of goods and services for major projects from VAT, customs duties, etc. The Government provides guarantees against adverse changes in tax and legislation, protection against expropriation and things like that. So all of that is comforting. So then of course you add to that an established infrastructure, and in our case a very well established mining sector with an educated, well trained work force and you have got most of the ingredients you need.
Where would you like to take OXUS mining in the next three to four years ?
I think we will be one of the leading mining companies in Central Asia. Each of Amantaytau Goldfields, and you can think about this project as 2 phases, the first is the open pit and the second is the underground, and Jerooy and Khandiza, effectively that is four projects, are all significant. Anyone of them should create a very profitable mining company, under the right circumstances. If we can get all four of them up and running and that is our clear intention, we will be one of the leading foreign mining companies in the Central Asian region, and not insignificant in worldwide terms. It would be nice to think that we can grow into a major, profitable mining company, on the back of our Central Asian portfolio, and at the same time play a significant role in helping the Central Asian Republics expand their mineral sectors and improve their economies. Win - win, as I've already said.
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