Russia’s Klondike? Not yet – by Clara Ferreira-Marques ( – December 20, 2012)

(Reuters) – It looks like any one of remote eastern Siberia’s low-lying, peat-colored hills: only the thin trenches that scar Sukhoi Log hint at the work of generations of geologists to measure the riches beneath.

This bleak expanse, uninviting against a steel grey sky, is probably the world’s largest virgin gold deposit, with mineral wealth to rival the world’s largest, at Grasberg in Indonesia.

Yet it has remained untapped for half a century, held back by its remoteness, state restrictions and, in recent years, a lack of interest on the part of a Moscow government riding the wave of energy profits and holding out for higher gold prices.

“(The government) would love more gold, but they have no time to think about these issues at the top level,” said Sergei Guriev, rector of the New Economic School in Moscow.

“At the lower level, people are happy with the status quo.” Soviet geologists surveyed Sukhoi Log intensively in the 1970s yet little came of it. But now the Russian government has stirred long-dormant interest, suggesting it might invite bids to mine the gold. While such talk has come and gone in the past – and no details of any tender have been given – there is new debate on how, and at what cost, the ore might be exploited.

Beyond the future of Sukhoi Log itself, the outcome could be a litmus test for Moscow’s willingness to embrace changes some have been lobbying for in the mining sector – whether lifting a bar to foreigners’ involvement in strategic assets or simply showing any appetite at all for turning earth into bullion.

For all the gold fever of pioneers who claimed Russia’s wild east for the tsars in the 19th century, Sukhoi Log – the name means Dry Gully – remains a symbol of a more recent lack of drive to mine the riches beneath the world’s biggest country.

Analysts say the latest study on that single deposit indicates it could produce 1.6-1.9 million ounces of gold a year over three or four decades – worth an annual $3 billion or so at today’s gold price near $1,700 per ounce. Initial development costs are forecast at upwards of $2.5 billion.

There are traces of Soviet ambitions in this distant corner of Siberia, 1,000 km northeast of Irkutsk: half-built bridges are scattered along the cratered road out of the gold rush town of Bodaibo, concrete pillars sticking out among the fir trees.

Nearby, a handful of five-storey apartment blocks, the start of a miners’ colony, stand forlorn in the taiga, close to where, in 1912, soldiers shot dozens of striking gold miners from the Lena river fields in a massacre that helped foment revolution.

In Bodaibo, few expect a new rush to develop Sukhoi Log.

“For now, it is worth more in the ground,” says Alexander Tuluptsov, a senior engineer at GV Gold, a private firm that is mining the neighboring Golets Vysochaishy deposit. A local man whose wife’s father was among the geologists who first charted Sukhoi Log, he does not expect to see it worked in his lifetime.

There is little pressure locally for work to start. Gold prices are riding high, bringing jobs and money to the sparse population. In Bodaibo, home to about 15,000, shiny SUVs are testimony to work at other mines and along historic riverbed deposits of the Lena basin. So too are prices in shops, where basic produce can cost three times what it does in even Moscow.

Irkutsk Region is bigger than France but has less than 2.5 million people. Anyone wanting to mine Sukhoi Log would probably have to fly in workers from further afield.

Speaking in London, where his mining firm is listed, Vitaly Nesis, U.S.-trained chief executive of Polymetal (POLYP.L), said the Kremlin sees no haste in doing anything with the deposit:

“It is an asset that is a natural hedge against global inflation. Why does the government need to turn a real asset into a pile of dollars or euros that could be inflated away?”

However, Russia’s leadership should foster more probing digs across its territory: “What the government should do,” he said, “Is promote investment in exploration to find new assets.”

Yet that, too, has lagged in Russia. Exploration alone could bring development to its farthest reaches – metalled roads, modern airports, rail, power, not to mention training and jobs.

But, say mining entrepreneurs, encouraging pioneering, small outfits and attracting foreign prospectors will need an overhaul of red tape and changes to laws, notably limits on foreigners’ rights to exploit any big, new seams they discover.

Lou Naumovski, who runs the Moscow office of Canadian mining firm Kinross, estimated more investment in exploration could bring the Russian economy an additional $1.6 billion a year – but only if the government improves the regulatory framework:

Prospectors “take huge risks for high returns”, he said. “If you have so many barriers, it simply doesn’t work.

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