Last week, for the first time, the gold prices in the world market exceeded $770/ounce. The analysts note that the oil prices play a significant role in the gold market because they lead to the inflation growth and in its turn, it increases the attractiveness of the gold as a tool of insurance against the inflation risks. On 23 October the oil prices reached its maximum in the history and only the increasing dollar caused gold price increase.
In addition, the World Bank also highlights the price increase for the expensive metals in the world market. According to the data by the Bank, the world prices for the raw materials in the recent nine months significantly increased as compared to the energy resources. Thus, if the average prices for the energy resources (coal, oil and gas) over the recent nine months increased by 2.1% as compared to the last year, the world prices for the raw materials (agricultural products, metals and minerals, inorganic fertilizers) increased by 13% during the reported period. In particular, the metals and minerals (gold, silver, aluminum, copper, nickel, tin, zinc, iron ore, steel) increased by 15.2% - from 215.0 points in 2006 to 247.6 points in January-September 2007.
The searches in the metal market indicate that the dynamic of the price increase will continue. The strengthening of the global economy under the advanced dynamic of the developing countries leads to the deficit of the natural resources. According to the experts, the current development of the world economy under the tense political situation will increase the demand and accordingly, cause high prices for the energy resources and key constructional materials, including color shots.
The gold price increase in the world market also affects the gold wares in Azerbaijan. if in the local gold market, the price of 1g of the Russian gold of 583 sample oscillated between AZN 11- 12 in April-May, this figure amounted to AZN 14- 17 in August and currently has exceeded those indicators. One gram of the Italian of 750 sample totals AZN 18 or more. Two years ago, the price of the 750 gold totaled AZN 13-14 and one gram of 585 gold - nearly AZN 10.
Despite that until Azerbaijan regained its independence, exploration works were carried out in the existing rich fields of non-ferrous metals, their full-scale development has not commenced yet. After the joint development of the oil fields in the Azerbaijani section of the Caspian Sea began in 1994, other riches existing in the Country commenced to be developed in co-operation with the foreign partners.
Thus, Azerbaijan delegated all rights to develop the gold fields within the Country to the Canadian R.V. Investment Company. In August 1997 the Government of Azerbaijan and R.V. Investment signed a PSA for developing six fields of gold, silver and copper, Gadabay, Gosha, Ordubad Grupu, Soyudlu, Gizilbulag and Vadjnali.
The fields are located in various regions of Azerbaijan. The agreement envisages producing nearly 400 tons of gold, 2500 t of silver and 1.5mln t of cropper. The total investments for realizing the agreement amount to $500mln. The shareholders to the agreement are Anglo Asian Mining Plc. (49%) (established by .V. Investment Services Grouр LLC) and Ministry of Ecology and Natural Resources of Azerbaijan (51%).
According to the agreement, nearly 80% of the profits will belong to Azerbaijan. However, for the first seven years after signing the agreement, the Company did not carry out any work in these fields, relying on the low gold prices in the world markets. Another reason for the delay of the development was the lack of the funds which now have been found in the foreign banks. The positive tendencies which began in the world market two years ago gave a boost to the preparation work. A working plan is expected to be approved in the near future for the development of Gedebey field and it will be a beginning of the realization of project.
Azerbaijan International Mining Operating Company established by the Government of Azerbaijan and R.V. Investment is going to begin industrial development of Gedebey at the end of this year. All preparation works have already completed. After the Government of Azerbaijan makes conclusion on the working plan, it will be possible to begin the work. In this case, the gold produced from Gadabey will come to the market in the first half of 2008.
The attractiveness of Gadabey field is testified by the researches of operator of the agreement Anglo Asian Mining PLC. According to the data by the Company, the annual gold production in the field is forecasted in volume of 55- 70.000 ounces and this volume will last at least five years. The searches show that the reserves of the gold ore in the field equal 7.7mln tons. Nearly two grams of gold are produced from one tons of the rock and it makes it effective to develop the field. In addition, it is possible to produce nearly 16 grams of silver and 0.29% copper from each ton of the rock.
According to the initial assessments, the necessary investments for the exploration amount to $28mln and the production costs do not exceed $283 for each ounce, which is a good indicator for Azerbaijan. The Company purchased necessary equipment in Australia for developing Gedebey field and brought them to Azerbaijan in the second half of this year. In addition, Azerbaijan International Mining Operating Company announced an open tender to purchase gravitational equipment for developing the field.
Developing other fields, Piyazbashi, Shekerdere, Agyurd, Destebashi, Keleki (Ordubad group) and Gosha (Ganja group), included in the agreement with R.V. Investment is the issue of future. The results of the exploration drilling in Piyazbashi and Shekerdere did not yield necessary results and the Company decided to postpone their development to uncertain time. According to the contract, the exploration works may be held by April 2009. More perspective works are supposed to be implemented in Gosha field where the potential reserves are assessed at 5mln tons of copper and 400.000 ounces of gold. The field's development also may begin no earlier than 2009.
On the other hand, it needs to take into consideration that several fields specified in the contract are located in Azerbaijan's territories occupied by the Armenians. According to the data by the Ministry of Ecology and Natural Resources of Azerbaijan, over the recent years, more than 30 companies have been established in Nagorno-Karabakh to develop the resources in occupied Azerbaijani lands. Thus, established in 2002, Base Metals company has been involved in developing gold and copper areas in the occupied Gizilbulag village of Agjebedi district. Currently the volume of the developed ore made up 300.000 and the annual profits of Base Metals totals $30mln.
Other Armenian company Armenian copper program (owned by Vallex FM Estabilhment - Liechtenstein and Swiss Elecom) developed 40.000 tons of concentrates and received 9.5 tons of black copper in the field of Gizilbulag.
In 1997 the Ministry of Industry and Trade of Armenia signed a contract with Canadian First Dynasty Mines (FDM) for developing Soyudlu field in occupied Kalbajar district. Only in 2003-2004, 4.5 tons of gold were produced here.
According to the information by the Ministry of Ecology and Natural Resources of Azerbaijan, the FDM Company plans to invest $12mln in the gold production sphere in Armenia by the end of this year.
Global Gold Company involved in the gold production in Armenia has already constructed a small plant in Kalbajar. R.V. Investment waned this company that it has concluded a contract with the Azerbaijani side on development of these fields and any operations carried out there may be prohibited by the international obligations. Despite this, the rich gold fields in occupied Azerbaijani districts of Kalbajar and Zangilan are exploited by the Armenians, ignoring all international legal norms.
The Azerbaijani side also observes the processes in its occupied territories and states that will bring those companies to the international court.
As a result of the recent geological works, three more gold fields (Chovdar, Bashkebnd and Kurchay) in Azerbaijan. The gross reserves of the expensive metals in the fields are assessed at 100.84 tons. Currently talks are held with the companies from the USA, Canada, Great Britain, Australia, Japan and South Korea with regards to the development of new gold fields in Azerbaijan.
The Cabinet of Ministers of Azerbaijan approved regulations for maintaining, transporting and accounting expensive metals and stones. In addition, the Cabinet of Ministers of Azerbaijan approved the regulations on marking gold and silver wares. With the help of marking, the buyers may define the reliability of the wares.
In addition, then list of the commercial activities included the kind of activity linked with sale and storage of the gold wares.
It actually hints in the near future Azerbaijan will be famous in the world arena not only for its 'black' gold, but also 'yellow' gold. More probably, Azerbaijan will have its Fund where the gold revenues will be collected.
All these mean that in the near future Azerbaijan will be known in the world arena not only with its 'black' gold, but also with real gold. It is fully possible that a State Gold Fund will function in Azerbaijan which will receive incomes from the realization of the gold produced in Azerbaijan within PSA.
However, now Azerbaijani buyer of gold wares should be very careful to protect himself from false products. It is not so easy to purchase qualitative product at the domestic jewelry market despite tremendous offer of gold wares. Frequently, the amount of additions in the gold ware exceeds the norm and the gold loses its value. It is mostly revealed not during its purchase, while sale, when jewelers define low quality of gold and offer low price.