First ‘gold’ steps of azerbaijan forward

Politics Materials 18 September 2008 12:06 (UTC +04:00)

Together with the oil, copper, silver and iron ores, one of the basic natural resources of Azerbaijan is gold. Although for its reserves the republic is not referred as to world leaders, but in its territory there is a whole series of the unique reserves. In the southwest of the country - Gadabay, Hosha, Ordubad group, Soyudlu, Gizilbulag and Vajnali. The deposit of gold with the potential reserves of approximately 100 t: the native gold deposit Chovdar in Dashkesan region, the gold deposit Bashkend and Kurekchay in Nakhchivan Autonomous Republic.

The confirmed gold reserves of industrial designation on Chovdar deposit are evaluated at 40 t, and its resources exceed 100 t.

And therefore, the world prices of gold are of interest for Azerbaijan not less. Today the cost of precious metal in the world market, stepping over record mark of $900 for the Troy ounce at the beginning of year, confidently moves towards the mark of $1000. So, in the period from 2000 to 2008 the Troy ounce of gold became more expensive by three times (from $300 to $900).

Data by Kitco.com

- The situation is extremely favorable for Azerbaijan - potential producer and exporter of this metal. The volumes of gold mining in the country in the immediate perspective can comprise one ton per year. Because the first contract, signed for the development of the gold deposits of Azerbaijan with the American company R.V. Investment Group Services LLS, envisages development of nine gold deposits with the preliminary reserves of 400 t of gold, 2500 t of silver and 1.5mln t of copper. The gold production in Azerbaijan is expected to begin already this year.

The participation of foreign specialists in the contracts on production of yellow metal is important for Azerbaijan because the country does not have experience on the development of gold deposits. The contract Production Sharing Agreement on gold production was signed already on 21 August 1997 between State Concern Azergizil (it was liquidated, and its functions were transferred to the Ministry of Ecology and Natural Resources of Azerbaijan) and R.V. Investment Group Services LLS. According to contract, 51% of participation share belongs to the Azerbaijani side, and 49% - American company. Until 2005 the work on the contract was frozen. An operating company Azerbaijan International Mining Company was established for the realization of works on the development of these deposits.

The reserves of the industrial destination of Azerbaijani deposits are mainly placer gold. It is important to note that the operation of deposits appears sufficiently perspective in the economic and technological plan. The production of the gold has a number of advantages over the production of ore produced on the large deposits: it is possible to obtain high-standard gold, avoiding the expenditures on splitting, enrichment and technological processes. Saving electric power is also noticeable. Moreover, the production of placer gold is safer because of the absence of blasting works.

The experts evaluate the amount of the necessary investments for the development of the placer gold deposits approximately in this ratio: 1 ton of metal - $1mln. If talks go about the development of already investigated and well studied deposit, then the allocated investments will be paid within one or two years, and if it is necessary to explore it, then this process will increase approximately to 1.5-2 years.

According to official forecasts, in case of the successful confluence of circumstances, already in the first half of the next year, it will be possible to begin the export of gold to the world market. In the world, precious metals have long ago been considered as the most usual goods like oil or potatoes, and the difference between them is only the price for the unit of weight. Taking into account the annual increase in the cost of yellow metal, Azerbaijan can earn well from this. The bankers expect that the increase in the gold market will be observed during only 2009, and the average price will total $1050 per ounce. Several factors today influence on gold price increase, and one of the key factor is the reduction in the exchange rate of the USD.

One more factor of support for Azerbaijan in the gold market is the decrease in the production of precious metal in Southern Africa, the second largest gold producer in the world after China. Stoppages in the electricity supply in this region in January and February led to reduction in the productivity by 17% and 28% in the annual calculation.

Positive influence on the gold market was put by one more factor - the high interest of investors. The reason for this is the status of gold as "rescue haven" in hard times, and also its shielding functions in the periods of inflation and drop in the USD rate. Moreover, it is customary to accept that the yellow metal is non-risky tool of investments. Therefore, part of the investments always must be put precisely in the gold.

Each successful country also must have a gold reserve. The volumes of reserves are especially fundamental for the developing countries. Indeed it is sufficiently difficult for the state, which yet does not have the world economic reputation, to attract reserves without having guarantees that here everything will not collapse during one excellent day.

Reserves most actively grow, when the country has a positive payment balance. The difference between the export and import is one of its components. If export prevails, then currency flows into the country due to the profits from international trade. However, as all currencies can not be used for the internal investments, the Central Bank purchases its part and utilizes in gold currency reserves.

States with largest gold currency reserves in 2007

Country Bln USD (at the end of month) Change since beginning of year
1 People's Republic of $1528 +43.32%
2 $973 +7%
3 Eurozone $501
4 $478
5 a $285
6 $270 2%
7 $262 +8%
8 $186
9 $163 +15%
10 $153 +7%
11 $136 +13%

But let us return to the prospects of Azerbaijan as an exporter of the Azerbaijani gold to the world markets. It is undoubted that Azerbaijan will face competition of many developing states in thios regard. Today the market is attended by such large gold producers as Republic of South Africa, the USA, Australia, Canada, China and Indonesia, which confidently increase gold mining and soon can overtake basic producers - Peru and Uzbekistan.

In this situation the government directly or indirectly must support, stimulate the development of this sphere. For example, the situation can be softened, lowering the amount of duty for the export of gold, which is today 15% in Azerbaijan. In Russia five-percent duty for export of this precious metal was completely canceled. By this step the Government of Azerbaijan would create equal conditions of competition for the exporters. Reduction in the duty will have a very positive effect on the development of the gold market generally because it will contribute to attract cheap foreign financing, which is especially important for the development of the ore deposits.