25 Dec 2009 16:56

Gold producer UGC still mulling IPO, but not in current conditions

MOSCOW. Dec 25 (Interfax) - The Uzhuralzoloto Group of Companies (UGC) is still thinking of an initial public offering, but not in the immediate future, UGC's board chairman and core owner, Konstantin Strukov, told Interfax.

Strukov said the company was not in particular need of financing. It planned to hold an IPO in 2008, but then changed its mind due to the market situation.

It is technically prepared for an offering. "We haven't shelved this idea, but the company has to be fairly valued, and it will be undervalued in current market conditions," he said.

Strukov also said UGC considered selling the Darasun Gold Mine in the Trans-Baikal territory to a Canadian company, but has not reached a final decision and is prepared to develop the mine on its own.

He said the company had been talking to Canada's RAM Resources about selling the mine since the spring, but that no binding documents had been signed.

The Russian government's commission on foreign investment in strategic sectors on December 21 rejected a request by a Cyprus-based company acting on behalf of Canadian investors to acquire the Darasun mine, Igor Artemiyev, head of the Russian Federal Antimonopoly Service (FAS), has said.

The request was rejected because the current license-holder's license expires in 2011 and the license can then be put up for auction.

UGC suspended operations at the Darasun mine in November last year "until the situation with financing is clarified." The company said in July that it was planning to start the mine up again and that it would be fully operational in 2011.

The company thought about selling the mine, bringing another company in to run it or replacing its management.

Strukov said the mine had been started in limited mode in the autumn, and that the recovery plant should be re-commissioned in the spring of 2010.

UGC bought Darasun from Highland Gold Mining for $15 million in October 2007. The mine was damaged by a fire, said to be the worst in the history of the Russian gold industry, in 2006.

The Darasun site consists of the main mine and a recovery plant, capacity 375,000 tonnes of ore per year. The licensed property consists of the Darasun, Teremki and Talatui properties.

UGC is based in the Chelyabinsk region. It produced 169,200 oz of gold in 2008, up 6.5% from 2007.

Strukov said the company expected to raise production around 20% in 2010 to 6.4 tonnes. "We've produced around 5.26 tonnes in 2009, but stockpiled ore contains another 1.5 tonnes or more," he said.

This year's output roughly corresponds with 2008. The drop in production at Darasun was offset by growth in production at the Chelyabinsk region mines.

OJSC Uzhuralzoloto is the flagship enterprise of the Uzhuralzoloto Group of Companies (UGC), based in the Chelyabinsk region. UGC was created in summer 2007 with the assets of CJSC Uzhuralzoloto. The group holds licenses to a number of hard rock gold deposits, including Kochkarskoye, Svetlinskoye, Bereznyakovskoye, South Kurosan, West Kurosan and the Darasun cluster, located in the Chelyabinsk and Chita regions. It also includes Kommunarovsky Rudnik in Khakasia and the Drazhny Mining Cooperative in the Krasnoyarsk territory.

Strukov said OJSC Uzhuralzoloto itself would produce 4.2 tonnes of the 2010 gold, that Kommunarovsky and Drazhny would produce around 850 kg each and Darasun around 500 kg.

UGC plans to build a recovery plant at the Bereznyakovskoye field in the Chelyabinsk region, throughput 300,000 tpy and costing around $30 million, by 2012. Ore mined at the deposit is currently being stockpiled. It contains copper as well as gold and some of it is being processed by copper companies. UGC will start selling the copper itself once the recovery plant has been commissioned. Work on the plant is due to begin in the spring of 2010.

UGOLD Limited owns 99.995% of UGC, and Konstantin Strukov, the UGC board chairman, owns 99.98% of UGOLD Limited.