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Uzbekistan Mining Overview

UZBEKISTAN IS RICH IN MINERAL RESOURCES.

Uzbekistan has been experiencing high growth rates, with foreign investment (estimated at more than $10 billion) still a key issue in the country's economy (in particular the mining industry). Gold is the most important foreign exchange producer. Uzbekistan is also an important producer of lead, zinc, silver, molybdenum and coal. The country has large mineral potential, most of which is economically viable. Uzbekistan has a favourable investment climate, similar to several African countries such as Botswana, Mozambique and Namibia.

The State Committee for Geology and Mineral Resources (Goskomgeologia) oversees the mining industry in Uzbekistan. Minerals and mining also are important to Uzbekistan 's economy. Gold is Uzbekistan 's second most important foreign exchange earner at 22%. Uzbekistan is the world's seventh-largest producer, mining about 80 tons per annum, and holds the fourth-largest reserves in the world. Uzbekistan has an abundance of natural gas, used both for domestic consumption and export; oil almost sufficient for domestic needs; and significant reserves of copper, lead, zinc, tungsten, and uranium.

The European Bank for Reconstruction and Development (EBRD) has plans to implement 20 projects in Uzbekistan involving a total of US$1.4 billion. The EBRD's contribution will amount to US$723.8 million. The EBRD is involved in projects in the coal mining, fuel and energy sectors, and is giving active support to small and medium-sized Uzbek businesses.

Uzbekistan possesses large mineral resources and raw materials, and their extraction and use contributes considerably to the stimulation of economic growth. Over 2700 mineral deposits and a variety of 100 different natural resources have been discovered - over 60 of these are presently being utilized in the national economy. Deposits, which number 940 included: 165 deposits of crude oil, gas and condense; 3 coal deposits; 46 precious metal deposits; 36 nonferrous metal deposits; 17 mining deposits; some rare earth and reactive metal deposits; 9 chemical deposits; 21 deposits of semi precious stones; 495 deposits of various materials used in construction; and, 151 underground water reservoirs, which can be used for drinking and other applications. In total, 45 percent of all resources that have been researched are being exploited. The production of precious metals comprises of five gold mines, three gold-extracting plants and one crushing and blending plant to produce flux raw material for copper. The Program of development of export potential for the production of precious metals for the period of up to 2005 has been worked out which aims at raising the investment potential of the branch, providing further development of gold extraction.

A positive legacy of the Soviet Union is the existence of detailed exploration data and a well-developed mining infrastructure, especially in the mining of gold, uranium, and coal. In addition to these minerals, Uzbekistan produces silver, zinc, wolfram, lead, sulfuric acid, feldspar, cadmium, molybdenum concentrate, kaolin, and other precious metals. Uzbekistan is the world's ninth largest producer of gold with an output of about 80 tons per year. The country is believed to have gold deposits in excess of 5,000 tons. Uzbekistan 's Muruntau mine located in the Kyzylkum desert in central Uzbekistan is the world's largest open-pit gold-only mine.

Other minerals are significant to the Uzbekistan economy as well. Annually, about 2,200 tons of uranium, 80,000 tons of copper, 31,000 tons of zinc, 150,000 tons of silver, and 18,000 tons of lead, tungsten, bismuth and molybdenum are produced. Uzbekistan is the world's fifth-largest producer of uranium, which is entirely exported. The Uzbekistan State Committee on Geology and Mineral Resources takes a lead role in carrying out exploration. The Navoi Mining and Metallurgical Plant is the largest mining company in the country, producing over 90 percent of the gold and all of the uranium. The second largest mining company is the Almalyk Mining and Metallurgical Plant, which is the primary producer of copper, as well as by-products such as gold, silver, lead, zinc, etc. The Joint Stock Company "Komyr" (Coal) is the leading producer of coal from three mines. Uzbekistan produces about 4 million tons of coal annually.

The mining industry in Uzbekistan is open to foreign investors. Newmont Mining was the first company to invest in the sector, with USD 300 million investments in a joint venture reprocessing ore from the Muruntau gold mine. The Newmont-Zarafshan JV has a special arrangement by which it receives half the gold it produces and exports, making it the most successful JV in Uzbekistan . Other foreign mining companies active in Uzbekistan include Oxus Resources, which created the Amantaytau Gold Fields Joint venture and invested USD 40 million to build a gold recovery plant. Cogema is working with Navoi mining company on the production of uranium.

The Program envisages the growth of precious metal production by 2.7 times which will enable to increase export potential from US$ 44 million in 1997 to US$ 123 million in 2005. The Angren Gold Company Joint Venture was set up on the basis of the Angren Gold Mine, the activities of which are directed towards the increase of the mine's capacity by 2002 on excavation and processing of ore to 1.2 million tons and gold production to 10 tons annually. The Zarmitan Gold Company Venture is being set up on the basis of the Zarmitan gold mine and Guzhurnsay deposit. Approximately US$ 190,000 are slotted for the development of the mine and construction of the gold extracting plant. The enterprise will increase the excavation of ore to 2 million tons and gold production to 10 tons annually.

Nonferrous metallurgy, which is based on local resources, is one of the leading branches of industry in the republic. The branch was formed in the 1940s and 50s and is represented by copper, lead and zinc industry, and the production of rare- earth and precious metals which are mainly concentrated in the Angren-Almalyk region ( Tashkent province). The strategy of metallurgic complex development is directed towards the rational combination of extraction and production of precious, nonferrous, ferrous, and rare-earth metals. The production of nonferrous metals is carried out in two directions - copper molybdenum and lead and zinc with a complete production cycle and the manufacture of ready-made produce as refined copper, refined precious metals and zinc. Copper production includes subdivisions - Kalmakyr and Say-Cheku Mines, copper concentration plant and a copper-melting plant. Ores containing copper, gold, silver, molybdenum, rhenium, selenium and tellurium, etc. are excavated from the Kalmakyr deposit. Primary sulfide ores are represented mainly by chalcopyrite, molybdenite, pyrite and chalcosinum. Gold and silver are linked with the crystal lattice of chalcopyrite and partially pyrite. Sulfide ores of the Kalmakyr deposit are easily processed, and the extraction of copper from the ore makes up from 75 to 80 percent. The concentration of copper-porphyry ores in the Sary-Cheku deposit are high - fluctuating between 80 and 85 percent. Currently the ores are processed at lead and zinc concentrating mills. Other elements are mined from the deposit, with the balance expected to provide work for the next 25 years.

The main reserves of lead, zinc and barite ores in the Uch-Kalach deposit will provide work for the next 50 to 60 years. Lead and zinc ores containing lead, zinc, silver, cadmium, bismuth, sulfur and other elements are mined from the deposit. The Republic of Uzbekistan is also a large world producer of tungsten and molybdenum products, and supplies tungsten-molybdenum wire, molybdenum flat rolled products, refractory metals and monocrystals. The central part of the Kyzylkum Desert is another important region for mining precious, nonferrous and rare-earth metals. The deposits of uranium, gold. silver, tungsten, phosphorites, table salt, marble, manganese and turquoise, finishing decorative stone, quartz sand for production of glass, faience and ceramics were discovered in the region. A complete cycle of producing uranium, gold, silver and other products was set up in the region. Palladium and rhenium are extracted and produced simultaneously with the main metals.

Legislation

At the beginning of 2004, the government of Uzbekistan increased royalty-tax rates on precious metals and copper mining from 2.8% to 5% for mined gold, from 7% to 8% for mined silver, and from 7.9% to 8.1% for the amount of mined copper. The tax rate is 1% for lead, zinc and molybdenum, and 8% for tungsten. The increases were consistent with the tax policy for 2004, which calls for boosting the contribution of resource taxes in the country's budget. The tax on the use of subsurface resources is expected to bring in 1.7% of 2004 revenues, a 1.2% from 2003.

Uzbekistan - Mining History

Uzbekistan ranks ninth in world output at 86 tonnes (2.76 million oz), and second in the Commonwealth of Independent States (CIS). The strength of her position really comes from one mine, Muruntau, now in its fourth decade and the largest gold mine in the former Soviet Union . The mine, run by the state-owned Navoi Mining and Metals, is still good for up to 60 tonnes (1.9 million oz) annually, although no official output is declared.

Muruntau (meaning 'hilly place') opened in the Kyzyl-Kum desert of Uzbekistan in 1969.The mine is still worked as an open pit now nearly 4km (2.5 miles) long, over 2.5km (1.55 miles) wide, and nearly 400 metres (1,300 feet) deep. The deposit resembles a tree with the branches spread out near the surface and the trunk plunging into the earth (rather like a diamond pipe). The gold originally graded 4g/t (0.12 oz), but has declined to 2.5g/t (0.08 oz). Work at depth in the pit has become increasingly difficult due to poor air circulation which causes summer temperatures to rise to 50oC (122oF). Plans to re-structure the vast pit to make it more accessible and workable are on hold awaiting a better gold price.

Uzbekistan is the world's ninth-largest gold producer. Gold is the primary metal produced in Uzbekistan , which boasts the CIS's largest gold reserves (estimated at 5300 t) as well as the world's fifth largest gold reserves. Most of these reserves are located in Central Kyzylkum , which accounts for 3200 t of reserves. The Muruntau Mine produces enough gold to make the Republic of Uzbekistan the world's seventh largest gold producing country with over 70 t/y.

The largest gold producer in Uzbekistan is the Kyzylkumredmetzoloto or Navoi Mining and Metallurgical Combinant. It owns and operates the Muruntau deposit, which hosts one of the world's largest open pit gold mines. The mine produces around 70% of Uzbekistan 's total gold output. It also operates the Kokpatas deposit located in central Kyzylkum. Due to the high sulphide content of the orebody at Koktapas, Navoi is using BIOX technology to extract gold. Navoi plans to complete the first phase of an overhaul of the Muruntau open-pit mine in 2005 at a cost of about US$15 million. The project will involve building transport systems using steeply inclined conveyors that can carry ore at an angle of 45 degrees, which would allow Navoi to increase the pit depth to 1,000 m from the current 460 m. Navoi plans to increase gold output by 20% by 2010.

Under a 50:50 joint venture agreement with Uzbek Government entities, Newmont Mining Corp of the US , through the Zarafshan-Newmont JV, processes low-grade stockpiles at the Muruntau gold deposit. In 2003, it produced 13.6 t, 15% less than in 2003 because of depleting reserves but the production was still higher than the targeted 12.8 t.

Amantaytau Goldfields, a joint venture set up in 1993, is developing the Amantaytau field. Amantaytau Goldfields' current shareholders are Oxus Mining with 50%, the State Geology Committee with 40%, and Kyzylkumredmetzoloto with 10%. The company has a charter capital of US$11.63 million. Initial recoverable gold reserves at Amantaytau were estimated at 3.2 Moz and additional reserves at more than 3.0 Moz. Amantaytau Goldfields later doubled gold and silver reserves at the field through geological exploration from 3.44 Moz to 6.4 Moz gold equivalent.

Oxus Gold plc is one of many foreign investors who have investigated the Amantaytau gold deposits. Cameco and Lonmin have been involved, but have pulled out at several stages of the feasibility. Total resources for the Amantaytau field have been estimated at containing resources of up to 6Moz gold. Oxus maintains that production can occur in two stages, with an initial output from oxidised ores (opencast) estimated at 61 000 oz for the initial 16 months, followed by underground mining producing an estimated 190 000 oz per year from sulphide ores. Oxus currently has a 50% interest in the project, with the Uzbekistan State Committee for Geology and Mineral Resources 40% and Navoi the remaining 10%. The JV introduced phase one of a US$45 million gold recovery plant at Amantaytau at the end of 2003. The first stage of the plant will process up to 1 Mt/y of oxide ore.

Other major gold deposits are found in the Zarmitan gold field in Samarkand . Here the Zarmitan and Guzhumusai gold deposits have reserves containing 200t gold. Foreign companies have expressed interest, with Australian WMC evaluating the Zarmitan deposit. However, WMC has pulled out of the joint venture it held with the Uzbekistan government. Zarmitan has reserves estimated at 20 Mt grading at an average 10 g/t gold.

The Chadak gold mine in the Mangan region and the Marjanbulak gold mine in the Jizak region are controlled by the state-owned Uzalmazzoloto Company. The government is privatising the company, offering a 51% share in Uzalmazzoloto. Both deposits have total reserves of nearly 30 t of gold. Dore production will be sent to Almalyk Mining and Metallurgical, one of Central Asia 's largest metallurgical complexes.

The mining and marketing of coal (KOMIR) is the only enterprise in the country involved in the coal industry. KOMIR extracts coal from three deposits, primarily by open-pit mining. It contains 1.9 billion tons of coal, and accounts for 97% of KOMIR's production. Demand is expected to grow to four million tons in the year 2000. Komir currently produces almost four million tons per year and expects to raise production 5.9 million tons following planned modernisation.

Although Uzbekistan has a well developed steel industry, it has had to import iron ore for its needs. Two low grade deposits (Temirkan and Syuren-Ata) have been identified in the Tashkent and Dzhizak regions respectively. Collectively, they are estimated to contain nearly 80 Mt of contained iron (average grade of ore 32% iron).

Uzbeksky Metallurgical Combine (Uzmetkombinat), located in the Tashkent region, is Uzbekistan 's only ferrous metals enterprise. The company covers domestic demand in full and exports some of its product to Russia , Kazakhstan , Kyrgyzstan and Iran . The smelting complex consists of three electric arc furnaces, each with a capacity of 250,000 t. The combine used to receive scrap metal from all of the central Asian republics. However, these supplies have decreased and the combine is not working to full capacity as a result.

Coal Mining

Uzbekistan has listed commercial coal reserves of approximately 3,000 Mt, including 1,000 Mt of bituminous coal. The Angren field contains a proven 1,900 Mt. Uzbekistan 's current annual coal requirement is 4 Mt. At present, all of Uzbekistan 's coal is produced by JSC Ugol, with over 80% of the production coming from the Angren deposit, situated in the Tashkent oblast. JSC Ugol also has a mining operation at the Shargun mine in the Sukhardaryinskaya oblast. Ugol produced 1.91 Mt of coal, 1.85 Mt of lignite and 61,600 t of bituminous in 2003. The Angren open pit produced 1.63 Mt of coal in 2003, a 33% decrease from 2002. Approximately half of Ugol's production is sourced from underground mines. About 70% of Uzbekistan 's coal reserves are brown coal/lignite with the remainder bituminous. Coal resources are estimated at over 5 000 Mt, of which 3 000Mt are classified as reserves. Reserves at Angren alone are estimated at over 2 000 Mt, of which most is classified as lignite. Completion of a third mining operation at Baisun could ensure that Uzbekistan has a surplus of coal for export in the future.

Ugol is currently developing two coal deposits, Angren in the Tashkent region and the Shargun pit in Surkhandarya. It is also involved in exploration in the Baisun field in Surkhandarya region. During the period to 2010, Uzbekistan plans to invest US$254 million in the coal. About 90% will be spent on upgrading the Angren mine to raise annual output to 7.8 Mt in 2010. Stripping will increase from 11.2 million m3/y to 62.7 million m3/y. Mine operating costs should fall from US$10.38/t to US$7.85/t. The programme will be financed by Ugol itself, foreign credits and foreign direct investment.

Uzbekistan 's coal industry, like many of the national coal industries of the former Soviet Union , has been on the decline since independence, in large part due to shrinking state subsidies. Uzbek coal production in 1999 stood at 3.2 million short tons (Mmst), a 38% decline from 1992. Domestic coal consumption in 1999 also was 3.2 Mmst, although consumption has declined faster (just over 50%, from 6.44 Mmst in 1992) than production.

Uzbekistan has estimated coal reserves of 4.4 billion short tons, primarily in the Angren, Baisun, and Shargun deposits. The Angren open-cast mine alone, which is the country's largest coal deposit, with about 2 billion short tons of mostly brown coal, supplies about 80% of the country's total coal production. Capacity utilization at Uzbek mines fell throughout the mid-1990s, and existing equipment, which has not been upgraded since 1992, has virtually exhausted its service life.

In response, the government is implementing a program to update the country's coal sector by modernizing production facilities, thereby facilitating an increase in output. Krupp Fordertechnik GmbH recently won a tender to refurbish the Angren coal mine, a project that will be implemented over 10 years in six stages. The refurbishment project stipulates a transition from cyclical coal extraction technology to the flow-line method. The project hopes to raise coal extraction to 5 Mmst/year (from the present 2.5 Mmst/year) and cut production costs at Angren from $23/ton to $12/ton. The cost of the first stage, which may start in late 2001, is approximately $20 million, which will be funded by German bank credit under Uzbek government guarantee.

Uzbekistan plans to upgrade mining operations at its other deposits as well. The Shargun and Baisun deposits are much smaller than the one at Angren. Additional investment at the Shargun deposit is expected to double or triple production of high-quality coal from current levels of over 200,000 short tons/year. Completion of a second mine at Baisun could quintuple the mine's production of over 100,000 short tons/year, and could ensure that Uzbekistan has a surplus of coal for export in the future.

Copper Mining

The majority of Uzbekistan 's copper production is sourced from three regions, viz. Kalmakyr, Sari Cheku and Dalnie. Total reserves are estimated at 1.5 Mt copper.

Almalyk Mining and Metallurgical (Almalyk) is Uzbekistan 's sole producer and exports all of its products. Almalyk mines and processes about 25 Mt/y of ore and its annual metal output is estimated to be worth more than US$220 million. It comprises two mining divisions, two concentrating divisions and two smelters. An estimated 68% of production is exported, including 5% to other CIS nations. Refined copper output from concentrates from its own mines was estimated at 85,000 t in 2003. Concentrates from the Kalmakyr and Sari Cheku deposits provide Almalyk with 70% of its requirements with the rest being imported from Russia and Mongolia. Almalyk also processes lead and zinc ores; although copper remains the majority of its output (90%). The government retains its 97.5% with employees retaining the ba;lance of the shareholding in Almalyk.

In July 2003, an international syndicate of banks headed by ABN Amro signed a pre-export financing agreement for Almalyk worth US$35 million. The loan is secured by a three-year commercial contract for the delivery of copper cathodes to Glencore International AG of Switzerland and is being extended without guarantees from the Uzbek Government. Almalyk plans to spend the money on new mining equipment and technology, including excavators, rail transport to take ore from mine to the mill, equipment for gold mining and other machinery. The equipment updates should boost production of copper, gold and silver, and output of cathode copper in 2004 is expected to rise by about 5,000 t.

Gold Mining

Tungsten Mining

Uzbekistan contains the largest tungsten reserves in the CIS. Production is centred on two mining concerns, the Ingitchke and Koytash mines whose current mine reserves are nearly exhausted. These two mines used to provide 40% of the country demand, with the remainder being imported from Russia (Lermontov and Primorsky Mining). Imports have increased as a result of the depleted reserves base at the two mines. The Sautbay deposit, undergoing development has estimated reserves of 17 000 t tungsten.

Israel 's Metek Metalls has reached agreement with the Navoi combine, Spetssplav and Goskomgeo to develop the tungsten deposits at Sautbai where there is an estimated 4 Mt of ore containing 19,900 t of tungsten trioxide. Goskomgeo estimates that the total tungsten resource in Central Kyzyl Kum could be 30-40 times greater than at the Sautbai deposits. The project has a capital cost of US$80 million and calls for building a mining and milling complex at the Sautbai tungsten deposit in the Kyzyl Kum.

Uzbek Refractory and Heat-resistant Metals Plant (UzKTZhM) in Chirchik is among the world leading producers of tungsten and molybdenum products, and the leading supplier of tungsten-molybdenum wire, molybdenum roll, refractory metals and monocrystals. The plant derives its raw material for molybdenum production from the Almalyk Mining and Metals Combine in the Tashkent region of Uzbekistan , and tungsten from Russia . The Chirchik plant is running at less than a third of its capacity owing to reduced markets and a shortage of working capital.

Uranium Mining

Uzbekistan has reserves estimated at containing 55 000t of uranium. Uranium mining and beneficiation is controlled by Navoi Integrated Mining and Metallurgical (Navoi). The development of the Surgaly deposit began in 2000, with the project having the potential to produce 1000t per year. Reserves at Surgaly are estimated at 38 000t (70% of Uzbekistan 's reserves) with the ores being amenable to in situ leaching. A feasibility study has been completed by joint venture partners Cogema - however the two partners could not agree on the resource parameters used in calculating the reserves at Surgaly. As a result, Cogema have withdrawn from the development. Navoi were determined to develop the mine with first production expected in 2001. The Uzbekistan State Geology and Mineral Resources Committee opened up several potential urnaium deposits for foreign investment in the Kyzl Kum region. The five known deposits include the Koscheka, Jantuar, Alendy, Aulbek and Aktau deposits.

Zinc and Lead Mining

Most reserves hosted by the Khandiza deposit located in the Sukhardaryinskaya oblast. The government has signed an agreement with Oxus Gold of the UK for the exclusive right to develop the Khandiza metals field in the Surkhandarya region. Oxus has been exploring the Khandiza site for several years and has drafted a prefeasibility study. Khandiza contains 10 Mt of ore with an average content of 9% Zn, 3.6% Pb, 1% Cu and 161 g/t Ag. Oxus is considering the construction of a beneficiation plant to process 1.0 Mt/y of ore and produce zinc, copper and lead concentrates containing 45,000 t of zinc, 20,000 t of lead, 6,000 t of copper and 40 t of silver. Pre-production capital is estimated at US$71.2 million for a mechanised cut-and-fill underground operation with ramp access, producing 650,000 t/y of ore. Operating costs are estimated at US$35/t of mined ore.

It has been proposed that ore be milled and transported by gravity using a 43 km pipeline to Shargun for secondary milling and flotation. Separate zinc, lead and copper concentrates will be produced. The copper and zinc concentrates would then be toll-smelted by Almalyk, and all lead concentrate would be sold for smelting in Kazakhstan.