Not many bears on Russian gold

PUBLISHED : Monday, 30 May, 1994, 12:00am
UPDATED : Monday, 30 May, 1994, 12:00am

GOLD is set to outshine other sectors of Russia's ailing economy this year as mines step up production, a top industry official says.

Yevgeny Bychkov, head of the State Precious Metals Committee, said this year's gold output would rise to 157 tonnes, from 149.5 tonnes last year and 146.1 tonnes in 1992.

Production could rise a further 50 per cent by 2000 if foreign and domestic investors came up with funds.

''Big growth in gold production is planned,'' Mr Bychkov said. ''But everything will depend on how we can attract investment.'' But Western analysts said talk of a big rise in gold production could be illusory unless Russia won large amounts of foreign investment.

''My understanding is that they have already used the easy gold deposits and now need to look at deep rock deposits which cost more to develop,'' said one analyst. ''It is not going to be as easy as simply dredging alluvial deposits.'' Russia is traditionally a big gold exporter, but Mr Bychkov said the country had sold only 6.6 tonnes of gold abroad so far this year. Exports were 21 tonnes at the same time last year.

Officials have said Russia was exporting gold to help fund its budget deficit.

Forecasts of higher gold production compare favourably with the performance elsewhere in the Russian economy, where industrial output is 25 per cent below year-ago levels.

Gold production figures were a closely guarded secret throughout the Soviet era and the industry, a big source of dollar revenues, was funded directly from the state budget.

But the veil of secrecy has been lifted in stages over recent years and the funding of Soviet days has disappeared.

''Our factories no longer receive a kopeck of state funds,'' Mr Bychkov said.

He said problems facing Russia's gold mines included high import taxes on the sophisticated machinery needed to work in inhospitable Arctic regions, a shortage of cash for geological surveys and poor investment conditions for foreign firms.

''Our banks today are very unwilling to invest because returns only come after three or four years, and our conditions are not suitable for foreign investment at present,'' he said.

Gold industry officials planned to tell the government about the investment framework needed to ensure that foreign companies pumped money into Russia.

Mr Bychkov said the sector had received only 30 per cent of the funds required for geological research.

Concrete foreign investment in Russia's gold sector is so far limited to a couple of small gold fields in the remote Siberian district of Magadan.

The level of Russian gold reserves was also a long-standing Soviet secret, but reformist economist Grigory Yavlinsky shattered Western illusions about this in 1991 when he said reserves were 240 tonnes.

Western experts had put reserves at twice that level although they agreed that stocks had been falling for several years as the country struggled to find hard currency.

Mr Bychkov said reserves were now 307 tonnes, comprising 157.2 tonnes at the State Precious Metals Committee and about 150 tonnes at the central bank.