license to drill - Amur minerals in russia

Foreign miners in Russia may be seen as having to sup with a very long spoon when dealing with the Kremlin. Not so, says Robin Young, CEO of Amur Minerals. And he should know, with Amur's wholly-owned Kun-Manie nickel and copper project and its Anadjakan gold/copper project sitting in Russia's far east.

Amur, which IPO-ed on AIM last March, and has already been invested in by RAB Capital's Phillip Richards and his Special Situations fund and by Millennium Funds among others, has been granted two licences to explore in Russia. Young says the process of gaining a licence in Russia is transparent as is keeping one once it's granted. It is a simple matter of honoring one's commitments and the terms associated with the licence, he says.

Amur's story began in 2003 when was enlisted as a consultant to Amur. In April 2004, Amur was granted the Kun Manie exploration licence for 950km2 in the Amur province which borders China. Last July, it was followed by the award of a second five-year exploration licence near Komsomolsk in the Khabarovsk region, just 35km from transport and infrastructure. The Khabarovsk region also borders China.

Immediately after Amur Minerals won the Kun-Marie licence, the licensing system in Russia underwent a substantial modification which began during the run-up to the Presidential election in 2005. Along with the appointment of a new head to the Ministry of Natural Resources, the system of issuing licences underwent a comprehensive review and significant modifications were implemented resulting in the current system, Young says.

The implemented process of licensing requires applicants on an area of interest be both technically qualified and financially fit to undertake and complete the exploration work.

Once an application is submitted, it goes through reviews on both the local and national levels, including to determine if there are other applicants or existing licences for the same ground. Once cleared, the Ministry will publish the application in its journals and on its website requesting if there are other companies interested in same area. If none are received, you are awarded the licence - as with Amur's Anadjakan licence issued in June 2006.

If competition exists, it goes to an auction, with Moscow evaluating the land's promise and setting the auction floor amount and date of the face-to-face auction. Fees are paid to the ministry in advance of the auction and a second review of participants conducted to ensure technical and financial positions of the companies have not changed since the original application was submitted. At this auction, the highest bid wins, the licence is awarded. Terms, conditions and commitments related to the area are clearly defined.

"There is nothing confidential or secret about the system or terms of a licence," Young says. "For both compliance and transparency, we have always stated the terms of our licences upfront. As an example, Kun-Manie is an exploration licence expiring in December 2008 and we had specific objectives that we simply must complete over the five-year life.

"We are well ahead of schedule in accomplishing all of our commitments and only one significant task remains. This is the issuance of a Russian-verified resource estimate that must be presented and approved by the governmental body, the GKZ. This needs to be accompanied by a study stating what is required to obtain a bankable study. The work on this has already begun."

Young adds a successful review will result in the issuance of a 'Discovery' notice, after which a company can apply for a mining licence. If there are any shortfalls, the company is notified as to what the problems are and has time to correct them and file again.

To eliminate the potential shortfall associated with Amur's work, they have enlisted Russian resource specialists to oversee the process. Amur expects to convert its Kun-Manie exploration licence to a mining licence.

It is not hard to see why Amur is advancing this nickel project. There is a high demand for nickel which is used to make stainless steel. The near-term market is projected to have continued supply restrictions, much of which are driven by the demand driven by China. Chinese stainless-steel consumption is expected to double from 2004's 3.5kg per capita to 2010's 7kg.

"The Chinese are adding both nickel and copper smelting capacity and presently are importing nickel to meet demands. Several companies in China are actively pursuing sulphide deposits throughout the world." China plans to build 55 international and local airports in the next two years and is presently undergoing a construction boom, which, of course, includes all of the facilities related to the upcoming Olympics.

Beyond China, India's growth is expected to add to demand as its population is projected to surpass China's around 2020.

Most supply to meet future world demands is projected to be sourced from nickel laterite mines while Kun-Manie would be a sulphide mine. Young noted that there are complications with many of the proposed laterite operations. It is a relatively new source of nickel and involves complex recovery systems, some of which have not been run on an industrial scale. Many of the planned laterite operations are substantially behind schedule. In addition, many are plagued by substantial capital-cost overruns and the original planned operating costs are now running higher than planned. The combination of these factors could cut into available future supplies of nickel resulting in a shortfall of nickel.

The concerns related to the laterite projects have rejuvenated exploration for sulphide projects such as Amur's Kun-Manie. The benefit of having a sulphide nickel project is the process of recovering sulphide nickel is off-the-shelf technology that has been used for more than 100 years. Young adds, Amur doesn't have the exposure to the metallurgical complexities of the laterites and preliminary test work indicates the Kun-Manie ores are well-suited to the simpler and cheaper process.

While Amur is busy preparing for a mining licence, it will continue to explore areas of Kun-Manie that have not yet been fully assessed. Untested potential remains to be investigated, especially in the area of the new discovery area identified in June of this year.

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