Shorter version

Although gold is not thought of in Moscow as a strategic mineral for military purposes, a move by Chemezov to put the long-delayed Sukhoi Log deposit into development would confirm the trend towards state sponsorship of resource projects, which the commercially owned, publicly listed Russian mining companies cannot afford right now.

Lenzoloto is based in the Irkutsk region and held the Sukhoi Log mining license in a joint venture

with an Australian junior, Star Mining, between 1993 and 1997. Lenzoloto is a Russian-listed company, 64% of whose shares are held by Polyus Gold, which bought up the stock in 2004 and 2005. Another 25% stake is held by the Westway Alliance Corporation, a British Virgin Islands holding. Financial reports by Polyus Gold indicate that, after paying a total of $199.3 million for its takeover - a price Polyus sources later acknowledged to have been pushed up by competitive positioning among several Russian mining groups - it wrote down the value of the asset by $114.6 million.

Production of gold by Lenzoloto comes from alluvial dredging, and totaled 181,000 ounces in 2008, close to the results achieved in 2006 and 2007. Without the Sukhoi Log mining right, which the Kremlin has delayed reissuing for more than a decade, the current market capitalization of Lenzoloto is just $31 million.

This may be just the low-price springboard for Sukhoi Log that Sechin and Chemezov are looking for. Two sources have confirmed for Asia Times Online that Sechin's office has ordered an investigation of the feasibility of awarding the Sukhoi Log mining license to a combination of Russian Technologies and Lenzoloto. One is in the Department of Russian Technologies, which is doing the current study. Official correspondence also confirms the plan outline and study now underway.

The second source, at the Ministry of Natural Resources, confirms that the request for a study of the new proposal has come from Sechin's office. Reserve evaluations and feasibility studies, including drilling, have already been done on Sukhoi Log by South Africa's SRK in 1996-97; by Placer Dome and Barrick Gold in 1998-1999; and in 2008 by the Russian mine consultancy, TsNIGRI (Central Geological Research Institute for Nonferrous and Precious Metals). Old estimates of Sukhoi Log's reserves at around the 30-million ounce mark have doubled to over 60 million oz.

In its reassessment of the deposit and mine options, TsNIGRI reports that in the fourth year of project start-up, gold production would be about 225,000 oz. At full capacity four years later, the production estimate is 1.3 million oz annually.

The proposal on Sechin's desk anticipates the government would authorize Russian Technologies to buy back the control stake of Lenzoloto from Polyus Gold, after which Lenzoloto would apply