Riding roughshod over investors in Krygyzstan

By bne IntelliNews October 20, 2011

Clare Nuttall in Almaty -

There may be gold in them thar Kyrgyz hills, but Talas Copper Gold's attempt to get at the deposits has been put on hold after a violent attack by armed horsemen.

TCG, a joint venture between South Africa's Gold Fields, which holds a 60% stake, and minority shareholder London-based Orsu Metals, said it has suspended its operations in Kyrgyzstan after a violent attack by armed horsemen earlier in October and it won't restart work until the Kyrgyz government can guarantee the safety of local residents.

The mining camp operated by TCG in west Kyrgyzstan's mountainous Talas region was attacked shortly after midnight on the night of October 7-8. A group of eight to 10 horsemen armed with petrol bombs torched several buildings rented by the joint venture, the company said, and the attackers attempted to murder the security manager in one of the burning buildings.

The joint venture's owners had initially decided to go ahead with a drilling programme scheduled for November after already surviving two revolutions and a similar attack by armed horsemen earlier this year. TCG acquired its first Kyrgyz mining licences in February 2005, and has so far invested $15m in the Talas region. It had planned to invest an additional $25m over the next three years provided exploration results were favourable.

However, community leaders in the nearby town of Aral and the farmer who had rented buildings to the joint venture are facing severe intimidation including death threats, said the statement from Gold Fields. Although top government officials including acting Prime Minister Omurbek Babanov have pledged their support, the company has decided to suspend drilling. "TCG has suspended the drilling programme that was scheduled for November until the authorities can guarantee the safety of our employees, contractors that those communities that are trying to work with us," a Gold Fields spokesman tells bne. "We have withdrawn personnel from the camp with only a few security staff staying behind. Operations are not continuing at the moment."

Bad for business

The decision is bad news for Kyrgyzstan's government and its ambitions to attract investment to the mining sector. Security has been one of the top issues for the interim government that took power after the April 2010 revolution.

A wave of squatting and illegal expropriations of land and small businesses followed immediately after the revolution. Two months later, at least 400 people, mainly ethnic Uzbeks, were killed in ethnic clashes in the south. Many buildings in Osh, Jalal-Abad and smaller settlements were torched. A report from the international commission led by Finnish MP Kimmo Kiljunen (which was subsequently slammed by the Kyrgyz government) said that a lack of preparedness by the authorities was partly to blame for the scale of the violence.

According to Kate Walker, Central Asia analyst at Control Risks Group, security has increased in the run-up to the October 30 presidential elections, but the focus is on the south, and especially on ethnic issues. But TCG, one of just a handful of international companies pursuing mining projects in Kyrgyzstan, operates in a remote mountain area that does not benefit from these efforts. While Kyrgyzstan has substantial untapped deposits of precious and base metals, the combination of official corruption and, after the 2010 revolution, concerns over protection for property rights has deterred many potential investors. "It also doesn't help that there are politicians using nationalist rhetoric and speaking out against foreign companies taking shares in Kyrgyz projects," she says.

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