Uzbekistan edging toward gold producer privatisations

Uzbekistan edging toward gold producer privatisations
The Muruntau gold deposit in Uzbekistan’s Kyzyl Kum Desert is part of the world's largest open pit gold mine.
By Kanat Shaku in Almaty January 22, 2019

Uzbekistan looks set to commence a privatisation process for gold producer Navoi Mining and Metallurgical Company (NMMC) before the end of the year.

Under a decree signed by Shavkat Mirziyoyev—the country’s reform-minded president who has spent his first two years in office encouraging frontier investors to return to Uzbekistan now that it is coming in from the cold following the late 2016 death of long-ruling autocrat Islam Karimov—NMMC is to be reorganised into a joint stock company away from state-ownership by 1 December 2019. As part of the plan, the company’s management would be handed over to private entities “on a competitive basis”.

More than 80% of Uzbek gold—the country’s main export commodity—is produced by NMMC and Almalyk Mining and Metallurgical Company (AMMC). The decree further states that an IPO should be held for shares in the Uzbek Metallurgical Plant (Uzmetkombinat) in 2022, AMMC in 2023 and NMMC in 2023.

Seventh largest
Uzbekistan is the world’s seventh largest gold producer. Its Muruntau gold deposit, situated in the Kyzyl Kum Desert—a source of turquoise since the days of the Silk Road—is being mined in the world's largest open pit gold mine.

The decree contradicts previous statements made by the Uzbek government, but that is perhaps not surprising given that it is only gradually that officials, busy last week promoting investment prospects at the UzRoadshow in Berlin, are becoming more forthcoming with transparent plans and data. In 2018, the government, although it had already suggested eventually privatising some of its state-owned companies, said that it aimed to maintain full control of its gold mines and the state-run oil firm.

The country’s largest enterprises in the mining and metallurgical industry will also be expected to prepare financial statements based on international financial reporting standards complete with independent external audits by international auditing firms starting from 2019.

The Uzbek mining companies are to also disclose corporate information in accordance with International Accounting Standards requirements by 2020. Finally, the enterprises will rely on the Global Reporting Initiative (GRI) standards to publish reports on indirect economic impacts as well as social and environmental issues.

Lifting veil of secrecy
The decree was signed by Mirziyoyev on January 17. Under it, Uzbekistan is also to lift the veil of secrecy presently kept over its gold trade and production statistics.

Gold is unofficially estimated to make up approximately 20% of the Central Asian nation’s exports, according to independent export figures. However, figures from international trade data visualisation engine, The Observatory of Economic Complexity (OEC), indicate that gold accounted for 40% of Uzbekistan’s exports in 2016 in monetary terms. Its value amounted to $2.86bn.

The new official figures on gold output and sales are expected to first appear in February.

According to the Engineering & Mining Journal, Uzbekistan’s annual gold output stood at approximately 90 tonnes in 2013 and was set to gradually increase to 120 tonnes by 2020, based on previous plans announced by Uzbek officials. However, it is unclear if such plans were ever followed up on after Karimov passed away.

Uzbek uranium
NMMC also controls all the uranium mining operations in the ex-Soviet state. As a consequence of the decree, foreign investors interested in NMMC’s uranium output might also be in for more detailed reports on the Uzbek uranium mining sector as well.

Uzbekistan’s uranium output amounted to approximately 2,400 tonnes in 2017 and 2,405 tonnes in 2016, up from 2,385 tonnes produced in 2015. The country’s estimated uranium reserves amount to 190,000 tonnes, including 140,000 tonnes from sandstone deposits and 47,000 tonnes from black shale deposits, according to Uzbek authorities.

In 2017, Uzbekistan signed a seven-year contract worth more than $300mn on supplying uranium to the US. The country’s other major uranium export destinations include India and Japan.