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Reza Veziri: â€œPrice rise of gold will continueâ€

10 October 2011 13:18 (UTC +04:00)

- How did you take the news on another record in the gold price?

- Of course, this was good news for both our company and Azerbaijani government. I hope that prices will continue to grow. Forecasts show that by the year-end the prices will reach $2 thousand. However, along with gold, the price of equipment and materials for its production goes up too. For example, price of cyanide, caustic soda, gum and other substances used in gold extraction and processing rose 25-30% compared to last year. Nevertheless, the growth of the gold price is profitable for us, we appreciate it.

- What is the main cause of price rise?

- Indeed, there are several reasons. The main reason - the instability of world economy. Seeing the problems in Europe, U.S. and other countries, the investors try to invest in gold. Gold is more trusted than the shares. For the first time I heard that even South Korea buys and holds gold. Some time ago, the Chinese government banned the export of gold from the country. Therefore, gold prices are growing day by day. Growth is also occurs due to increased demand for this metal - in the present world demand for gold exceeds the production. But, in my opinion, the most important factor - itâ€™s a panic, which affects the price of gold greater than the demand effect. And while there is no stability in the global economy, prices will rise.

- What do you think how long this process will continue, and what level can reach the prices?

- Unfortunately, there is not any positive sign for the stability of the global economy. Various European countries - Greece, Spain, Italy and others have encountered serious problems. As a result, right now there is not any other stable currency, except the Swiss franc in the world. Relying on own experience, I can say that prices will rise up to $2300-2400, then drop to $1400-1500 and stabilize. This is my personal opinion.

- As a result of continuous growth in gold prices in recent years, the practice of storing foreign exchange reserves in gold has spread. Currently, Azerbaijan also conducts discussions on the use of such practice or establishment of a gold fund. What is your opinion on this?

- I take it positively, and if you ask me, I would also suggest it. Imagine if the gold reserve was created 6-8 months ago, how much profit we would get today. Of course, taking the volume of gold production in Azerbaijan today into account, the creation of gold reserve does not seem so necessary. So, we are exporting about 60 million ounces of gold per year, part accounted for the government. In my opinion, this volume is not large enough to create a need for a separate fund. But I hope in future, as the production increases, demand will increase too. However, when it comes to investing part of Azerbaijani money in the gold, then I advise you to do it. Some countries already do it. Forecasts on further increase in the price of gold show that it is possible to buy and store it.

- Has the sharp increase in gold prices affected the timing of repayment of invests in â€œgold contractâ€ in Azerbaijan?

- Yes, when we started this business, prices were $ 600-700, and we assumed the payback in 4 years. But, now, the time has reduced to 2-2.5 years. But we have started new works, and intedn to invest more money. As a result of the increased cost of gold and the growth in income from the sale, we go out on profits. Consequently, from September AIMC has started to pay taxes - first tax deductions at amount of $ 4.2 million had been transferred into the state budget.

- What about the repayment of loans borrowed by the company?

- Everything is okay. It is true that, we still have $ 15 million-debt to the International Bank of Azerbaijan. But we always return the money before the deadline and are one of the best clients of IBA. I hope that these $ 15 million we will return until the first half of next year.

- How did the gold price and situation in production impact on stock prices?

- The cost of our shares depends on the results of exploration in the fields and on the ongoing work. Thus, during the first time in 2005, when the companyâ€™s shares were exhibited at the London Stock Exchange on the IPO, the price for them was 77 pence. When the first drilling exploration in the field â€œPiyazbashiâ€, Ordubad, in 2006, showed that the stocks do not meet forecasts, the shares fell sharply in price to 9 pence. With the achievement of positive results on â€˜Gadabayâ€, in 2011, the price of the companyâ€™s shares rose again and reached 85 pence. Currently, the cost of shares in the range of 50 pence.

- What about the situation on gold mining?

- Unfortunately, we have encountered serious problems in gold mining this year. Firstly, this yearâ€™s winter was very severe. Since the production of gold is in the open air, bad weather seriously affects the operation. Despite some taken measures, this effect is still felt. Second, the â€œhiplichâ€ system, which we used from March to now to separate gold from the earth, does not give the expected results - a process takes too much time. It is true that, we do not lose gold, but instead of 3-4 weeks, it lasts 6-7 weeks. The reason is connected with the state of the ore, which requires additional time or additional chemicals. In general, the situation is positive, and I hope that this year we will be able to get the forecasted 60 million ounces of gold.

- What works are underway about establishment of additional capacities in the fields?

- We intend to construct new plan working with floatation system. You know that, current system allows to get 70% of gold in ore. This index will increase to 90% in new plant. Because we planned that, there will be 1.8 grams gold in per ton of ores in Gadabay, but now, itâ€™s over 2 grams. Besides, sometimes, it exceeds 3 grams. Itâ€™s not useful to process until 70% depth. We want to get 90%. At the same time, this new plant will help to get the gold by reprocessing the ore which ha s30% gold. The price of new plant is at the range of $ 32-40 mln. Arkadi Company prepares the feasibility study. The works must be completed in a month. We expect positive result from feasibility study. If everything will be good, we have to agree the issue on investing in it with the government.

- Are the works expected to start in other fields?

- Firstly, it was determined that, the gold in Gadabay field was more than it expected. We have conducted 6,000 meters drilling works in exploited part of the field and got positive results. I hope that, the reserves of the field will increase by 15-20%. Initially, it was supped that, there were 700,000 ounces of gold here. Drilling works indicated that there were more rich ores. Besides, 7,000 drilling works were conducted in north, south and east parts of the field. Its results will be announced in February-March, 2012. We have already submitted the documents on exploration works in Gosha field to the government. Government accepted it. Feasibility study of this project is prepared. Result will be announced after 1.5-2 months. After this, Gosha will be exploited. Initially, 300,000 ounces of gold are planned to find in the Gosha field. We think to construct a plant and produce 20,000 ounces of gold to access the market. Weâ€™ll extract 20,000 ounces of gold. There are 13 zones in this field. We have discovered only one of them. Weâ€™ll continue to explore in other 12 parts. By the way, weâ€™ve purchase new drilling rig from Canada. This rig will help us to work in Gosha field. Exploratory works in Ordubad field continues. Weâ€™ll get results until April, 2012. I suppose that, weâ€™ll be able to submit the exploratory document to the government.

- How will the share of government in the extracted gold be â€“ the government is given gold or its money?

- According to presidentâ€™s order, we give the share of government in the form of gold. Extracted copper is distributed by another method â€“ share of government is sold to purchase gold and it is given to the government. This gold is saved in the Central Bank of Azerbaijan. I think, 12,500 ounces of gold have been given to the government, so far.

- It means that, the gold fund has already been started to establish.

- Yes. It seems that, this process has already been started.

SUMMARY:

On August 20, 1997, the State Company â€œAzergizilâ€ and RV Investment Group Services contract signed a PSA for the development of Azerbaijanâ€™s gold-ore deposits â€“ â€œGadabayâ€ (Gadabay region), â€œGoshaâ€ (Tovuz region), â€œOrdubadâ€ group (â€œPiyazbashiâ€ , â€œAg Yurdâ€, â€œShekerdereâ€ and â€œKelekiâ€), â€œSoyudluâ€ (Kelbajar), â€œGizilbulagâ€ (Agdere), and â€œVejneliâ€ (Zangilan). According to the contract, 51% share of the project belongs to Azerbaijani side, 495 - the Azerbaijan International Operating Mining Company. On February 24, 1998, when the contract was ratified by the Parliament of Azerbaijan, the works began in this sphere. Though the research plan and program of the deposits have been prepared in a short time, the reduction of gold price (256 dollars per ounce). Due to anew rise of gold price in 2004-2005, the works come to life again. In 2008, there was constructed a quarry-type mine in Gadabay, the first gold was produced from the deposit in 2009.