Until recently the Russian Far East has been largely bereft of any economic stimulus. In fact, it was traditionally relegated to the status of a geographic and economic backwater of the now-collapsed Soviet Union. Fishing and low tech placer gold mining operations have long been the mainstays of the hardy indigenous population of less than eight million.

 

However, Russia’s central government’s is finally breathing new life into the Far East’s anemic economy. This has been spurred on by Russia’s growing commitment to a free market economy. And by the fact that this seriously under-developed continental land mass is increasingly being recognized as a vital storehouse of oil and gas and precious metals.

 

This reality is underscored by the fact that the Russian Far East benefits from thousands of kilometers of coastline along the Pacific Rim, extending as far south as the Chinese and Japanese borders. Hence, it now holds the key to providing many of the natural resources required to help ensure the long-term economic growth of fast-emerging Pacific Rim economies, particularly China.

Accordingly, the sustainable development of the Russian Far East has emerged as a major policy priority for the Russian government and the international community (Please refer to the section entitled Europe and the U.S. Commit to $100 Million….). Indeed, the extensive reform of Russia’s mining laws just within the last few years has further dramatically improved the business climate for foreign mining companies.

 

This development is highlighted by the advent of lower corporate tax rates, greater corporate and legal transparency, and many other compelling business incentives for foreign investors.

 

In particular, these events has paved the way for the revitalization of Far East Russia’s undercapitalized gold mining industry, which was never able to thrive under the yolk of communism. Though numerous deposits were discovered during that decades-long era, few were ever put into production due to widespread mismanagement, cost restraints and of course, politics.

 

In spite of this, the Russian Far East still accounts for more than 70% of Russia's gold output – mostly from low tech, modestly sized placer operations.

 

However, the output of the Magadan gold district is poised to grow exponentially, particularly in the Kolyma Gold Fields or Kolyma Placer Mining District. This is due the influx of foreign capital and mining expertise that promise to capitalize on the fact that   Russia ranks second only to South African in terms of its untapped gold inventory.

 

Interestingly, South Africa is one of the costliest places in the world to extract gold. This is due to the fact that most of its remaining reserves are at considerable depths, whereas Magadan boasts a rich inventory of near-surface oxide (inexpensive-to-mine) deposits. This is why the cost of production in Far East Russia is among the lowest in the world. That alone is a very compelling incentive for foreign mining companies.

 

The New Gold Rush

Significant natural resource wealth, a skilled work force, and many government-sponsored incentives for foreign investors are now making the Russian Far East very attractive to the global mining industry, most of which is headquartered in North America.

 

At the same time, the close proximity to Asian markets and the U.S. West Coast provides a particularly sound rationale to greatly accelerate the development the region’s largely untapped mineral wealth.

 

Already, several large to medium-sized North American mining companies have paved the way for others by demonstrating that they can successfully operate in spite of Russia’s protracted transition to a free market economy.

 

These intrepid mining pioneers include Canada’s Goldcorp, which is the majority owner and operator of the Kubaka Gold Mine. Then there is Kinross Gold Corporation, which owns the Julietta Gold Mine and the Kupol Gold Deposit (both of which were previously owned by Vancouver-based Bema Gold until its US $3.1 billion buyout by Kinross in November of this year).

 

Elsewhere in Russia, other mining heavyweights like Barrick Gold, Newmont Mining and Phelps Dodge are forging ahead with ambitious high-impact, multi-million dollar gold projects.

 

In essence, these companies are clearly demonstrating that the advent of sophisticated, modern mining technology and expertise – matched with an infusion of investment capital – is crucial to the discovery and development of Russia’s richly-mineralized gold deposits. Such positive developments are sure to power Russia’s emergence in the post Soviet era as a global mining powerhouse.   

 

North American Companies to Spearhead Far East Russia’s Gold Rush

The lack of sophisticated mineral exploration and development, matched with production inefficiencies and lack of modern technical acumen, is seriously limiting Russia’s rate of potential production. This is particularly the case in the region where Golden Reign Resources (http://www.goldenreign.com/) is active.

 

Thus, Far East Russia has a pressing need for North American capital and more importantly, the technology transfer from North American mineral explorers, to efficiently pinpoint, delineate, develop and then finally monetize the nation’s domestic mineral reserves.

 

To spur on the influx of foreign mining companies, numerous mining-friendly initiatives are now being implemented – ones that Golden Reign stand to benefit from immeasurably.

 

Consequently, Golden Reign is focusing its initial exploration and development activities in the southern mineral-rich Magadan Region or gold fields. This south-western hinterland of Far East Russia encompasses a historic mining territory that in the 1990’s yielded as much as 26 tons of gold per year – the lion’s share of Russia’s total output. This is where there are over 2,000 past and present placer gold operations. There are also dozens of known undeveloped hard rock gold and silver deposits.

 

However, Magadan’s placer mining industry is now in a steep decline. This is mainly due to high energy and transportation costs, inadequate and out-of-date technology, low operating budgets, and the declining quality of the local ore base.

 

New deposits are mostly hard rock, bulk tonnage situations (many of which are likely to host upwards of several million of ounces of gold). And exploitation of these will typically require substantial investment capital, making healthy profits a factor of economies of scale. This is an area where North American mining operators have far more expertise than their Russian counterparts.

 

Indeed, the rich rewards promise to be unprecedented for North American mining companies that are willing to rise to the challenge. Indeed, there still remains an estimated 4,000 tons or 128 million ounces of buried gold in Far East Russia – much of which is in the Magadan Region. And the port city of Magadan is strategically located on the Sea of Okhotsk, which provides a direct route to North America’s Pacific coast line, as well as the Far East.

 

Furthermore, much of the Magadan Region’s mineral wealth has already been drill-defined or at least identified by way of early-stage drilling. (Such is the case with Golden Reign’s key prospects). However, as previously mentioned, the technical acumen and much-needed infusion of investment dollars to economically extract most of this region’s gold has been lacking. That is until the dawning of this new era of mutually advantageous co-operation between the Russian and North American mining industries.

 

Accordingly, Golden Reign has a strategic competitive advantage in that it is still an early-stage entrant in Russia’s Far East, thereby benefiting from unrestricted and unencumbered access to what is without a doubt Russia’s most geologically prospective and under-explored gold fields.

 

Europe and the U.S. Commit US $100 Million to Far East Russian Gold Development

Risk averse investors will be further encouraged to learn that in mid 2005, the first large-scale international financing in the Far East Russian mining sector was announced by the European Bank for Reconstruction and Development (EBRD).

 

It signed a US $47.5 million loan agreement with the Russian-US joint venture Omolon Gold Mining Company. Omolon will manage the commercial development of the Kubaka Gold Fields, which are several hundred kilometres to the east of Golden Reign’s core project.

At the same time, the US Overseas Private Investment Corporation (OPIC) also signed a separate US $52.5 million finance agreement. The American sponsor of the joint venture, Kinross Gold Corporation, is a majority owner of the Omolon Gold Mining Company.