The Multinational Monitor


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Kamchatka at Risk:

Gold and the Struggle for Sustainability

by David Gordon

BOLSTERED BY WEAK MINING LAWS and unclear government jurisdiction, multinational mining firms are staking claim to some of the world's richest gold deposits in Russia's Kamchatka peninsula.

Located in Russia's far northeast, Kamchatka is one of the world's least developed areas. Kamchatka's regional government is now trying to end the region's isolation and attract foreign investment, opening up its rich mineral reserves to mining companies based in the United States, Canada and Australia.

Local people who prefer to base Kamchatka's economy on tourism and its long-dominant fishing industry are struggling to oppose these plans. Many of the region's 450,000 inhabitants fear that, without proper safeguards, plans to open up the region to multinational mining interests will threaten their way of life, as well as the region's animal population. The Japan-sized peninsula of Kamchatka is a prime habitat for an estimated 10,000 brown bears and hosts some of the last healthy wild salmon stocks in the world, including coho, pink and chum salmon.

Going for gold

At the center of the region's mining debate is KAMGOLD, the peninsula's first and most controversial industrial gold mining proposal. A joint venture of Canada's Kinross Gold Corporation (25 percent), U.S.-based Grynberg Resources Inc. (25 percent) and Russia's Kamgeo (50 percent), KAMGOLD won the rights in 1994 to mine central Kamchatka's rich Aginskoye gold deposit.

The U.S.-based smelting company Asarco was one of the original KAMGOLD partners, but Asarco sold its share to Kinross in summer 1995 because of disagreements with Grynberg Resources, according to Glenn Anderson, former Russian project manager for Asarco. At a November 1994 meeting in Denver, Colorado, Anderson described the Aginskoye site as a "bonanza" that is comparable to strikes that launched the 1849 California gold rush. The official feasibility study, prepared by Kilborn Engineering for KAMGOLD, says Aginskoye contains 29 grams of gold per ton of rock. Privately, KAMGOLD geologists say that some parts of the site could contain up to 900 grams of gold per ton of rock. By contrast, the average ton of rock in a U.S. open-pit gold mine yields 1 to 3 grams of gold. Official documents estimate that the mine contains a total of 30 tons of gold. A few Kamchatka government officials believe that the site could contain twice that amount.

Before opening, however, KAMGOLD must secure international financing and environmental permits. According to Viktor Hvorostov, KAMGOLD's chief geologist, the company hopes to receive financing and political risk insurance from the European Bank for Reconstruction and Development (EBRD) and the U.S. government's Overseas Private Investment Corporation (OPIC). Both EBRD and OPIC already have backed the development of the Kubaka mine, a large gold and silver mining joint venture in the neighboring Magadan Region. This project is spearheaded by U.S.-based Cyprus Amax. Harvey Himberg, OPIC'S environmental officer, says OPIC is currently considering the KAMGOLD proposal but has not made any decisions on the application.

Whether KAMGOLD can obtain financing and necessary permits "will determine the fate of all of central Kamchatka and, possibly, of Kamchatka as a whole," says Sergei Solovyov, chair of the Kamchatka Association of Greens, a regional environmental organization, "since the sphere of impact includes the headwaters of all the rivers on the western shore of Kamchatka, which provides 70 percent of the salmon catch." Solovyov adds that if the KAMGOLD proposal goes forward in its current form, "practically the whole territory of southern and central Kamchatka will become a zone of ecological conflict."

But the stakes in the Aginskoye controversy may be higher still. In Kamchatka, the environmental permit process is being scrutinized by diverse interests because this precedent is likely to set the stage for whether or not multinationals in Kamchatka will be held to strict environmental standards. Offers have already been made to develop three other mine sites in Kamchatka. Solovyov says Kamchatka contains more than 300 gold deposits. In August 1995, Kamgeo met with Colorado-based Echo Bay Mines to discuss possible development of another mining site near Aginskoye. And Solovyov regards the Aginskoye site as the first step for KAMGOLD, which he fears aspires to secure mining rights throughout Kamchatka.

Kinross executives refused to comment on any aspect of KAMGOLD's operations.

Spawning environmental concerns

The prospect of huge mining operations with uncertain regulations transforming Kamchatka's pristine environment worries many local people. Vladimir Santalov, chair of Kamchatka's Committee on Protection of the Environment and Natural Resources (KCPENR), the regional government agency responsible for both permitting and monitoring the mining site, says that he is especially concerned about the potential impact of mining on salmon. Although the Aga Creek where the mine would be situated is not a salmon-spawning habitat, the Aga flows into the Icha River, one of western Kamchatka's primary spawning rivers.

Santalov says he is concerned about what mine-related changes in water quality might do to the Icha's salmon population. KAMGOLD has proposed extracting gold from the mined ore by dousing it with cyanide in heap leaching pits; similar operations have resulted in massive, toxic river spills, including an August 1995 accident following the breach of a cyanide containment dam at a gold mine in Guyana in August 1995. [see "Courting Disaster in Guyana," Multinational Monitor, November 1995].

Nikolai Karpukhin, deputy chair of the KCPENR, is worried about how to make KAMGOLD comply with world-class mine safety standards. Lacking industrial gold mining experience, Kamchatka authorities have never had to monitor tailings ponds, mine drainage or other associated hazards. Karpukhin says KCPENR has neither the money nor the experience to inspect KAMGOLD's operations properly. Although KAMGOLD has offered $1 million to the KCPENR to establish a monitoring program, Karpukhin estimates that this is only a fraction of the funds needed.

Mike Long, director of the Colorado division of minerals and geology, which awards permits to and monitors mines in the state, agrees that $1 million -- over the course of a seven-year mine life -- may well be inadequate to cover the costs of monitoring. If the $1 million is intended to cover the entire costs of monitoring -- from installing equipment to collecting and analyzing samples to the salaries and housing and food costs of independent monitors located at the remote mine site -- then it will almost certainly fall far short of what is needed, he says.

Santalov also is worried about the potential impact on fisheries near the mouth of the Icha River. This ocean shelf in the Pacific's Sea of Okhotsk, he says, is a prime crabbing area that is an important asset to the local economy.

Another concern is that the mine site is located inside the 3.5-million-acre Bystrinsky Regional Park. Kamchatka governor Vladimir Biryukov authorized the 3.5-million-acre site's protection as a regional park in the summer of 1995 only on the condition that the Aginskoye mine site be excluded from park protection. An important brown bear habitat, Bystrinsky Regional Park figures into a Russian application to the United Nations Educational, Scientific and Cultural Organization to designate Kamchatka a World Heritage Site. Nikolai Kazakov, who wrote the original proposal to create Bystrinsky Regional Park and is in charge of environmental impact reviews for KCPENR, says current mine plans do not take into account the special protected status of the site. KAMGOLD's road-building plans will increase human access, and is likely to lead to increased poaching, environmentalists fear.

Much of Kamchatka's population is opposed to multinational gold mining plans. The Aginskoye mine site is located on areas that the indigenous Itel'men people claim as traditional lands. They, along with other indigenous Kamchatka peoples, have expressed opposition to gold mining and concern about potential environmental impacts. The Kamchatka fishing industry is also opposed to gold mining, with the fishing union voting unanimously against it.

Bonding with nature

Public concerns about mining are exacerbated by the fact that Kamchatka has no mining regulations of its own. The region obeys the Russian Federation Law on Mineral Resources, but that law does not contain specific environmental standards for mining operations.

Pyotr Khomentovsky, deputy director of the Kamchatka Institute of Ecology and Nature Use, a scientific institute that is part of the respected Russian Academy of Sciences, believes that if Kamchatka is to become an industrial mining region, it must enact stricter regulations to prevent environmental damage. Other sub-national, mining-intensive jurisdictions, such as Canada's Yukon and the U.S. state of Colorado, have found it necessary to establish their own regulatory frameworks, he points out.

Even Kamchatka Vice-Governor Boris Sinchenko -- a strong mining advocate -- agrees that Kamchatka's unique environment requires that mining operations in the area should be held to the highest environmental standards. He says that he wants to ensure Kamchatka does not fall prey to the same kind of over-development that has befallen its neighbor, Alaska.

Despite the talk about requiring strict environmental standards, Kamchatka may find it difficult to impose stringent standards today. In the absence of strict regulations, CPENR's Santalov wants to require KAMGOLD to put down an insurance bond. Bonding, which is now required for new gold mines in Colorado and California, is meant to cover reclamation costs if an accident occurs and a company defaults on its obligations. This practice is a response to mining disasters, such as Colorado's Summitville disaster in 1991. After the accident, the Galactic Resource Corporation declared bankruptcy, passing reclamation costs of the most expensive U.S. Superfund site to federal taxpayers. Company owner Robert Friedland then opened new mining companies, with other names.

Foreign environmental groups, such as the Pacific Environment and Resources Center, hope to condition any public international financing or insurance of the venture from the EBRD or OPIC on KAMGOLD's posting a bond. Russian law, however, has no provisions for bonding. Vasily Knoll, president of KAMGOLD, said in a public hearing in the village of Anavgai in early August 1995 that he has visited many mines in the West but has never heard of bonding.

Softening the impact

Kamchatka's best opportunity to make KAMGOLD comply with strict environmental demands is through the environmental impact assessment process, the one concrete requirement of the Russian Federation Law on Mineral Resources. KAMGOLD's initial environmental impact statement (EIS), prepared by AATA International of Colorado, was reviewed in August 1995 by the Kamchatka CPENR and the Moscow-based Russian Federal Ministry on Protection of the Environment and Natural Resources. Most of the Kamchatka-based scientists who reviewed the document recommended rejecting the initial EIS as insufficient. However, under political pressure from KAMGOLD and the Moscow-based ministry, Kamchatka CPENR was persuaded to sign off on the initial EIS and allow detailed project planning.

Nonetheless, the Kamchatka CPENR was able to include a number of important demands in the initial review of the EIS. The CPENR mandated that KAMGOLD consider bonding additional protection for the tailings pond and tailings dam, increased water-quality monitoring, additional measures for salmon protection, greater consideration of the impact on the surrounding protected area and other important ecological issues. These conditions must be taken into consideration by KAMGOLD during the next phase, which involves detailed project planning of the mine site. The CPENR went even further by stating, "Taking into consideration the uniqueness and ecological vulnerability of Kamchatka, it is necessary for the EIS and Project Plan to meet standards of the mining industry no less strict than in the state of Colorado, USA, where the offices of Grynberg Resources, which has 25 percent of the stock, are located."

Whether the Kamchatkan CPENR can resist pressures from KAMGOLD, the regional Kamchatkan administration and the Russian environment ministry, and ensure that KAMGOLD abides by these stringent standards remains to be seen. But Kamchatkan and international environmentalist efforts to prevent KAMGOLD from receiving international financing until it meets worldwide standards may tip the scales in the Kamchatka CPENR's direction.

If Kamchatka can set a precedent for strict environmental standards with KAMGOLD's Aginskoye mine site, it can potentially strike a balance between mining development and other important parts of Kamchatka's economy, namely fishing and tourism. It can also help to ensure that mining operations in Kamchatka will be compatible with protecting salmon, brown bears and Kamchatka's wildlands that are of worldwide importance.

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