St. LOUIS () -- Russia's environmental watchdog agency is requesting that a license be revoked from Britain's Highland Gold Mining Ltd [LSE:HGM] for the Mayskoye gold deposit in Chukotka - touted by the company as "our largest resource." Upon the news, Highland's shares promptly fell 5%, reminiscent of Peter Hambro's difficulties in November 2006.
Rosprirodnadzor, the Federal Service for the Oversight of Natural Resources, said the license holder, Highland's 100%-owned subsidiary, has no agreement for mine operations in the far northeastern region of Russia, and the appropriate documentation should have been approved back in 2006.
"Rosprirodnadzor has presented evidence of license violations at the Mayskoye gold deposit in Chukotka by the Mayskoye Company to a commission of the Russian Federal Agency for Subsoil Use," the ministry said in a statement, according to Russian media sources.
The watchdog's main complaint is that the company has failed to launch production on schedule or meet established quotas, adding that it did not intend to honour the terms of the license with hopes for an extension.
"Similar changes, extending the deadline for a geological survey, have already been made twice," the ministry said.
Highland's licence, which was originally issued in 1999, states that the first tonne (32,150 ounces) of gold should be produced by Dec. 31, 2007. However, first output at Mayskoye is scheduled for the second half of 2010.
The company applied for a licence extension last year, its first such application for Mayskoye. So far, Highland has invested $70 million in the project after first paying $34 million.
The Mayskoye deposit hosts JORC-compliant gold resources in the amount of 2.55 million ounces Measured & Indicated and 4.76 million ounces Inferred at a 5 g/t cut-off grade.
Underground production will average approximately 550,000 tonnes per year for the 20 years of mine life at a grade of 12.0 g/t. The open pit has a planned life of just four years with total production during that time of 670,000 tonnes at a mined grade of 14.4 g/t.
In a press release on July 4, Highland reported that a feasibility study on Mayskoye was due to be published in the second half of this year. The company also responded to the inspection of its Mayskoye development project by Rosprirodnadzor.
"We view this first inspection since acquiring the licence of our compliance with the licence terms at Mayskoye as part of the normal process in the development of licenses worldwide," said Henry Horne, Managing Director of Highland.
Horne said the project has had delays due to changes in the mine design and additional metallurgical test work. He said Highland "will be responding to any requests made by the agency."
However, the Rosprirodnadzor agency has no jurisdiction to rule on licensing issues; Rosnedra is the federal subsoil agency that rules on mining licences. Both agencies are part of the Ministry of Natural Resources.
Rosprirodnazor said in a statement that the agency's deputy head, Oleg Mitvol, had sent a letter to Rosnedra advising that Mayskoye had not fulfilled licence terms.
This is not the first time the outspoken deputy head has raised concern among investors about growing state involvement in Russia's natural resources sector.
Peter Hambro Mining [LSE:POG] stock slid nearly 14% in after news emerged that Rosprirodnadzor intended to revoke five of its permits at its operations throughout the country.
, Rosprirodnadzor said Peter Hambro had not breached licenses at 20 of its main assets in the Amur region. Two assets controlled by its subsidiary Yamatzoloto in Artic-Russia were recommended for withdrawal, but nothing new has developed.
Russia is the world's sixth largest producer of gold. In 2006, Russian produced about 164.3 tonnes, according to Highland Gold, 34%-owned by Barrick Gold Corp [NYSE:ABX; TSX:ABX], is Russia's fourth largest gold producer.
In 2006, the company produced 167,544 ounces of gold, 4.6% more than in 2005, primarily from its MNV mine in the Khabarovsk region. Highland's Darasun mine produced just 17,000 ounces for 2006 after a fire in September halted operations.
The company's Novoshirokinsky project in Chita is scheduled for production in 2008, at a rate of planned 100,000 tonnes of ore in the first year, 300,000 tonnes in the second and 450,000 tonnes in the third. The annual gold output will rise up to 70,547 ounces, silver output 1.13 million ounces, zinc output 5000 tonnes and lead more than 15,000 tonnes.
Also in the Chita region, Taseevskoye hosts current measured, indicated and inferred resource of 3.37 million ounces. The Environmental and Social Impact Assessment (ESIA) and Resettlement Action Plan for the Taseevskoye project are scheduled to be completed in 2008.
Highland shares closed down 6 pence at 117.75 pence today on the London Stock Exchange. The stock has fallen nearly 50% in the last 12 months, hitting a low of 105 pence on June 29.
