Press Releases


L. Joseph
Phone: (202) 473-7700
Fax: (202) 974-4384

WASHINGTON, D.C., November 3, 1999 - The International Finance Corporation
will invest to reopen a defunct silver mine in a remote part of eastern Russia, in an integrated project that will bring jobs, prospects for new entrepreneurship, and high environmental standardsalong with exploitation of one of the biggest primary silver deposits in the world.

IFC will provide a US$63.4 million financing package to the Russian company ZAO Serebro Dukat (ZAO Dukat), which has a 20-year concession to rehabilitate and resume production of the Dukat silver mine in the Magadan region of eastern Russia.

As a state-owned and operated company, the mine was shut down in 1996 due to absence of working capital and the lack of smelting facilities in Russia. ZAO Dukat purchased the mining rights in 1997 through an open international tender.

The mine's reopening will revive a major regional employer, creating 500 jobs in one of the country's most remote and sparsely populated regions, where there is only one other major foreign investment. The project will generate approximately $300 million in tax revenues and transfer new
technology and management skills to Russia's mining sector.

In parallel, through Irish and IFC funding, the IFC Russia Technical Assistance team will conduct a study on the development of smaller businesses to supply the mine and provide other products and services. Based on the conclusions of the study, IFC will establish a business center, and possibly a credit line, to encourage small and medium private enterprises. The Canadian International Development Agency has indicated it will support the business center.

Mr. Philippe Liétard, Director of IFC's Oil, Gas, and Mining Department, noted that IFC played a key role in mobilizing debt financing from commercial banks as well as from bilateral and export credit agencies for this project, which is IFC's first investment in the Russian Federation's mining industry. Mr. Liétard said the project would show potential foreign investors that direct foreign investment with international commercial bank financing is still feasible in Russia despite the financial crisis. He added that its feasibility is underpinned by careful attention to local communities and the environment.

The project will comply with World Bank Group environmental and social policies and guidelines, as well as with Russian environmental laws and standards. It has been designed and implemented with full public consultation with the local Dukat and Omsukchan communities. Local indigenous people (People of the North) who have had few alternative employment opportunities since the Dukat mine shut down, will make up 5 percent of the staff. ZAO Dukat is also establishing a charitable foundation to promote and support social and economic development in the region.

The $105 million project will produce 16 million ounces (500 tonnes) of silver and 33,000 ounces (1 tonne) of gold in concentrate, annually for at least 15 years. SNC-Lavalin of Canada, which has extensive experience in the former Soviet Union, will provide engineering management to the project.

ZAO Dukat will be 90 percent owned by Pan American Silver Corp. of Canada (Pan American) and 10 percent by IFC. Pan American-a successful Canadian silver mining company established in 1994-owns, operates, and develops silver mines in Mexico and South America, and conducts exploration worldwide. ZAO Dukat is Pan American's first venture in Russia. IFC will become a shareholder in both ZAO Dukat and Pan American.

The financing for the project will comprise equity of $45 million and debt of $60 million. The $45 million equity will include $31.1 million by Pan American and $13.9 million by IFC. IFC's equity and quasi-equity will be provided in part directly to ZAO Dukat ($4.9 million) and the balance
through an equity subscription in Pan American ($9 million). The $60 million debt financing will include $15 million each in loans from IFC and the Export Development Corporation of Canada (EDC) for their own account and an IFC syndicated loan of $30 million for the accounts of Bayerische Hypo- und Vereinsbank, Standard Bank, and NederlandseFinancierings-Maatschappij Voor Ontwikkelingslanden N.V. (FMO). There will also be a standby facility of $10 million of which IFC will provide standby loans of $1.5 million for its own account and $3 million for the
account of B-loan participants. EDC will also provide $1.5 million for its own account as part of the standby loan while the $4 million balance will be provided by Pan American in equity. This is the first syndicated loan mobilized by IFC after the financial crisis in Russia.

The mission of IFC, part of the World Bank Group, is to promote private sector investment in developing countries, which will reduce poverty and improve people's lives. IFC finances private sector investments in the developing world, mobilizes capital in the international financial markets, and provides technical assistance and advice to governments and businesses.