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
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
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
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.