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Q&A: Amur Minerals steadily working through Russian licence process

Amur's chief executive Robin Young talks through the complex process of obtaining a production licence in Russia.

AIM-quoted Amur Minerals (LON:AMC) owns 100% of the Kun-Manie nickel and copper sulphide project in the Russian Far East.

After 10 years of exploration, five mineralised deposits have been drilled along a 15km trend at the project in the Russian Federation.

Licensing has been a recurrent theme and the company has applied to convert a portion of the exploration licence into a production licence, which is currently under review for approval.

Proactive (PI) recently caught up with Amur's chief executive Robin Young (RY) to go through the complex process in more detail.

PI: What is the regulatory framework that controls your current exploration licence? Have there been any changes since acquiring the exploration rights and the upcoming conversion to a mining licence?

RY: We work within two specific legislative frameworks. The first has been in place since our acquisition of the exploration rights in 2004. This is the “sub-soil law”.

In 2008, a second legislative package was enacted that resulted in a substantial increase in the work required to convert an exploration licence to a production licence.

Both sets of regulations are presently administered by Moscow governmental agencies, and both must be adhered to by our Russian subsidiary.

Originally, the five year exploration licence was issued by the local sub-soils agency of Amurnedra within Amur Oblast and registered in Moscow with its parent, Rosnedra.

It is under the 21 February 1992 “sub-soil law” that our rights and obligations were granted. Specific elements related to the work programme were presented in the licence.

The key milestone to be attained was the compilation of a TEO (a feasibility study) for submission to the State Committee on reserves (GKZ).

Successful completion of the TEO and GKZ approval resulted in the issuance of a key document known as the 'certificate of discovery'.

By obtaining the certificate, it allowed us to extend the exploration licence by an additional two years as there was additional potential for reserve expansion within the exploration licence area.

The certificate is a critical document as it registers us as being the discoverer and it granted us the right to mine Kun-Manie. It is also required to allow the company to file for the conversion to a mining licence.

In May 2008, the Russian Federation passed an additional legislative package which directly impacted foreign owners of specific mineral exploration and/or production licences. This newly created package is referred to as the “strategic investments law” and regulates a foreign company’s access and ownership to certain sectors of the Russian economy.

Specific sections address selected mineral commodities. In the case of Amur, the “strategic investments law” resulted in our being classified as a “deposit of federal significance”. This was based on our having GKZ state registered reserves of nickel and PGM’s that automatically place a mineral project on the “strategic list”.

PI: You mentioned that the “strategic investments law” has significantly affected AMC. Could you please explain?

RY: On passing of the “strategic investments law”, two immediate non-licence issues needed to be tackled.

Initially, we had to register with the anti-monopoly Board (FAS) as a foreign company operating in Russia. This was quickly accomplished.  The second item of concern was the level of ownership that a foreign company owning a “deposit of federal significance” could maintain.

Within the legislation, a foreign company can now hold 25% if acquired after May 2008.

From first glance, this would indicate that we must have a Russian partner wherein we own a maximum of 25%. This is not the case for Amur, as the “strategic investment law” states that a foreign company’s ownership acquired in advance of the May 2008 law can be maintained if it has met its obligations -which we have.

Regarding ownership, should more than 25% be sold or assigned in the formation of a joint venture, the anti-monopoly board (FAS) must authorise the transaction and it ultimately will be reviewed for approval by the Presidential Commission (also referred to as the “Russian Government”).

With regard to the conversion of the exploration licence to a production licence, the process became more highly scrutinised and work intensive and includes obtaining approvals from multiple unaffiliated Russian agencies.

PI: This approval process sounds complicated. Could you outline the various groups involved and their responsibilities?

RY: The prime agency responsible for the conversion to a mining licence is Rosnedra, which is under the direction of the ministry of natural resources.

Rosnedra is indeed the gatekeeper. It is responsible for compilation of all necessary documentation and its submission to external ministries that are a part of the mining application approval process.

This effort is overseen by a specific Rosnedra dedicated team. In addition, Rosnedra now determines the one-time payment in converting the exploration licence to a mining licence.

The Rosnedra team submits the relevant documentation to four external ministries that review the information and submit a report of their review to Rosnedra.

It is important to note that these reports are not licences. They are reports used to assist in compiling the terms and conditions for the final mining licence.

The four agencies include the anti-monopoly board (FAS), the state security agency (FSB), the department of defence (DOD) and the ministry of economic development (MED). Each agency has a specific responsibility.

The anti-monopoly board verifies that the company is a legitimate entity and is registered within Russia. This includes reviews of the organisational structure, shareholding, directors, management and other corporate considerations.

The state security agency examines the financial integrity of the company and ensures there is no corruption and money laundering practices.

The department of defence reviews the strategic nature and location of the project as well as any potential risk to Russia if the company controls the asset.

The ministry of economic development reviews the economic potential of the project and that it represents a viable financial entity.

Once all documents required by Rosnedra are in hand, a protocol from the minister of Rosnedra recommending the approval of the application is issued and submitted to the ministry of natural resources for review.

The resultant review is provided in another protocol from the ministry of natural resource to the ”Russian Government” for consideration.

Nomenclature is important here as the ministry of finance is considered to be the “Russian Government”. It is the “Russian Government” that is responsible for the final approval of the mining licence.

PI: Where does the company stand now in the application process?

RY: We are in continual communication with Rosnedra and are providing additional information as it is requested.

Reports have been provided by three of the four external agencies and the calculation of the one-time payment to convert the licence was done based on first half 2013 metal prices. The payment is estimated to be in the order of 24 million Rubles or about US$800,000.

In order to facilitate faster responses and to provide the necessary support to Rosnedra, we have brought on Randolph Lewis who is experienced with the agencies that are a part of the process.

Randy is our newly appointed full time resident in Moscow and is fluent in Russian. This is a great benefit to us for several reasons.

Firstly, our offices are located seven time zones ahead of Moscow and make for challenging communications due to the time difference.

Also, Mr Lewis, being fluent in Russia and immediately available, shortens our response time substantially. What was taking us a week to do can now be turned in a day. Personally, this also frees me to undertake additional tasks that are of import to the company allowing us to focus on the technical and administrative tasks of our company and its three subsidiaries.

Our board remains bullish on our obtaining the production licence and appreciates the shareholder loyalty and patience.

We will update the market using regulatory announcements on the LSE when solid and reportable information is available.

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