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China National Gold Group at final stage of deal to buy Siberian gold mine

The Federal Antimonopoly Service, Russia's competition watchdog, met with representatives of state-owned China National Gold Group Corp. to discuss foreign investment into the Russian mining sector, including the Chinese group's present bid for a 70% stake in the Klyuchevskoye gold mine in Siberia, the FAS said in an Aug. 31 statement.

The Chinese company is in the process of acquiring a 70% stake in property from SUN Mining, a company affiliated with private equity and investments firm SUN Group, founded by the Indian Khemka family.

According to a source close to the Indian company, China National Gold Group met with FAS officials to discuss ways to structure the proposed acquisition deal, and to find a way to deal with legal restrictions on foreign ownership of major mineral deposits.

Under current Russian law on strategic deposits, companies with greater than 25% foreign ownership are restricted in controlling Russian mineral deposits deemed "federally significant."

Foreign miners seeking to access these deposits are forced to jump through major administrative hurdles, including seeking approval from the Russian government as well as dozens of different Russian state agencies, including the Ministry of Defense and the Federal Security Service, one of the successor agencies to the Soviet-era KGB.

While some foreign miners have adapted to the legislation — AIM-listed junior Amur Minerals Corp. went through the process to get a mining license for its Kun-Manie nickel project in the Russian Far East — Chinese investors have been less ready to endure the process.

According to an industry source familiar with the developments in the Russian mining sector, Chinese companies have been lobbying for a change or a special exemption to the strategic deposits law.

"[Head of the Russian Union of Gold Producers] Kashuba has strong links to China ... he is constantly getting feedback about this law," the source said.

According to the FAS' statement, the representatives from China National Gold Group were informed about the procedure for approving transactions involving strategic deposits.

"We welcome participation of foreign investors in joint investment projects," Andrey Yunak, head of the FAS department for control over foreign investments, was quoted as saying.

"Our main objective here is to observe the state interests and the law of the Russian Federation."

A representative of SUN Group in Moscow declined to comment on the deal or the reason for the sale when contacted by SNL Metals & Mining, citing the commercial confidentiality of the potential sale to the Chinese company.

Representatives of China National Gold Group were unavailable to comment at the deadline.

But one industry source familiar with SUN Gold said the company decided to sell out of its gold mining assets about five years ago.

According to data from SNL Metals & Mining, SUN Gold also controls a 50.10% stake in the Yubileinoye mine in Kazakhstan.

"They got into it at a high gold price, but they are not a mining company, they are more on the financial side. They hired some expertise like Travis Naugle from Kinross. They are looking for a return on their investment now," the source said.