USSR: GOLD PRODUCTION AND SALES POTENTIAL

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• Sequence Number: 1
• Publication Date: May 1, 1987
• Content Type: REPORT

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Directorate of
Intelligence
SOV 87-10027CX
IA 87-10030CX
and Sales Potential
USSR: Gold Production
249
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Directorate of Top Secret
Intelligence
? USSR: Gold Production
and Sales Potential
This paper was prepared by
Comments and queries are welcome and may be
directed to the Chief, Economic Performance
Division, SOYA
Top Secret
SOV 87-10027CX
IA 87-10030CX
May 1987
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Summary
Information available
as of I February 1987
was used in this report.
and Sales Potential
USSR: Gold Production
currency earning capacity.
We expect Soviet gold production-currently one-fifth of the world's
annual output-to continue to grow slowly through the early 1990s,
enabling Moscow to increase gold sales for hard currency without substan-
tially reducing its gold reserve. Rising gold sales, however, probably will
not offset the effect of continued low world oil prices on Moscow's hard
nearly 40 percent of Soviet production.
Soviet gold production grew less than 2 percent annually during 1981-85,
after decades of growth exceeding 3 percent per year. The main reason for
the slowdown was the sharp decline in the gold content of mined ore in
many key areas, particularly in the Northeast Region, which accounts for
equipment and spare parts needed to expand operations.
We project that by 1990 annual production will reach roughly 330 to 360
metric tons, an increase of 2.5 to 12.8 percent over the 1985 level of
roughly 320 tons, mainly as a result of gains in the utilization of existing
capacity. We believe the Soviets can do little to boost production much
above these levels, largely because most plants and mines will be operating
close to capacity. Moscow has been making an effort to expand capacity
for several years, but most construction is still at an early stage, and hard
currency constraints may prevent purchases of the Western earthmoving
for a large surge in output in the next decade.
We believe that slow output growth will continue during the early 1990s.
The grade of mineable ore in the Northeast Region will probably
deteriorate further, and the amount of new capacity under construction
indicates the Soviets probably are not making the preparations necessary
currency in 1986,
Beginning in late 1985, Moscow dramatically increased gold sales as one of
several steps to help offset the decline in hard currency earnings from
energy sales. (Other steps included borrowing more on international
markets, increasing exports, and cutting back on imports.) During 1986,
Moscow was able to hold total hard currency revenues near the 1985 level
by selling roughly 350 tons of gold for about $4 billion. Sales in 1985 were
about 190 tons. In comparison, oil sales earned $7-8 billion in hard
Top Secret
SOV 87-10027CX
IA 87-10030CX
May 1987 --"
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Although we expect a high level of sales to continue during the remainder
of the decade to help offset continued lower revenues from energy exports,
the Soviets may be concerned about the state of their gold reserve. Its value
has been hit by a "double whammy" in recent years. First, the falling
content of gold in mined ore in key regions led to a decline in the rate of
output growth and increased the cost of production. Second, despite a
buildup of stocks in the early 1980s, the drop in the world gold price
devalued the Soviet reserve by $9 billion during 1981-85. Price increases
last year helped recoup some of this "loss."
Moscow's flexibility to sell gold during 1987-90 will be limited only by
market capacity. Market experts indicate that annual sales will probably
be limited to roughly 300 tons-although they could be as high as 450 tons
in perhaps one or two years-if selling is done judiciously to avoid
disrupting the market and causing a major, sustained price decline. At
yearend 1986, the USSR had an estimated stockpiled reserve of 2,290 tons,
and we project that 270 to 310 tons of surplus production (in excess of do-
mestic use) could be sold annually during 1987-90 without drawing down
this reserve. Assuming an average price of $400 per ounce, Moscow could
earn as much as $4-6 billion annually from sales of 300 to 450 tons.
Revenue from gold sales at these amounts, however, would cover only part
of Moscow's expected hard currency shortfalls through 1990.
Moscow could realize an annual earnings windfall of several billion dollars
above our projections if South Africa's gold sales were substantially
curtailed for an extended period-for example, in the highly unlikely event
of intense nationwide strife bordering on civil war. In this scenario, prices
would probably rise sharply, and the Soviet share of world sales could jump
from roughly 15 percent in 1985 to 50 percent or more.
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Summary iii
Role of Gold Sales in Foreign Trade 1
Recent Production Trends 1
Declining Gold Content 2
Low Utilization of Capacity 4
Rapid Buildup of the Stockpiled Reserve 7
Slow Growth in Output Projected To Continue 7
Continued Sales Flexibility 9
Appendixes
C. Soviet Gold Mining and Processing
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Figure 1
USSR: Estimated Gold Sales, 1966-86
1 Large grain 3 Jump in world 5 Low oil
imports oil price earnings
2 Large rise in machinery 4 Record oil
and pipe imports earnings
I I te I I I I I I I I I I I I I
70 74 78 82 86a
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USSR: Gold Production
and Sales Potential
the West obviated the need for extra cash.
Analysis of the trends in the Soviet hard currency
balance of payments indicates that Moscow uses gold
sales primarily as a financing mechanism rather than
a trade commodity like oil. The Soviets generally sell
more gold when they need a rapid infusion of cash,
and less-even when prices are high-when they are
in a good cash-flow position. During the mid-1970s,
when Moscow needed to finance large purchases of
grain and equipment, for example, gold sales were
high (see figure 1). Hard currency crises in 1981 and
1982 forced considerable sales, even though a falling
gold price cut into earnings. Gold sales were relatively
small in 1983 and 1984 as record oil revenues from
The sharp decline in hard currency export earnings
beginning in 1985 has again sparked substantial gold
350 tons, earning $4 billion.
sales. Oil production problems in 1985 cut annual
Soviet oil revenues by nearly $4 billion, which Mos-
cow partially offset by selling approximately 190 tons
of gold worth just under $2 billion. Even though oil
exports recovered somewhat in 1986, the steep drop in
world oil prices resulted in another decline of $3-4
billion in hard currency sales. Estimated oil revenues
of $7-8 billion last year were just half the peak
earnings of $15.6 billion recorded in 1983. Moscow
again responded with higher gold sales, selling an
estimated 250 tons in July and August 1986. We
believe that total gold sales in 1986 may have reached
Because of the importance of gold sales as a source of
financing,
m in ini
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Table 1
Major Gold Producers
1,000
714
674
619
211
251
294
321
Canada
75
51
51
86
United States
54
33
30
77
Brazil
5
5
40
62
Australia
19
16
17
57
The other figures are from Handbook of Economic Statistics.
1986, Central Intelligence Agency.
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Figure 2
USSR: Estimated Gold Supply, 1970-90
Stockpiled
reserve
i i i I i I i i I i i I i i
0 1970 74 78 82 86 87a 88a 898 90a
25X1 a Projected.
Declining Gold Content
The major cause of the slower growth in output in
recent years was the sharp decline in the gold content
of mined ores, particularly in the Northeast Region,
the main source of the Soviet gold supply for the last
50 years (see figure 3 and inset on page 4).? The
region's annual output peaked at an estimated 133
tons in 1977, but then fell to about 120 tons in 1980
and leveled off. In 1970, the Soviet press reported that
it was necessary to process 28 percent more ore per
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Figure 3
Soviet Gold-Ore-Processing Plants
Af-ff, Cep
into the Soviet Union. Other boundary representation
is not necessarily authoritative.
The United States Government taa not recognized
the incorporation of Estonia, Latvia, and Lithuania
Turkey
Saudi
Arabia
~? ap?Y3o
f Finland
/tic Seams 'y- r
Zod-
Ararai
Severo-
Yeniseyskiy
Plast 2 ~_,r.Plast 1
Aksu North Fr, Berekulskiy
Aksu South Bestobe Tsentral'nyy
Zholyml F Maykain
K Tort-
Tort- - R? Auezov
Muruntau l-l
Altynkan
Samarkand FKazarm j
Laptev
Sea
East
Siberian
rs'l
__9e?Magadan,
00
Darasun
Ag~(hskooyyg Bale
, arasu`n73
Q
Bering
Sea
Sea of
Okhotsk
71 Tokur
Sea of
Japan
Korea Japan
l ~ ll
25X1
unit of gold production than in 1965. By 1975,
another 50-percent increase in ore processing was
required./
cause of limited equipment availability.
unable to compensate with increased processing be-
Earlier, the Soviets offset the declin-
ing quality of ore by processing increasingly greater
volumes, partly with the help of imported earthmov-
ing equipment. After 1977, however, the Soviets were
Substantial declines in the content of ores mined
throughout East Siberia and the Urals were also a
factor in the slow growth of national output. Most of
Soviet Union
*MOSCOW
the mines are placers that are in a state of decline
after having been worked for several years.' However,
the overall contribution from these two areas was
small; in 1985, we estimate these regions together
produced less than 15 tons (less than 5 percent of
national output).
' A placer deposit is an alluvial or glacial formation of sand or
gravel that has been eroded from bedrock and has concentrated in
low-lying areas such as stream valleys. In contrast, a lode deposit is
a collection of gold ore veins. See appendix C for a discussion of
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Shifting Output Away From the Northeast Region
roughly 9 tons, or 50 percent of capacity. An analysis
The deteriorating ore base and high production costs
have prompted a shift in output away from the
Northeast Re 'on to other areas the country (see
figure 4.
USSR reportedly only stay an average of two years.
In addition, production costs are high, mainly be-
cause of the limited mining season, difficulties asso-
ciated with operating in the harsh environment, high
labor costs, and periodic supply shortages that dis-
rupt production. Operation of the region's placer
mines, which account for at least 90 percent of
output, is limited to only about six months each year,
when flowing water is available for washing opera-
tions (see appendix Q. The high level of stress
exerted on earthmoving equipment when removing
permafrost-the permanently frozen ground that lies
beneath the top few centimeters-contributes to high
failure rates. Relatively high wages must be paid to
attract workers to the region. Nevertheless, labor
shortages persist because of the harsh weather, inade-
quate housing, and low level of social and cultural
amenities. Worker turnover is also very high; gold
industry workers who migratefrom other areas of the
of Muruntau's operations
showed an inadequate capacity to load and unload
railcars that deliver ore from the mine to the process-
ing plant (see figure 5 on page 6). An analysis
of the,Zod-Ararat plant indicates that there
were in use
was probably an adequate capacity to deliver ore to
the plant but that only two of four thickener tanks
? Soviet technical literature has not reported on the
advantages of the RIP process since the 1970s,
when the Soviets claimed this technology would
increase output and cut production costs by 20
percent compared with conventional gold extraction
techniques-claims discounted by US engineers.
? Articles in the Soviet press during the 1960s and
1970s indicated that at least five gold-ore-process-
ing plants would be converted to the RIP process,
but analysis 0 of known gold plants indi-
cates that only the Muruntau and Zod-Ararat
plants use this process.
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Low Utilization of Capacity
Muruntau and Zod-Ararat, two of the largest Soviet
gold plants, have been operating below capacity since
they began production in 1969 and 1976, respectively.
Muruntau's output in 1985 was approximately 50
tons of refined gold, only two-thirds of its estimated
capacity of about 75 tons. Zod-Ararat's output was
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Figure 4
USSR: Geographical Distribution of Gold Output, 1970 and 1985
Percent
1970
Other
8
Northeast Other Siberia
Region 11
62
a Excluding gold produced as a byproduct from the production of
other metals, 36 metric tons in 1970 and 56 metric tons in 1985.
Analysis I f seven smaller ore-processing
plants shows an inadequate number of dump trucks t
deliver ore from nearby mines, a possible indication o
gold production problems. We estimate the total
annual capacity of these plants in 1985 was roughly
28 tons, but production could have been as low as 14
tons.
Northeast
Region
45
77,25X1
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Table 2
USSR: Estimated
Gold Production and Reserve
Metric tons
(except where noted)
Produc-
tion
Net
Sales
Domestic
Consump-
tiona
Yearend
Reserve
Market Value
of Reserve
(billion US $)
1970
211
3
39
1,624
1.9
1971
220
19
39
1,786
2.4
1972
242
158
40
1,830
3.4
1973
246
304
41
1,731
5.4
1974
257
131
42
1,815
9.3
1975
251
147
43
1,876
9.7
1976
269
328
45
1,772
7.1
1977
278
332
46
1,672
8.0
1978
290
401
47
1,514
9.4
1979
298
250
48
1,514
14.8
1980
294
80
48
1,680
33.1
1981
298
183
49
1,746
25.8
1982
304
91
50
1,909
23.0
1983
309
55
51
2,112
28.8
1984
314
86
52
2,288
26.5
1985
321
190
52
2,367
24.1
1986
326
350
53
2,290
27.1
Rapid Buildup of the Stockpiled Reserve
Despite slow production growth, we estimate that
Moscow's stockpiled gold reserve grew from 1,680
tons at the end of 1980 to 2,290 tons at the end of
1986 (see table 2 and figure 2). Even though the
reserve increased, the potential market value actually
declined by one-fourth during 1981-85 because of the
nearly 50-percent fall in world gold prices. In 1980,
the reserve had a value of about $33 billion; in 1985,
the larger stockpile was worth approximately $24
billion. Price increases last year, however, helped
recoup some of this "loss."
This decline in value, coupled with slow production
growth, may have caused Moscow to place increasing-
ly tight restrictions on domestic use, which has tradi-
tionally accounted for approximately one-sixth of
annual production.
These restrictions followed other long-established
measures to keep domestic consumption low. Industri-
al allocations of valuable materials are generally
limited to high-priority uses for which there are no
suitable substitutes. Since the 1960s, Moscow has
attempted to reduce the amount of gold used in
making jewelry.' Soviet citizens are also prohibited
from holding gold for savings or investment purposes. 25X1
Gold used in electronics, jewelry, and dentistry proba-
bly accounts for the bulk of consumption."
Slow Growth in Output Projected To Continue
Although Moscow is apparently making a concerted
effort to expand capacity, most of the construction we
have identified is at an early stage. Therefore, in-
creases in production during 1986-90 will be mainly
from gains in utilizing existing capacity. We project 25X1
10 Electronics may be the fastest growing domestic use in the USSR.
Gold is used in advanced electronics applications where its relative-
ly high electrical conductivity, temperature stability, corrosion
resistance, and nonmagnetic properties compared with most other
metals are important for increasing reliability. In the West, in
1985, the use of gold in jewelry accounted for approximately 60
percent of consumption. Dental and electronics applications ac-
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Soviet gold output will grow at an average annual rate
of 0.5 to 2.5 percent during the period, reaching 330
to 360 tons in 1990:
growth for the other metals and a continuing
absence of incentives to motivate plant managers to
? Output from the Northeast Region will probably
decline further, despite efforts to expand capacity,
because of continued deterioration in the grade of
mineable ore. Although stepped-up geological explo-
ration over the past decade has located some new
placer deposits that are now in various stages of
development, their combined output will be too
boost byproduct production."
Shortages of hard currency could exacerbate the slow
growth we project through 1990 by preventing or
delaying the purchase of Western earthmoving equip-
ment and spare parts needed for expanded operations.
Output could be particularly affected in areas where
the gold content of mined ore is declining and the
Soviets need to increase the volume of ore processed.
small to offset declines elsewhere in the region. In
addition, we project no output from a new gold plant
? Annual production at the Muruntau and Zod-
Ararat plants will probably continue to increase as
gains are made in solving the likely technical prob-
lems at both plants.
? We project about 3 tons of annual output during
1987-90 from a new plant at Plast in the Urals [
We project no output, however, from the new plant
under construction near Kazarman in the Kirghiz
SSR, another under construction at Auezov (Bakyr-
chik) in Kazakhstan, and a new facility planned for
the Tajik SSR because they will probably not be
completed until the early 1990s.12
? Outside the Northeast Region, a small increase will
come from several small, scattered placer mines
reportedly in various stages of development.
? Gold produced as a byproduct from other metals-
mainly copper and to a lesser extent lead and zinc-
will probably increase slowly and supply about one-
sixth of annual production. We project slow output
We believe there is little the Soviets can do to boost
production much above the levels that we project
through 1990. We project most existing plants and
placer mines will be operating close to capacity.
Roughly 10 tons of additional annual output could be
realized by bringing production of the seven small
plants up to full capacity. New placer deposits would
probably not yield much additional gold even if
developed on a priority basis because this type of
deposit is generally small and typically located in
remote areas of the eastern USSR where lack of
infrastructure delays startup by several years. In
addition, earthmoving equipment required for
stepped-up mining operations would probably have to
be imported for hard currency.
Moscow could realize a small boost in its salable
supply by implementing additional limits on domestic
use, but such consumption is already at or near
minimum levels. The Soviets could try to increase
gold output by using heap leaching, a recovery meth-
od recently implemented in the West that can be set
" Although the Soviets recognize that there is a large potential to
increase the production of nonferrous metals as a byproduct and
have called for an increase in such production in 1986-90, the open
press reported little progress in 1986. The performance of nonfer-
rous metals plants is gauged primarily by the fulfillment of
production quotas for the primary metal; little credit is generally
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Table 3
USSR: Projected Gold Supply
Production
Domestic
Consumption
Excess Reserves Remainin
Production
g If
Annual Sales
are 300 Tons
Annual Sales
are 450 Tons
1987
324 to 338
52 to 56
268 to 286 2,258 to 2,276
2,108 to 2,126
1988
325 to 349
53 to 57
268 to 296 2,226 to 2,272
1,926 to 1,972
1989
326 to 357
52 to 58
268 to 305 2,194 to 2,277
1,744 to 1,827
1990
329 to 362
52 to 60
269 to 310 2,163 to 2,287
1,563 to 1,687
up quickly, requires a much smaller capital invest-
ment, and is less expensive to operate than traditional
gold recovery methods." But we have seen no evidence
that this technology is being used in the USSR.
sales are spread over the year and among all the
geographic markets. The Soviets may even be able to
push sales to as much as 450 tons for one or perhaps
output in the next decade.
two years without causing a price decline, but
the USSR would turn to the futures 25X1
markets to sell quantities in excess of 300 tons 25X1
` 6 Sales at these levels could be met 25X1
mostly from current production, requiring only a
small to moderate reduction in the stockpiled reserve
(see table 3). At the estimated 1986 sales level of 350
tons, for example, Moscow would have had to dip into
its reserve for only about 75 tons. 16
After 1990, we expect output to continue to grow
slowly for several years. The grade of minable ore in
the Northeast Region will probably deteriorate fur-
ther, and the new capacity we have observed under
construction indicates the Soviets probably are not
making the preparations necessary for a large surge in
Even with slow production growth well into the 1990s,
Moscow's flexibility to sell gold will be limited only by
market "capacity." Market ca acity projections are
somewhat speculative.
(Mos-
cow could sell as much as 300 tons of gold annually on
the open or "physicals" market and through direct
bilateral sales without much effect on the price-if
11 Heap leaching can be used to recover gold from both placer and
lode deposits and is often used to process low-grade ores. It involves
distributing a weak cyanide solution over the top of an open mound
or leveled heap of gold ore placed on an impermeable pad and
collecting the gold-enriched solutions from the base of the heap.
Depending on ore permeability, 67 to 95 percent of the gold can
Sales averaging 300 tons would earn nearly $4 billion
annually, assuming a price of $400 per troy ounce."
Revenue from gold sales at these amounts, however,
15 These projections are based on the assumption that world gold
market conditions do not substantially change. A stronger gold
market and a higher price could moderately increase the market
limit on Soviet sales.
16 Although today's market is substantially different, there is his-
torical precedent for a large drawdown of the Soviet gold reserve.
Moscow drew down its reserve to about 900 tons in 1965, the lowest
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below the peak of $32 billion in 1982-84.
export earnings are likely to run some $7-10 billion
would only partly ease Moscow's expected hard cur-
rency shortfalls." Even if oil prices continue to rise,
the volume of hard currency oil exports is projected to
decline as oil production tapers off toward the end of
the decade. With prospects poor for much growth in
nonenergy exports, Moscow's annual hard currency
Moscow could realize an annual earnings windfall of
several billion dollars if the supply of South African
gold sold on world markets was substantially cut back
or curtailed for an extended period~A 25X1
prolonged halt in South African exports caused by
intense nationwide strife bordering on civil war-an
event we view as highly unlikely-could make the
USSR the world's leading supplier. In such a scenar-
io, prices would probably rise sharply and the Soviet
share of world sales could jump from roughly 15
percent in 1985 to 50 percent or more." 25X1
19 The increase in the Soviet share of world sales would depend on
how far Moscow would be willing to draw down its reserve to take
advantage of a halt in South African sales, which were about 640
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Appendix C
Soviet Gold Mining
and Processing
mercury, leaving the relatively pure gold.
Roughly two-thirds of the gold produced in the Soviet
Union, including gold produced as a byproduct from
the production of other metals, is from placer mines,
and one-third is from lode mines. Placers are alluvial
or glacial deposits of sand or gravel that have been
eroded from bedrock and have concentrated in low-
lying areas such as stream valleys. Placer gold occurs
in relatively coarse grains or flakes that may also
contain small amounts of other metals, such as silver.
The gold can usually be separated from the sand or
gravel by various washing methods, followed by amal-
gamation. Washing uses flowing water as a medium
to separate the heavier particles, primarily gold and
heavy sands, from lighter sands. Amalgamation fur-
ther concentrates the gold by using mercury, which
adheres to the gold (forming an amalgam) but not to
other heavy particles. The amalgam can then be
subjected to intense heat (smelting) to separate the
washed away.
The Soviet gold industry primarily uses four washing
methods to recover gold from placer deposits: sluicing,
washing plants, dredges, and panning. Sluicing, the
most common method of washing gold, generally uses
bulldozers and other earthmoving equipment to re-
move overburden and move the gold-bearing ore to a
device called a buddle trough. A high-pressure water
spray directed into the trough partially disintegrates
the ore and separates heavier and coarser particles
from lighter particles. The resulting slurry is then
pumped to the top of a sluice, a long, sloping,
rectangular trough with transverse bars or slats called
riffles or a rough-textured mat on the bottom. As the
slurry flows down the sluice, the heavy gold particles
are caught in the grooves between the riffles or in the
mat, and the lighter sand and gravel particles are
Washing plants are frequently used where coarse
gravels and fine clay-based soils are cemented into a
hardened mass. The ore is usually prepared and
moved to the plant as a slurry. A short primary sluice
removes large gold particles, a revolving drum scrub-
ber pulverizes and separates the coarse from the fine
particles, and secondary sluices recover the remaining
gold. Dredges are the most efficient method for
recovering gold from large placer deposits. They are
barges that contain an excavating system, equipment
for separating and recovering valuable minerals, and a
tailings disposal system. Dredges float in natural
bodies of water or in ponds created when the deposit is
excavated. Panning is usually used in small placers
and areas where sufficient water to operate sluices or
washing plants is not available.
A lode deposit is usually defined as a collection of
gold ore veins. The ore is mined by traditional open-
pit or underground methods and transported to a gold
plant where it is crushed and ground in a mill with
water to a fine pulp. The pulp is typically passed
through a gravity concentrator where some of the
heavy gold particles settle out. They are then collected
and taken to a refinery where most of the remaining
impurities are removed. The bulk of the remaining
gold in the pulp is generally recovered by some form
of cyanide leaching, followed by refining.
Declassified in Part - Sanitized Copy Approved for Release 2012/03/08: CIA-RDP08SO135OR000301010001-2
 Declassified in Part - Sanitized Copy Approved for Release 2012/03/08: CIA-RDP08SO135OR000301010001-2
Top Secret
Top Secret
Declassified in Part - Sanitized Copy Approved for Release 2012/03/08: CIA-RDP08SO135OR000301010001-2