By S R Nunnally
Eastern Siberia in late September is a time of falling temperatures… a deep descent into some of the coldest winters found anywhere on earth. But in Irkutsk province, just north of the tiny town of Kropotkin, the passing summer is marked with a different feel––one of jubilance, one could say…

The Sukhoi Log gold deposit just doubled its reserves. The deposit had held about 1,000 metric tons of gold. Now, with new technologies, the Russian natural resources ministry says it can extract 1,920 mt, a near doubling of reserves!

These new reserve numbers have an average grade of 2.8 grams per ton from hundreds of millions of metric tons of ore, putting the value of this deposit at $49.64 billion!

But, get this… Russia wants to auction it off, or offer it via investment tenders rather than sell it.

That would be in blocks, of course. And not everyone will be eligible. Russia is waiting for a crucial new subsoil law to pass before it does anything with this massive gold field.

This law would limit the amount of foreign ownership and/or participation in the development of the deposit, and Russia’s parliament will be considering it by the end of the year.

Really, though… is anyone surprised?

Not me. A couple of years ago, I talked a lot about the Shtokman gas field. Gazprom (GZPFY.PK) was going to choose several foreign partners to develop the gas field, and was offering stakes in it.

They changed their minds. Foreign companies could still help them develop the field, but they could not own any part of it.

So now development of the Sukhoi Log gold deposit is put on hold while parliament drags its feet on the new subsoil law.

As much as this reeks of nationalism, it makes a kind of sense.

The Sukhoi Log deposit is nestled in with some oil and gas fields, so the land above all that gold is valuable to companies wanting to get to the neighboring energy resources. Things like refineries and pipelines could be built across the gold deposit, or on the perimeter.

Foreign ownership of some of these areas would make that cooperation more difficult.

Now the ministry would prefer to divvy the field up using investment tenders rather than an auction because the rights of the “owner” would be more limited and thus dual-purposing of land can take place.

But opponents of this method argue that the system is too easily corruptible.

No kidding, eh?

Regardless, because investors in Russian companies should always keep corruption in the back of their minds, the development of this field is too good to pass up. Reportedly, there are several companies ready to jump in…

Norilsk Nickel (NILSY.PK) (NNIA:XETRA), Basic Element (owns RUSAL), Polymetal (PMTL:LSE), and Alrosa (government and company owned) have all expressed interest in developing the Sukhoi Log gold deposit.

Any or all of these companies will have a chance to grab their block.

S.R. Nunnally is the commodities expert and technical analyst for TFN's Commodities & Resources Report.