You're reading: Britan’s Oxus halts gold operations in Uzbekistan (updated)

ALMATY, Kazakhstan (AP) —British-based mining company Oxus Gold said Wednesday that it has ceased operations in Uzbekistan and is preparing to challenge a government audit it says is being conducted in bad faith.

The dispute is likely to leave Uzbekistan’s lucrative gold industry under almost total control of the Central Asian nation’s authoritarian government and could deteriorate the country’s investment climate.

Uzbekistan is the world’s ninth largest producer of gold, which brings in some 20 per cent of its export revenues, according to the U.S. State Department.

Oxus Gold PLC holds a 50 percent stake in the Amantaytau Goldfields joint venture that is developing some of the world’s most promising gold fields.

The Uzbek State Geology and Mineral Resources Committee owns 40 percent and a 10 percent stake is held by the state-controlled Navoi Mining and Metals Combine.

Earlier this month, the Uzbek Finance Ministry started an audit into the venture’s financial and economic activities. Oxus said in a statement that Uzbek auditors are not evaluating the company’s assets in good faith and appear "to be using the process to find reasons to justify putting AGF into liquidation."

The liquidation of partly foreign-owned ventures in Uzbekistan has in the past led to government buyouts at what most market observers consider below-market rates.

Repeated telephone calls to the Finance Ministry’s media service Wednesday went unanswered.

Oxus operations are focused on Uzbekistan, where it has been operating since the mid-1990s, and company chairman Richard Shead told The Associated Press that Oxus has been friendly with the nation and its people "but it has reached a point where it has to preserve and look after its shareholders."

Oxus estimates reserves at sites being developed by Amantaytau Goldfields at 2.8 million ounces of gold and 6.7 million ounces of silver.

In response to the ongoing audit, Oxus has declared "force majeure," a move that frees the company from its contractual obligations to manage the venture.

Oxus says it has received no reply from its Uzbek partners to an offer to sell its stake in the venture. The company declined to state how much it offered, but said it plans to file an international arbitration claim if the Uzbek shareholders do not respond to its buyout offer.

Uzbek government pressure on Oxus bears hallmarks of a saga surrounding U.S. mining company Newmont, which a leaked U.S. diplomatic cable dated Nov. 2007 describes as having been "expropriated" by the government.

Newmont said Uzbek authorities opened a criminal probe into its operations and staffers, froze its bank accounts and blocked gold shipments from the venture’s mine.

After mounting legal problems, Newmont agreed to its sell its 50 percent share in the promising Zarafshan-Newmont venture for $80 million, which was estimated to be around $14 million less than it true value.