Sanctions against Gazprombank jeopardize the expansion of the Uzbek copper mine

The US Treasury Department’s decision to… sanctions against Gazprombank poses a potential major headache for Uzbekistan’s fast-growing mining industry, which has so far relied on the Russian lender to finance a $4.8 billion mine expansion that will nearly double the country’s copper output.

With Gazprombank expelled from the international payments system, Uzbekistan risks facing disruptions to its main Yoshlik mine expansion project as it races to identify alternative creditors or risk being ensnared by secondary sanctions.

The US designation of Gazprombank could also result in a major financial blow to European mining and engineering companies, banks and state-backed export credit agencies operating in Uzbekistan, which have so far continued to transact with Gazprombank-funded entities.

The entire copper of Uzbekistan Production comes from a huge mining complex near Tashkent, operated by the state-owned company Almalyk MMC. The company currently oversees the $4.8 billion The Yoshlik Expansion Project, planned by 2026 enlarge the mine copper output by 78 percent to 264,000 tons per year. Gold production is expected to increase by 50 percent to 800,000 ounces. The company’s chairman has claimed that the reforms will change Almalyk MMC in “the largest copper ore processor in the world.”

Uzbekistan depends on Russia as its main trading partner, while remittances from Uzbek workers in Russia are equivalent to 18 percent of the country’s total revenue. total GDP. In May, Russian leader Vladimir Putin arrived in Tashkent for a visit two-day state visit during which the Yoshlik project was discussed as part of bilateral talks on further deepening economic ties between the two countries.

Russian interest in Yoshlik dates back to 2021, when Gazprombank and VEB.RF, Russia’s state-owned development bank, reached an agreement on $2 billion in deals with Almalyk MMC to finance the purchase of Russian mining equipment for use in the expansion. In 2022, an $800 million tranche of the VEB.RF deal collapsed after the US, EU and UK placed the bank and its executive team on sanctions lists following Russia’s large-scale invasion of Ukraine.

With Gazprombank now also subject to US sanctions, Almalyk MMC faces the prospect of losing a second major backer to the sanctions and will likely have to seek a refinancing deal to fill the funding gap and stay on the right side of US sanctions.

A development strategy published by Almalyk MMC in October, before Gazprombank was sanctioned by the United States, made clear that the Russian bank remained a key financier of the project, extending a $1 billion credit line, $670 million of which had already been used to buy mining equipment from dozens of major European engineering exporters, including Germany’s Thyssenkrupp, The Swiss ABB Group and the British Weir Group.

The US decision to step up sanctions against Russia by designating Gazprombank could create a sanctions minefield and logistical problems for the EU. Almalyk MMC, and could potentially impact European companies whose exports to Uzbekistan have been indirectly financed by the now listed lender.

Germany in particular has close financial ties with Germany Almalyk MMC after KfW IPEX-Bank agreed to a deal to organize the company in September 2023 $2.55 billion in funding to continue work on the Yoshlik project. During German Chancellor Olaf Scholz’s visit to Uzbekistan in September, a first installment of In between, 144 million euros were agreed Almalyk MMC and a consortium of German banks.

Unlike the US, Britain imposed sanctions on Gazprombank much earlier, first in 2014 after Russia’s invasion of Crimea and then in late 2023 to prevent British banks from processing payments related to Gazprombank. But even after Britain sanctioned Gazprombank in 2014, it continued to back British companies trying to win contracts for the Yoshlik mine, despite the project being backed by the Russian lender.

One in 2022 A British-led delegation to Uzbekistan assisted real estate agent a €14.2 million export deal for equipment produced by British engineering firm Weir Group for use on the Yoshlik Project. Subsequently, in October 2024, the British export credit agency, UK Export Finance, announced that it would risk public funds by guaranteeing a refinancing of the loan, this time provided by The Spanish Santander bank. It is possible that the collapse of the VEB.RF loan in 2022 prompted Almalyk MMC and Weir Group to refinance the deal with the support of the United Kingdom through its export credit agency.

For Almalyk MMC does not succeed in this Refinancing the Yoshlik project to exclude Gazprombank could result in the mine owner being subject to secondary sanctions, effectively turning the company into a pariah as it tries to diversify its exports.