Governments in countries with gold deposits may study with interest the new deal between Bulgaria and Dundee precious metals.

It has been an extraordinary saga. About two years ago, and notwithstanding the provisions of earlier agreements between Bulgaria and Dundee, Environment Minister Djevdet Chakurov and his allies let it be known that they wanted the state to be earning a significantly higher proportion from gold-mining operations in the country.

Against the background of the existing agreement and Dundee’s plan to expand its extraction and processing works at the Chelopech mine, a major battle commenced. On the one side was the Bulgarian state, with its power to control, de facto, what would become of the existing investment and the mining company’s future plan. On the other was Dundee – and other mining industry enterprises placed in a similar position – which had the backing of foreign governments including several influential diplomatic voices, some business organisations, and a number of media commentators who saw the Government’s attempts as putting at risk Bulgaria’s sought-after image as an investor-friendly environment and as tantamount to reintroducing nationalisation. Word had it, although there was no official confirmation, that the issue was raised during the visit to Bulgaria by US president George Bush in 2007.

Dundee went on record as saying that should the outcome of the tussle not be to its satisfaction, it would take its investments elsewhere. The company complained to the European Commission, a step it took after it won several domestic court actions against Bulgaria, victories that proved Phyrric in that no real progress followed in the issuing of licences.

The matter resurfaced in recent weeks, first through unconfirmed media reports and later through statements in Parliament, and then with official statements by Prime Minister Sergei Stanishev and by Dundee itself. In sum, Dundee will pay a higher concession fee in return for being allowed to expand production, and the Government, through the “Silver Fund” that is to be set up with the stated intention of assisting this country’s pensioners, will have a 25 per cent stake in the new operation. Chakurov has made much, in media interviews, of saying that Bulgaria’s national interests have been served and that pensioners will benefit. Dundee has said that it wanted all along to be good partners with the Bulgarian people. Through the resolution of the issue, Dundee said, it and the Bulgarian people would share in the value created from the Chelopech mine.

Of course, gold mining companies are not like other investors such as manufacturers of cars or refrigerators that easily can move their production facilities to the most amenable investment environment. This fact may well have played a significant part in Dundee reaching agreement with Bulgaria’s demand to make more money out of its operations. It is also a matter of record, as noted, that court victories did not translate into ministerial co-operation. Nor did public and private pressure from foreign government figures and diplomats. In the end, all that produced a result was the state and the company reaching a mutual modus vivendi.

The story, of course, is not over and it will be a matter of some interest to see how the agreement works out in the long term. Any story that ends with the interests of foreign investors and the national interests of Bulgaria also being served should be regarded as a happy ending. In reality, however, time will tell whether what has transpired will have an effect on the views of other already committed or prospective foreign investors.