Arthur Yernjakyan, ArmInfo
Recently Chairman of the Control Chamber of Armenia Ishkhan Zakaryan said that GeoProMining was “illegally” developing two gold mines in Armenia – Sotq and Meghradzor. The company denied the charges and called the Chamber’s actions abusive and its resolution – groundless.
GeoProMining Group controls six ore mining and smelting companies in Armenia, Russia and Georgia and employs almost 5,000 people. Its main activity is production and processing of gold, copper, silver, antimony, molybdenum and zinc. In Armenia GPM owns Agarak Copper-Molybdenum Combine with Sotq gold mine and Ararat Gold Recovery Company.
GeoProMining’s First Vice President for Investments, Business and Strategy Development Sergei Nosoff has commented on the Control Chamber’s charges in an interview to ArmInfo.
GeoProMining Group mines metals in Russia, Armenia and Georgia. Are your Armenia-based assets profit-making?
In the first half of 2010 Agarak Copper-Molybdenum Combine was profitable, and we are expecting growth in its profit by the end of this year. As regards GeoProMining Gold, our gold mining asset in Armenia, it is yet moving to the breakeven point. Let’s not forget that both companies are being modernized, so, they will certainly improve their financial performance. We are in the mood to get profit in Armenia.
Why isn’t gold recovery yielding profit in Armenia now that gold prices worldwide are all-time high?
You know, the answer to this question is quite difficult and has a certain background. The Sotq gold mine contains several types of ore. To put it simply, there are two main types: oxide and sulphide. Each of them has its specific processing technology. When the mine was first opened (in the Soviet times), it produced mostly oxide ores, and Ararat Gold Recovery Company was initially based on this technology. But by 2004-2005 the main types of ore had already been chosen, and the company switched to selective mining of residual ores as well as processing of tailings (low gold waste produced in the previous years). In late 2007, when we bought the right to develop Sotq from its Indian owner, Vedanta, both the factory and the mine were inoperative mostly because of lack of ore and disrepair.
Our key task for that moment was to see what was going on, to keep the workers from quitting by supporting them, to repay the former owners’ debts to creditors and their own personnel, to set the factory and the mine working. We upgraded and restarted the company when the global economic crisis was at its height and many mining companies in Armenia and elsewhere were paralyzed. We have never made it a secret that the factory does not have necessary technologies for processing Sotq’s refractory sulphide ores. For the moment, in order to keep things going, we are engaged in selective mining of ores with very low gold content. Only when we launch the new modern factory, will we be able to mine sulphide ores. We are working hard on this program and hope to build the new factory by 2013. It will be based on Albion, the most advanced sulphide ore processing technology at the moment. Our key task is to enhance our technological capacities so we can mine the ores that have been left unmined so far.
If you remember, at first, we were planning to build the new factory at Sotq so as to avoid additional costs for transporting the ore to Ararat. But, following certain ecological requirements, we decided to build the factory near Ararat Gold Recovery Company. For the moment we are completing the feasibility study of a project to modernize the factory and are eager to start processing new ores as soon as possible.
What ores are you processing and what is their gold content? The Control Chamber’s report mentioned 6 grams per ton, is this true?
Sotq is a very interesting mine but it is also very hard to develop. It contains very different ores with very different gold contents. Some ores contain 6-8 grams per ton, others – 1-2 grams. Almost all of them are refractory and cannot be processed at our factory. So as to be able to process them, we should switch from open to deep mining. But in order to get to high grade ores, we need time and money. We are keeping all these factors in mind when planning our future activities.
For the moment, we are processing oxide ores with a very low gold grade (sometimes, just 1 gram per ton) and are transporting them for a huge distance to Ararat Gold Recovery Company. We are doing this for the only purpose to keep our business going and our workers busy.
What is the financial strategy of your group? If you say that your Armenian assets are loss-making, how then are you going to repay the money you are borrowing for development? Recently, GeoProMining Gold announced plans to introduce the Albion technology and to invest some \\$ 100mln.
We are really happy that we have managed to engage the world’s Albion leaders and are adopting this technology in Armenia. This program will be carried out very quickly. We are going to revolutionize the ore processing technology applied at GPM Gold. In order to implement this project, we have concluded contracts and are actively negotiating with Core Process Engineering and Xstrata (both from Australia) for studying the feasibility of the project to reconstruct Ararat Gold Recovery Company and to apply the Albion technology for processing refractory ores.
I would prefer not to focus on our losses – today, we are working at a loss, but, tomorrow, due to new technologies, we will start making profit. Today, we are loss-making because the Ararat factory has no technologies for processing refractory ore. We have a very big experience of work in Russia, Georgia and Armenia and we are eager to make our company profitable, to enlarge our production and to improve our technical performance.
GeoProMining is a financially stable company, which has been proved by the KPMG’s annual audit. One more proof of our financial stability is our partnership with the Russian VTB Bank.
Regarding the accusations, I would like to say that we are not going to punish, persecute or charge anybody. Our best answer will be our stable work and our efforts to modernize and develop our factories in Agarak, Sotq and Ararat and to improve the lives of those who work there on a daily basis.
Chairman of the Control Chamber Ishkhan Zakaryan says that GPM Gold has pawned 100% of its shares at VTB Capital PLC in favor of Carlow B.V., whom the bank has lent \\$ 250mln. The Armenian deposits are said to have received nothing from this sum. What can you say about this? Have you invested any money – borrowed or own – in upgrading, prospecting, social or other programs at Agarak and GPM Gold?
Thank you for this question. Mr.Zakaryan has been misinformed. It is not a secret that our Armenia-based assets were bought due to loans provided by foreign banks and Russian VTB. According to the international banking practice, we pawned the shares of the assets at the creditor banks and made this known to relevant authorities in Armenia. The shares have been in pawn since 2007. In the last two years we have spent over \\$ 260mln on buying GPM Gold and ACMC, repaying debts, redeeming stock from minor shareholders, acquiring equipment, upgrading GPM Gold. Of this sum, \\$ 19.8mln have been spent to restart the Ararat and Agarak factories, over \\$ 25mln – to repay the debts of the former owners as well as tax debts to Armenia’s budget. You can go to our mines and see that all of our factories have new equipment. We are going to spend over \\$ 100mln more to build Albion factory, to reconstruct Ararat Gold Recovery Company and to develop Sotq.
As regards the \\$ 250mln borrowed from VTB Capital in June 2010, we are going to use this money for refinancing, so, we can repay our debts to all creditor banks and have just one partner bank.
The Control Chamber says that GPM Gold has no license for developing Sotq and Meghradzor gold mines. Is this possible? How have you managed to work so far?
We have worked on the basis of license contracts concluded Feb 29 2008 till 2023. These contracts are not subject to re-registration as they were concluded after July 1 2004. We cannot work without license contracts.
Your company has repeatedly mentioned its social responsibility. As many as 600 people are engaged in gold recovery in Armenia. In what conditions do they work, how much money do they earn? Do you have arrears of wages?
No, we don’t have wage arrears. Our labor conditions are optimal for the current situation and the wages are being constantly raised. Our employees have steady job and future prospects unlike many of their colleagues worldwide.
When buying GPM Gold, we paid the staff nine-month wage arrears and gave them monthly wages throughout the idle period.
Are you meeting your obligations to Armenia’s budget in terms of tax and concession payments?
Yes, we are and we have no problems or misunderstanding on this matter.
Is the Government meeting its obligations to your company in terms of VAT redemption? Obviously, this is a sore point for our exporters, especially, those engaged in mining.
Yes, all of the obligations are being fulfilled.
How are you treated in Georgia, a country that, mildly speaking, does not like Russia very much?
In both Georgia and Armenia we enjoy quite friendly treatment. We do business and do it together. We do not depend on any changes in political attitudes. After all, people are united by common business and interests rather than politics.
How would you comment on the initiative of the Chairman of the Control Chamber to stop the development of gold mines in Armenia?
I respect Mr.Zakaryan very much and I very much regret that he has used unverified information or may have been deliberately misinformed. I think that any dispute should be settled in a civilized manner lest it might become a sore point. Here we deal with the fates of people, their jobs, their wages. This may have a direct impact on their families and lives. So, I think that here we need independent and unbiased position.
We want to continue our work in Armenia. I think that this response is better than any counter-charge might be. Our response is our stable work.
November 24, 2010