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By John Helmer

Armenian officials in charge of mining and natural resource licensing say they have yet to decide whether to approve the transfer of ownership of Zod, Armenia’s principal goldmine, from the Vedanta Resources group company, Sterlite Gold, to Madneuli, a Georgian company financed by Sergei Generalov, a Russian shipping magnate.

According to recent public announcements by Aram Harutunian, Minister of Environmental Protection and Natural Resources in Yerevan, his ministry’s requirements for the Ararat Gold Recovery Company (ARGC) — the locally based affiliate of Sterlite, the licence holder for Zod — must be fulfilled before the transfer of control of the mining concession can be approved.

At a press conference on September 28, Harutunian said that his ministry had yet to receive a formal request from Zod’s new owner. “So far, the Indian side in the form of Vedanta Resources Corporation remains the debtor to the Armenian Government”, Harutunian said. He added that the debts and obligations owed to the government by Vedanta amounted to the value of the gold which government inspectors accuse ARGC of concealing in their processing of tailings and other mine operations.

Armenian sources have told Mineweb this totals about 3 tonnes, or 96,450 ounces. At current prices, this is worth about $73 million. If the Armenians make this payment a precondition of Madneuli’s shareholding takeover of Sterlite and operating control of the Zod licences, the deal to replace Vedanta in Armenia may collapse.

Before and during Vedanta’s sale negotiations, the government in Yerevan had conducted licence checks; imposed a bank account freeze on ARGC; suspended work at the Zod site; and launched court proceedings with the threat to revoke ARGC’s licences altogether. If the government were to revoke the Zod licences, then Madneuli’s purchase of Sterlite would be worthless.

The official Armenian statement by Harutunian followed announcements between August 17 and September 27 of the sale and purchase agreement between Vedanta and Sterlite on the one hand, and Madneuli and parent company, GeoPromMining, on the other. Mineweb reported the details at:

Madneuli offered to pay $97.48 million in cash, and assumed several obligations in Armenia: loans outstanding to Sterlite and ARGC of about $27 million; debts to mine contractors and equipment suppliers of about $5 million; and claims by the Armenian government. Taxes, fines and penalties have previously been reported at about $5 million.

Altogether, but not counting Harutunian’s 3-tonne claim, Madneuli/GeoProMining have agreed to pay $139 million. A demand for another $73 million, or the revocation of the Zod licences, would be a deal-breaker.
Asked to confirm the government’s claims, and identify what precisely they are, Harutunian’s spokesman Artsum Peponyan told Mineweb “the claims are well grounded, and should be paid anyway, no matter who will own the company.” But as to the amount, he said: “I have reviewed all the data, and have been trying to find out information on the exact number, but it is impossible.” He repeated that the minister had been correctly cited by the government news agency, Arminfo, when it reported Harutunian as saying on September 28 that “whoever is Ararat Gold Recovery Company’s (AGRC) new owner, he will be obliged to pay the sum adequate to the gold volume concealedby the company.” According to Peponian, “the statement in ArmInfo is absolutely correct.”

The difficulties in Yerevan have obliged Sergei Generalov, owner of the Moscow-based Industrial Investors group and financier of Madneuli, to try negotiating with the Armenian officials. These talks have yet to produce agreement. “Thedeal is not yet finalized,” Generalov’s spokesman, Oleg Rumyantsev told Mineweb. “We hope to close the deal by the middle of October.”

Asked about Harutunian’s 3-tonne premium, Rumyantsev said: “Industrial investors are well informed about the situation around the enterprise, but I am not ready to comment on [this issue]now.”

Rumyantsev has confirmed that Industrial Investors is financing Madneuli; Madneulihas confirmed that Industrial Investors is financing its development. There is additional confirmation that Madneuli is controlled by Timur Alasaniya, a senior member of the family of Georgia’s President, Mikheil Saakashvili.

Rumyantsev complains that there aredetails in Mineweb’s reporting of the affair which “couldn’t be considered the truth…I can understand why this is written by Georgian oppositionists, or our ‘well-wishers’ in Russia, but I didn’t expect this from your bureau.” The one detail Rumyantsev cited as Mineweb’s misreporting was the price at which the state shareholding in Madneuli was privatized in 2005. The World Bank privatization database reports the transaction value of the privatization as $35 million, and this is the figure Mineweb reported:http://rru.worldbank.org/Privatization/Results.aspx?countryid=74&startyear=2000&endyear=2005&sectors=3

Butthe correct figure was $51.1 million, Rumyantsev says. In its announcement of November 2, 2005, the Georgian Ministry of Economic Development said that the winning bid for Madneuli was $35.1 million “and additional 16 000 000 USD to pay Madneuli’s liabilities towards Georgia’s State Budget.” When this sum was paid, and why the World Bank did not include it in the transaction value, are not known.

Rumyantsev also challenged Mineweb’s reporting that Madneuli is controlled by Georgian President Saakashvili’s uncle, Timur Alasaniya. He told Mineweb that Stanton Equities Corporation, the vehicle used by Generalov and Industrial Investors to acquire the state share in Madneuli, “doesn’t belong to Timur Alasaniya”.

If the 3-tonne premium turns out to be a calculated move by Armenian officials to create a stumbling block for Madneuli, then rival bidders can be expected to appear shortly in pursuit of the Zod concession.

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