MOSCOW (Mineweb.com) — The shadow of an Armenia goldmine venture gone badly wrong has fallen over the sparkling presentation of interim results by Vedanta Resources, the London-based metals group controlled by Anil Agarwal.
According to Vedanta’s posting of results for the first half of its financial year to September 30, the group’s revenues have jumped 104% to $1.4 billion, compared to the same period of last year; Ebitda has jumped even higher by 110% to $336.5 million. Growth in copper mining in India and Zambia, at higher sales prices and lower production costs, is the strongest driver; but zinc, which Vedanta mines in India, has also turned in a strong contribution to the bottom-line.
Unmentioned in the presentation of results is the apparent collapse of Sterlite Gold’s sole goldmining operation in Armenia, at two mines Zod (also known in Armenia as Sotk) and Meghradzor. Together, according to official statements by Sterlite, a Canadian-listed company, the Armenian assets could produce about 160,000 troy ounces of gold per annum. However, in the first quarter of this year to March 31, output was just 12,519 oz. Revenues for the quarter of $5.3 million were overtaken by costs totaling just under $6 million.
But that is not Sterlite’s biggest problem right now.. According to a report just issued by the Ministry of Nature Protection in Yerevan, Sterlite’s management of its Zod and Meghradzor mine operations has led to a string of serious operating, legal, and royalty calculation violations. The penalty for these, sources close to the Armenian ministry claim, are revocation of the operating licences, and fines that would far exceed Sterlite’s annual revenues.
If Agarwal is hoping to save Sterlite by bringing it under Vedanta’s wing, Agarwal himself is not yet ready to say so. The Finsbury public relations firm of London, which represents Vedanta, told Mineweb: “Vedanta Resources PLC does not own Sterlite Gold. It is our understanding the [sic] this company is separately owned by Mr. Anil Agarwal, and therefore it would not be appropriate for us to comment, as we solely represent Vedanta.” Asked to say whether Vedanta will buy out Agarwal’s stake in Sterlite, spokesman Alex Pettifer told Mineweb “we have no comment to make on this.”
Agarwal claimed through an assistant that he is too busy with Vedanta’s affairs at present to discuss Sterlite. Special assistant for Agarwal in London, Fiona Palmer was asked how Agarwal responds to the Armenian government claims, and what action he might seek from Vedanta on Sterlite’s behalf. She issued a curt “no comment”. Agarwal was also asked to say if he is considering the sale of Sterlite’s Armenian assets, and if so, what value would he judge them to have at present? He did not reply.
According to the Armenian ministry report, a government order of September 28 authorized a review of operations at Zod and Meghradzor over four weeks, ending on October 27. The review was led by Y.Hovhannisyan. Referring to Sterlite’s licence for Zod, dated 7 June 2004, the report charges violations of land allocation; uncertified laboratory work; improper control of drill samples; and underground mining termed “illegal”. The report also alleges that Sterlite has under-estimated gold reserves at Zod “by more than 2 times”. Royalty payment calculations have allegedly under-counted the amount of precious metal produced, the report also claims.
Armenian regulations penalize miners for under-counting by a fine calculated at five times the present market value of the metal volume concealed. If, following the completion of the ministerial report, Sterlite is formally charged with under-counting of a ton of gold, or more, it may face fines totaling more than $77 million. This dwarfs the current asset value and market capitalization of Sterlite. Armenian officials and the local media also report concerns that Sterlite’s plan for a new ore-processing mill near the Zod site, in eastern Armenia, violates environmental protection laws.
Sterlite is registered in the Yukon, traded in Toronto, and headquartered in London, with a telephone link to the Vedanta switchboard. The company website does not disclose any problem with the Armenian operations, the sole source of the company’s current revenue.
Russian goldminers, who were familiar with Zod from the Soviet era, say there has been relatively little Russian investment in the Armenian gold sector to date. The two countries have been more closely connected in the diamond sector, with Alrosa, Russia’s diamond producer, supplying some rough for cutting by Armenian plants. Diamond-cutting and polishing is one of Armenia’s major foreign exchange earners. Investment Group Alrosa, an affiliate of Alrosa, recently acquired an Armenia gold project.
A source familiar with Zod told Mineweb:”The main problem is that the company owner is not investing anything into the deposit. Maybe because of the political situation, maybe because the deposit is located on the Azerbaijan border, nobody wants to buy it.”
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