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Indian Gold Firm Forced To Drop Plans For New Armenia Plant

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  • Indian Gold Firm Forced To Drop Plans For New Armenia Plant

    INDIAN GOLD FIRM FORCED TO DROP PLANS FOR NEW ARMENIA PLANT
    By Anna Saghabalian and Emil Danielyan

    Radio Liberty, Czech Rep.
    June 15 2006

    An Indian-controlled company developing the bulk of Armenia's gold
    reserves said Wednesday that it has abandoned plans to build a new
    ore processing plant near the ecologically vital Lake Sevan due to
    strong opposition from the Armenian government and environmentalists.

    Sterlite Gold had asked the government to allow it to build the new
    facility near its main gold mines at Zod, eastern Armenia, with the
    aim of reducing transportation costs which the British-registered
    firm claims are too high. Its Armenian subsidiary, the Ararat Gold
    Recovery Company (AGRC), has until now processed ore at a Soviet-era
    plant located in the southern town of Ararat.

    The Armenian Ministry of Environment and local environment protection
    groups have been strongly opposed to the $85 million project,
    citing Zod's proximity to Sevan. They argue that ore processing is
    accompanied by emissions of potassium cyanide, a highly poisonous
    substance that can wreak havoc on a lake which is central to Armenia's
    entire ecosystem.

    Sterlite, 52 percent of which is owned by Indian tycoon Anil Agarwal,
    has tried hard to allay those fears over the past year but appears
    to have failed to secure government permission for the proposed plant
    relocation. Its chief executive, B. K. Sharma, said in Yerevan that the
    company has now asked the government to suggest alternative locations
    for a new AGRC plant.

    Environment Minister Vartan Ayvazian scoffed at the idea on Tuesday,
    saying that making such suggestions "it is not the government's job."

    Ayvazian also renewed his allegations that Sterlite failed to honor
    its investment commitments and hid nearly one million metric tons of
    gold from Armenian tax authorities.

    Speaking to journalists, Sharma and AGRC executives denied the
    charges. "In order to obtain one ton of gold you have to dig up several
    million tons of soil," said a company lawyer, Armen Ter-Tachatian. "You
    just can't hide that."

    Ayvazian's claims are apparently based on an inspection conducted
    by his ministry's Ecological Inspectorate at AGRC's mines in Zod
    and Meghradzor, central Armenia. In a June 2004 report, the agency
    accused the Indians of underreporting more than two metric tons of
    gold extracted from those mines and asked Armenia's Office of the
    Prosecutor-General to launch a criminal investigation.

    However, the Environment Ministry dropped its own claims after it was
    taken to court by AGRC. The latter reportedly paid a $500,000 fine
    in an out-of-court settlement reached with the ministry in March 2005.

    Sterlite has been dogged by controversy ever since its 2002 takeover
    of AGRC, until then a joint venture of the Armenian government and
    the Canadian company First Dynasty Mines. It pledged to breathe
    a new life into the Armenian gold industry by making large-scale
    investments and significantly boosting production levels. However,
    AGRC's output has since declined considerably despite a surge in the
    international price of gold, raising questions about the credibility
    of the foreign investor.

    Sharma revealed that Agarwal has all but acquired the remaining
    48 percent of Sterlite's stock from the mostly Canadian minority
    shareholders and will incorporate the company into his Vedanta
    Resources metals conglomerate.

    But according to a Western mining industry source, the deal may well
    be blocked by Canadian state regulators and minority shareholders
    furious with his perceived mismanagement of Sterlite. The company's
    share price stood $3.5 in 1997 and has since plummeted to below 20
    U.S. cents. The source also said Agarwal would like to pull out of
    Armenia but has so far failed to find any buyers for AGRC.
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