By Kieran Cooke

BBC NEWS s/7153794.stm
2008/01/09 00:02:45 GMT

As the international price of gold touches record highs, the rush
is on to find and exploit deposits around the world. Old mines are
being revived: new ones are opening up.

In the town of Ararat - about an hour's drive south of Yerevan,
Armenia's capital - investors from Russia have moved in to take control
of what is believed to be one of the biggest gold-mining operations
in the country.

The move has prompted concerns within Armenia over increasing Russian
control of vital national economic interests.

In the South Caucasus, one of the world's most volatile areas, it is
also raising the spectre of renewed regional conflict.

In a series of deft investment moves in recent years, Russia has
used financial resources generated from sales of its vast oil and gas
reserves to regain control of a number of enterprises in what were,
before the early 1990s, territories of the Soviet Union.

We know the foreigners are after the gold Armen Gevorgyan, trader

Nowhere is this investment drive more evident than in Armenia. As a
result of often secretive deals linked to the Armenian government's
privatisation programme, Russian companies now control about 80%
of the country's power generating facilities.

These even include a nuclear power plant at Metsamor, near Yerevan.

Gazprom, the Russian energy giant, has a majority stake in Armenia's
gas network. It is also believed to have taken a controlling interest
recently in a gas pipeline, now under construction, that will link
Armenia with Iran.

Russian companies own most of Armenia's telecommunications network,
while the country's railway system is about to be sold to Russia.

'Economic backbone'

In former Soviet times, Armenia was a centre of military-linked
electronic industries. The majority of these are also now owned by
Moscow-based companies.

President Vladimir Putin of Russia and his Armenian counterpart,
Robert Kocharian, talked of "the truly allied character of the
Russian-Armenian relationship" at a meeting in August 2007.

But critics in Armenia accuse President Kocharian and his ministers
of accumulating vast personal wealth while selling off the country's
most precious assets to Moscow.

"The Russians own what is the economic backbone of Armenia," says an
opposition newspaper.

"Moscow is in control of virtually all our strategic resources."

Now, in a complex and little-publicised deal, one of Armenia's
biggest mining concerns, the Ararat Gold Recovery Company (AGRC),
has been purchased by Madneuli Resources, a mining company based
across Armenia's northern border in Georgia.

Madneuli is ultimately controlled by Industrial Investors, a powerful
group of Russian financiers headed by Sergei Generalov, a former
Russian energy minister turned business mogul.

Disputed terrain

AGRC has a gold processing facility at Ararat, overlooking the
majestic, snow-capped mountain of the same name, where Noah and his
Ark are said to have finally come to rest after the Flood.

However, AGRC's most valuable asset is a large, open-pit gold mine
at Zod, in eastern Armenia, close to the border with Azerbaijan.

Mining experts say Zod has some of the richest gold deposits in the
Caucasus region.

In the early 1990s, Armenia and Azerbaijan fought a bitter war over
the disputed territory of Nagorno-Karabakh.

More than 25,000 people are estimated to have died in the conflict
and hundreds of thousands of people on both sides became refugees.

Nagorno-Karabakh, which has proclaimed independence, is now in effect
controlled by Armenia.

Azerbaijan has raised objections with both the Georgian and Russian
authorities about the purchase of the Zod mine, describing it as

Azerbaijan says a considerable amount of the Zod mine is in its
territory, at present occupied by the Armenian military.

"Any activity in occupied territories without the permission of the
Azeri authorities is illegal," says Araz Azimov, Azerbaijan's deputy
foreign minister.

While a ceasefire between Armenia and Azerbaijan has been in force
for the past 13 years, there are still frequent outbreaks of fighting
between the two sides. The border between the two countries remains

Recently, Azerbaijan is believed to have been using its new-found
oil and gas wealth to beef up its armed forces.


The operations of AGRC have often been the subject of controversy. In
the late 1990s, Azerbaijan protested when AGRC, at the time run by
a Canadian company, started mining at Zod.

In 2002, AGRC was taken over by a company controlled by the family
of Indian mining billionaire Aneel Agarwal. But its operations were
closed down after the Armenian authorities accused the company of
reneging on various licensing agreements.

The company was charged with tax fraud and environmental violations
and ordered to pay millions of dollars in fines.

AGRC's Indian owners denied the charges: no details of court rulings
have been released, but the company was put up for sale earlier
this year.

At its headquarters in Ararat, the reprocessing facility is not
working and the buildings look abandoned.

Locals are concerned that cyanide, used in the course of processing
gold, has been polluting land and water.

They know little about what is going on. Poverty is still widespread
in Armenia and jobs are scarce.

"People were promised jobs by the previous owners, but then Indian
workers were brought in," says Armen Gevorgyan, a local trader.

"We know the foreigners are after the gold. If the new owners provide
some work and decent wages, that's the most important thing for us."

From: Emil Lazarian | Ararat NewsPress