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.