GeoProMining: A major long-term investor in Armenia

Posted on Jul 6, 2011 in GPM in the media

GeoProMining: A major long-term investor in Armenia

Interview with Siman Povarenkin, Chairman of GeoProMining
By Artur Erndjakyan
6 July 2011
unofficial translation Русский 

GeoProMining’s Ararat Gold Recovery Factory broke ground on a new processing line on July 6, 2011 in a ceremony attended by Armenian President Serzh Sargsyan. The company has invested more than $100 million in the line, which will use an innovative technology called the Albion Process to increase recovery rates. ARKA spoke to GeoProMining Chairman Siman Povarenkin at the event.

Q.: How favorable is the Armenian business climate for GeoProMining? Would you say that you have been able to have a constructive dialogue with local authorities?

A.: The Armenian mining industry has a rich history and we are very happy to have become a part of that history. We began working in Armenia relatively recently, in 2007, but we are proud to say that we are now one of the largest foreign investors in the country. After four years, I can state with confidence that we feel comfortable working here. Armenia has everything necessary to attract investors: stable economic and political systems, a favorable tax regime and a transparent legal regime. We are able to find educated, qualified people to fill vacancies at GeoProMining’s offices and production facilities in the country. These factors, combined with local authorities that care about the businesses in their regions, contribute to a good investment climate.

Q.: In February 2008, you met with the Armenian President Serzh Sargsyan to talk about GeoProMining as a corporate citizen, its position in gold, copper and molybdenum mining and your investment projects. The global economic crisis had already hit the Armenian economy, and the consequences were especially acute in the mining industry, with many factories shutting down and employees being sent on unpaid leave. The president spoke of the importance of maintaining employment and surviving the crisis. How does the situation in Armenia look today, and what has been achieved?

A.: We seek to have a dialogue with the president on a regular basis, and have met regularly with him in 2009, 2010 and 2011. GeoProMining is a large, long-term investor that plays important economic and social roles in Armenia. This means that we must maintain a regular and constructive dialogue with the authorities in the country.

We obtained our production assets – the Ararat Gold Extraction Plant, the Zod Mine and the Agarak Copper-Molybdenum Mine Complex – before the economic crisis. One of GeoProMining’s first steps was to pay back-taxes and salaries owed by the entities, and to re-start production at GPM Gold. These first steps demonstrated our commitment to maintaining the skilled workforce at these companies.

When we bought the assets that make up GPM Gold, both the Ararat Gold Extraction Plant and the Zod Mine had been mothballed, primarily due to a lack of proper ore and the poor state of the plant. However, by restarting these assets at the peak of the economic crisis in 2009, we were able to retain the experienced teams of professionals who worked there.

We are confident in the future of our business in Armenia, which is why we are investing to further modernize our assets and installing innovative technologies that help us to minimize our environmental impact. We have already managed to make the companies profitable. We are hopeful that GeoProMining will continue to improve its production and financial results, which will also result in increased tax payments for Armenia.

Today we have taken one more step in that direction by breaking ground at the site of our new processing line in the presence of the president and representatives of the Russian government. This new facility, which uses the innovative Albion Process, marks the beginning of a new stage for the Zod Mine.

GPM Gold’s operations currently involve selective mining of ore from the Zod Mine with a low gold content. We will continue doing this until we complete the new line, which is planned for 2013.

Q.: Did the government help GeoProMining through the crisis? How useful was the $14 million loan granted in June 2009 to modernize the Agarak Copper-Molybdenum Mine Complex? Do you have any forecasts for production volumes?

A.: The stabilization loan was very helpful, and we used it to upgrade and modernize the production facilities, which helped to reduce production costs and improve our competitiveness. By December 2009, Agarak had already started repaying the loan.

GPM is actively investing in the development of its assets. Currently, the Agarak Complex is being modernized: in the first quarter of 2011 we invested significant amounts in new flotation machines and upgraded equipment. We expect these investments will help to increase production volumes from 3.0 to 3.5 mln tons per year.

GeoProMining plans to continue investing in the Agarak Copper-Molybdenum Mine Complex. Currently, we plan to invest about $18 million, which we believe will enable the plant to function more efficiently.

We are also providing training for our employees, changing the organizational structure and upgrading the mine. We are very happy to say that our work has had an impact: in 2010 the Agarak Complex earned a good profit, and we are optimistic about the future.

Q.: The new gold processing line which utilizes leading-edge Albion technology, is one of GeoProMining’s most ambitious projects in Armenia, with investment said to amount to $100 million. Gold has always been in demand, even during the crisis, but the ore at the Zod Mine is not ideal and the company has not yet seen great financial benefits. Is it fair to say that without construction of this new line the Zod Mine in the Gegharkunik region has little hope of developing? What benefits do you hope to achieve from this project?

A.: The Albion Process is part of a large-scale modernization of the gold extraction plant. We expect to significantly improve efficiency while maintaining high environmental safety standards. The Zod Mine, which we own, is rich in sulfide-bearing ore that is extremely difficult to process. The Albion Process, however, will make it possible to extract gold from this ore and, in effect, give the Zod Mine a new lease on life. Currently we expect GPM Gold’s production capacity to increase to 150,000 ounces of gold per year.

Q.: GeoProMining owns assets producing gold, copper, silver, molybdenum and antimony in Georgia, Armenia and Yakutia in Russia’s Far East. Do you have plans to expand your business in Armenia or elsewhere?

A.: Our assets in Armenia include the Agarak Copper-Molybdenum Mine Complex and GPM Gold, which processes ore from the Zod Mine at the Ararat Gold Extraction Plant. We are always ready to consider interesting offers, but our primary focus is on modernizing our existing facilities so that they can achieve their full potential. In the short term, we will focus our time and energy on the projects I have mentioned.

Q.: How much has GeoProMining invested in Armenia to date and what are your plans for future investments? When do you expect to make a return on your investments?

A.: Since we started working in Armenia, we have invested approximately $260 million in our assets in the country, and over the next three years we currently plan to invest around $120 million.

As for making a return on our investments, it is too early to name any specific dates. It will depend on the successful completion of the Albion project and on market conditions…but we are optimistic!

Q.: GeoProMining works across a range of geographies. Are there differences between what a strategic investor can do in Armenia and, say, Yakutia? Is there anything special about investing in the Caucasus? Do you share the view that it is difficult to work in the Caucasus without local partners?

A.: Each region has its own political and economic specifics, which we certainly take into consideration. We pay attention to cultural and social aspects, as well as to local traditions. Our team and the circle of our partners also come from diverse national backgrounds; however, when recruiting workers we consider their professional skills and experience, and not their nationality.

Our technologies are also from diverse national backgrounds. For example, the Albion Process was developed by Australian companies Xstrata Technology and Core Process Engineering, while our investment process involves several South African companies specializing in environmental protection, such as Fraser Alexander, Epoch and Digby Wells Environment. At the same time, our staff includes local managers and professionals, many of whom are continuing their family profession.

Q.: As the major shareholder, what do you think about the substantial increase in companies’ spending on corporate social responsibility? What proportion of profit do you think companies in CIS countries should allocate to social programs? What programs do your companies run?

A.: The key to developing any business is to remember that business is first and foremost about people. We believe that a business can be profitable only if it takes into account the interests of all stakeholders, especially employees, local residents and government authorities.

As one of the largest foreign investors in Armenia, corporate social responsibility is not just something we do to look good; it is of utmost importance to the success of our business. We are the largest employer in a number of communities where we work, and in some cities we believe that there is every single family is in some way connected to our facilities.

This is one reason why GeoProMining has almost since day one taken care of its employees, invested in education, culture and sports, and helped those in need. Our CSR program Resources for Good unifies all of our social initiatives. We plan to launch a number of new projects using this program. And this is all based on real actions, not just words.