Determined to rise above the depressed gold market, First Dynasty Mines (FDM-T) has convinced the Armenian government to give its blessing to redevelopment of the former-producing Zod and Meghradzor mines.
The operation will be a joint venture between Singapore-based First Dynasty and a company controlled by the Armenian state. The former will manage the partnership, appoint its general director and be entitled to a tie-breaking vote on the board of directors.
Under a new agreement with the government, the joint venture will pay no profit taxes during the first two years and will pay only half the standard 25% tax rate in years three to 10. Thereafter, profit taxes will rise to the full rate.
“Armenia has been very supportive of our efforts,” says First Dynasty President Marcus Randolph, “and the new agreement is evidence of their willingness to work with investors to see that Armenian projects are successful. We have an excellent partner in the government, and I am confident Zod and Meghradzor will be successful ventures.”
A recently completed bankable feasibility study concludes that expanding gold production from the current 25,000 oz. per year to 162,000 oz. (for the first seven years) would require new capital investment totalling US$41.6 million. The total project life would be 11 years, over which cash production costs are expected to average US$179 per oz. gold (US$172 over the first seven years).
Proven and probable reserves break down as follows:
* Zod open pit — 4.3 million tonnes grading 7.42 grams gold per tonne; * Zod underground — 1.7 million tonnes of 6.36 grams gold;
* Meghradzor underground — 838,000 tonnes of 9.58 grams gold.
The project would expand the existing Ararat plant to 2.25 from 1.5 million tonnes per year. The additional 750,000 tonnes per year of capacity would process, on a yearly basis, 625,000 tonnes from Zod and 125,000 tonnes from Meghradzor. The existing railway would transport ore from the mines to the plant under a long-term contract with the government.
“This is a straightforward and highly profitable project,” says Randolph.
“All we are doing in the initial phase is expanding an existing plant by 50%, with no change in the metallurgical process, and restarting an already established open-pit mine.”
Initial production would be exclusively from the Zod pit, with the expanded Ararat plant reaching its design capacity by September 1999. Mining at Meghradzor would be phased in, with full production beginning in the first quarter of 2001. Much of Meghradzor’s US$10-million initial capital cost is expected to be paid out of operating cash flow.
Underground production would begin at Zod in 2006. By that time, the currently identified open-pit reserves would be nearly exhausted, and the currently identified reserves at Meghradzor would support only another 18 months of production. The Zod underground mine is designed to crank out 400,000 tonnes per year, supplemented with about 746,000 tonnes of low-grade, open-pit production from stockpiles. It is expected that, by supplementing underground production with stockpiled ore, the joint venture will be able to continue feeding the Ararat plant until all currently identified reserves are exhausted in 2010.
Zod’s reserves amount to about 6 million tonnes. The identified resource is pegged at 20.1 million tonnes, and the deposit remains open along strike and at depth.
“We believe the ultimate potential of Zod is much greater than what we identified in the initial phase,” Randolph explains, calling Zod’s 20 million tonnes of resources a “natural target” for definition drilling.
“We will begin this drilling early in 1999 in the hope of delineating the reserves necessary to support an expanded production rate beginning in 2001.” The plant expansion is expected to result in an average operating cash flow of US$18.1 million per year during the first seven years, at an assumed gold price of US$300 per oz. Total capital costs are estimated at US$40.4 million.
The feasibility study proposes that construction of the mining operation begin in March 1999, and that full production be attained in October of that year.
During its previous operating period, from 1976 until late 1996, ore was shipped west to Ararat, which acted as the former Soviet Union’s central gold processing plant in the region.
A gold recovery rate of 70% was outlined in the previous prefeasibility study, which, like the feasibility study, was undertaken jointly by engineering firms Kilborn SNC-Lavalin and CMPS&F, with reserves calculated by Snowden Associates of Australia.
* Zod — Gold mineralization at Zod occurs in 37 separate lenses in steeply dipping quartz veins that have been tested over an east-west trend stretching for 2 km. The deposit has an upper oxidized cap, which extends for 100 to 120 vertical metres below surface and grades into sulphides at depth. Mineralization is controlled by fractures in gabbro country rock that is commonly serpentinized next to the quartz veins. The only other rock type to occur in the area is quartz porphyry (in dykes).
Individual lenses strike up to several hundred metres, and range in width from 2 to 45 metres; the average width is 20 metres. The grade and size of the lenses increase at depth.
* Meghradzor — Mineralization at Meghradzor occurs in veins averaging just 2 metres in width that pinch and swell significantly. Mineralization occurs in volcanics of granitic composition that have been pyritized and kaolinized. The deposit strikes east-west and dips steeply to the north, where it is cut off by an east-west-trending fault.
Meghradzor has been tested to a depth of 250 metres and remains open. First Dynasty believes the mineralization could be continuous to the north.
Zod is situated 200 km east of the Armenian capital, Yerevan, whereas Meghradzor lies 70 km north of that city. When The Northern Miner visited the sites in February 1997, Randolph opined that there is an unfortunate tendency for people to regard all former Soviet republics as having similar issues and problems.
“But Armenia is different,” he said. “I have met with everybody in the Armenian cabinet, and they all express a consistent, well-thought-out message.”
Armenia became independent with the collapse of the Soviet Union in 1991.
The superpower’s collapse was partly triggered by Armenian riots and strikes (beginning in 1988), which were followed by open warfare with neighboring Azerbaijan over Nagorno-Karabakh, a geographically separate part of Azerbaijan populated largely by Armenians.
The most recent elections were held in September 1996; the next ones are scheduled for 2001.
More than 90% of the country’s 3.6 million citizens are literate. Per capita, Armenia is the second-largest recipient of American aid (after Israel), with annual transfers totalling $150 million.
The country began privatizing its industries in 1994, following land privatization in 1991. In 1995, Armenia reopened its nuclear power plant, which had the effect of stabilizing power supplies. Gross domestic product is expected to grow by 5% in 1998.
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