Armenian Government Approves New First Dynasty Agreement

YEREVAN (PR-Newswire)–The government of Armenia and First Dynasty Mines announced Wednesday that–after substantial review–the government of Armenia has formally approved a new agreement covering the Zod and Meghradzor joint venture.

This new agreement–which replaces the October 1–1997 joint venture agreement–requires Armgold–the state mining company–to transfer all right–title and interest in the Zod and Meghradzor mines and the Ararat Plant–free of all liabilities–within 60 days. The agreement was signed on behalf of the government under authority from the Armenian prime minister and does not require a government decree in order to become effective. The name of the new joint venture company will be Ararat Gold Recovery Company.

This new agreement goes beyond the October 1–1997 agreement in several areas:

1. Maximum project debt–to be arranged by First Dynasty–is fixed at 60 percent of the project capital cost. First Dynasty will provide 40 percent of the project cost through equity–which will be non-interest bearing. First Dynasty will receive 70 percent of the net profits from the project–after debt obligations are met–and until its contribution to the project capital cost is repaid. After repayment of First Dynasty’s contribution to the project capital cost–profit distributions are to be 50/50.

2. The Ararat Tailings operation–a separate 50/50 joint venture between the same parties–will be contributed to the new joint venture company. First Dynasty–which funded construction of the 25,000 ounce-per-year project–will receive a credit for equity contributed equivalent to the audited capital cost of the plant and an additional credit for equity contributed equivalent to the cost of the Zod and Meghradzor feasibility studies.

3. Processing of Zod and Meghradzor ore is expected to occur at an expanded Ararat Plant. Existing railroads–which are owned by the government–will transport ore to Ararat under a long-term contract at a fixed price of $4 per ton. The agreement establishes penalty provisions if the railroad disrupts production.

4. A 20-kilometer exploration area has been established around the Zod and Meghradzor mines. Within 10 kilometers from each mine–all surface and mineral rights belong to the joint venture. Between 10 and 20 kilometers–the joint venture has exploration rights only.

5. The agreement also gives the joint venture the rights to export gold and hold offshore accounts–and it fixes the tax regime. As allowed under Armenia’s foreign investment incentive regime–the joint venture will pay no profit taxes during the first two years and will pay half-taxes from years three to ten. Thereafter–profit taxes will rise to the full rate of 25 percent.

6. First Dynasty will manage the joint venture–appoint its General Director–and vote on tie-breakers for the Board of Directors.

7. To retain its interest in the joint venture–First Dynasty must produce gold at an annual rate of two tons per year within two years from the date that all necessary permits are received. This condition is waived if project debt cannot be arranged for 60 percent of the project’s initial capital costs.

First Dynasty’s interest in the joint venture is held through First Dynasty Mines USA LLC and First Dynasty Mines Armenia. First Dynasty Mines USA is in the process of completing an earn-in under which First Dynasty Mines Armenia will become a wholly-owned subsidiary. This earn-in is expected to be completed this year.

Commenting on the agreement–Armenia’s Minister of Industry and Trade Garnik Nanagoulian said–"The Armenian government is committed to attracting foreign investment. We see the restarting of Zod and Meghradzor as key pieces of this strategy. We are confident that these projects will be very successful."

Marcus Randolph–President of First Dynasty Mines added–"Armenia has been very supportive of our efforts–and the changes in the agreement are evidence of their willingness to work with investors and to see that Armenian projects are successful. We have an excellent partner in the government and–combined with the high quality of our mutual project–I am very confident that Zod and Meghradzor will be very successful ventures."

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