Armenia gold mining problems cast shadow over renewed EBRD financing

The attention of the environmental community in Armenia has recently been focused on events swirling around the Deno Gold Mining Company (DGMC). The company has been contending with rising tensions in Kapan as a result of its laying off of workers at its gold mining operations coupled with failings at its Geghanush tailings facility. The controversies have arisen just as the company awaits disbursement of a new loan from the EBRD.

DGMC is owned by the Canadian mining company Dundee Precious Metals. Dundee is a long-time EBRD client, and activists are questioning how new EBRD financing can proceed in view of the company’s failure in Armenia to deliver on its commitment to apply the highest standards – both technical standards, for securing the adequate mitigation of negative impacts of the tailings facility, and standards on conducting 'meaningful consultation' and promoting democratisation.

DGMC is exploiting the Shahumyan gold deposit that belongs to the administrative territory of Kapan and is producing the ore in a connected processing plant. Industrial tailings from the complex are being discharged into a tailings storage located in the village of Geghanush, about three kilometres from Kapan. The Geghanush tailings facility has been upgraded thanks to USD 4.5 million loan financing from the EBRD, and opened in 2008.

Regrettably, though, the Geghanush tailings storage facility has been built deficiently. According to a verdict of March 21 this year from the National Bureau of Expertise, and presented to the Court of General Jurisdiction of Syunik Marz (a regional unit in Armenia), the drainage channels of the tailings facility do not match the original feasibility study prepared for the project.

The Court requested an investigation following a lawsuit filed by local company Mrkadzor against DGMC. In July 2009 a car repair station owned by Mrkadzor was affected by the collapse of a wall that runs in parallel to the drainage channels of the Geghanush tailings facility.

The findings of the National Bureau of Expertise in this case state, among other things, that "the concrete wall collapsed due to the erosion of the bottom and the walls of the water drainage pipe’s vibrancy at the junction of the old and new drainage systems. The leakage of water washed away the basement of the concrete wall and it collapsed”. Hence, it appears, the construction was badly worn out and the respective documents refer to the technically poor condition of the drainage: “The construction of the Geghanush tailings storage was negligently conducted and does not comply with the projected documentation and proposals”, according to the National Bureau of Expertise conclusion.

Other than this particular incident, other problems with the tailings pipe have surfaced in recent times. In 2012 two accidents stemming from the Geghanush tailings pipe took place resulting in discharges of waste into the surrounding environment. Syunik’s territorial Environmental Inspectorate linked an accident of December 14, 2012 to the clash of tailings pipes due to the pressure of the tailings – this incident caused damage of up to 2.88 million drams (or USD 7,200). Two weeks previous, on December 1, 2012, another accident occurred, releasing tailings into the cross-border River Voghji.

The project commenced in 2007, despite complaints from Geghanush villagers during public discussions – 134 villagers signed a petition against the new facility’s construction.

Layoffs and workers’ rights issues at DGMC

In autumn of 2012, DGMC laid off employees precipitating an extremely tense stand-off between the company on the one side and the population of Kapan and workers. According to a DGMC Public relations officer, 30 employees were fired out of a total workforce of 1100. Similar layoffs caused an earlier wave of discontent in 2009-2010.

March this year also saw concerns mounting over mooted wage cuts at DGMC. The few workers who filed complaints were dismissed. On March 15, DGMC organised a briefing with journalists, during which the director Hrach Jabrayan commented on several issues, noting principally that additional payments only apply if a monthly extraction rate of not less than 45 thousand tons of mined ore has been fulfilled. Jabrayan accused workers of failing to fulfill this target rate, as well as of theft. The employees, on the other hand, claimed that the plan was being executed, stating that the machines were in poor condition and did not function properly, which in turn was a reason for poor performance.

Local activism

A further high profile saga to have hit the company recently involves a controversial lawsuit that it launched against prominent environmental activist Yeghia Nersisian. DGMC accused Nersisian of defamation following remarks a made at a public meeting in the US: “…a Canadian gold company in Kapan is applying an electric shock to its employees so that they will not sleep and will work for 24 hours…”.

Rumours about the use of electric shocks in Kapan spread after a series of strikes in 2010. The company neither permitted the press to enter its territory where miners were striking, nor were the police admitted; the regional and city administration were unable to establish the veracity of the claims.

The lawsuit against Nersisian immediately came to the attention of the environmental community. On behalf of 50 NGOs, Environmental Public Alliance distributed a statement that noted: “Mining companies have decided to repress the voice of the public ‘green’ movement in favour of the preservation of environment, water, earth ... We appeal to civil society to speak out in support of Yeghia Nersisian and request the court to deny the claim of Deno Gold Mining Company in the first sitting due to the unreasonableness of this lawsuit."

Well-known environmental activist Mariam Sukhudyan, who received the title of ‘the bravest woman of 2010’ from the US Embassy in Armenia, issued the following statement on Facebook: “I ​​agree with the position of Yeghia Nersisian. You are exploiting people and nature. I’ve talked about it, now prosecute me as well.”

As for the trial itself, at the first court sitting on March 29 this year, representatives from Environmental Alliance protested outside the court building. The representatives of the company were not present in the court. The protest continued at the Yerevan office of the EBRD. The action was related to the bank’s allocation of a loan to Dundee Precious Metals for its operations in Armenia (via DGMC) and Bulgaria.

Activists believe that the reaction of DGMC to Yeghia Nersisian’s statement relates specifically to the EBRD credit, as the comments might have been noted and picked up by foreign media. Similar statements in the local press did not attract the same reaction from the company.

New EBRD loan

A new ‘revolving debt facility’ of USD 45 million was granted by the EBRD to Dundee Precious Metals in December last year – it covers the company’s operations in both Armenia and Bulgaria and is aimed at establishing “higher standards and practices related to the environment, social conditions, health, safety, and transparency.”

For the operations in Armenia, the loan has certain initial conditions, such as:

• Dundee’s Deno Gold operations in Armenia will adopt and implement an Environmental and Social Action Plan agreed with the bank to bring Deno Gold in compliance with the bank’s performance requirements.
• Deno Gold will adhere to “publish what you pay” principles further contributing to greater transparency in the mining sector in the country.

Even though according to Elijah Garkov, the former Director General of DGMC, loan money from the facility has not yet been disbursed for the Armenian operations, EBRD representatives regularly appear in Kapan and meet with DGMC.

The question remains how the EBRD will view DGMC’s fitness for further support given the recent problems relating to environmental performance, labour issues and civil activists. Will the EBRD be alive to and adequately consider the Armenian realities?