Mineral resources of Armenia

The mining industry is one of the most significant contributors to Armenian GDP and exports. It’s a pivotal contributor to the economy. Over half of Armenia’s mineral resources exports were accounted for ore concentrates and metals, solidifying their status as the country’s most important export products.

Currently, in Armenia, there are more than 670 solid minerals mines, which include 30 metal mines. About 400 mines out of 670 are being exploited. Among Armenia’s most valuable resources are: iron, copper, molybdenum, lead, zinc, gold, silver, antimony, aluminum, and rare and dispersed metals contained there. Among metal minerals, there are 7 copper-molybdenum mines, 4 copper mines, 14 gold, and gold-polymetallic mines, 2 polymetallic mines, 2 iron ore mines, and 1 aluminum mine. In addition to base metals in ores of mines listed in the state record, limited and separate elements are discovered: rhenium, selenium, tellurium, cadmium, indium, helium, thallium, bismuth, other. Besides mines determined and recorded in the state inventory, 115 deposits of other types of metals have been identified in the Republic of Armenia’s territory.

As of now, a final output for the mining industry in Armenia has mainly considered the concentrates (with high concentration of copper, molybdenum, zinc, and in several cases gold and silver, in the nearest future also lead), which do not facilitate extensive use of the economic potential of the mines. The organization of processing of metal ores obtained in Armenia will produce high-value goods, which will guarantee GDP growth.

There are 15 tailings in Armenia, which exceed some million m3 and hold a total space of about 700 hectares. Currently, the production waste produced due to uprooting and processing of minerals stored in tailings is not utilized, though they include a vast quantity of polymetals.

Armenia takes the lead in the World with wealth and a variety of nonmetallic minerals. Almost all types of mineral ores well recognized all over the World are present in the area of the country. Mountainous rocks created as a consequence of volcanic processes in Armenia’s territory are of particular importance and significance, the most significant of which are light rocks (tufa, perlite, pumice-stone, zeolite, scoria, etc.). Resources of several kinds of basalts, granites, nephelite syenite, marble are huge.

The most high-quality resources and the most considerable amount of swelling rocks (perlites, obsidians, other) in the World exist in Armenia. The confirmed resources of Aragats-perlite in Armenia amount to 150 million m3, while the total volume of forecasted resources reaches up to 3 billion m3. More than 100 basalt, andesite mines are mapped across the whole territory of Armenia, some of which are unique in their composition (Mg-O content in basalt Khaladj mineral amounts to 11%).

Biggest Mines in Armenia

The most comprehensive copper resources are concentrated in copper and molybdenum (Kajaran, Agarak, Lichk, and Teghut), copper-pyrite (Kapan, Alaverdi, and Shamlough), and gold-polymetallic (Shahumyan, Armanis) deposits. There are substantial gold reserves in the gold root (Sotk, Megradzor, Lichkvaz-Tey) and multiple gold-polymetallic (Shahumyan, Armanis, Azatek, Gladzor, Marjan) deposits.

Armenia also has rich deposits of construction materials among which are: granite, basalt, travertine, gypsum, diatomaceous earth, limestone, etc.  

Currently there are 10 operating big mining and metallurgical companies out of 27 registered, most of them either extracting and processing copper, molybdenum ores, or gold. The total value of metal and minerals production in 2017 increased by 13.9% and was at 699 million USD or approximately 5% of GDP.

The largest copper reserves are concentrated in copper and molybdenum (Kajaran, Agarak, Lichk and Teghut), copper-pyrite (Kapan, Alaverdi, and Shamlough), and in gold-polymetallic (Shahumyan, Armanis) deposits.  There are considerable gold resources in gold root (Sotk, Megradzor, Lichkvaz-Tey), and complex gold-polymetallic (Shahumyan, Armanis, Azatek, Gladzor, Marjan) deposits. The leading producer of copper and molybdenum concentrated in Armenia is the Zangezur copper-molybdenum complex (ZCMC), followed by the Vallex Group and the Agarak copper-molybdenum mining and processing complex (ACMC). ZCMC is part of Germany based CRONIMET group of companies.

Environmental Issues Caused by Mines

The destruction of Armenia’s forest cover continues today. The consequences of deforestation involve increased erosion and landslides, destruction of topsoil and arable farmland, changes in regional weather and climate conditions, bad air quality, and destruction of plant and animal environments. The causes of deforestation in Armenia include increasing illegal woodcutting and wood export businesses, open pit mining, a shortage of affordable alternative energy sources in many agricultural areas, and a weak and corrupt regulatory structure that fails to consistently and broadly implement environmental, forestry, and extractive mining regulations.

Armenia has been identified by Conservation International and the Critical Ecosystem Partnership Fund (CEPF) as one of the global biodiversity hotspots. Because of the country’s unique location and volcanic origins, it contains a vast array of microclimates and unique habitats for many endangered plant and animal species found nowhere else on the planet (CEPF, 2010).

Given this environmental legacy, Armenia is unique in providing global leadership in biodiversity preservation and ecotourism improvement. In this setting, widespread concern and resistance have expanded over the past few years, both within the country and around the World, to the suggested project to develop an open-pit copper mine in the northern village of Teghut.

Another critical environmental concern is the Alaverdi smelter’s work and its possibly disastrous impact on the environment and the neighboring community.

Teghut Mine Case

The Armenian Copper Program (ACP)—whose main shareholder is the Liechtensteinregistered Vallex F.M. corporation—has been awarded 25-year exploitation permission by the Armenian state to derive the copper and molybdenum mineral buried in the Teghut hills. ACP is in the process of constructing an open-pit mine with an estimated surface size of 240 hectares, which is the volume of the forested area the company intends to clear cut. ACP is also going to develop related infrastructure, which will consist of roads, processing units, tailing dumps, and support facilities.

ACP has presented an environmental impact study that outlines the proposed mining activities, its impacts, and recommended mitigation measures. The environmental document has been reviewed by various governmental agencies, including the Ministry of Nature Protection, Ministry of Agriculture, Forestry Service (HayAntar), Ministry of Trade and Economic Development, Ministry of Transport and Communication, Ministry of Health, and Ministry of Culture. Each of these agencies submitted their evaluation of the planned project. After reviewing the input from these state agencies and the environmental impact study of the project (performed by the mining company itself and not by an independent body), the Ministry of Nature Protection issued its approval for the proposed project in 2007. Implementation of the project plans, including the clear-cutting of the forest, began in 2009.

Existing Settings

Teghut village and the surrounding forests are located in the Lori Region of northeast Armenia between 690–2,200 meters. Teghut and the neighboring Shnogh village are very remote communities with a combined population of approximately 3,600 residents. Many of the residents relied on subsistence agriculture before the area’s irrigation system fell into disrepair.

There are many unique and endangered animal and plant species in the Teghut forest, such as the gray bear, Mediterranean turtle, goat, wolf, fox, rock eagle, Trautvetter’s maple, and the Caucasian persimmon. Additionally, there are 260 types of insects and butterflies, 86 birds, 55 mammals, and 10 reptile species in the Teghut forest. Out of these, 19 are listed in Armenia’s Red Book of Endangered Species.

ACP has built numerous roads into the forest to establish exploratory drilling sites. According to the company, the estimated size of the ore deposits in the area is 1.6 million tons of copper and up to 100,000 tons of molybdenum. ACP, in its Environmental Management Plan and other documents, claims that it will mine about 7 million tons of ore annually, for several years, from which it will extract 35,700 tons of copper (an overestimate, considering that copper comprises at best 0.45 percent of the ore) and 1,470 tons of molybdenum.

Impact Assessment

In October 2017, the Denemark’s Export Credit EKF agency withdrew its 62 million dollar credir from from the exploitation of copper-molybdenum mine in Teghut because of its numerous regulation and rule violations. The problems included: severe pollution of the Shnogh river as a result of leakage from tailing damp; problems connected with the tailing damp, as well as poor working conditions; the company officials ignoring the local residents claims and petitions; fake reports to donors and creditors for covering up the real situation.

Lydian Armenia Case

In 2016, the mining company known as Lydian began building on an open-cast gold mine on Amulsar mountain, in the south of Armenia, ignoring long-standing environmental issues. Lydian Armenia is the subsidiary of Lydian International – Jersey registered US company.

Environmental issues about the mining focus on effects on water and flora and fauna. The rivers that run from the Amulsar also remain above a pit that provides water to Lake Sevan, the biggest freshwater lake in the whole Caucasus area. Independent geological specialists acknowledge that constructing a mine on that place will contribute to acid water poisoning the rivers, the pipe, as well as Lake Sevan. Also, a lot of endangered species live in the Amulsar mountain area.

As soon as the construction began, other concerns also occurred. Amulsar is situated right next to Jermuk, which is a spa town constructed around mineral geysers. The region’s economy heavily relies on health tourism, and its biggest advantage is its stunning, untouched natural environment. However, the mine has become a significant obstacle for the town, and the dust from construction explosions has become a huge problem. Tourism indicators started to decrease from the beginning of the construction. Although the mine would also bring jobs, those were much less than the tourism sector’s jobs, and only for the 10-year period of mine operation.

The dust also had a considerable impact on plants and pasture. Moreover, the cattle could not drink water from the river on the mountain since construction started.

In addition, direct problems with water contamination arose. Because of clay leakages into the river, which went to the fish farms, many fish have been killed. Due to the accident during the excavation process, the pipe supplying water to Gndevaz village was broken, as a result of which the residents of the village had muddy water. The latter was the last drop of patience. In May 2018, the residents began protesting.

Since June 2018, the blockades of the roads leading to the mine by the local people and supporting activists has started. As a result, Lydian’s vehicles were not able to enter their territory. As a response to the majority of the population of Jermuk, in December, the local state bodies passed a resolution that Jermuk is an ecological area, and the metal mining over there should be strictly prohibited. It has been a year since this blockage is in place. The construction has been completely stopped, and no gold has been extracted.

However, Lydian Armenia does not accept the decision by the RA Nature Protection and Soil Inspection bodies on the closing of the mine. They state that “Resolution published by the Inspection Body and following public statements made by Artur Grigoryan aimed at canceling the largest foreign investment project without any legal or scientific basis, and with amateurish reasoning. While the inspection group was not able to identify any serious issues that could be a reason for public concern, Artur Grigoryan has issued unreasonable and unlawful conclusions, disregarding any consideration for the seriousness of his mission and consequences of such irresponsible behavior.” For which the Armenian PM Nikol Pashinyan said that it is necessary to carry out yet another international expert assessment in order to have an unbiased conclusion and finally solve the issue.

According to Lydian Armenia, in 2019 the blockade led to 1,000 employees losing their jobs as well as company losses of approximately $60 million.

Insurance Relations with the Mining Sector

The main risks in the mining sector are supply chain security, political risk, terrorism, natural disasters and environmental issues. In his interview to the Financier Worldwide, Andrew Chester – the Chairmen of Global Mining Practice at Marsh – told: “The insurance market provides a comprehensive selection of risk transfer products and board members are indeed taking full advantage of them. In terms of coverage and policy pricing, it is fair to say that insurers consider the mining industry to be genuinely exposed to risk.

There is a greater desire to analyze and understand the natural catastrophe exposures that exist, coupled with the fact that rising commodity prices mean that the levels of self-insurance that insurers and re-insurers are looking for mining companies to take up is changing. There is much more analysis of contingent business interruption exposures with regard to the use of third party railways and ports. A lot of new mining projects are utilizing new techniques. We anticipate that mining companies will want to take greater advantage of the risk transfer options available in respect of their environmental exposures. Environmental and associated business risks arise throughout the lifecycle of a mining operation, including transportation, construction, development, mining, processing and the closure or restoration of sites.”. (Chester, A., 2012)

Compulsory Mining Insurance case in Turkey

For example, according to the Turkish laws and regulations, “Natural and legal persons who operate underground and above ground coal mining operations, and underground mining for minerals other than coal must take out insurance against occupational accidents for the employees employed in the production and production preparation activities.”

The Doga Sigorta A.Ş provides the following coverage for its clients:

  • Accidental Death Cover

According to this point, if the Insured dies within 2 years after the accident, the Insurer is obliged to pay out the amount of money specified in a contract.

  • Permanent Disability Coverage

If the accident causes permanent disability within 2 years after the accident occurence, payments related to medical expenses will be made to the Insured.

The following risks are not being covered:

  • War and warfare,
  • Strikes, labor movements and fights,
  • Risks in fire, flooding which are not caused by natural events such as storms, hail, rain,
  • Crime and criminal attempt,
  • Accidents caused by the insured person knowingly putting himself/herself in danger.

Recommendations for the Armenian mining sector

The mining industry provides a great job opportunity with relatively high wages and workplaces’ availability in the rural areas of the country. As of November 2019, 10,529 people were employed in the mineral industry and open-pit mine extraction sector with 457,831 AMD (approximately $1,000) average nominal salary per month. The average number of employees in metallic mining organizations is 784, whereas nonmetallic mining had, on average, only 13 employees.

First of all, the government must release the law, according to which every mining company must obtain health/life/injuries insurance (or the mix of them) for its workers because mining is one of the most dangerous sectors of the economy. There are numerous cases when the workers face enormous expenses for recovering their health due to the poisonous effect of the majority of the mines. Moreover, from 2011 to 2017, the mining sector workers faced 129 cases of casualties and 349 cases of injuries.

On the other hand, every mining company must face responsibility for damaging third parties and the environment. The first task of responsible mining is waste management regulation. As a matter of fact, the mining industry is the biggest emitter in the World, with 70 billion tons per year. Meanwhile, the restoration activities of the mines are costly. Mining company owners try to bypass the existing state regulation regarding waste management not to pay huge bills. Regarding this issue, Armenia’s legislative bodies set very general norms, which are easy to be neglected.

International practice is mainly led by the rule of “polluter pays”, which means that whoever contributes to the pollution should be held accountable for the costs of hampering, surpassing or decreasing them.

Armenia has made relative progress in this field in a sense that by 2016, according to the Entrails Code of the Republic of Armenia, the tailings dumps for mining were named as “technological mines”. They were recognized as the Republic of Armenia’s property, together with the waste they produce, as there were still ores that the state could re-use.

However, this was not a reasonable practice because the companies de facto just avoided environmental charges, and their disposal or even re-usage of their waste was the state’s responsibility. “Polluter pays” rule exists in Armenia now, which means that the mining operators are responsible for the pollution created as a result of their operations.

Finally, it is absolutely necessary to have strict regulatory bodies that will ban any activities representing a potential threat to the ecological environment and lead to environmental disasters.


References

Armecofront. (Oct 20, 2017). The Environmental Disaster in Teghut No Longer Possible to Cover Up: Denmark Pulls Out From the mine. Retrieved from: https://www.armecofront.net/en/news/denmark-pulls-out-from-the-teghut-mine/

Doga Sigorta. (2020). Compulsory Personal Accident Insurance for Miners. Retrieved from: https://www.dogasigorta.com/en/product/compulsory-personal-accident-insurance-for-miners

Ecolur. (Sep 05, 2018). Lydian Armenia Doesn’t Accept Decision by RA Nature Protection and Soil Inspection Body. Retrieved from: https://www.ecolur.org/en/news/mining/lydian-armenia-doesnt-accept-decision-by-ra-nature-protection-and-soil-inspection-body/10383/

Financier Worldwide. (May, 2012). Risk and insurance in the global mining industry. Retrieved from: https://financierworldwide.com/risk-and-insurance-in-the-global-mining-industry#.X6G99lgzbIU

Lydian International Calls on Armenia to Help End Gold Mine Blockade – The Armenian Mirror. (Feb 27, 2020). The Armenian Mirror-Spectator. Retrieved from: https://mirrorspectator.com/2020/02/27/lydian-international-calls-on-armenia-to-help-end-gold-mine-blockade/

Ministry of Energy Infrastructures Ans Natural Resources of the Republic of Armenia. (2020) General Information. Retrieved from: http://www.minenergy.am/en/page/472

Privacy Shield Framework. (unknown date). Armenia – Mining and Minerals. Rertieved from: https://www.privacyshield.gov/article?id=Armenia-mining-sector

  • About the author

    Head of Underwriting at INGO ARMENIA ICJSC
    Ph.D. in Economics (ASUE), Master of Law (LL.M., AUA)
    Experience in Insurance – since 2010