Tuesday, 25 September

“If there is no change in global market copper prices, jobs will be cut”



An exclusive interview with Mr. Gagik Arzumanyan, Executive Director of the Armenian Copper Programme, cjsc.

- What impact has the international financial crisis had on the Vallex family of companies, of which the Armenian Copper Programme (ACP) is a part?

- In my estimation, the international financial crisis is impacting mining resources, including metallic mineral ore, with a substantial concomitant drop in global metal prices. Naturally, this factor cannot but impact on any mining concern in operation throughout the world. Mining concerns in Armenia have also not escaped being impacted, in particular our firm. As to how substantial that impact will be, or how long it will last, depends on how long the crisis itself will continue; to what extent it will deepen and on what level will the current fluctuations in global metal prices eventually stabilize.

- What is the current price of copper on the global market?


- Presently, the approximate price is $4,000 per one ton of copper.

- The present situation in Alaverdi is pretty tense. Rumors circulating regarding job cuts at the Armenian Copper Programme (ACP) have created a panic within the ranks of the company’s 700 employees. Are job cuts being planned at the metallurgical facilities, the plant and the mine?


- We have addressed the uncertainties connected with the metallurgical production unit even before the recent developments in metal prices. The bulk of the revenues of the copper smelting facility is essentially reflected in copper reprocessing payments which are specified in contractual agreements in U.S. dollars. Metallurgical production has not been a particularly profitable operation and we have constantly stated that, especially as of the start of 2009, the long-term prospects of continuing the copper smelting operation were quite uncertain given a number of factors of which environmental issues are of primary significance.

It must be noted that we haven’t found a solution that would permit us to carry on economic operations on a profitable level while at the same time substantially decreasing the level of sulfur dioxide exhaust emissions. As of January 1, 2009, the level of environmental payments for these emissions will increase threefold. This was the first problem we faced.

The second problem is the tendency for natural gas prices to rise. We assumed that such a rise would occur after January 1, 2009 and, despite being delayed for 2-3 months, it is inevitable. Approximately one-third of the production costs at the copper smelter are comprised of natural gas costs. You can imagine what such a substantial cost increase will mean.

The third important factor is that the level of those agreed upon prices is established on the level formulated in the global market in that same year. During the past few years, despite the essential rise in global copper prices, reprocessing payments have essentially fallen. In actuality, these two move in opposite directions and this means that we couldn’t expect the same payments from our suppliers that we received this year. This essentially changes the economic viability of the metallurgical operation.

There are factors conditioned on the return of overpayments of Value Added Tax. The return of these amounts requires serious moves on our part. And, of course, the appreciation of the national currency, the Armenian dram, has negatively impacted on exporters across the board. It is this group of factors that has led us to state, especially during the past year that the long-term prospect of continuing the operation of the Alaverdi copper smelter is rather vague. With regards to the mine and factory; the Alaverdi mine is quite a complex mine pit because underground operations take place along fairly narrow veins and it requires much effort to remove suitable quantities of ore for production purposes.

I must sincerely confess that even when the price of copper was at $8,500 per ton, it was still impossible to come up with an extraction method that would make for an efficient operation, given the peculiarities associated with the mine site. It is obvious that if we couldn’t come up with an efficient extraction process when the price of cooper was pegged at $8,500 we definitely will not be able to at $4,000. It is also obvious that if this price remains constant and so stabilizes in the foreseeable future, the Alaverdi mine will not be able to continue operating as in the past.

- Nevertheless, what is the current situation at the Alaverdi mine and factory?

- The factory is operating at work continues at the mine.

- Will jobs be cut in the next few days or months? Has the number of those to be laid-off been decided?

- As I’ve stated it hasn’t been ruled out but no final decision has been reached. It all depends on what the course of events will be in the global markets.

- We have reliable information that even though the employment contract signed with the mine and reprocessing plant workers’ union, which terminates as of November 1st of this year, has been extended by 21 days, employees have been given termination notices as of November 22nd. Would you care to comment on what this means?

- It means that if there is no change in global copper prices these workers will be laid-off and have been duly notified. If there is stability in the global market then we will negotiate new employment contracts with these workers.

- According to our sources, the owners of the Metal Prince Company based in Akhtala have decided to continue operating by tapping into their reserve assets.  Doesn’t Vallex Group have the same capability?

- We will disclose our financial records for this year to the residents of Alaverdi. Let everyone study our accounts and see the results posted by the Armenian Copper Programme. If the public can point to sources that would allow us to continue to operate for another year or ten years, rest assured that we would gladly tap those resources. It shouldn’t appear to you or anyone else that we have set out to halt our operations in the shortest amount of time. Naturally, if we have a development plan for the copper smelter and to operate the Alaverdi mine, any halt in production merely increases restart-up costs, and if we state that the situation is uncertain it only means that we are looking for ways to withstand the crisis.

- If the metallurgical reprocessing unit in Alaverdi closes where will the ore from Drmbon be processed?

- In Armenia 25,000 tons of copper is extracted yearly. 6,000 – 7,000 tons of this is processed in Alaverdi. The rest is exported as concentrate and there is no problem in selling it overseas. We sell the copper, with the gold concentrate, at the very same prices that the Zangezur Copper-Molybdenum Plant sells us concentrate. We cannot demand from any company that it extend us a helping hand so that we can operate the Alaverdi copper smelter factory. At the moment when it becomes clear to the company operating the Drmbon mine that it is more profitable to sell the concentrate overseas rather than selling it in Armenia, regardless of whether it is given to the Alaverdi copper smelter or to another plant, it will begin to be exported. The Akhtala Mine Enrichment Plant, despite being only 30-40 kilometers away from us, exports all its concentrate. Doesn’t this surprise you? It shouldn’t though; it is in their best interest to do so and we have no problem with what they do.

- What about the plans to operate the mine at Teghut? Doesn’t the fall in global copper prices impact on the project’s implementation?

- I wouldn’t say that. Perhaps we are feeling some fallout regarding Teghut but the long-term expectations remain positive. Both we and the other interested parties expect the situation to have stabilized by the time production at Teghut comes on line, as we forecast, around 2010. But these are all predictions and no one can insure that come 2012 the price of copper will not again return to levels we have witnessed in June of this year.

- Mr. Arzumanyan, public rumor has it that the VTB Bank is refusing to grant $275 million in credit intended for the operation of the Teghut mine.

- I am not aware of any such information.

- As of now, what is the level of deforestation taking place in Teghut?

- To date, 21 – 22 hectares of forest has been cleared.

- Has Vallex ever had a program of counter measures designed to deal with the eventuality of such critical situations?

- Naturally, in regards to Teghut, we created various possible scenarios and we presented them at the discussions. Sadly, the price of copper has fallen below all our predictions and the situation that has been created is worse that we could have ever expected.

- If this situation continues don’t you think the Teghut Project will fail?

- We debated this issue during one of the discussions. It can’t be ruled out that if things continue like this for 5 or 10 years not only Teghut but many other operating companies, let’s not name them here, will pull up stakes and cease to function.


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