The only desert in Armenia is situated in the Ararat valley. This desert, 1 km long and 1.5 km wide, is manmade, the result of twenty years of work by the Ararat gold processing plant. It is here that the waste from the gold mining that took place during the Soviet era is accumulated.

According to Soviet scientists, 80 percent of the gold reserves in the Caucasus were located in Armenia, the equivalent of several hundred tons of pure gold. The Sotk mine is one of the largest underground mining deposits in the world. The huge Ararat gold processing plant was built in 1976, in consideration of reserves throughout the Caucasus and the Central Asian republics. The ore was brought to Armenia from these republics as well and Armenia allocated three tons of gold a year to the Soviet treasury. Built at a distance of 260 km from the main mine, Sotk, the processing plant lost 20 percent of its revenue to transport expenses. After the collapse of the Soviet Union, the plant, already inefficient, was neglected and fell into decline. The volume of gold processing diminished with every passing year. In 1992 only 172 kg of gold was produced and the plant eventually shut down, hugely in debt to the state. The expediency of gold processing in general was called into question.

In 1996, at the initiative of the state enterprise ArmenGold and the company American Global Gold, a joint-venture was established to process 12 million tons of waste from the Ararat gold processing plant and to begin exploiting the mines in Sotk and Meghradzor. After signing an agreement in January 1996, Global Gold invested $12 million dollars and within thirteen months a gold processing plant was constructed in Ararat.

In 1997, Global Gold's stock was purchased by the Canadian company First Dynasty Mines. In 1998 a new agreement was signed between the government of Armenia and First Dynasty Mines, establishing the joint venture Ararat Gold Recovery Company (AGRC), and turning the Sotk and Meghradzor mines over to the company as well. The joint-venture statutory package consisted of two agreements - the contract on the establishment of the joint venture, and the project implementation contract between the Ministry of Industry and Trade and the investor stipulating an investment of $50 million. The decision was also made to process the Meghradzor and Zod gold reserves at the Ararat plant, transporting the ore using the existing railroad.

The authorized capital of the joint venture was about $40 million, half of which belonged to the Armenian side, the other half to the Canadian side. The profit during the first three years was to be distributed unequally, 70 percent to go to the Canadian side and 30 percent to the Armenian side. Only after the Canadian side had earned back the full amount of its investment would the profit be divided equally. The production capacity of the joint venture was put at 160 thousand ounces of gold a year.

Generally, processing costs in Armenia are relatively low and thus attractive to investors.

There are places in the world where gold surfaces in the form of natural refined rocks. But the gold in Armenia is harder to extract. One ton of ore in Zod contains only 5-7 grams of gold.

That is why in the twenty years that the Ararat gold processing plant was in operation, 12 million tons of sand accumulated. Each ton of this sand contains one or more grams of gold which the plant was unable to process in the past.

But the Armenian-Canadian joint venture was able to re-process this sand, extracting half a gram of gold from each ton of sand. Subsequently, the sand was again dumped into storage. This is a simple process which does not require significant investment.

The enterprise began operation in June 1999. 95 percent of its employees are Armenian. $222 is spent to extract one ounce (31.1 grams) of gold in Ararat, in the form of silvery bars containing 30-35 percent gold and 63 percent silver. The final separation of these metals is carried out in Great Britain.

That Indian billionaire Anil Agarwal ended up in possession of Armenian might seem strange to the casual observer, but not to those who have followed his career. In 1997 and 1998, after building the gold processing plant in Ararat, First Dynasty Mines, which owns the foreign stock in AGRC, was occupied with procuring sources for financing the development of Zod and Meghradzor. The direct crediting of AGRC by international organizations proved difficult due to the fact that 50 percent of the company's stock belonged to the state. Each time the provision of credit by international organizations approached the decisive phase the agencies that owned the state stock impeded the allocation of money in a variety of ways or by overtly creating bureaucratic hurdles - they refused to send letters or to provide the necessary information to the lending organization, etc. Thus, the burden of financing the projects, including through bringing in new shareholders, had to be borne mainly by the stockholders of First Dynasty Mines.

As an acquaintance of one of the stockholders of First Dynasty Mines, Anil Agarwal obtained a small percentage of the company thorough his own Twinstar Holding; at the same time he provided First Dynasty Mines with rolling credit on condition that additional stock be available to Agarwal's company at a given price.

Then, Agarwal forced Randolph Markus, the president of First Dynasty Mines to leave the company. In meetings with representatives of the Armenian side, Agarwal complained that Markus had failed to invest money that he had received from his company into the Armenian projects and hadn't take into consideration the views of the representatives of the Armenian stockholder on issues related to the management of the enterprise. He also claimed that First Dynasty Mines had sold him shares at a higher price; otherwise he would have been able to invest more money into the Armenian projects. At the same time, Agarwal was late in payments to First Dynasty Mines, causing resentment by the Armenian side against the Canadian-American management.

As a result, Markus Randolph left his job of president of First Dynasty Mines. The company's board, including well-known American-Armenian businessman Zaven Dadekyian, who perhaps didn't want to discredit themselves by working with Agrawal, left the company as well. As a consequence, Anil Agarwal acquired control of the board of First Dynasty Mines. Taking advantage of the situation, or as a result of a consistent plan, Agarwal simply lowered the price of the stock provided by First Dynasty Mines against the credit from his company Twinstar Holdings acquired many more shares of First Dynasty Mines, to become the owner of 50 percent of the stock of AGRC. Subsequently, new Indian managers were brought to Armenia to replace the Americans, Canadians, and Australians at the plant.

to be continued