ARKA News Agency Exclusive interview of Vladimir Kozlov, Director General of GPM GOLD LLC

ARKA - What industrial indicators did GPM GOLD show in 2010?

Kozlov – The 2010 was a difficult year for our company in a sense that after closing the first quarter we appeared to have no base of raw materials and that was why we had to swiftly revise our annual plans and change the direction of mining operations. Due to these efforts we managed to reach a make-out level. The thing is that instead of 40-70% that were expected to be extracted from ores, we actually got only 30 to 38%. 

This had an adverse impact on the economy and showed again the necessity to speed up the reconstruction of the plant, since the technology that is being applied now is unfit for the mine, where 70% of ore is sulphide ore.  This urgent reconstruction is needed for more effective extraction and development of the mine.
Despite all, we ended the past year in not so bad results, reaching the monthly level of 80 kg of output of Dore alloy.

Last year was the year of experiments as we were engaged in preparing a basis to get down to implementation of our plans in 2011.

The main achievement of 2010 was the launch of the active phase for reconstruction of the plant to use Albion technology.

Albion is an innovative technology, offering an effective and simple solution for processing of sulphide ore with maximum metal extraction. It was first tested in the Dominican Republic. Now this experience will be applied in Armenia.

Before the end of the last year we signed all agreements, developed a reconstruction strategy, conducted all prospecting work for all types of ore and determined the deadline for the banking feasibility study and further design work,’ he said, adding that the 2011 program is quite tough.

We intend to embark on construction this year. With regard to the mine, we have already carried out partial modernization of the equipment - we have put 130-ton machines to use, purchased a new high-capacity excavator, ancillary equipments, upgraded in 100% the bulldozer fleet and purchased a new boring rig.

We will continue replacement of dilapidated equipment with new facilities also this year. Five new BELAZ dump trucks are planned to be purchased this year.

Development of the technology of mining of Gabromassif, which is in the southern part of the mine, was among the 2010 achievements. We had many doubts about its mining, since ore there is not very rich, but studies showed that production from this part would be effective.

For this we need to employ methods of preliminary or mechanical enrichment. That is why we started developing the project in 2010 and now we have launched construction of crushing and sorting complex, which enables mechanical separation of ore. This will be the main focus of mining operations prior to commissioning of "Albion" technology and the complete reconstruction of the plant.

ARKA - How much profit the company expects to have in 2011?

Kozlov – Our current objective is at least not to sustain losses, and we are making every effort for it. If all plans for 2011 are successfully implemented, we expect to make a profit. Things were not better in 2009, when economic indicators were not so good because of the crisis. 

I would like to note that for a while the production cost was higher than the market. Very high are the internal transportation costs, which constitute 30-35% of the total production cost. Sotk mine is located 269 kilometers far from Ararat plant. These costs can be compensated only by increase of indicators of metal extraction and the increase of raw material quality, which is supplied to the plant for processing.

For a while the production cost was higher than the market. Very high are the internal transportation costs, which constitute 30-35% of the total production cost.

This can be compensated by improvement of raw materials’ quality and enhancement of extraction effectiveness. 

ARKA – Did the investment program start in 2009?

Kozlov – The company's investment program for reconstruction began in 2009, when plans of technical reconstruction were drawn up. In 2010 we already started to buy equipment. Bankable feasibility study on reconstruction of the plant is fulfilled by 60%. We think and it will finally be ready in May or June 2011.

Major technical matters are already settled thanks to the studies conducted in 2010.

ARKA – When will construction be launched?

Kozlov - We will embark on construction of the plant in the coming summer. Restoration of the flotation equipments may start earlier. Main construction work will begin in late June or early July of 2011. If nothing extraordinary happens, "Albion" technology will be put into operation in the first quarter of 2013.

ARKA – It was initially said that $ 100 million would be needed for reconstruction of the plant.  Has the cost of the project changed?

Kozlov – Meanwhile we focus on that amount, but it’s a rough estimate, because the final project is not ready. Perhaps the cost will be higher. Prices for materials and services are constantly growing, and it would be illogical to expect reduction of the cost.

ARKA – How much money was invested in 2010 and how much is planned to be invested this year?

Kozlov – More than $7 was invested over 2010. These funds were spent for replacement of dilapidated equipment with new one, for preparation for construction of a crushing and sorting complex and for design work for Albion technology. Investments for 2011 are planned to total $10 million. This money will be targeted for purchase of equipments for the mine, for the Albion-based design and the launch of construction.

The major part of this investment will be made in 2012, since this part will be spent for acquisition of flotation facilities.

The final stage of construction of workshops will be underway in 2012 and 2013.

ARKA -  What economic results do you expect after the introduction of Albion technology?

Kozlov – The project will be economically effective. We plan to bring the productivity of the mine and plant up to 1 million tons of ore per year. This includes mining and processing.

Much will depend on the metal content of ore. The content of mined ore is expected to be about 4-4.5 gr. metal per ton. 

In regard to recovery of sulfide ore, with today's technology it is 28-30%. After the Albion technology is put into operation extraction from sulphide ore will reach 80-82%. This is a quite optimistic outlook, and a rough estimate gives ground for thinking that the investments will be effective.

ARKA - What is the payback period of investments?

Kozlov - Now design institutes are considering two options for Sotk mine operation. Approved gold reserves are now about 120 tons. Methods of mining will be combined - open pit and underground methods. Determination of frontiers between open pit and underground mining took much time. It is chosen the big pit option and its operation will last 14 years. Ore reserves are 14-16 million tons.

Later, transition to underground method will be implemented with retaining the output. In the coming five or six years, it will be senseless to speak over underground method.

ARKA – Could you please reveal the source of funding?

Kozlov – the main creditor of the company GeoProMining is the Bank VTB 24. Loans are guaranteed by the group of companies GeoProMining, Head Office of which is in Moscow.

ARKA  - Is there any environmental component of this project?

Kozlov – Taking into account the attitude towards the environment all over the globe, we have invited independent experts of South-African DigbyWells, one of the leading world environment-monitoring companies. This company is involved in design of Albion process. An appropriate contract is already signed, and its employees have already started collecting information. 

In particular, upon release of banking feasibility study’s results the company will make its conclusion on introduction of this project, and all recommendations, if any, will be taken into account at the construction and introduction stages.

I can also say that the project will be scrutinized closely also for environmental safety. Taking into account the difference between Armenian and international organizations’ standards, we’ll make every effort to make this project up to the toughest environmental standards.

ARKA – What is the current situation with environmental norms? 

Kozlov – The current situation of the ecology is not bad. We comply with all the requirements prescribed by Armenian laws. Independent monitoring held in Sotk and Ararat every month has revealed no irregularities. We are constantly keeping our eye on cyanide, and we can say that the tailings dam is in normal state.

We have a closed industrial circuit at Ararat, and we don’t exceed norms.

It should be said that cyanide, which is used in the production, decomposes very quickly. 

It means any compound, which contains cyanide, dissolves without leaving traces when exposed to air.

The leaching technology that is applied here became widely used in the world in recent 10-15 years. 

ARKA – Does this modernization project imply creation of new jobs?

Kozlov – Yes, of course. New jobs were created at GPM GOLD in 2010 thanks to increased productivity. The number of employees rose in 17.7% from 639 in early 2010 to 752 in January 2011 and is expected to reach 810 this year.  

After "Albion" technology is put into operation, Ararat plant will have two new workshops, which will bring about increase of the number of employees.

New jobs will be created also at the mine.

ARKA - Is there a motivation for remuneration of labor and does the company provide social packages?

Kozlov - The year 2010 was a landmark for us in terms of work with the personnel. In order to increase people's interest in the outcome of the work, we applied a job-rate-with-bonus system. For the main specialties at Sotk mine the size of bonuses is not limited. We have developed indicators for each department and division, under which the bonuses are paid. For each employee is set a planned target for the next month, when the 80% of the plan is fulfilled, bonus plan begins.

For each percent of completion two percent bonus is calculated. Plus, after 100% of the plan over-fulfillment, for each percent we pay 10 percent bonus from one hundred percent. This allows people, at normal operations, to have a very decent salary. The average monthly wage of production sector in January 2010 was 136 thousand drams, and at the end of the year it reached to 165 thousand drams.

ARKA – Does the company provide social insurance packages to its employees?

Kozlov – We conclude contracts on production and health insurance for the company employees. The package includes industrial insurance, medical services and medical examinations. We are also negotiating with Ameriabank on privileged crediting for our employees. Ameriabank, which is our strategic partner, agreed to extend loans to our personnel. These loans will be extended for purchasing cars and apartments. There will be also consumer credits among these loans.

ARKA – What is the amount of the company’s social investments and what social responsibility projects are now being implemented?

Kozlov – Budget for social investment in 2011 is more than $ 380 thousand. We plan several serious projects. One of them is financing of construction of the culture house in Vardenis. The agreement was signed by the Governor of Gegharkunik province, GеоProMining Company and the World Bank’s Social Investment Fund on September 9, 2010.

We made the first disbursement in the amount of $28,000 last year which was used to develop a complete renovation plan. GеоProMining’s funding is $300,000 and the amount will be made available this year.

The reconstruction will take two more years. The company’s budget has earmarked also financing for several other social projects that were developed in concert with Russian Embassy in Armenia and in cooperation with local self-government bodies in Ararat and Vardenis towns. -0-
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