First Dynasty concludes Armenian deal

After months of negotiations, First Dynasty Mines (FDM-T) is about to conclude a deal with the Armenian government for reactivation of the Zod and Meghradzor gold mines.

The deal, which is expected to be signed by the end of September, will also allow for construction of a refinery. Combined production from both mines is projected at 200,000 oz. per year, starting in 1999, after which First Dynasty will work toward expanding production at Zod.

The project will be an equal joint venture between First Dynasty Mines (FDM) and Armenian government-owned Armgold. The former company will also manage and operate both projects.

Independent engineering firms Kilborn and CMPS&F are carrying out feasibility studies on both projects, while reserves are being validated by Snowden Mining Consultants of Australia. The studies are expected to be complete in the second quarter of 1998 and will include an environmental assessment that conforms to World Bank standards.

Ore reserves for Zod are estimated at 24 million tonnes grading 6.7 grams gold per tonne, while those at Meghradzor are calculated at 1.4 million tonnes grading 14.8 grams, for a combined equivalent of 5.9 million oz. gold.

Both were calculated using Russian reserve methodology.

Meanwhile, FDM is progressing with construction of a plant to reprocess material at the Ararat tailings site. The plant, which is expected to begin operations by year-end, will be capable of producing 24,000 oz. gold per year, of which 16,000 oz. are expected to go to First Dynasty, and the remainder to Armgold.

During the Soviet era, the Ararat facilities served as the central processing plant for the two suspended Armenian mines and 51 other gold mines in affiliated countries. During its period of operations, Ararat produced 12 million tonnes of tailings grading 1.1 grams. The new plant will process 1.5 million tonnes of this material each year at a recovery rate near 50%.

In other news, FDM has completed a financial restructuring to defer repayment of debt owed to Linyi Holdings (US$5 million) and Gerald Metals (US$7 million). The company now has till year-end and mid-January, respectively, to pay those loans.

The company has also arranged for a new loan facility with Ivanhoe Capital Finance for US$10 million. FDM says the loan will provide it with the necessary funds to continue with the Armenian projects.

The company expects to repay the new loan with future proceeds from the anticipated sale of its interest in the Sembakung Oil Field, or from proceeds of a future equity financing in which the lender will be invited to participate. If the loan has not been repaid by year-end, Ivanhoe can require FDM to convert the loans into equity, based on then-prevailing market prices and subject to regulatory approval.