Home / Armenia / The UK spent years lobbying for this Armenian goldmine. Now Russia is funding it

The UK spent years lobbying for this Armenian goldmine. Now Russia is funding it

A Russian-backed development bank is set to finance a controversial mining project in Armenia which has been lobbied for heavily by the UK Foreign, Commonwealth and Development Office (FCDO).

The Eurasian Development Bank (EDB), in which Russia holds a 44% interest, is now committed to investing $100m in the Amulsar gold mine in Armenia – which the UK has closely supported over the past decade.

The breakthrough deal comes after the UK has spent the past 12 months attempting to cut off the Russian state’s access to the international finance system via sanctions.

Anna Shahnazaryan, a member of the Armenian Environmental Front volunteer group which opposes the mine, told openDemocracy it was ‘surprising’ to see the EDB invest in Amulsar given the mine had been billed as a Western project, with the UK government’s close support.

“Supporters of the mine used to try and dismiss environmental protesters and local residents’ concerns with this rhetoric of ‘Russia vs the West’ [by saying] those who resisted supposedly wanted Amulsar to be handed over to the Russians,” Shahnazaryan said.

The UK FCDO has long supported the company behind Amulsar, Lydian International, apparently seeing the mine as a flagship Western investment as well as a chance to improve its environmental and social impacts. Lydian was originally registered in Jersey, and headquartered in the US and Canada.

Together with the UK-backed European Bank of Reconstruction and Development (EBRD), the FCDO supported Lydian as the company navigated a series of crises in its relationship with the Armenian government and society over the past 10 years, according to documents obtained by openDemocracy.

Emails released to openDemocracy under freedom of information law show the UK FCDO, and the UK embassy in Yerevan, lobbied the Armenian government to advance Lydian International’s interests as it faced direct fallout from the country’s 2018 ‘Velvet Revolution’.

That year, protesters and local residents blockaded the $400m Western-backed mining project in the weeks after Armenia’s ‘old regime’ was pushed out of power. Neighbours and protesters said that, under the previous repressive Serzh Sargsyan regime, they had felt like they couldn’t campaign against the Amulsar project.

Citing concerns over the gold mine’s environmental and social impacts, protesters provoked, with their blockade, a serious conflict between the Armenian government and the company set to be the country’s biggest international investor.

Lydian threatened international arbitration over the government’s failure to clear protesters’ blockade at Amulsar. The mine, once online, had been projected to become one of the top contributors of taxes to the Armenian state, creating thousands of jobs.

Yet the protesters’ blockade, alongside government investigations and environmental audits, eventually resulted in Lydian going through a court-protected restructuring process in Canada in 2019-2020. The company said it had simply lost too much money as it sought to regain access to the blockaded mine and complete construction – causing it to default to its major creditors, bankruptcy documents show.

Now, the mine project – once financed by the EBRD – is set to receive $100m in loans from the Eurasian Development Bank (EDB) as part of a fresh push to bring the project online. The EDB has said it is currently ‘boosting its portfolio’ in Armenia, to which it is now paying special attention.

Prior to the blockade, the mine was believed to be near completion. It now requires a further 18 months of construction work, Lydian says.

The new investment effort will include $7m in payments to local communities annually and a 12.5% equity stake, free of charge, for the Armenian government.

But unlike Lydian’s previous multilateral backers such as the EBRD and World Bank’s International Finance Corporation (IFC), the EDB – signed into effect by Russian and Kazakh presidents Vladimir Putin and Nursultan Nazarbayev in 2006 – pools funds for infrastructure and finance projects from a select range of states: Russia, Kazakhstan, Belarus, Kyrgyzstan, Armenia and Tajikistan.

Ultimately, the bank says, its aim is to build economic ties between member states, all former states of the Soviet Union.

Some analysts believe that the bank is under the influence of a single state – the Russian Federation – and as a result could face the impacts of Western sanctions.

Assessing the EDB’s sanctions risk in the wake of Russia’s invasion of Ukraine, credit ratings agency Fitch considered that Russia ‘exerts strong influence’ on the EDB’s board, management and strategy as the bank’s biggest shareholder, with 66% of its capital coming from the Russian Ministry of Finance.

EDB did not respond to a request for comment. The chair of the bank’s management board, Nikolai Podguzov, has previously dismissed claims of political influence, saying that the bank is “beyond any political constructions”.

Amid speculation over the sanctions risk for EDB after Russia’s invasion of Ukraine, in January 2023 Russia’s stake in the bank was reduced from 66% to 44%. That reduction brought the Russian state’s interest in the EDB under the 50% threshold where EU, US and UK sanctions apply.

Sanctions expert George Voloshin told openDemocracy that while most international development banks pose little sanctions risk as the stakes of member states are small, the EDB “has always been different because of the elephant in the room – Russia”.

Voloshin cautioned that while Russia’s stake reduction in January would help the EDB “avoid [UK, EU and US] sanctions”, “Amulsar and other projects funded by the EDB could still get much of their money from Russia” given the size of Russia’s contributions to the bank.

When asked about the possible tension over the Amulsar mine in relation to western funds and the EDB, Lydian Armenia director Hayk Aloyan said that the bank was an “international financial institution”, and that Armenia’s membership “was decisive for our shareholders to attract a loan from the bank”.

Following the redistribution of Russia’s stake in the EDB in January, Armenia’s interest in the bank went from less than 1% to 4%.

Long history

The UK’s interest in the Amulsar mine dates back to 2013, when the Armenian government made a sudden change to a proposed site for its ‘heap leach’ facility – a key part of the mine that uses a cyanide solution to break down ore-bearing rocks. That move threatened to derail mine construction and financing plans with significant unbudgeted costs, and emails show how the UK ambassadors to Armenia promised to Lydian that they would raise the conflict with Sargsyan himself.

In the years after, FCDO records show regular meetings between the UK embassy and Lydian International as the company sought to bring the mammoth gold operation online.

But as protesters blockaded the Amulsar mine in summer 2018, emails released via Freedom of Information suggest that the UK embassy in Armenia stepped up its support, closely guiding Lydian as it asked Armenia’s post-revolutionary government for help negotiating with the protesters.

Messages with subject lines like ‘Possible meeting with Armenian PM – urgent advice requested’, ‘Questions for the Ambassador’ and ‘Meeting with Acting PM Pashinyan key points’ bounced back and forth between the Embassy in Yerevan and the company, records show. An internal diplomatic report by the European Union later claimed that the UK, together with the US, had ‘pressured’ the Armenian government to accede to Lydian’s requests that it clear away the protesters.

“The UK has had an active and aggressive involvement with the Armenian government over the Amulsar mine, despite public protests and letters to the UK embassy [urging it] to stop the political pressure,” Shahnazaryan told openDemocracy.

Further FCDO emails newly obtained by openDemocracy show that the UK has continued following the matter closely, even after Lydian went through restructuring in Canada in 2020.

For example, the FCDO received a briefing from Lydian in June that year that the company had approached the Armenian government to reset the relationship with a ‘framework agreement’, as well as an offer of an equity stake to the government. The Nikol Pashinyan government responded to the framework agreement, the email suggests, by faxing an invoice to the company “requesting an upfront payment”. (The Armenian Ministry of Economy did not respond to a request for comment.)

Lydian’s bankruptcy proceedings, however, provoked discussions at the FCDO as to whether the operation was, in fact, a UK company. (Today, the restructured Lydian group has a UK private company as part of its structure.)

A June 2021 FCDO email obtained via freedom of information law stated that following the company’s restructuring, “it can no longer be defined a [sic] UK company”.

“It does have some UK investment but is now an identifiably Canadian operation,” the internal email to Ambassador John Gallagher read.

The briefing noted further caution and a possible “reputation management challenge” for the UK FCDO if Lydian’s operation was sold on to an unnamed Russian-led investment consortium (not the EDB) following bankruptcy, mooting possible “allegations about standards/ethics/social impact of this project under the new ownership”.

The FCDO has insisted its role in the affair is routine, but Armenian campaigners have long drawn attention to what they see as the UK’s over-the-top support for the controversial project. A 2019 letter by prominent members of Armenian civil society called on the FCDO to withdraw its support for the Amulsar mine over its potential environmental impacts.

Those impacts were meant to be mitigated by top-of-the-line environmental measures, as paid for, in part, by the international EBRD and IFC banks. The IFC withdrew from the mine in 2017, as did the EBRD in 2020, after two years of the protesters’ blockade.

An independent compliance report by the IFC later found that Lydian’s capacity to address environmental and social risks had been overestimated, as well as failing to assess the mine’s impacts on the nearby spa town of Jermuk, a tourist centre. The EBRD is conducting its own compliance process over the mine, but has not published an update for over two years. The EBRD compliance team did not respond to a request for comment.

Lydian, now owned by resource companies Orion and Osisko Mining, did not respond to a request for comment. The company has always said it has pursued the highest international standards on mitigating social and environmental impacts of the mine.

The EDB said in its statement that it expects to “implement a project that meets high environmental standards, has a positive impact on the economy and creates employment opportunities”.

“The UK government’s direct involvement in supporting this business interest in the face of the democratic aspirations that we have in our country is an almost too explicit reality check for us: the UK government is all about capital’s interest, it has no interest in people’s autonomy or access to natural resources,” said Shahnazaryan.

Thomas Rowley
James Dowsett