Due to the recent agreement between Armenia, Azerbaijan and Russia which has ended the military conflict over the enclave of Nagorno Karabakh, three contract areas located in the formerly Occupied Territories and Nagorno Karabakh have been restored to the Company.

The two contract areas in the formerly Occupied Territories are fully under the control of the Government of Azerbaijan, with Russian peacekeepers present at its Nagorno Karabakh contract area.

The Production Sharing Agreement will commence in respect of each of these contract areas upon notification by the Government of Azerbaijan to the Company of the cessation of all hostilities and that it is safe to access the district. This notification will therefore “reset” the PSA to year zero for that contract area. Accordingly, the Company then has the right to explore the contract area for up to five years and then develop and produce for 15 years, with two five-year extensions allowed.

The situation in the formerly Occupied Territories and Nagorno Karabakh is still developing and the Company will evaluate its newly restored contract areas as soon as it is able to access them. However, each contract area has been subject to illegal mineral exploitation and mining whilst occupied, which provides an indication of the resource potential within these contract areas.

Exploration and mineral potential of the restored contract areas

The three restored contract areas all host known significant gold and copper-gold mineral deposits, two of which support major mining operations. These mines are located on geological trends known to contain other geochemical and geological anomalies. The Company has requested exploration data from the Government of Azerbaijan and has commenced compilation of this geological information. The preliminary assessments are very promising and the geological team are looking forward to further developing the mineral resources of the region. High level exploration planning is underway and, given the significant mining operations in the region, the upside resource potential could be very great. Once these areas are secure and Anglo Asian has access, the Company’s technical and administrative experience in the region provides a solid foundation for a major increase in resources and reserves.

The Restored Contract Areas

Soutely – Kalbajar district in the formerly Occupied Territories

The Soutely contract area in the Kalbajar district is the location of the Zod gold and silver mine. The mine is a very large open pit with some underground workings and is the largest gold mine in the Caucasus region. The mine straddles the international border between Armenia and the Kalbajar district of Azerbaijan, with an estimated 75 percent of the mine lying within Azerbaijan. The international border has been restored to that which existed when Azerbaijan and Armenia declared independence following the dissolution of the Soviet Union. The Zod mine was owned and operated during the Armenian occupation by GeoProMining Gold, a subsidiary of the Russian-owned GeoProMining Investment (CYP) Limited (“GPM”). There is currently no mining being carried out in the part of the Zod mine now lying within in Azerbaijan.

According to a prospectus issued by GPM in 2019 for the issue of loan notes, the gold Resources and Reserves of the world-class Zod mine are over eight million ounces. As of 1 January 2019, these were estimated as follows:

Tonnage (kt)Grade (g/t)Content (koz)
Reserves
Proved
Probable26,3733.412,813
Resources
Indicated28,8383.283,037
Inferred19,4453.662,288

According to GPM, ore mined from Zod was transported by rail to processing facilities in Armenia and used to produce gold and silver doré. However, according to the Azerbaijan Government, processing facilities (together with other plant and mining fleet equipment) have been found adjacent to the mine in the Kalbajar district. Access to the contract area is difficult as it is located in the north of the Kalbajar district with no direct road to western Azerbaijan and the terrain is mountainous. However, the Government of Azerbaijan has proposed to build a road to give direct access to the Kalbajar region through the northern border of the region.

Vejnaly – Zangilan district in the formerly Occupied Territories

The Vejnaly deposit is located in the Zangilan district of southwestern Azerbaijan. There has been some mining carried out at the deposit during the Armenian occupation but this has now stopped. The potential for exploration and further production is currently unknown. The region has been secured by the Government of Azerbaijan and Anglo Asian is determining how to best access the area to evaluate its resources and infrastructure.

Kyzlbulag – Nagorno Karabakh

This contract area contains the Kashen deposit in Nagorno Karabakh’s northern Martkert region. Estimates have been recently published that the deposit contains 275,000 metric tonnes of copper and 3,200 metric tonnes of molybdenum. The deposit has been mined by open pit and in 2016, an Armenian Company “Vallex Group”, inaugurated an ore processing plant in which Vallex Group claimed to have invested US$130 million. The Armenian Government also announced at that time that they believed the non-ferrous metal reserves of the Kashen deposit were sufficient to keep the new plant operational for at least 25 years. As far as the Company is aware, the plant is intact and together with the mine is not currently operating. Russian peacekeepers are currently present in the area and our access to Kyzlbulag will depend on the final resolution of the status of Nagorno Karabakh.