Armenia’s subsoil is rich with natural ore resources. Non-ferrous and ferrous metal ores, rock salt, bentonite clay, perlite, fire clay, diatomite, travertine, pumice stone, tufa, tufflava, basalt, granite, andesite, andesite-basalt, marble, marble limestone, etc, are minerals with industrial importance. Armenia also has industrial deposits of semi-precious stones (agate, amethyst, turquoise, jasper, obsidian). Armenia has no oil or gas deposits, but some companies have recently made efforts to prospect such deposits.

• Iron ore – deposits are located in the central, northern and south-eastern regions of the country – ie, Abovyan (Kaputan), Hrazdan, Svarants and Akhtala.
• Copper and molybdenum – Armenia is rich with copper and molybdenum ore. It owns 5.1% of the overall world reserves of molybdenum, and 7.6% of the proven world reserves. The copper ore mined in Kapan, Kajaran, Agarak and Akhtala is processed at the copper-smelting metallurgy plant in Alaverdi or exported as concentrate. Armenia’s non-ferrous metallurgy is also engaged in the production of aluminium and molybdenum.
• Gold and non-ferrous metals – the biggest gold deposit in Armenia is the Sotq gold mine currently being exploited, with the gold reserve totalling 120 tonnes. Among others, the Amulsar gold mine and Shahumyan gold polymetallic mines are the most famous.
• Aluminium and barite – Armenia owns industrial reserves of nepheline syenite and barite with gold and silver admixture, lead, zinc, manganese, gold, platinum, antimony, mercury and arsenic deposits.
• Diamonds – Armenia has deposits of cuttable diamonds in the territory of Khosrov Woods.
• Semi-precious stones – the most common semi-precious stones in Armenia are agate, jasper, amethyst, beryl, obsidian, onyx, turquoise and andesite.
• Building stones – the following natural stones are widespread in the territory of Armenia:
1. volcanic, petrosilex and limestone tufa;
2. granitoid rock and carbonates;
3. basalt;
4. shell rock; and
5. marble.

The legal system of Armenia is based mainly on the continental (civil law) system, but recent changes in the legislation have resulted in the importation of common law elements. In particular, the Judicial Code of Armenia has introduced judicial precedence into the legal system. Since 2007, the decisions (ratio decidendi) of the Cassation Court of Armenia have been compulsory for the lower courts. The Judicial Code was amended in 2018 and its current edition does not directly stipulate that decisions of the Cassation Court of Armenia are compulsory for the lower courts, but it still provides that, in case law, interpretation differs from the Cassation Court’s interpretation for similar cases, and the court shall provide an argumentation for not omitting the Cassation Court’s interpretation.

The Civil Code of Armenia was adopted in 1998. Its draft was based on the CIS Model Civil Code, which was mainly based on the German Civil Code (BGB) and the Civil Code of France. Similar to those, it is comprised of Main Provisions (eg, provisions on contracts) and Special Provisions (eg, sell and purchase contract).

The hierarchical construction of sources of Armenian law is fixed by the Constitution and the Law on Normative Legal Acts, and can be summarised briefly as follows:

• the Constitution;
• international treaties ratified by Armenia;
• constitutional statutes (laws) of Parliament;
• statutes (laws) of Parliament;
• presidential decrees;
• resolutions of the Cabinet of Ministers;
• administrative acts of ministries and other state authorities; and
• local acts of local authorities.

The main direct sources of Armenian minerals-related legislation are:

• statutes (laws) of Parliament;
• resolutions of the Cabinet of Ministers; and
• administrative acts of ministries (mainly the Ministry of Infrastructure and Territorial Governance, and the Ministry of Nature Protections).

The mining industry was previously regulated by:

• the Code on Subsoil, adopted on 25 February 1992, which was replaced by a completely new Code on Subsoil adopted on 6 November 2002; and
• the Law on Concession (on Provision) of Subsoil Assets for the Purposes of Exploration and Mining of Minerals, adopted on 5 November 2002.

Both were replaced in 2011 by a unified document regulating mining issues: the Code on Subsoil (the “Code”). Since their adoption, these and numerous other relevant legal acts regulating mining operations have been adopted. There are often inconsistencies among the various legal acts, or conflicting regulations, and there is often a lack of detail and sometimes even common sense or clarity, although the situation has improved to a certain extent in the past two years.

The Republic of Armenia is the exclusive owner of mineral deposits. The deposits can be granted under a permit to mine in order to be exploited and benefited from, but they may not be privatised. The inner tracts of subsoil may not be bought, sold, pledged or otherwise alienated.

In Armenia, the state is the owner, grantor and regulator. There is no mandatory national or government joint venture, contracting or participation. The contract the state enters into with a mine owner is of a regulatory nature (it supplements regulation).

The Constitution provides that the subsoil and water resources are owned exclusively by the state. Exploitation mining rights derive from statutory provisions. The nature of such rights is not sufficiently clear. On the one hand, it is property and can be pledged and enforced as such, and can be subject to legal successorship; on the other hand, any acquirer by way of pledge enforcement needs to undergo the same procedure of authorisation as the original holder of the rights. Therefore, mineral rights are of a mixed nature and have both proprietary and permit/authorisation features, with more elements of the latter than the former.

The authority granting mineral rights is a national authority: the Ministry of Infrastructure and Territorial Governance. Mineral rights are granted by an act followed by a contract (which is of a much more regulatory nature, containing “licence terms”). Local government has an indirect influence over the exercise of mineral rights by holding land and surface rights, and by its ability to influence environmental impact assessment (EIA) opinions.

The right to use subsoil is granted by the relevant state authority pursuant to the procedure stipulated in the Code and other legal acts, by means of permission, a mining allocation act, and concluding a contract on the subsoil use with the subsoil user. The right of subsoil use is indivisible and may belong to one legal person only (including a foreign commercial organisation). Free and indefinite use of subsoil is performed for non-profit-seeking purposes by mining non-metallic minerals for personal needs, on land plots belonging, along with the ownership right, to the subsoil user.

Allocation for mining minerals (excluding the sweet and mineral underground water) is granted simultaneously with the right to use the subsoil and is deemed an integral part of the right of subsoil use. Mining allocation is performed in accordance with the mining project. The subsoil user has the exclusive right to conduct activities within the boundaries of the allocated mine. The subsoil user has the right to carry out activities relating to the use of subsoil only within the boundaries of the allocated mine. The entity possessing the mining right has the right to conduct geological exploration within the boundaries of the mine defined by the mine allocation act by notifying the relevant state authority to that effect.

The subsoil right is granted for a certain period (excluding the indefinite and free use of the subsoil, the mining of non-metallic minerals for a non-profit-seeking purpose for personal needs on land plots belonging, with the ownership right, to the subsoil user), as follows:

• for geological exploration of subsoil – for no more than three years, which may be prolonged pursuant to the procedure specified in the Code for three consecutive periods of up to two years; and
• for metallic mineral mining purposes – for up to 25 years, which may be prolonged pursuant to the procedure specified in the Code for another period of up to 25 years (provided such term is enough to exhaust all the resources of the mine pursuant to the mining project).

The main security of tenure is attributable to the facts that:

• the entity discovering minerals as a result of exploration has priority to obtain mineral rights to mine for such resources; and
• the mining right-holder has the exclusive right to mine and explore within the allocated area.

Where breaches of mining laws and regulations (including a mining contract) are remediable, the Code protects the mineral right-holder for a 90-day grace period (120 days for some breaches) so they can remedy the breach before the state can take action for the withdrawal of mining rights.

A new piece of legislation came into effect on 30 June 2022, which provides further guarantees to the mine owners (subsoil use rights holder) by way of granting automatic prolongation of the tenure if the operations are affected by force majeure circumstances, such as military activities or internal disorders targeting or affecting specific mines. The prolongation will be granted based on notice being given within ten days of the force majeure events occurring, and for the period during which the operations have been affected by such circumstances. The clause has a retrospective effect of four years.

The right to use subsoil may be conferred on the condition of nature and environment, human health and safety protection. The use and protection of natural resources, as well as issues related to nature protection and ecology during mining and prospecting activities, fall within the scope of the Ministry of Nature Protection and the Cabinet of Ministers of the Republic of Armenia (the government).

The main environmental matters regulated under Armenian law can be classified as follows:

• mining prohibitions – certain environmental matters mean that mining within the given area is impossible (protected areas/parks, reserves, etc, or protected species are present, etc);
• mining project EIA – positive clearance by a state expert is a precondition for granting mineral rights (the process is highly discretionary, with no clear criteria as to whether the project EIA is going to receive positive clearance);
• permissions and environmental taxes – for water use, emissions, waste disposal and management;
• ongoing general ecological/nature protection requirements set out in various laws and regulations; and
• special requirements for waste management, environmental monitoring, cultivation and mine closure.

A special authority – the Environmental and Natural Resources Inspection Body – is responsible for enforcement and reports directly to the Cabinet of Ministers.

There are several protected areas in Armenia, with different levels of protection. The most protected areas are reserves and parks, where mining activity is directly prohibited in full (reserves) or is very limited (no blasting, no processing). The regimes for protected areas such as nature monuments and limited-access zones are more generally described but, in most cases, mining will be impossible there as well.

Communities affect mining in two ways.

• A positive response from the community is becoming more and more important in improving the chances for overall positive sign-off for the project. To obtain EIA clearance, the mineral rights seeker shall hold public consultations, and having negative feedback is not good for the project's approval prospects.
• Communities (municipal authorities) possess primary proprietary rights over a majority of the mining areas and are therefore in control of such rights to the extent that they can refuse to grant rights on land, effectively rendering the licence useless.

Consultation is mandatory and is carried out by the investor, the community and the state altogether, each having a certain role in the process.

There are no specially protected communities.

Some community development obligations (mainly financial) are inserted into a mining contract with the state, based on which an investor may enter into an agreement with the relevant community. However, these are not regulated strictly or in any great detail.

The regulations mainly concern environmental matters, with no guidelines on environmental matters, and no regulations or guidelines on social matters.

It is hard to assess and present good or bad examples. The process is usually controversial, with mine-opening initiators and supporters claiming consultation where duly conducted and opponents claiming failure to observe due process.

Environmental awareness is generally increasing, but there is no direct link between climate change concerns and the mining industry.

Armenia has not passed specific laws regarding climate change related to the mining industry.

The World Bank mine closure programme may be cited as a recent initiative in the field.

While Armenia is rich in energy-transition minerals such as cooper and, especially, molybdenum, and has some deposits of others, such as magnesium, there is no specific regulatory regime for the mining thereof within the legislation of Armenia.

Armenian laws do not generally distinguish between taxing national and foreign investors when it comes to taxing a resident entity. Foreign investors can benefit from grandfathering clauses in the Law on Foreign Investors (at least theoretically). In the case of taxing a non-resident entity, Armenian law may provide for different regimes of taxation compared to residents, and several double taxation avoidance treaties may apply, with different results.

Royalties in Armenia are revenue based and the royalty rate is calculated as follows:

• R = 4 + [P/(Bx8)]x100, where R stands for rate of royalty (%); P stands for profit before taxation in Armenian dram, which is calculated as the positive difference between the base of royalty and deductions specified by the Tax Code; and B stands for the base of royalty in Armenian dram.

The accounting period for the royalty is a calendar year.

The calculated royalty is payable to the state budget until 20 April of the year following the reporting one. However, the taxpayer shall make prepayment of the royalty each quarter, in the amount of no less than a quarter of the royalty amount paid for the previous reporting year.

Other specific taxes applicable are:

• reclamation and closure fund contributions; and
• an environmental tax (payable for pollution, emissions and waste dumping in allowed quantities).

Tax stabilisation agreements are not practised in Armenia.

There are no special tax incentives for mining investors.

A capital gain on a transfer of resident business by a non-resident will qualify as taxable but the current applicable rate for non-residents is zero. A transfer at a non-Armenian level, though, will not qualify as an Armenian taxable event if the seller is a non-resident. A resident will be taxed unless they are a natural person.

Armenia is a relatively easy regime in which to acquire and retain mining rights, and has a relatively favourable regime for taxes and charges. There is a minimal level of regulation of business conduct, and enforcement of regulation is not strict.

The Code requires the shareholder structure to be shown when applying for a licence but that is the only special restriction for foreign investment approval. The Code does not provide for any shareholder qualifying criteria. However, given that mineral licence granting is quite a discretionary process, any shareholder structure with negative national security implications may not be successful in acquiring mineral rights. Otherwise, there are no restrictions on foreign investment in the mining sector.

There are no special international treaties dedicated to mining issues.

Many forms of debt and equity financing are available, including export prepayments, pre-export facilities, capital expenditure facilities, VAT facilities, bond issuance, project finance, streaming and royalties. There are no restrictions on sources, though general AMLTF and sanctions compliance restrictions will apply.

Few investors in the Armenian mining sector are listed or preparing to be listed on major international markets. The local market is very small and does not play a significant role in financing the mining sector, although some mining sector companies are listed.

Taking security over virtually any kind of asset related to mining is possible, including the following:

• a mortgage over property rights on land;
• a pledge/charge of mining rights;
• a pledge of machinery and equipment, whether future or existing;
• a pledge/charge of shares;
• a floating charge;
• a pledge of receivables under contract; and
• a pledge of cash in account.

On the downside, the enforcement procedures and formalities may be different for virtually every type of security registration, with varying rates of liquidity of the relevant assets as a matter of law and practice. For example, while a pledge over real estate may be enforced quickly and effectively, enforcing a pledge over mineral rights may take significant time to complete, while the enforcement of security over movables may result in practical difficulties (eg, an inability to take effective possession). The security types and enforcement procedures are briefly as follows.

The Armenian Civil Code and other laws provide for the following types of security that may be relevant to a mining project:

• a pledge/charge of rights/receivables – ie, a pledge over transferable rights, including mining rights (licence to mine), shares and interest in mining entities other than corporations, debt instruments and IP rights;
• a pledge of movable assets (machinery, inventory, equipment);
• a pledge/charge over means of transportation (general road vehicles);
• a pledge over predefined or generally described assets to be acquired by the pledgor in the future;
• a pledge/charge of inventory/goods in commerce;
• a pledge/charge over shares in a corporation;
• a pledge/charge of monetary funds in a bank account; and
• a mortgage – a pledge of various proprietary interests in immovables.

Some amendments to the Civil Code in 2017 also introduced the concept of “secured interest”, with the intention being to regulate the first five securities listed above separately and in a specific manner, as opposed to the sixth, seventh and eighth (which were still called “pledges”). Effectively, however, a “secured interest” is no different from a “pledge” in terms of its scope, the content of the security and the enforcement thereof, so the distinction has no practical significance.

Security Enforcement Procedures

A security enforcement procedure is initiated by an enforcement (confiscation) notice being sent to the pledgor (and usually also the borrower if those are different entities, while third parties are not prevented from granting security to secure debt other than their own and no corporate benefit requirement applies). After the notice is delivered, a two-month statutory grace period begins, after which the enforcement/confiscation of the pledged property may begin. The pledgor is entitled to challenge the legality of the enforcement in court and suspend the enforcement, but the pledgor shall provide a security equivalent to the value of the pledged property to cover the possible damages/losses (temporary relief until the court rules on the legality of the enforcement).

After submission of the enforcement (confiscation) notice to the pledgor, the creditor is explicitly entitled to take possession of the pledged assets if they are movable property. After two months from the date of submission of the confiscation notice to the pledgor, the creditor is entitled to sell the pledged property through direct sale or auction on behalf of the pledgor; the pledged property is to be realised/sold at a reasonable market price.

The laws contain little guidance on how the reasonable market price is determined. The Law on Companies, for example, states that the market price for shares is the price a reasonable buyer would pay having complete information about the company, but, at least, the net assets of the company shall be reflected in the market value. For immovables, the law requires the engagement of licensed valuators to determine the market price pursuant to certain methodology. The Court of Cassation (Supreme Court) of Armenia has also ruled that the reasonable/fair market value requirement applies to direct sales and the start price at the auction, but does not prevent the final sale price at auction being lower (or much lower, in the case the Court ruled on) than the start price at the auction. However, the courts do not provide any guidance or test for determination of a reasonable market price.

Enforcement through court and a subsequent court order where the sale/realisation of the assets goes through a judicial procedure is an alternative to the procedure described above.

If, in the event of foreclosure of the pledged assets, the proceeds or the value are not sufficient to cover the debt, the creditor may cover the difference (through court) at the expense of other assets of the debtor (borrower), pursuant to the general rules for compensation of damages caused in breach of contractual obligations. If an agreement over the direct sale is reached or there is a winner in an auction, an agreement is signed between the buyer and pledgee (acting based on statutory authority on behalf of the pledgor). The agreement shall be signed before a notary (and the notary will require base documents for the transaction, such as finance documents, pledge documents and auction documents). After the agreement is executed, the sale is registered in the Real Estate Registry.

The law is silent on when the difference between the proceeds and the recovered debt plus expenses (including taxes) shall be returned to the pledgor. Practically, this means that the pledgor may challenge late payments or non-payment if reasonable time passes from the day the proceeds were paid to the pledgee’s account. The pledged assets are immune from the insolvency of the debtor in that the secured creditor can walk away from a moratorium and sell the secured property to cover its debt. The overall assessment of the legal rules is that they are quite favourable to secured creditors.

The mining industry can currently be characterised as being in a transition from a liberal but uncertain and discretionary regime to a stable but strictly supervised and enforced regime. Since 2018, the Armenian government has been revising its policy with regard to the mining industry in Armenia, with environmental matters starting to weigh heavily in the government’s priorities and becoming a significant political issue. That said, the Armenian government still regards the mining sector as a major driver of the economy and is committed to working with stakeholders for mutual benefit.