Οn 4th April, 2018, it was reported that Hellas Gold, a subsidiary of Eldorado Gold, had won a crucial arbitration battle in Greece. Hellas Gold, which is developing the Skouries and Olympias deposits in the Halkidiki peninsula of northern Greece, has faced years of local opposition and legal challenges. The arbitration process was initiated in September 2017 by the Ministry of Environment & Energy, which asked the arbitrators to judge whether Hellas Gold had violated its contractual obligations by submitting a deficient technical study for the planned gold-copper metallurgical plant.
The much-anticipated ruling does not, however, resolve the serious legal problem of Eldorado’s Greek projects, as investors and the public are being led to believe. That submitting a deficient study did not in itself breach the company’s Transfer Contract does not mean that the company is in compliance, or will be able to comply, with the contract requirements. (The arbitration panel did not examine whether the study was deficient, so the ministerial decision that it is deficient remains unaffected.)
International media interpreted the ruling as an end to the long- standing legal dispute between Eldorado and the Ministry, after which Eldorado's projects in Greece would be back on track and all pending permits would at last be issued. The Globe and Mail, for example reported: “In a news release on Wednesday, Eldorado said a Greek arbitration panel had ruled in its favour, upholding the validity of the 2014 technical report” and the National Post wrote: “The panel rejected allegations that a technical study was deficient and was in violation of a transfer contract and the environmental terms of the project.”
But Eldorado's own written statement utilizes a more precise phrasing: “The Panel's ruling rejects the Greek State's motion that the technical study for the Madem Lakkos metallurgy plant for treating Olympias and Skouries concentrates, as submitted by the Company's Greek subsidiary Hellas Gold in December 2014, was in breach of the provisions of the Transfer Contract.” The absence of any reference to the alleged validity of the technical study passed unnoticed by investors and media but makes a world of difference.
The arbitration ruling was publicized by Hellenic Mining Watch and is available, in Greek, at https://www.scribd.com/document/376110569/%CE%91%CF%80%CF%8C%CF%86%CE%B1%CF%83%CE%B7-%CE%94%CE%B9%CE%B1%CE%B9%CF%84%CE%B7%CF%83%CE%AF%CE%B1%CF%82-%CE%95%CE%9B%CE%9B%CE%97%CE%9D%CE%99%CE%9A%CE%9F%CE%A3-%CE%A7%CE%A1%CE%A5%CE%A3%CE%9F%CE%A3?secret_password=3edejRxFGh3RM5Lmzuom
Background to the dispute
The construction and operation of a metallurgical plant that will produce pure gold, copper, and silver is a core obligation of Hellas Gold under the 2003 Transfer Contract. In 2011, Hellas Gold received environmental approval for a metallurgical plant that would employ “flash smelting” pyrometallurgical technology, owned and marketed by the Finnish company Outotec.
In the years that followed, Hellas Gold through its subcontractor Outotec failed to submit adequate data to demonstrate that flash smelting could be successfully and safely applied under the conditions and design parameters specified in the environmental approval. In July 2016, the technical study for the metallurgical plant was rejected by the Ministry of Environment, which concluded that due to the very high arsenic content of the ores, flash smelting would generate extremely large volumes of highly toxic off-gasses and cause multiple technical issues in downstream processing and product quality.
A remedy petition filed by Hellas Gold was met with a new rejection on November 2, 2016. Hellas Gold appealed the November 2 decision to the Council of State, which is set to hear the case on December 5, 2018.
The rejection of the flash smelting technical study put Hellas Gold at an impasse, both technically and legally. The metallurgical plant is an explicit ON/OFF term of the contract, yet under the terms of the environmental approval the company cannot now simply opt for a different technology. Simply put, without flash smelting there is no investment at all.
Οnly the Council of State has the jurisdiction and power to annul the ministerial decision that rejected the technical study, if it decides it was illegally issued. Unless or until that happens, Hellas Gold is in violation of environmental terms and the Law-Contract with the Greek State and the continuation of its project in Halkidiki is in jeopardy.
Τhe Ministry of Environment however did not wait for the Council of State to rule; instead it put the issue before an arbitration panel, although with a different question: Did the 2014 technical study, as submitted by Hellas Gold, constitute an unacceptable modification of the original investment plan and therefore a violation of contract?
“As submitted” means that the metallurgical tests submitted with the 2014 technical study were incomplete, as they did not cover all the stages of the metallurgical process leading to the production of pure metals. The Ministry further claimed that the submission of an incomplete technical study constituted (ipso facto) proof of intent to violate the contract by not constructing the metallurgical plant.
In its ruling the arbitration panel reaffirmed that Hellas Gold has a contractual obligation to produce pure metals in Greece through domestic metallurgical processing. However, it rejected the motion that Eldorado's technical study “as submitted” was adequate proof of the company's intention to violate the contract, regardless of whether this study was in fact complete or incomplete, accurate or inaccurate.
Conclusion: much ado about nothing
All in all, the arbitration ruling is only by name a victory for Hellas Gold as it does not produce any clear legal results.
The arbitration panel ruled simply that Hellas Gold did not have some secret plan to skip constructing the metallurgical plant, which would constitute a breach of contract – or at least there was not enough evidence for that. It did not rule on whether the fact that the company’s metallurgical process of choice was found to be non-feasible constituted a breach of contract. The critical question was simply not asked. Therefore the panel did not question the validity of the ministerial decision that rejected the technical study for the metallurgical plant or the exclusive competence of the State Council to annul that decision.
It will take at least a year for the Council’s verdict to be released and it is not at all certain that it will be in favour of Hellas Gold. Until then, the entire investment project remains in doubt at the company’s own doing.
“We look to the Greek State to fulfil its obligations under the Transfer Contract including issuing the outstanding permits for the Skouries project,” said George Burns, CEO of Eldorado Gold. However, as long as the aforementioned ministerial decision is valid, Hellas Gold is the party not fulfilling its obligations under the Contract and the environmental and technical terms of the project and not vice versa. The Ministry is not entitled to issue new permits and even if it does, it would still be up to the State Council to make the final judgement.
A peaceful demonstration against Eldorado at the site of the Skouries mine on April 15 was met with police violence and several demonstrators were injured. The arbitration ruling put no end, either to the legal controversy, or to the social unrest.
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