It’s official: Lydian to start construction at Amulsar

Lydian International (TSX: LYD) has decided to build Armenia’s largest gold mine, with the first gold pour anticipated in 20 months.

The company has more than 80% of the financing in place for the US$370 million required in construction capital, and equipment financing will make up the rest.

Its Amulsar mine could produce 243,000 oz. gold annually over the first five years of production, starting in 2018, and average 211,000 oz. gold a year over a 10-year mine life. The gold will be produced at attractive total cash costs of US$509 per oz. and all-in sustaining costs of US$585 per oz. gold.

Lydian president and CEO Howard Stevenson was travelling in Armenia and not immediately available for comment on the construction decision, but in prepared remarks released on June 9, he said that basic engineering was advancing and that the company planned to tender several contracts during the coming weeks in anticipation of breaking ground. He also noted that the company plans to outline its path forward at the company’s upcoming annual meeting.

A tractor at Lydian International’s Amulsar gold property in Armenia.   Credit: Lydian International.

Stevenson is no stranger to building gold mines. In a former role as president and chief operating officer of Alacer Gold (TSX: ASR), the mining executive supervised the construction and development of the company’s Copler gold mine in Turkey, building a heap-leach operation and overseeing the start of production.

Amulsar is a large-scale oxide deposit in southern Armenia that — at US$1,150 per oz. gold — could serve up an after-tax net present value (NPV) at a 5% discount rate of US$338 million, and a 21.7% post-tax internal rate of return (IRR). At US$1,250 per oz. gold, the NPV rises to US$438 million and the IRR to 25.7%.

The construction decision on its wholly owned project follows an amended mining right from the Armenian government and the previously announced closings of a $38.3-million public offering and US$80 million in private placements.

The company also completed a US$325-million financing package late last year with Orion Mine Finance and Resource Capital Funds.

On May 24, Armenia’s Ministry of Energy and Natural Resources amended the project’s mining right to cover all project infrastructure, including the location for crushers, the conveyor and heap-leach facility; a mining permit for all three open pits (Tigranes, Artavasdes and Erato); definition of the area within which operating activities can take place; and a mining agreement that outlines the nature and duration of mining operations.

At a cut-off grade of 0.20  gram gold per tonne, Amulsar’s measured and indicated resources stand at 122 million tonnes grading 0.77 gram gold per tonne for 3 million contained oz. gold, and inferred resources add 106 million tonnes averaging 0.59 gram gold for 2 million oz. gold.

The low-grade, high-tonnage deposit remains open in all directions.

Lydian plans to evaluate expansion potential from the defined inferred resource, and open extensions at depth.

The project lies 170 km southeast of the capital of Yerevan and covers 56 sq. km, within silicified host rocks along the crest of a 2,800-metre-high mountain ridge.

The silicified rocks are underlain by — and partly interleaved with — a large volume of visible, clay-altered volcanogenic rocks dominated by porphyritic andesite.

Small plutons and subvolcanic intrusives lie just west of the alteration system and contain subeconomic alena-chalcopyrite veins. Although the alteration had been mapped in early Soviet times for a silica resource, and later Soviet exploration had been carried out for silica, gold was not reported until a reconnaissance trip by Lydian geologists in 2005 recognized potential epithermal-style gold mineralization in rocks beside a highway. Gold, hematite and silica occur within fractures, narrow, oxide-filled breccia zones, and a few larger hydrothermal breccia zones.

The project was previously a joint-venture with Newmont Mining (NYSE: NEM), but Lydian bought the major’s stake in April 2010. (Newmont has a 3% net smelter return royalty, but Lydian can buy back the royalty for US$20 million, payable over five years.

Armenia has large porphyry-style, copper-molybdenum deposits and polymetallic and gold-bearing vein systems, due to its location within a tectonically active collision zone between the Arabian and Eurasian plates, a technical report completed by Lydian explains. Large-scale metal production began in the early nineteenth century. (The country’s Kajaran deposit, developed in the 1950s, produces 3% of the world’s total molybdenum output.)

At press time Lydian’s shares traded at 33.5¢ per share within a 52-week range of 18.5¢ to 56¢ apiece.

Andrew Breichmanas, an equity research analyst at BMO Capital Markets in London, has an “outperform” rating on the stock and a 50¢-per-share target price.

“With financing largely secured and the receipt of an amended mining right,” he says in a client research note, “Lydian now appears to be one of the few project-developers poised to advance into production.”