Precious Metals

Among other things, the updated report shows that Lydian was successful in working with the Armenian government to relocate its planned heap leach facility.

“Flag of Armenia” by SKopp — own work. Licensed under public domain via Wikimedia Commons.

Lydian International (TSX:LYD) started today off right with the release of a long-awaited updated feasibility study for its Armenia-based Amulsar gold project. 

The study, which is an update of a September 2012 report, ”produced an excellent outcome from both technical and economic perspectives,” according to President and CEO Howard Stevenson, with highlights including total recoverable gold of 2.1 million ounces over a mine life of 10.4 years. Overall gold recovery is estimated at 84.2 percent, and yearly gold production is expected to average 200,000 ounces.

Meanwhile, initial capital costs are pegged at $426 million, while all-in sustaining costs should come to $701 per ounce of gold. Finally, the study points to an after-tax unleveraged internal rate of return of 20.2 percent and a net present value of $306 million; that’s based on a discount rate of 5 percent and a gold price of $1,250 per ounce.

The company believes that together those results show that Amulsar is “a compelling opportunity for the development of a large scale, low cost operation utilizing open pit mining and conventional heap leach processing.”

Clearing an obstacle

That said, what many market participants were waiting to hear about was the relocation of the company’s heap leach facility, whose history has been a little troubled. It first entered the spotlight in November 2012, when Lydian began re-examining its original mine design for Amulsar after receiving a new mining license. As the company explained at the time, its aim was to make sure its “final development plans” would maximize the project’s value.

From there, the company went on to commission SNC-Lavalin to conduct a crushing circuit trade-off study to look at “the capital cost implications of constructing a single gyratory crusher as opposed to twin jaw crushers installed in phases as modeled in the” September 2012 feasibility study. The firm found a number of advantages to a revised crushing circuit and announced its intention to refine the design.

The situation soured in July 2013, when Lydian revealed that the completion of an updated feasibility study — which was to incorporate the above-mentioned information — would likely be delayed. In explanation, the company said that the Armenian government had passed a resolution to modify the area defined as the catchment basin to Lake Sevan, the country’s largest freshwater resource. Unfortunately, the new area included Lydian’s proposed heap leach facility location.

The upside was that after speaking to the government, Lydian was invited to participate in a joint working group aimed at resolving the situation to the satisfaction of both parties. Though it’s been a long road, especially given that the updated feasibility study was originally expected in Q3 2013, today’s press release shows that Lydian has accomplished what it set out to do.

Taking a positive stance, Stevenson said in today’s release, “[m]oving the previously planned location for the heap leach facility has allowed us to optimize the entire site layout.”

Analysts weigh in

In today’s markets it’s all too easy for a company to fail when it hits a stumbling block, so it’s impressive that Lydian was able to overcome last year’s obstacle intact. That said, analysts have pointed out that it’s not necessarily all downhill from here for Lydian.

Writing today for Haywood Securities, Tara Hassan reminded investors that though Amulsar “is uniquely positioned, being one of only a handful of larger scale, heap leach projects globally set to become a producer in the mid-term,” it is risky in some senses. For instance, it has no operating history, will require external funding to advance and — given the Armenian government’s move last summer — could run into permitting bumps. Additionally, “the project area hosts no active mining projects at present, and there is a lack of skilled and experienced labour in the vicinity.”

That’s certainly some food for thought for investors, who will also have to keep an eye on the company’s myriad of upcoming milestones. Today’s news release indicates that, among other things, Lydian’s current objectives include:

  • Advancing the mining rights approval process
  • Laying out financing structure, completing lender due diligence and advancing to a bank mandate
  • Value engineering and project opimization
  • Developing a project execution plan for the pre-construction period

Shares of Lydian are currently selling for $0.90 each. The company’s 52-week high is $1.48, while its low for the same period is $0.55. For its part, Haywood has set a price target of $1.25.


Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 


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