ArmInfo. UK domiciled Lydian International Limited is implementing the largest industrial project in Armenia – Amulsar Gold Project. The company plans US$370 capital investments in the Amulsar Project. The groundbreaking ceremony held in August 2016 marked an important milestone as the company moved to construction activities. Ten years have passed since the launch of the project. Lydian Armenia (legal successor of Geoteam CJSC) Managing Director Hayk Aloyan believes that those ten years appear to be the hardest for the company. During that period, the company laid foundation based on good international industry practices that require a big number of environmental, social and industrial risk management tools. These commitments are strictly observed, as the Project involves not only private shareholders and international investment funds, but also such authoritative organizations as IFC and EBRD – the company’s institutional investors for whom reputation risks are inadmissible. Hayk Aloyan shares his views about the path passed and the prospects of the Project in an interview with ArmInfo’s economic analyst Emmanuil Mkrtchyan.
What is your assessment of the past 10 years in the context of the exploration, preliminary development and pre-construction activities at Amulsar mine?
Let us start with the first phase – geological exploration. The company carried out large-scale geological exploration activities at Amulsar deposit. As a result, gold reserves approved by the Armenian State Agency for Natural Resources today are estimated at about 73 tons contained in 89 million tons of gold-bearing ore with average grade of 0.8 gram per ton.
ArmInfo’s reference: According to the feasibility study, the proven reserves are 2.4 million contained gold ounces. With an 87% gold recovery, total recoverable gold is 2.1 million ounces over an initial 10 year mine life at a low all-in sustaining cost of $585 per ounce of gold. The company plans about $370 million initial capital investments in the Amulsar Project. The peak workforce during the Project’s construction phase could be as high as 1,300, while the total workforce during operations within the 10 years of operations is estimated at 650-700 employees. __________________________________________________________________
There are different assessments of efficiency, when you deal with low concentration of gold in ore. What are your estimations, amid so high price volatility of gold in the markets?
In a few words, we have calculated that after covering all the loan liabilities and paying all the taxes, the return on investment (ROI) will make up about 33% at a price of $1,150 per ounce of gold. At present, the gold price per ounce is higher - $1,260. However, as you have mentioned, the volatility of the gold price is high and no one knows how the prices will change tomorrow. In the Soviet period, mines with such grade of gold reserves were not developed, indeed, and the technologies were different then. Nowadays, technologies help processing ore with lower concentration of gold quite efficiently. In general, the average concentration of gold in new mines in the world is up to 1 gram per ton. As our company has been listed on the Toronto (Canada) Stock Exchange since 2008, all the technical and other information on the grade of gold in ore and other parameters are publicly available and everyone who takes an interest in the project can have access to them.
Does it mean that the company was groundlessly criticized for refusing from underground mining to avoid headache?
This is not about “headache” or even the return of investment. We are speaking about the economic efficiency of the project as such. Morphology of ore bodies and their geological setting enable us to start mining from upper layers just after removing top surface. Specialists carried out these exploration activities in 2008-2010, studied the possibilities of underground mining and arrived at a conclusion that this will make commercial development of the deposit inexpedient, as the ore reserves will decrease by 70%. Modern environmentally sound technologies allow for managing both underground and open-pit mining efficiently.
When will the company start operating the mine?
At first, it is necessary to compete the construction of infrastructures, roads, provide water and power supply. At the first stage of construction, we will launch stripping works too. We will implement concrete works for foundation of the equipment and commence construction of the gold recovery plant in 2017. Gold production is scheduled to start in the first quarter of 2018.
You will be refining Dore like some other gold mining companies in Armenia and NKR. As I recall it, a few years ago, Ministry of Economy weighed construction of a not-large refinery. What do you think of the idea of launching production of own gold bullions in Armenia?
Production capacity of our gold producing plant will total 211,000 ounces of gold per year. This is about $250 million exports, with annual taxes to total about $50 million. As for the construction of a not-large refinery in Armenia to serve all companies, it would require a very significant capital investment. Also, such an enterprise must be certified to meet all the international standards. The major task is to have your assay for refined gold recognized by the international market for gold sales. There are many high-quality refineries in the world, and it is a very competitive business. The second task is of regulatory nature. When ore-mining companies make investments, implement construction activities, VAT accumulates. Later, if the production is exported, it is recalculated. The tax legislation in no way regulates the production of gold bullions inside the country. All these tasks must be settled before possibly launching such project.
To what country you will be supplying Dore?
It is an open market. The refinery selection will take place closer to the start of gold production. There are several high-quality refineries within manageable logistical distances from Amulsar.
Let us speak of the remaining problems that are, perhaps, the most important ones. I am speaking about management of environmental and social risks. As far as I know, your company had to undergo rather a complex procedure twice before it was granted the Mining Right, as the environment protection requirements were corrected.
In 2014-2016, the company underwent that procedure twice and received all the necessary licenses and permits from the Ministry of Nature Protection and the Ministry of Energy and Natural Resources. This year, we held 4 public hearings in the communities adjacent to the mine, met with local residents, told them about the Project’s potential impact on their life and activities, and how we are going to neutralize these risks and which environmental and social issues we will be settling. During the first years of geological exploration in 2006-2007, we were greeted with certain concern. Later, when we started showing that we deliver what we promise, the communities saw us in a positive light. We received positive conclusions from the communities and we keep the video records of all the public hearings as a fact.
Our company that has institutional investors, including IFC and EBRD, is committed to environmental and social management international best standards. The discussions around the updated version of the Environment and Social Impact Assessment (ESIA) involving experts and all the parties concerned showed that our Amulsar Project can be considered as well-managed in view of environmental and social risks through introduction of the cutting-edge technologies of safe operation of mines. A range of international independent expert companies – Wardell Armstrong International, Golder Associates, TEC, ERM, Shared Resources, Shape Consulting, as well as a number of Armenian scientific institutes and organizations worked on the document.
We want to show that Armenia can have an up-to-date and safe mining industry. This comprehensive document covers all the aspects, environmental and social management, labor and life conditions of our labor force, and our commitments to stakeholders and contractors. In short, everything is clearly mentioned and everything will be strictly observed. The company has already spent $6 million on environmental surveys, but that is not all. In this field, we will have much more ambitious programs, for instance, Jermuk National Park project that requires large investment– several millions of dollars. From the viewpoint of international criteria, it is our commitment. We ought to not only mitigate our impact, but also introduce and develop favorable environment for tourism development, for instance. It will be a big project, around which we have already established cooperation with TEC, UK. We have already received the preliminary agreement of the Ministry to implement Jermuk National Park project.
What risks – environmental, social – have not you managed yet?
I think there are no environmental risks that we have not assessed yet. Without comprehensive study and specific measures to manage these risks, our institutional shareholders EBRD and IFC would not allow us to launch the construction phase. As an example of best practice, I would like to mention that we have translocated red-listed plant Potentilla porphyrantha growing in the open pit areas. We spent hundreds of thousands of dollars, now the plant grows in Sevan Botanical Garden, and later it will be translocated to the natural habitat.
ArmInfo’s reference: Lydian International Limited (TSX:LYD) ("Lydian" or "the Company") has announced that the Board of Directors of the Company approved the terms of a proposed non-brokered private placement (the "Private Placement") of ordinary shares of the Company to the European Bank for Reconstruction and Development (the "EBRD") on July 21. Under the terms of the proposed Private Placement, the EBRD will subscribe for an aggregate of 33,500,000 ordinary shares of the Company at a price of C$0.34 per share, for aggregate gross proceeds of C$11,390,000. The funds will be used to finance the Environmental and Social Mitigation Measures (ESMM) undertaken as part of the Amulsar Gold Project in Armenia. Currently, the EBRD holds 12,038,780 ordinary shares of the Company, representing approximately 1.8% of the currently issued and outstanding ordinary shares of the Company. Upon completion of the proposed Private Placement, the EBRD will hold 45,538,780 ordinary shares of the Company, representing approximately 6.5% of the then issued and outstanding ordinary shares of the Company. "We are pleased to have the ERBD's continuing support as we begin development of the Amulsar Gold Project. This investment provides further recognition of Lydian's commitment to good international industry practices and standards as we make the transition from developer to producer," said Howard Stevenson, President and CEO of Lydian International. In May 2016, Lydian Board of Directors approved private placements with Orion Co IV (ED) Limited ("Orion") and Resource Capital Fund VI L.P. ("RCF"), in accordance with the rules and policies of the Toronto Stock Exchange. The Private Placements form a key component of a US$325 million construction funding package for the Amulsar Project.
Have you completed the acquisition of lands from local communities?
We have acquired 278 land plots from 145 landowners. It was a “willing buyer, willing seller” process. Landowners sold their land plots voluntarily based on a mutual agreement between the company and the community members. Normally, in our country such procedures require the government’s decision on the so-called “overriding public interest.” In such case, the transaction parties appear in unequal conditions. We resorted to that procedure only applicable to four land plots, as two of them had legal issues and the owner of another land having two plots had unrealistic compensation expectations. But we had an important principle- everybody had to be treated equally. Eventually, everyone remained pleased with the compensation.
When the matter concerns investments in the countries like Armenia, institutional investors, as a rule, amongst others assess the geopolitical risks. In case there are conflict zones, major investors often encounter with them, if they deal with vital strategic projects. For instance, Armenia’s neighbors, Turkey and Azerbaijan whipped up hysteria over the Armenian nuclear power plant modernization project. Meantime, Turkey is eager to develop its own nuclear energy. Have you faced any inadequate behavior by our neighbors?
Well, when we just launched the project, we did not expect it to have such high importance for our country. We could not even imagine that our project would catch the interest of our neighbors. A few months ago, the company received a list of questions from EBRD Directors representing Turkey and Azerbaijan. We gave professional answers to all the questions thoroughly substantiating every thesis. It’s a closed issue now.
Recreational capacity of nature sometimes fails to cope with, to put it roughly, human waste products, unless we help it…
There is no reason for concern I believe. The document we are strongly committed to in our activity - I am speaking about the Environmental and Social Impact Assessment (ESIA) I have mentioned above – provides for a special 5-year mine closure, reclamation and rehabilitation plan. The company has a special deposit account at the Armenian Central Bank and replenishes it on a monthly basis for the future implementation of the plan. The money will be frozen there within 12 years. After the mine closure, the company will use these and other funds envisaged by our investment plan to rehabilitate the area. It is part of the responsible management of our project like the other measures to be taken throughout the life of the project.