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Lydian International Ltd.: THE INVESTMENT CASE

Lydian International will be one of the few gold companies to go into production this year

Lydian International is one of only a handful of companies taking gold projects into production this year
Lydian International will be one of the few gold companies to go into production this year
Preparing for concrete pour at Amulsar, late last year

“It’s a big year,” says Doug Tobler of Lydian International Ltd (TSE:LYD). “This is the year of our first gold production.”

In that sense, Lydian’s Amulsar project in Armenia looks like it’ll stand out from the get-go in 2018. It’s big and it’s good. But more than that, there are hardly any other gold projects of any scale or significance going into production anywhere else.

So, if Lydian does enjoy the standard production re-rating, it could be more pronounced than usual, given the paucity of alternatives that those who like to buy new production are being offered.

Whither the price of gold

Much depends on the gold price, of course - the way gold moves will certainly affect sentiment towards Lydian when that highly anticipated announcement of first production does materialise.

After all, there’s no reason at the moment to believe the momentum in gold won’t be up in the run up to production. Gold in 2018 has already started out strong, and market commentators are already talking about three rate rises from the US Federal Reserve already being priced in to asset valuations.

At the time of writing, gold is trading at just over US$1,320 per ounce, which is music to the ears of Doug Tobler who, as chief financial officer, knows all the numbers back to front.

“We ran the economics at the Amulsar at US$1,150,” he says. “But when you have planned production of 225,000 ounces per year and you throw US$100-toUS$150 on top, that’s pretty healthy.”

To put it another way, in year one the NPV of Amulsar rises by 25% if the current gold price is factored in.

And it’s getting to the stage where such hypotheticals are beginning to translate into reality. Lydian isn’t quite ready yet to pull the switch and pour first gold, but it won’t be long now. As at the end of December, construction was already 60% complete.

“The work has substantially shifted from the non-visual to the visual,” says Tobler. “The crushing plant is now going up, and so is the conveyor. We are working over 120,000 square metres of surface area, not counting the heap leach facility itself.”

Interested parties can see for themselves at Lydian’s website, where a series of videos shot using drones are available.

“Almost all of the conveying equipment and most of the gold recovery plant is on site,” continues Tobler.

Working through winter

And work will continue throughout Armenia’s harsh winter. “Winter’s our biggest risk right now,” says Tobler, “but I wouldn’t get overly fixated about it. In terms of the structural steel we can do that in any temperature.”

And bear in mind Lydian’s international dimension. There is a UK element and European element to be sure, but this is a company listed and financed in Canada, and in Canada they know how to mine through harsh winters.

So the next news is likely to be further updates on the continuing construction programme, and before too long a detailed timeline with an expected completion date. At some point too, there might come news about an extension to the resource and the mine life.

“It’s a ten year mine life right now,” says Tobler. “But it’s easily visible to see at least 15, and with a little bit of arm-waving you could see 15-20.”

The will to succeed is there all round. The project was backed by the IFC in the past and the European Bank of Reconstruction and Development is still a major shareholder. The government is on side and indeed Amulsar is set to become one of the top five taxpayers in the country.

So far Amulsar has represented the single largest foreign direct investment into Armenia since the fall of the Soviet Union. So there’s a lot riding on this. But so far, so good.

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Lydian International Ltd. Timeline

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