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Lydian International: Plenty to shout about after taking Amulsar gold resource to 2.5 mln ounces

Lydian International (TSE:LYD) is an interesting mix. Listed in Canada, on the Toronto Stock Exchange, its assets are in Armenia and it has a strong following among London-based investors.

Management are currently in the midst of a whistle-stop tour of the UK to meet new and existing shareholders.
And on Tuesday Roderick Corrie, Lydian’s chief financial officer, presented at Proactive Investors One-to-One forum in Mayfair and it has had a number of other engagements as well.

The timing of the trip couldn’t be better as Lydian certainly has a great story to tell.

The potential of the group’s flagship asset - the Amulsar gold project – is the major talking point.

It was reportedly first spotted by chief executive Tim Coughlin through the window of moving car on an Armenian road-trip to an entirely separate project.

Five years and 52,000 metres of drilling later and Lydian has now grown the project’s resource to an impressive 2.5 million ounces of gold.

Earlier this week Lydian unveiled a major resource upgrade which increases the project’s contained gold by over 70 percent, from 1.4 million ounces. And crucially it also moved the resource up into the indicated category for the first time.

The new resource comprises 32.4 million tonnes grading 1.1 grams per ton gold giving it 1.1 million ounces of indicated resources, as well as 48.3 million tonnes grading 0.9 grams per ton gold for a 1.4 million ounce of inferred resource.

Overall the resource is split between three separate areas. The Tigranes and Artavasdes hosts 2 million ounces and Erato, which was included for the first time, has 500,000 ounces.

Mike Kozak, analyst at Toronto-based broker Cormark Securities, reckons the current 2.5 million ounce, at-surface project is low-risk from a technical perspective and has all the hallmarks of an economically robust open-pit heap leach operation.

Furthermore the analyst - who rates the stock as a ’buy’ with a C$5.00 target – said that exploration work will continue to be a key value driver for Lydian.

Kozak is anticipating a further resource upgrade to 3.5 million ounces at some point in the next twelve months and in the longer term he believes the Amulsar resource could grow to around 5 million ounces.

Dundee Capital Markets analyst Vishal Gupta says this week’s resource upgrade has increased his confidence in Amulsar’s growth potential.

“We had previously noted that we believed the 2 million ounce threshold would have been handily met given the consistently encouraging drill results achieved in 2010 and thus, these new results are consistent with our expectations,” Gupta said in a note to clients.

“Exploration work to date has significantly increased Lydian's geological understanding of the system which should prove to be immensely helpful as the company works to further define additional resources going forward.”
Crucially, as chief executive Tim Coughlin pointed out earlier this week, the Amulsar resource remains open in all directions.

“This new resource update is a consequence of our significantly evolved understanding of the geological controls at the Amulsar project,” Coughlin said.

“The resource remains open in all directions and this enhanced understanding means that areas in which new ounces can be found are obvious.”

Next month, weather permitting, Lydian intends to get the rigs back to work at Amulsar as it embarks on a 30,000 metre drill programme. It will comprise both resource definition and exploratory drilling.

“No doubt we are in for another exciting year at Amulsar," Coughlin added.

In his note to clients Cormark Securities’ Kozak says the next phase of drilling will systematically target new ‘feeder structures’ and horizontal or vertical extensions to known areas of higher grade mineralization.

The Amulsar system remains wide open for expansion, and the company’s exploration efforts have become increasingly more systematic in the targeting of higher grade ‘feeder structures’ that have been mapped on surface and/or projected at depth,” Kozak said.

“On this basis, we expect Lydian’s exploration efforts in 2011 to come out of the gates extremely strong in May.”
The analyst recommends that investors buy now before drilling commences. This latest programme, and any subsequent resource upgrades, will boost the bankable feasibility study which is due in the first half of 2012.

Lydian then hopes to move on to test production before the end of 2012, before establishing full production in the first half of 2013.

So what does all this mean for the shares?

Well, first of all it seems that investors are already switched on to Amulsar’s potential scale. As we’ve already seen from the analyst comments its 2010 impressive drill results had given the game away somewhat.

This time last year the shares were trading at around C$0.80, and they topped out at C$2.70 a share back in February. Today they are changing hands for C$2.34.

Tuesday’s resource upgrade gave Lydian price a boost, with the shares gaining around 10 percent. However that C$5 target set by Cormark Securities gives you some suggestion of where the stock could heading if this latest drilling campaign is as successful as the previous programme.