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Lydian International’s Amulsar project has all hallmarks of low-risk & robust gold mine - analyst

In a recent note to clients, Mike Kozak, analyst at Cormark, said that the PEA ‘falls in line’ with his valuation for the company and he repeated a ‘buy’ recommendation that targets C$5.50 a share

Lydian International’s (TSE:LYD) Amulsar project has all the hallmarks of a technically low risk economically robust gold mine, according to Toronto-based broker Cormark Securities.

Earlier this week Lydian unveiled the positive findings of a preliminary economic assessment (PEA) covering the Tigranes and Artavasdes areas of the Amulsar project.

It was yet another boost for the impressive deposit which currently has a 2.5 million ounce gold resource and is still open in all directions and more drilling is scheduled this summer.

The assessment focused on the Tigranes and Artavasdes areas of Amulsar, which host 1.64 million potentially minable ounces of gold, and gave these areas a net present value (NPV) of US$515 million – using a US$1,200 gold price.

In a recent note to clients, Mike Kozak, analyst at Cormark, said that the PEA ‘falls in line’ with his valuation for the company and he repeated a ‘buy’ recommendation that targets C$5.50 a share.

Similarly Dundee Securities' Paul Burchell also maintained his ‘buy’ rating which has a 12-month price target of C$4.00 a share.

The analyst said: “As expected, the study demonstrates robust economics for the development of an open-pit, heap leach operation at Amulsar.”

In the PEA Lydian revealed that Tigranes and Artavasdes could provide annual gold production of 123,000 ounces in the first three years rising to 256,000 ounces in year four through to year seven.

The economic assessment put the mine's cash costs at US$419-499 per ounce. The mine would have an initial capital cost of US$162.6 million and it would have an internal rate of return of 45 per cent.

Chief executive Tim Coughlin said: “This PEA is in line with expectations at this stage of the projects’ development and we are confident we can further improve the economics by increasing the overall resource and resource confidence with additional drilling and by future engineering studies later this year”.

Beyond this assessment a further ‘sensitivity case’ was considered to include the additional 460,000 potentially mineable ounces of gold from the Erato area at Amulsar.

In this scenario the project’s NPV increases to US$614 million. At Erato, which has yet to be drilled out, the mining operation would have to remove more waste material to access the ore therefore costs (per ounce) would be higher.

In the sensitivity case, to include Erato, Lydian would mine 123,000 ounces in year 1-3 and this would increase up to 221,000 ounces in years 4-7, with cash costs between US$472 and US$543 per ounce.

In the coming months Dundee’s Birchell expects Lydian's drill program will improve Amulsar’s economics further, by increasing the size, and confidence level, of the mineralisation in the Erato deposit.

“We continue to expect Lydian's share price to be propelled higher on positive drill results from this summer's 40,000 metre drill program; on upwardly revised resource estimates; and an expected production decision over the next 18 months or so,” Birchell said.

Meanwhile, Cormark analyst Kozak stressed that Lydian’s shares are currently trading well below their intrinsic value and there is a great deal of potential for a long term rise in the share price from current levels. 

“Moreover, with pending assay results and $20 million cash at present, we also believe Lydian stock presents an excellent risk-reward, short-term buying opportunity as well,” the analyst said. 

“With potential resource upside to around 5 million ounces, a technically de-risked and straightforward operating plan following the PEA, a robust production profile without an onerous CAPEX requirement, we view Lydian as an excellent takeover target."