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Lydian International fully funded to take Amulsar to the project financing stage, says Coughlin

Around 38,000 metres of a 40,000 metre drilling campaign have been completed, with the results being released periodically. The most interesting information is likely to come from the deeper holes

Lydian International (TSE:LYD) chief executive Tim Coughlin addresses the issue head on – the one concerning the company’s near-term financial requirements.

No, Lydian isn’t about to pull the trigger on a fundraising, he asserts.

So yes the group has the financial wherewithal to take the Amulsar Project in Armenia through to the project financing stage.

At issue is what Coughlin describes as a “funding overhang” created by an imminent US$5 million payment due to mining major Newmont.

The worry emanating from the brokers in Toronto, where the shares are listed, is that Lydian won’t come cap in hand for just US$5 million.

The fear is the firm will ask for US$15 million or US$20 million, which promises further dilution for investors.

What they don’t realise is that Coughlin and his team have the option to defer this payment – which is exactly what they will do.

And so it will start next year with an estimated US$12 million in the bank.

This is more than enough to meet its financial requirements through to the middle of  next year when it then has to make the big decisions about financing the plant at Amulsar, Coughlin says.

“The perceived funding gap just doesn’t exist,” the Lydian chief executive maintains.

The project, in this landlocked and mountainous country, is impressive with a total gold resource of 2.5 million ounces open in all directions.

The recoveries are 90 per cent plus, while the costs are comfortably mid-curve at US$419 an ounce to around US$499 – which means the economics are fairly robust.

The company will mine from one open pit from the Tigranes and Artavasdes areas of the project, and there will be a separate open pit for Erato in the north.

The preliminary feasibility study said the company could mine Amulsar for seven years, starting initially at 123,000 ounces a year and ramping up to 256,000.

Of course that was based on mineable material of around 1.64 million ounces.

The current resource is globally 2.5 million ounces and there is a desire to get it to beyond 3 million ounces with the latest drill programme. So the mine’s life should at least double.

The fact the deposit remains open at depth may allow for an underground operation.

“There is that magic figure in everyone’s mind of 5 million ounces (of gold resource), and I get asked whether Amulsar could be five (million ounces),” says Coughlin.

“The answer is yes with the underground.”

Around 38,000 metres of a 40,000 metre drilling campaign have been completed, with the results being released periodically. The most interesting information is likely to come from the deeper holes.

In the meantime the transformation continues apace. One landmark already passed, but largely overlooked by the market, was land status approval awarded at the start of last month.

This is possibly the most pivotal point in the permitting process. “It basically changes the land status on the hill-top to industrial status.

“The EIA and the impact assessments for the leach pad and the infrastructure we are yet to do.”

They will be completed at some point in the second quarter of next year.

Before that, investors are expecting a resource update based on that ambitious drilling programme.

This should be released towards the end of the year.  However it may be carried over to early 2012 depending on when the six drill rigs pack up for winter.

The preliminary feasibility study put the cost of Amulsar at just over US$160 million and gave the project a net present value of US$515 million.

The publication of a bankable feasibility study towards the end of the first quarter should place some meat on the bones.

The project will be financed via a mix of equity and debt – with investors expected to foot around 40 per cent of the bill.

If the share price is strong then Lydian might raise a little more from investors, Coughlin intimated. That said, lenders are also lining up.

“Eight commercial banks are looking at the debt side of the equation,” the Lydian chief says.

“There are also three development banks – two of which are on our shareholder register.”

He is referring of course to the International Financial Corporation, and offshoot of the World Bank, and the European Bank of Reconstruction and Development.

Their participation is a tick in the box for the project and Armenia as a place to invest.

The Lydian story finally seems to be gaining traction with investors, with shares up 12 per cent in the past month and changing hands at around C$2.40 each. That said, the analysts reckon it is worth closer to C$4 a share.

Meanwhile, the feedback from the recent round of investor meetings has been positive. “The message is getting out there and people are buying stock,” Coughlin adds. Long may this continue.