Proactive investors

Additional information

Additional	Information
Market:	TSX
Sector:	Gold Mining
Epic:	.LYD
News:	Latest news
Web Site:	Lydian International
Other Articles:	01-03-201018-01-201024-11-2009

Proactive Investors Talks to Tim Coughlin, President & CEO of Lydian International

by Proactive Investors

Why should investors be interested in a UK based mining, exploration and development company listed on the main board in Canada, that has a gold project in Armenia and a base metal project in Kosovo?

Well I think the short answer to that is adding value through discovery: That’s what Lydian does. We are very much focused on entering emerging transitional environments with the experience that we have identifying potentially world class projects through discovery and early stage acquisition (things that have been missed or forgotten about for many many years), and really being on that part of the exploration value adding curve that is taking essentially moose pasture and turning it into a mine; That provides the biggest return for a shareholder. In terms of “why TSX?” well, for the simple reason that the AIM market was initially floundering when we made our investigations into listing there and the TSX offers more investor freedom, in terms of freedom to trade stock and more liquidity. Albeit that it opens a little bit late in the afternoon for UK investors!
 

Investors could easily assume that the local licensing and fiscal regimes would work against a foreign company operating in Armenia or Kosovo, is this so?

Actually it’s not so in- fact in those particular environments it works for us because both of them, and most particularly in this market, are very keen to attract foreign investment. Kosovo for example is on track for European Union accession. Some of your listeners may have been reading recently about the deployment of the EULEX mission, which is there to oversee rule of law. The laws in Kosovo are all EC compliant and generally drafted and approved in Brussels. Armenia interestingly enough, has a very large diaspora which is twice its local population and spread around the world but principally in the US, Greece, France and in Russia. Armenia has been very effective at straddling the fence between west and east and attracting investment from both environments. They are on the right track, they are moving forward quickly, they are a member of the World Trade Organisation and there is really no reason for them to divert from their current path. So both of those environments have been particularly well selected I think.

 
Lydian International has one of the world’s largest producers of gold, Newmont Mining, and a division of the World Bank as significant shareholders.  How did that come about?

The Newmont investment came about first. Basically they approached us in our previous guise as a consulting business. We had a business which would advise on investments in emerging and transitional environments for exploration and mining companies. We would do a prospectivity analysis and analyse all the all the inherent risks. Newmont approached us, initially on a consulting basis, to do some work for them in the Caucuses and we advised them that at that stage we were registered as an exploration company and what was to be a fee-for-service contract became an exploration joint venture. They picked up their shareholding in parallel with signing that exploration joint venture across Armenia.

The IFC: we approached the IFC, which is the International Finance Corporation, or the Equity Investment arm of the World Bank, at the end of 2006 when it was becoming obvious that our projects had some real merit. At that stage the mining law was in transition in Armenia and also in Kosovo and we wanted a bit of security. So that was proactive on our behalf in terms of approaching the IFC, and they agreed to become one of our major shareholders and it has been very rewarding. Of course what it means is that all of our work has to be conducted to World Bank standards, something that we are very proud of

I understand that Lydian’s flagship project Armulsar in Armenia is a silica-alunite prospect. What is the significance of this and how is work progressing there?

The significance is that silica-alunite is a style of deposit commonly known as high sulphidation mineralization; it is a style of gold deposit. They represent some of the biggest mines in the world. They are some of cheapest mines to operate in the world. Some of the biggest are Yanacocha in Peru, Pierina in Peru, Veladero in Argentina; all of those mines have average 2007 total cash costs – that’s the cost of operating a project without factoring in taxes and royalties etc – of somewhere around about $280 per ounce so obviously, cheap, long mine lives; 15 to 20 year mine lives. And that’s what Armulsar is. At Amulsar we have just finished a thirteen thousand metre drilling program on it with very significant intersections of greater than 100m at greater than a gram. I think one that comes to mind is 135m at 2.3 (grams per tonne gold).  I think your listeners will find all those details on our webpage.  It’s open in all directionsso Amulsar has every chance to be a major, world-class project and it was a brand new discovery.  In terms of the work program going forwards we are currently calculating resources from our drilling program this year and they will be released sometime next year, and next year we are planning something in the order of a 15,000m drilling program.

 
So Tim, tell us about your lead project in Kosovo the Drazhnje lead-zinc project and how work is progressing there?

Drazhnje is a poly-metallic project that is lead-zinc and also includes a couple of ounces of silver and about 0.6 grams (per tonne) gold in it.  It was a project that was abandoned just before ethnic unrest. It was about to go into production, carting ore to the Kishnice complex which is a treatment complex about 40km to the south of the project but it was abandoned as I said in 1988 just before Milosevic came to power.  That project at the moment has some Yugoslav resources on it in the order of about 6 million tones at 6% zinc and about 4% lead.  They are not JORC compliant, they are not internationally complaint resources so what we are doing at the moment is underground, we have slowed the project down a little bit due to the current state of the markets, but we are proceeding at our pace. With the underground we are channel sampling and what we are finding as found in our surface drilling last year is that the grades have been significantly under-reported, I think that is probably the right word as opposed to under-estimated.  We have been told subsequently that there was a certain habit in Kosovo of under-reporting grades to Belgrade.  We have a press release in progress which I think will substantiate what I am saying in terms of the grades being significantly higher.  Work is going forward; we are currently on one level of the former underground exploration development -this project never went into production but they had two levels of exploration development- we have currently opened one of those and we are heading towards the main massive- sulphide body and finding new bodies along the way.  We will open the second one (exploration adit), get that channel sampled and then we are hoping to convert resources to JORC compliance or international compliance.

 
What is Lydian International’s financial situation, cash burn rate and what are your prospects for raising money?

Our cash situation at the moment is that we have about CA$5.5m in the bank.  Our winter burn rate is somewhere in the order of CA$300,000 a month across all projects and in terms of re-financing risk we currently-I can’t tell you too much- but we are currently working on an equity draw–down facility with two major partners that will give us access to capital right through to 2010.  Your listeners can expect an announcement on that early in 2009.

 
So what can investors expect from Lydian International over the 12-18 months?

Well they can expect an expansion of the resources at Amulsar in Armenia and the reporting of some substantive international compliant resources by the end of next year.  They can expect Drazhnje to be progressing towards a bankable feasibility ready for production sometime around about 2011 when we expect the lead and zinc price to recover, certainly above our margin in Kosovo which is very low due to existing infrastructure which comprises three zinc concentrators and a zinc refinery.  They can expect us to be reporting new discoveries, new gold projects.  We have a particular focus on identifying new projects in Armenia, some of which we have already laid out, and just need some more development work. And they can expect early in 2009 an announcement about our re-financing.

 
What problems and opportunities are particular to operating in Armenia and in Kosovo?

If I could just flip that question around the other way. In terms of the opportunities I think that is fairly obvious in terms of the ability to drive by and claim large high sulphidation, quartz-alunite gold systems, such as the one we have in Armenia, and also to be able to put a licence over fairly advanced projects such as those that we have in Kosovo.

So the opportunities are the opportunities for discovery.

The problems in Kosovo; probably the most pertinent one is not so much a problem but requires a lot of attention and that is is land and community relations.  Lots of small land holdings; I don’t think this is particularly relevant only to Kosovo, I think this is something that you have to deal with all around Eastern Europe.  So we have to deal with these small land holders and have to arrange surface rights under regulations with all of those guys.  Managing perception of course because you are dealing with large local communities or people and environment, and I think the same goes actually for Armenia in terms of our biggest issues.  So we have full-time environmental officers in both Kosovo and in Armenia and we have full-time, what we call, LACROs or Land and Community Relations Officers in both of those environments and they are very much guided by specialists from International Finance Corporation or the equity investment arm at the World Bank, and we try to maintain World Bank standards in all aspects relating to environment and land and community relation issues.

 
Are Kosovo and Armenia considered to be on the Tethyan Metelloganic belt and if so does that mean you would be interested in other countries in the region?

Armenia definitely.  We can get into geological arguments about Kosovo but I’m not going to bore you and your listeners with those.  Armenia is definitely on the Tethyan system; it is a system that extends all the way from Morocco, basically the Atlas Ranges, all the way across to the Himalayas and down into Myanmar, and it’s a highly fertile system, so that includes the immediate neighbours of Armenia which are Turkey and Iran and our Amulsar system others of-which may be hosted in both of those environments as well. Does it mean we will go looking elsewhere in the Tethyan system - yes, we understand it and we would certainly consider, perhaps not next year and maybe not 2010, but we would consider stepping out and exploring elsewhere long the Tethyan system. We wouldn’t restrict ourselves just to that particular system but the central Asian mineralising systems are also particularly fertile as some of your listeners will know.

 
What does Lydian International do to engage local stakeholders?

A very important question and as I have said I have alluded to it in my previous question, we take that very seriously.  So in Kosovo for example we run a school bus service, we employ something like 90 people from the local community on a rostered basis, we spend a lot of time working on the schools and that means installing machinery such as photocopiers and even building classrooms.  Community clean up programs – we are very much engaged with the community there.  We do the same thing in Armenia for a local village there which comprises some 507 people close to Armulsar.  We are ensuring a consistent supply of clean water; we have been rebuilding some buildings in the village and engaging them in terms of employment.  Once again we are very much guided by specialists within the World Bank environment on that particular type of work.  Interestingly enough and in this particular market we are also quite busy trying to engage local shareholders in both those environments, Kosovo and Armenia, and I am happy to say that we do have shareholders, retail shareholders I guess you would call them, in both Kosovo and Armenia and elsewhere in Eastern Europe.

 
What are your thoughts on the prospects for gold and base metals in the medium and long-term?

Well I think the medium term for gold has got to be good.  Any environment in which there is an investment escape to security has got to be good for gold.  I know it is volatile, like everything at the moment, as we hopefully bounce along the bottom of this trough.  But I think gold is looking good over the medium term.  Base metals, lead and zinc and zinc particularly is going to be under a lot of pressure until the car manufacturers get back into full swing so it is very much a recovery dependent metal.  Lead is a bit more of an unknown.  I think that most pundits are pointing at somewhere around about 2011 for a recovery in the zinc price and I might just point out that our margin’s at Drazhnje are very very low because of our access to existing infrastructure not limited just to the zinc concentrator which is 40km down the road to the south of us, and our margins are somewhere in the order of around about 58c a pound that is for zinc, assuming 60c per pound for lead.  So we are fairly confident that by 2011 Drazhnje is going to be a nice little money earner for Lydian.

 
What are your thoughts on the credit markets, the stock markets and the TSX and AIM market in particular?

It is a difficult question to give a general answer to so I won’t.  I will give you some anecdotal response to that question. As Lydian we find we have a lot of interest and support from our investors who are traditionally used to trading on the AIM market over here in the UK and also have a following in Geneva and in Zurich and they quite like the TSX, they enjoy the freedom of being able to trade their stock without having to go through a NOMAD and the electronic bid and ask process.  So the TSX market has been great for us and our following over here on this side of the pond is very strong.  We have had to work very hard on attracting North American investors into our business and we certainly intend to put significant attention onto that next year.  I think part of the reason there is that your average retail-TSX-investor is very much focused on things that are within, as strange as it might sound and I am not sure whether this is true; their timezone.  The reason I say that is you can compare geopolitical risk for example North American investors seem quite happy to invest in Mexico where 2,000 people were murdered last year. They seem quite happy to invest in Colombia where there are currently somewhere about 2,500 people kidnapped and 15,000FARC guerillas and I think 5,000 ELN guerillas wandering the hills so both of those environments make Armenia and Kosovo look highly desirable!  But we have a very difficult time explaining that and I don’t think-the statistics speak for themselves-so I don’t think that it is the actual geo-political risk issues; I think it is a misunderstanding of the geographical environment due to a particular timezone focus and I think many of the AIM investors are guilty of that as well. Whether they’re guilty of it or not I am not sure, or whether it is something to be guilty of, but the AIM investors are also very much accustomed to investing in Africa and Eastern Europe and perhaps Russia and more so than perhaps the Americas.  So in terms of those two markets our anecdotal analysis from Lydian’s perspective is that we are very happy we’re trading on the TSX because it is a nice fluid and easy market to trade on.

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