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Interview with the Senior Vice President of Lydian International Ltd, Didier Fohlen

AMCHAM's interview with the Senior Vice President of Lydian International Ltd, Didier Fohlen

Why did Lydian International decide to invest in Armenia and what is the story of Amulsar project?

Tim Coughlin, the key founder and CEO of Lydian International, is a geologist. He came to Armenia in 2005 to follow what is known as the “Tethyan Metallogenic Belt”. This belt of mineralization extends through Armenia from Morocco to Myanmar and is one of the world’s most prolific metal producing mountain ranges.

Prior to establishing Lydian, Tim Coughlin had been an exploration geologist in South America and had also conducted his PhD research into the gold deposits of the Andes.  He knew what he was looking for.

On the way south to visit another project, Tim noticed that the rocks near Amulsar looked similar to those areas that hosted gold in the Andes. So he claimed a license over this area using an Armenian company, Geoteam CJSC.  No gold exploration had been conducted at Amulsar in the past and it was a further year before the first gold was identified in a rock chip sample on the mountain. 

Prior to obtaining this license, Lydian had been financed by a small amount of high-risk capital mostly provided by the friends and family of the Company’s founders. However, in 2006 Lydian was invited by Newmont Mining Corporation, one of the largest gold producing companies in the world, to enter into a joint venture to explore Amulsar. In 2007, the International Finance Corporation (the IFC, part of the World Bank Group) became a major shareholder in Lydian. In 2008, Lydian International listed on the Toronto Stock Exchange (TSX), opening up the ownership of the company to investment institutions and the general public. In 2009, the European Bank for Reconstruction and Development (EBRD) became a significant shareholder, and in 2010, the company agreed terms to buy Newmont out of its joint venture.

The Armenian company, Geoteam CJSC, still owns 100 percent of the Amulsar project and Geoteam is in turn 100 percent owned by Lydian International Ltd.

The question that the opponents of mining very often ask is how the country or the people benefit from the mining project if it is owned by a foreign company?

Modern governments recognize that mineral exploration is high-risk and that it requires a very special type of investment and investors, and, so quite rightly, they establish laws to account for and attract this type of foreign investment into their countries. Mining is economically attractive as the sector has a high “multiplier effect.” This means that for each direct job created by a mining company there are several others created in the support service businesses that a mine also needs.

The scale of the investments required to build a modern mine and the expertise required to ensure that it meets world class best practice standards for safety, environmental protection and social development are substantial.  So, for all but the wealthiest countries this means that international capital and knowledge is required both to finance the search for economic resources (exploration) and to then put these reserves into production (mining).

To raise the moneys required to date, Lydian attracted finance by selling the story of Amulsar and of Armenia as a place to invest to international investors. Lydian’s shareholders now include some of the biggest investment funds across the globe from Europe - including the UK, USA and as far away as Brazil and Australia. Lydian has therefore helped put Armenia on the map as a place for these funds to invest in the future.

Lydian also has Armenian shareholders, some of whom are based in country and others abroad. Some are investing through Diaspora funds managed out of New York and other international financial centers. As Lydian is a “listed” company, anyone can buy or sell its shares every business day. So, Armenians can buy a share of Lydian and, of course, sell any shares they already own. Thus, the level of “Armenian ownership” in Lydian changes with these individual decisions.

Armenia stands to gain via taxes and royalties along with the local municipalities in terms of land rents and other economic assistance. Furthermore the State is also an indirect shareholder in the Company by virtue of the fact that Armenia is a direct shareholder in both the IFC and the EBRD.

Lydian International’s approach is to be a responsible company implementing international mining best practice, supporting transparency in revenue management, and stimulating local economic development around its site. Our mine is going to create permanent jobs (about 550 for more than 10 years) as well as support the development of small and medium businesses.

This is how a country can benefit from any investment, whether it is done by a foreign or local company. But without foreign capital and expertise, Amulsar would not be able to
be developed into a significant “world class” operation.

There is a widespread belief, that taxes on mining are very low in Armenia. How would you comment on this?

According to a 2008 study, conducted by the international accounting firm, PWC, Armenia is one of the countries with average to high taxation for mining.
If tax and royalty rates are set too high, then the required foreign investment and expertise will not be forthcoming.  If set too low, then the host country is insufficiently rewarded.
With advice from the World Bank, the Armenian mining royalty tax was increased as of January 1, 2012, and now it comprises two components, a top line 4 percent charge on the revenue from metal sales and a 12.5 percent charge on operational profits. In addition, there is a 20 percent corporate tax and the usual employment and other taxes.

Overall, Lydian now anticipates to contribute around AMD 35.5 billion annually ($86.5 million) to the state budget of Armenia during a period of 12 years. Though this could be considerably more, depending on where the gold price goes in the next ten years or so. There are also significant rents that go to the local municipality and employment and other taxes that will be generated by other businesses that supply services to the mine.

Taxes and royalties are the obvious financial benefits that the state budget gets. However, stimulating job creation and business activity, especially outside Yerevan, is the guarantee for economic growth.  This, together with transparent revenues and good governance, is the simple formula for economic stability and growth.

The Amulsar project benefits the surrounding communities by creating local employment (about 160 jobs to date), and we can already see a direct positive impact in the three closest villages around the Amulsar Mountain.  Lydian promotes a sustainable development approach by investing in parallel in the affected communities, mobilizing partnerships and providing technical support for implementing projects that benefit local stakeholders. A larger scale investment to take the project into development will mean renewed infrastructure, influx of workers, specialized consultants and company management living and working, as well as traveling back and forth to Armenia. This will create a supply of linking businesses along with the education opportunities and experience for the local communities. This, in itself has the potential of bringing new economic benefits even after the closure of the mine.

You also mentioned investment into the communities. Corporate social responsibility (CSR) is a relatively new culture in Armenia, especially when it comes to the mining sector. Often, it is taken as a “small contribution to silence the concerns of the community”. How would you respond to these kinds of comments?

I can only talk on behalf of Lydian International. Lydian is, we believe, among the first mining companies to promote a CSR approach in Armenia. Supporting local communities goes beyond simple charity; it should ensure sustainable economic benefits for the community and turn it into a strong and committed partnership. A mining company can be successful only in a constructive environment of mutual trust and cooperation.

Lydian has already invested around $1.7 million in different community projects in the closest affected villages of Gorayk, Saravan, and Gndevaz. More activity is planned for the coming years when construction starts, with additional support going also to Jermuk and Kechut. There are and there will be projects that will help the sustainable development of these communities in terms of small businesses, services and infrastructure that will promote tourism, agriculture and educational projects.

At this stage we have already implemented agricultural, educational, small business support, and infrastructure projects. All this has already resulted in many positive outcomes for livelihoods. The important one I want to mention is that the emigration from Gorayk, Saravan and Gndevaz has stopped, and there is even a flow of immigrated residents back to their homes, because there are jobs, there are opportunities for entrepreneurship and there is improved infrastructure. This is the obvious change in a short period that lets us know that we are doing it right.

Another argument is that people in the local communities may welcome mining for immediate benefits, but they do not know about the environmental and health problems it may cause.

Lydian started initial environmental, health and social baseline studies at Amulsar in 2007.  Geoteam has kept all local communities fully informed on progress, issues and challenges regarding any environmental or social, health or safety impact of the project. A significant number of public meetings aimed at disseminating accurate information took place during the last five years. Additional ones will take place in the coming months.

As a company with multilateral shareholders, such as the IFC and the EBRD, we are operating according to the highest international standards both in terms of environmental and social impact mitigation measures and transparency with all of the stakeholders. These are known as “The Equator Principles” (EPs), which is a credit risk management framework for determining, assessing and managing environmental and social risk for major investments.

But can the research done by the company be trusted? Would a company talk about any environmental impact openly and sincerely?

The fundamental document for the assessment of the environmental and social impacts of a project according to international standards is the international Environmental and Social Impact Assessment (ESIA). Lydian International is in the process of finalizing the ESIA for the Amulsar project. The ESIA will be made available to the public both in Armenian and English. This document has been prepared in line with the Equator Principals, while meeting the requirements of our main shareholders, IFC and EBRD.

It is a result of significant field investigations and scientific research carried out by independent international consulting companies Wardell Armstrong International, Golder Associates and a number of other reputable organizations and consultants with decades of experience in the mining sector worldwide.

This ESIA is an independent assessment, which includes all the possible impacts and mitigation measures for the project, therefore providing a comprehensive review on all environmental issues, in terms of water, landscape, biodiversity, as well as health, social (including archaeology and herding), security and safety issues. It is an open document and we plan to have thorough discussions with each and every stakeholder interested. In addition, the Armenian government intends to commission a further independent review of the already independent ESIA.

As far as Jermuk is concerned, one of the concerns of the civic activists, Jermuk municipality and other stakeholders, including those business entities operating in Jermuk, is that mining can affect the resort town of Jermuk in a negative way.

The Amulsar mining project is not going to negatively affect neither Jermuk nor its potential tourism development. All of the claims made on possible negative impacts for Jermuk have been addressed in the ESIA. To sum up the impact review carried out: there is no issue with the water mineral quality and resources, the noise from the mining operation will not be heard in town, the dust will not reach Jermuk and nearby communities, and there will be no increased radiation caused by the Amulsar project. This is based on scientific research, available for anyone interested in the ESIA, which will be a public document.

As for tourism, there are at least a dozen mines worldwide operating near resort towns that cause no problem for the development of the resorts. Mining activities provide a regular flow of revenues all year round in comparison with tourism, which can be quite seasonal. The economic activity generated by the Amulsar project will drive further investments and infrastructure development in this region.

A developed Jermuk is beneficial for Armenia and for the Amulsar project. Jermuk is the major town our investors, management, workers and guests will be visiting and living in or by for the coming decade and more. We want to contribute positively to the development of Jermuk in the coming years, and as such the nature of Lydian support is being discussed with the municipality and its residents.

The civic movements in Armenia are getting more and more active, and mining is one of the targets. How do you address these concerns?

There are environmental activists all over the world, some of them against any mining at all. Lydian’s approach is to engage in a transparent manner with all NGOs. Virtually any industry including tourism and agriculture can be potentially harmful for the environment if the impacts are not anticipated early or not mitigated correctly. The only way a responsible company can address the concerns is via disclosure of available independently verified information, accessible to all stakeholders, on how it mitigates the potential impact. We will make sure that the ESIA reaches all the stakeholders, including the Armenian NGO community. If there are still questions, clarifications required or concerns, we are open for any discussion.

Lydian has put considerable resources forward to ensure thorough scientific research and technical assessments, and all information will be made available. This document is a result of years of work with input from world class specialists. The enormous amount of information it presents to the public on any possible environmental, health and social issues that mining can potentially cause can serve as a good educational basis on modern mining techniques.

Regardless of such work, there are always civic activists that oppose any mining project in general, and it is, thus difficult to have meaningful discussion based on facts with them. Today mining can be done properly, with minimized impacts and wider benefits for the state and local communities. We respect different opinion, but for some NGOs to argue that the Armenian economy does not need any new mining project is not to be realistic. Even some of the strongest economies in the world rely on mining as an important share in their gross domestic product and government revenue.

However for those NGOs demanding responsible mining, the Amulsar project is an example of such an operation, and that is why we welcome constructive discussion with them.  As an example, if comprehensive research by a world-class company like Radman Associates shows that there is no uranium concentration in the site that might cause radiation issues, it will be beneficial for all sides not to devalue fact-based arguments by mixing them with myths.

Another example is a statement by one of the environmentalists that there are no open pit mines in the "civilized" world. They have clearly not visited such mines in the USA, Canada and even New Zealand. Lydian wants to demonstrate that responsible and sustainable mining is possible in Armenia. If that is what the civil society pursues, we are ready to help with independently verified information and best practice sharing. We are open for cooperation and constructive discussion. A well informed civil society is beneficial for the country, the general public and the business entities operating in the country.