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Amulsar: Responsible Mining, Sustainable Economic Benefits for all Partners

The Equator Principles (EPs) were initially developed by a group of leading financial institutions in 2003. They are now the main international rules and regulations ensuring that mining projects are developed in a manner that is socially responsible and reflecting sound environmental management practices. Lydian International’s multinational shareholders, the International Finance Corporation (IFC), part of the World Bank, and the European Bank for Reconstruction and Development (EBRD), are signatories of the EPs, and this is why there is a guarantee that Amulsar project will be developed according to the highest international environmental and social standards.

Any industry, even a seemingly “safe” one, has the potential of being harmful. A seemingly harmless industry, if poorly operated, can bring maximum threats and minimum benefits, while a seemingly “risky” industry, like mining, can bare minimal or no threats and maximum benefits, if planned and operated correctly.

This is what Lydian and its subsidiary company in Armenia, Geoteam, do. We endeavour to effectively explore and develop the Amulsar mine, in line with the best international practice. This means helping local communities to create sustainable wealth that will stay in place even after the closure of Amulsar mine.

The Amulsar project has now been shown to contain at least 3 million ounces of gold – with the chance that this will increase following further exploration work. This means it is already in the top 15 percent of gold resources worldwide. Not all countries in the world are lucky enough to have such resources. Responsible and effective exploration, with ultimate care for the environment, social well-being of the communities and transparent revenues, which benefit both the investors and the country, is what Lydian has set out to achieve.

For us in Lydian, it is essential not only what we do, but how we do it. We believe that mining can and should be responsible, environmentally safe, socially beneficial and fundamentally important for the economy.

We do believe that other branches of economy can be developed simultaneously, as a country cannot be economically competitive when it relies on one sector only. Agriculture cannot substitute industries and industries cannot substitute services. Even the world’s leaders in agricultural products, such as France, USA, Canada and Belgium, owe only up to 2 percent of their gross domestic product (GDP) to agriculture. And there are countries like Somalia, Chad and Sudan that have over 50 percent share of agriculture in GDP and are in no way internationally competitive, even in agriculture. This is to emphasize that arguments, like ''we should do agriculture instead of mining'' are economically not viable. Of course, agriculture is important, as are other industries, but one cannot substitute the other.

Australia, a major agricultural country, benefited greatly from the mining boom of the last decades. The country still has a considerable share of agriculture in the economy. It is also one of the leading mining countries in the world.

Australia has driven over $300 billion of investments into the mining sector, “the envy of the world” as the Australian Natural Resource Minister calls it. And even though there is a lot of talk that the Australian mining boom is over, Australians acknowledge that they still owe their constantly growing GDP mainly to mining. Australia was one of the least impacted countries by the global financial and economic crisis. Canada, Chile, Brazil and other countries owe their strong economies partly to mining. Mining creates wealth, and wealth is the basis for further development, including post-industrial, knowledge-based economies, like those in Europe.

Lydian is proud to be one of the first internationally publicly listed companies in Armenia. In these days of volatile markets, economic crises and commodity price fluctuations, it is not an easy task to obtain investors trust, especially in a yet unknown investing destination like Armenia. We still need to prove that Armenia is a safe and trustworthy country for investments, and we, in Lydian, are proud that we have already brought renowned institutional investors to Armenia. Not too many countries with limited investment background have mining projects with such investors as the IFC and EBRD and investment funds, like Amber Capital, Mackenzie and Franklin Templeton Investments. Bringing these investors to Armenia has been a rewarding challenge for Lydian.
Lydian is now the face of international investment in Armenia. In a way, while traveling to various conferences, congresses, and investor meetings around the world, we have become Armenia’s unofficial business ambassadors.

Lydian has committed to make approximately $270 million direct investment during the construction period and around another $200 million during the production period. The estimated revenues to the state budget at peak production will depend on the then gold price but are estimated to be in the region of $86m annually.  This does not include the payments to the local communities.  As a world-class company with high standards of corporate social responsibility (CSR), Lydian has already invested and will continue investing into the communities around its project. We do not just help the vulnerable. Our CSR projects are aimed at sustainable development and capacity building for the communities. We are happy to see the obvious change that Amulsar project has brought to these communities, even though it is still at its ex-ploration phase.

Currently, approximately 160 people currently have full-time jobs with Lydian subsidiary Geoteam in Armenia, and this is expected to grow to around 550 employees during the construction and production phases. Many others in the affected communities have developed small businesses of different supply services to the camp. Kindergartens and libraries have been renovated, villagers deprived of basic medical care now have a well-equipped primary healthcare unit. Our CSR projects will only grow in the future.

Lydian has not done all of this just because it is required by corporate ethics. We believe that this brings hope, vision and creativity into the local communities. A content, strong and creative community can be constructively helpful to ensure a better business environment beneficial to all parties.

Often mining is presented by opponents as “providing a couple of dozen low-paid jobs.” This is yet another misconception. A state of the art responsible mining operation, like the Amulsar project, provides high paid jobs, not only to the local communities and workers, but also to engineers, geologists, environmental and social specialists. This is the qualified workforce that was forced to emigrate or was unemployed or underemployed in the first decade after the collapse of the Soviet Union, when the industries were closed and there were no investments in the new ones.

Lydian is proud that many first-class specialists in Armenia are working on the Amulsar project. These are engineers, geologists, environmentalists, biologists and other high-class professionals. Part of our professional team is there to make sure - together with our international consultants - that the project complies with local and international environmental and social standards.

Another false assumption that one often hears about mining in Armenia is that mining taxation in the country is extremely low.

Following the advice of the World Bank, the Armenian mining royalty tax was increased as of January 1, 2012, and now 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. In rough terms this means there is a 4 percent top line charge and at least a net 30 percent bottom line charge.

This is just to emphasize that Armenia can and should benefit greatly from the mining industry, and this is what Lydian as a transparent and responsible company is committed to contributing to. Lydian is a publicly listed company on the Toronto Stock Exchange, with significant major shareholders in IFC and EBRD, and they are the best guarantee that the company will be a highly responsible taxpayer with a full financial transparency.

Mining in Armenia faces a lot of criticism. Sometimes this is the consequence of objective reasons and problems, but sometimes there are emotional and subjective issues that are not easy to address with a rational argument.

However, in Lydian we have no doubt, that Amulsar will be an exemplary project. It will show the benefit of transparent and effective investment to world class standards. The operation will serve as an example of responsible mining in Armenia, and will bring tangible, direct and lasting economic benefits to the country.