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Didier Fohlen: “Armenia

Lydian International can be validly named a unique investor in Armenia, as it has already managed to raise about $130 mln from international investors mostly for its Armenian project – the Amulsar gold deposit (currently contains in excess of 3 million ounces of gold and is in the top 15% of gold resources worldwide) on the boundary of Vayots Dzor and Syunik marzes. The Amulsar area  is currently explored by Lydian's fully-owned subsidiary Geoteam. Senior Vice President of Lydian International Ltd, Didier Fohlen told Mediamax about Company's activities in Armenia in 2012 as well as its plans for the coming years.

- Lydian was planning to spend $42 mln by the end of 2012. Have you allocated this expenditure  and, please, tell about current exploration results at Amulsar?

- We haven’t published yet our accounts for 2012, they have not been fully audited, but we actually spent the budget that was planned for the exploration activities and the feasibility study preparation and all the other important environmental and social studies that are required for a publicly listed company. As you probably know, Lydian is listed at Toronto Stock Exchange (TSX) in Canada, which is the world's leading stock market for mineral exploration and mine development companies.

We also conducted the international Environmental and Social Impact Assessment (ESIA), which is required to meet international best practice and to be able to apply for debt financing from most international banks. In 2013 we will keep carrying out our exploration and development work. This is where we spent the bulk of the money in 2012 and we will do the same in 2013: exploration, feasibility study and environmental and social studies, these all required for the development of a new mine. 

So far, as for the investments into the project through Geoteam, during all the 6 years of exploration we have invested around $42 mln in exploration with further amounts spent on the development of the project as a whole.

We expect the total amount of all investments into the project throughout the life of the mine will be more than $ 400 m.

- What is planned for 2013? 

- 2013 is the year of completion of a revised feasibility study (“FS”) and initial detailed engineering  as well as the Environmental and Social Impact Assessment required to follow Equator Principles and the Environmental Impact Assessments (ShMAGs) required by Armenia regulations. We expect to complete most of these studies by August 2013. As mentioned earlier we will keep on doing exploration drilling, while also starting initial construction activities. Under the Toronto Stock Exchange (“TSX”) regulations and the Equator Principles governing international lender requirements, Lydian is required publicly to disclose the ESIA,  ShMAGs and the FS. Completing the FS and the ESAI will be the two major events that we plan for this year as they will then allow us to proceed with raising financing to build the mine. The ESIA is a major step in terms in meeting our Company values regarding environmental and social management, transparency and governance in the mining sector.  

- When are you planning to finalize the exploration and start the mining process?

- Between exploration and mining we need to do construction, we are planning to start construction this year in line with our permitted activities. The main construction works are due to start in the spring next year. We intend to meet our target date for production is late 2015. So, two years of construction and then the start of production. 

- Will you process the gold in Armenia or export the ore for processing abroad?

- We are going to have a processing plant at Amulsar, so the final product, the doré bars (over 90% pure gold & silver), will be produced in Armenia. The next step in gold production is refining the doré to produce gold and also the silver as a by-product.   It is usually done in a specialized refinery; most of them are in located in Europe. 
- Is Armenia's landlocked position, closed borders and the absence of railroad at the place of mining kind of obstacle for Armenian gold's «competitiveness»?

- No, the price of gold is the price of gold anywhere. It's a commodity with a fixed price at London Stock Exchange, moreover, today gold, if needed, is usually shipped by air. There is an effective railway line to Yerevan that which we will utilize for supply. 

- Lydian is listed at TSX and has already attracted about $130 million from international investors. How did the Company manage to attract such huge investments for a project in a country that is not widely known amongst the international investment community.

- In January 2008, the CEO and the Board of the Lydian listed Lydian on the TSX. To maintain interest in the Company and therefore a healthy share price, the Company’s senior management team has spent and still spends a lot of their time with international investors informing them about Armenia and making them comfortable with making an investment in this country. Many of these investors have also been encouraged to make their first visits to Armenia by the Company.  So with this dedication Lydian has become the example of company operating in Armenia that can maintain a listing on a stock market outside Armenia and can attract foreign investments in a transparent manner.

I think Armenia's perception among international investors is very much better today. When Lydian started its operation in Armenia in 2006, it was a challenging environment to present Armenia as a favorable investment destination. Most international investors did not then know where the country was. Today  that the investment climate is improving, and with Lydian’s efforts to promote our Amulsar project,  investors’ perceptions are slowly changing and many reputable investment banks and international institutions as well as private investors are starting to see Armenia as an investment destination.  It’s hard to predict what will excite stock markets and investors. What we can say is that the story of Lydian and its Amulsar gold deposit should be positive for Armenia, because the fact that we successfully operate in Armenia makes our shareholders confident to invest further with the Company and if we and thus they are successful they will look at making other investments in Armenia in the future. If they maintain their confidence in the management of the Company, then they will have confidence in the gold deposit that we have, and confidence in the capacity of Armenia to attract international investors.

- What's your opinion on the taxation of the mining industry in Armenia? With advice from the World Bank, the Armenian Mining Royalty Tax was increased as from 1st January 2012.

- Previously Armenia used to have a set of regulation that was probably not very favorable for investments in mining projects and for the country as well. So, the government of Armenia made a decision 2-3 years ago to revise its regulations and that came up in a format of new mining code that was completed with the support of the World Bank. So since the beginning of 2012 there is a new Mining Code in Armenia and we think that it’s a balanced one.  Too much taxation and investors will take their money elsewhere and nothing will be built; too little and the Country and the local communities do not benefit enough from their natural wealth.

In very rough terms, the anticipated taxation (including royalties) for a gold extracting mine is over 30% of the likely profits. This is an above average to high tax for an ore extracting industry if you look at taxation worldwide.  

- In one of your previous interviews you said that Lydian's investments in Amulsar will boost local small and medium enterprises. What did you mean by that?        

- Usually when you open the mine, it generates lots of opportunities for jobs and businesses in the area. Let me give you an example: we need to transport our workers. We're not going to have all the workers living on top of the mountain, so we need to bus them between Jermuk, Gndevaz, Gorayk, Saravan and even Yerevan to the mine. It's not the business of a mining company to do transportation, so we could support and  promote local entrepreneurs to create a small company, so they buy one or two busses and do the transportation. Another good example is the food and fresh products supply, other services the operation and people working in the mine will need. This will boost several small and medium business enterprises locally.

Also at the end of the mine life, we need to put back the area to the condition similar to what it was before we started mining. It is called mine rehabilitation: putting the land close to the initial condition before you started the exploration, this means re-contouring surface, putting back top soil, seeding grass, planting trees, etc. Again, this is an opportunity for local entrepreneurs to do some work for us. 

Usually in mining, there is an average estimate, that for every direct job with the mining company approximately three indirect jobs are created around the mining activity.

-In one of your previous interviews you have mentioned, that Lydian anticipates to contribute AMD 35.5 billion annually (US$ 86.5 million) to the State of Armenia budget at peak production, thus becoming one of the top-taxpayers in Armenia. How do you calculate such sum taking that gold price can go up or down in years to come?

- That again, is a very approximate calculation, based on the mining code and the tax regime that applies to the mine, the gold prices and the deposit we have announced in the feasibility study. This number might change, due to many circumstances, but we can surely state, that we will be contributing at least tens of millions dollars annually once we get the mine into production.

As to the gold price, I think everyone is quite optimistic that it will stay at the value it is now or even higher.  So, yes, we’re indeed going to become one of the top-taxpayers in Armenia and as a market listed company, we are going to be a transparent and responsible taxpayer and an exemplary employer.