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We aim to build an exemplary gold mine at Amulsar

Geoteam CJSC is an Armenian mineral exploration company,  a 100% owned subsidiary of Lydian International Limited. Geoteam’s flagship project is the Amulsar gold deposit, which is a new gold discovery located along a high ridge top between the Vayots Dzor and Syunik provinces. In his interview with CivilNet, Dr. Timothy Coughlin, President and CEO of Lydian International LTD  explains how responsible mining can be environmentally and socially friendly.

 - Former Armenian Prime Minister Armen Sargsyan has been appointed to the board of directors of “Lydian International.” Generally, in Armenia for objective reasons there is a negative attitude toward former state officials with links to businesses. While the former prime minister has a decent reputation in Armenia, aren’t you concerned that the involvement in your business of a former official could have a negative impact on the company’s image?

-Lydian International is a public company, listed on the Toronto Stock Exchange, which means full transparency and accountability to thousands of shareholders. The Company’s reputation is very important to us. We aim to build an exemplary gold mine at Amulsar, one that creates a lasting positive impact on the region and for the country as a whole. From the Company’s side Dr Sargsyan’s appointment to the Lydian Board is much more for his business acumen and international profile than it is for his previous posting as the country’s PM. Dr Sargsyan holds several Board and advisory roles with various international businesses. However as you say, he has a good reputation in Armenia, and as an Armenian himself he is also interested that the project is developed in line with the highest international social and environmental standards, which is also the commitment of our Company. We hope that the Armenian public views this as a highly considered and positive appointment.

 - In an interview, you mentioned that you have Armenian shareholders from Armenia and abroad. Can you give their names?

-Armenian nationals along with nationals of many other countries buy our shares on the open stock-market in Toronto, Canada. The basic principle of a “public company” is that the public can own it, anyone can participate. As well as individuals, various banks and financial institutions can also purchase shares. We are hoping to attract the interest of national Armenian banks and institutions in our shares. Exploration and mining is a very high risk investment, which may be why Armenian banks have been slow to take an interest. However, our largest investor, Amber Capital from New York, does source some of its funding from the Armenian community overseas and invests in other sectors in Armenia. They recently opened an office in Armenia, a move that could promote more direct investment interest from local Armenians.

 -What percent of Amulsar’s resources will be exploited by “Lydian”? What is the current market value of these resources? How much revenue will be received, assuming current international gold prices remain the same?

-As for the estimated reserves, it is public information, available on our website. However, this is an interesting question because it generally comes with the presumption that mining companies make significant amounts of money from mines at the expense of the state. In fact, over the life of the mine, the state generally makes more from a mining project than the Company does. Metal prices fluctuate wildly, as do costs, so it is perhaps more instructive to talk about returns in relative percentages rather than absolute numbers. However, we do have a reasonable idea of what will have been invested in Amulsar by our Company before there are any returns. Our capital investment number is in the order of USD 450M. As Amulsar is a completely new discovery, that is money spent clearly “in the ground,” starting with the very first rock sample with gold in it through construction of a World Class gold mine and finishing with closure and rehabilitation costs. Most of this money will be invested in the first 10 years since discovery with no return to the Company of course, but with the Government collecting income and withholding taxes. Once gold is finally produced and sold, the Government receives its taxes and royalties. At this point, however, the Company still has no investment return as it needs to pay off bank loans. According to our calculations, at Amulsar debts will be paid out after about four years of production. At that point the Company makes its first returns (14 years after discovery!) and from then on earns an average about 24% net of gold price throughout the life of the mine, with about 22% returned directly to the state in total taxes and royalties. The balance of 54% in proceeds from gold sales is reinvested in the project (in Armenia) as capital and operating costs, with much of this attributed to local Armenian salaries and service providers, such as fuel and power suppliers. Bear in mind also that for every miner, it is estimated that three new jobs are created in service and supply sectors.

 I think the above supports the contention that transparent and responsible mining; mining that shows due care and consideration for the environment and for affected communities is in fact a very good deal for the state. Countries that have benefitted greatly from the mining industry include Canada, Peru, Chile, Brazil, Australia, and South Africa. In free market economies, mines are operated by private or public companies that provide the initial high-risk investment, bring the required expertise, and give back to the state much more than they take away.  

- Do you have a medium-term or long-term forecast for trends in world gold prices?

-Predicting the gold price is a difficult task; rarely is there a consistent answer as it depends on too many variables. What I can say from the operating side is that globally the average total cost to produce an ounce of gold (not including taxes or interest on loans) is about USD $1100 per ounce. Today’s gold price is about USD $1600 per ounce so that is a slim margin to manage. At Amulsar, due to good gold recoveries on the heap leach, our margin is better than the global average which means we are slightly better positioned to make returns to the state and to our investors.  

 -Raw materials comprise the lion’s share of Armenia’s exports, but many people argue that we should export not the raw material, but products made from it which have added value. Is this realistic?

-I don’t know the answer here. Can Armenia be competitive as a commercial smelter and refiner of metals? Certainly the idea has some merit and it should in my opinion be properly researched. 

 - The Amulsar mine together with the cyanide tailing ponds is located in the water catchment basin of the Vorotan and Arpa rivers, and consequently is part of the Lake Sevan basin. The Lake Sevan Special Commission has issued a negative assessment of the Amulsar exploitation project. The Ministry of Nature Protection in its environmental impact assessment put forward a number of conditions, including taking into consideration the opinion of the Sevan Lake Special Commission. How are you going to meet this condition?

-Firstly Amulsar will not produce a tailings product. It is a heap leach operation, and modern gold processing technology that we are introducing in Armenia. Basically very dilute cyanide solution (maximum 200 parts per million) is dripped onto a heap of ore stacked on leak-proof double liner, this solution after reacting with the gold (at which point the cyanide is even more dilute) is collected and then run through a processing plant where the gold is extracted. Compared to other gold processing methods, it is a fully closed and contained process with no discharge to the natural environment, that is why it is considered to be safe for the environment. When the life of the ore heap is over it is recontoured, flushed, fully rinsed and neutralized, top soiled and grassed over. There are many examples of this process around the world, with long standing experience on operation and closure.

Secondly, the Vorotan Valley is actually in the Non-Immediate Impact Zone to Lake Sevan, as confirmed recently by the head of the Sevan Committee, and only by virtue of a water tunnel from Spandaryan to Ketchut which has never been commissioned. This means mining and processing is not prohibited. Thirdly, the Ministry of Nature Protection has approved our EIA for processing in the Vorotan Valley. However, again, because Amulsar is a new discovery we have some flexibility in final design. In fact we have now found gold beneath our planned crushing facility, so we are being forced to reconsider the mine layout anyway. We are working positively and constructively with the Ministry on new layout proposals. However, it is fair to say that there is some urgency here. The quicker we all agree a final layout, and move forward, the better for everyone. Gold mining is a costly enterprise: losing time means losing investments into the project and into the country. And finally, modern mining, if conducted properly is considerate of social, environmental and other relevant issues. Heap-leach facilities operate successfully in countries like the USA, Australia, Canada, Argentina, Brazil, Russia and elsewhere. Mining exists on every continent and in every country that has mineral resources, and it contributes greatly to the economies of these countries. Modern mining applies the best mitigation measures against any and all potential risks. Just like any other industry, mining nowadays is very different from what it was 30 years ago. This is what we want to demonstrate at Amulsar.