Lydian streamlines Amulsar plans to ease capital burden

Lydian International (TSX: LYD; US-OTC: LYDIF) knows it has to adjust expectations at its wholly owned Amulsar gold project in south-central Armenia if it wants to secure development funding under current market conditions. To that end, the company has been revising and squeezing greater efficiencies out of its mine plan.

In mid-November Lydian tabled a “value engineering and optimization study” at Amulsar that is part of a year-long effort to lower anticipated capital expenses without sacrificing operating costs or annual gold production. 

Lydian president and CEO Howard Stevenson said during a conference call that he set out a capital-savings goal of US$50 million and, based on the study, the Lydian team should be happy with the results.

Under Lydian’s revised mine plan, anticipated pre-production capital costs dropped 13% to US$370 million, while all-in sustaining costs decreased 17% to US$585 oz. gold.

The company hopes that faster after-tax cash flows of US$567 million over the first five years will support quick payback of project debt and financing. The operation could produce 211,000 oz. gold per year.

Amulsar is an epithermal-type gold deposit, 170 km south of the Armenian capital of Yerevan. Proven and probable reserves stand at 97 million tonnes grading 0.78 gram gold per tonne and 3.63 grams silver per tonne for 3.6 million contained oz. gold and 11.3 million contained oz. silver. Measured and indicated resources total 122 million tonnes at 0.77 gram gold per tonne and 3.5 grams silver per tonne, for 3 million contained oz. gold and 13.9 million contained oz. silver.

Lydian is planning a heap-leach operation at Amulsar that would see it mine 10 million tonnes of mineralized material per year from three open pits. The leach pad would be built in three phases with a total ore-stacking capacity of 104 million tonnes over a decade-long project life.

“Our work started [in the second quarter] with the metallurgical program, which led to design changes in the process plant,” Stevenson said. “Our success resulted from a lower strip ratio and reduced volumes of key consumables, and we’ve kept overall gold production at previous levels. The impact is improved headline economics, despite a drop in gold price. I’d also point out the orebody remains open, with strong upside potential.”

One of Lydian’s big wins came from its metallurgical test work, which determined Amulsar’s ore could be crushed to a coarser grind without hurting recoveries. 

That helped the company eliminate three of five cone crushers from the secondary and tertiary circuits, while lowering double-deck screens from five to three. The primary gyratory crusher would be replaced by a jaw crusher, and overall gold recoveries would improve to 87%.

Planned infrastructure would also be relocated to consolidate the facility’s footprint and “improve constructability and operability.” The adjustments include moving the main haul road and getting rid of a second power substation. 

Stevenson added that Lydian wants to cut “direct capital expenditures” without moving the burden into operating costs. 

The company also benefits from crude oil prices and cyanide consumption that are materially lower under the new mine plan.

Lydian will see a boost in economics compared to its previous feasibility study. Assuming US$1,250 per oz. gold, Amulsar features a US$438-million after-tax net present value (NPV) at a 5% discount rate, along with a 25.7% internal rate of return (IRR). Under the previous study the project had a US$306-million NPV and 20.2% IRR.

The company also gave economic parameters for lower gold prices. At US$1,150 per oz., Amulsar has a US$338-million NPV at a 5% discount rate, with a 21.6% IRR.

“The big question is how we’re planning to finance this build in the current market. Obviously the traditional sources of project financing are insufficient, which has caused us to look for alternative pools of capital,” Stevenson said.

“We continue to work on a structured finance package that may include: senior debt, a stream, equipment finance and equity. Our objective is to finance most of the initial capital to leave a much-reduced public offering gap we believe is achievable.”

The second apropos topic is whether the mine plan impacts Lydian’s permitting, since the company received its mining-right clearances for the project from the Armenian Ministry of Energy and Natural Resources in late 2014.

Stevenson said the design changes require amendments to the environmental impact assessment at Amulsar as well as more public consultations. 

But he says this will add no more than four months to the timeline.

BMO Capital Markets analyst Andrew Breichmanas noted that “optimization of Amulsar continues to improve economics and define an attractive heap-leach development project, while progress with permitting demonstrates the level of stakeholder support. We had expected a smaller crushing facility to reduce plant capital, but mine sequencing also appears to have enabled a staged approach to mine fleet additions.”

BMO Research has an “outperform” rating on Lydian and a 50¢-per-share target price.

Lydian shares have traded within a 52-week window of 22¢ to 70¢, and closed at 24.5¢ per share at press time. 

The company reported US$8.7 million in working capital at the end of September. 

There are 185 million shares outstanding for a $45.2-million market capitalization.