Toronto listed, European focused gold explorer and developer Lydian International (TSX:LYD) will take full control of the Amulsar Gold Project in Armenia after agreeing to acquire Newmont Mining’s (NYSE:NEM) interest in the project. Lydian also confirmed this morning that the inferred resource at Amulsar had increased to 1.4 million ounces, up from the maiden resource reported in 2009 of 1 million ounces.
The Amulsar group of licenses is 95% owned by Lydian’s wholly owned Armenian subsidiary Geoteam CJSC (the 5% balance being held by a local partner), and was part of a 50/50 gold and copper exploration joint venture with Newmont subsidiary Newmont Overseas Exploration.
Amulsar sits within the Tethyan fold belt, one of the principal geological features in the northern hemisphere. Extending from Central Europe and northern Africa across Turkey and the Middle East to the Himalayas and then on to the Far East and Indonesia, it marks the point where Africa, Arabia and India collided with the Eurasian plate on their drift northwards and closed up the Tethys Ocean that lay between them in Triassic times. Stretching as it does across so many countries and cultures, many of which have been centres of political and geological upheaval over the centuries, the Tethyan belt is perhaps the least explored of all the earth’s major geological systems.
Investor’s first reaction to the news is likely to be concern about why Newmont has opted to sell out of the project. However, it is worth noting that Newmont Mining has been exiting all of its projects in the region, including the sale of its interest in the Ovacik Mine in Turkey to Koza Gold, so the move appears to more of a wider shift in focus rather than a specific decision on the merits of the Amulsar project. It is also worth noting that as part of today’s transaction, Lydian will be issuing 3 million shares to Newmont as part consideration, which will increase Newmont’s equity stake in Lydian from 9.3% to just under 14%.
The Amulsar Gold Project certainly has a lot of characteristics that any small or mid-cap mining company would be attracted to. With a 1.4 million ounce inferred resource – an increase on the previous resource estimate of 1 million ounces - the project has the potential to host a considerably larger resource with numerous untested drill targets still on the company’s ‘to do’ list, and plenty of infill drilling required on the main targets already indentified - Tigranes, Erato and Artavasdes. Lydian International confirmed today that it was planning to drill around 16,000 meters in 2010 which will be focused on upgrading a portion of the current inferred resource at Tigranes to the indicated category, to test additional high priority targets, and continue step-out drilling Erato and Artavasdes.
Mettalurgical testwork completed in 2009 also highlighted attractive economics - heap leach amenability test work conducted on samples taken from Amulsar have indicated that the ore is highly amenable to heap leaching, with whole ore cyanidation gold recoveries on half and quarter inch crush bulk samples reported to be 95-97%.
This combination of wide zones of oxide mineralisation and favourable metallurgy has confirmed the project’s potential to host a low cost heap leach open pit mine. Indeed, Lydian has already secured a 25-year Special Mining License and all the necessary permits to build a starter pit, and is planning to complete additional components required for a feasibility study this year. Production is expected to commence in 2013, which in mining terms is on the near term horizon, hence the company’s ambition to drive ahead as the sole owner of the project.
Lydian will pay Newmont USD$5 million in the next 60 days, with a further USD$5 million due before December 31, 2011 and a final USD$5 million to be paid before December 31, 2012. Lydian will also pay Newmont a 3% new smelter royalty, or USD$20 million over the first five years of commercial production. The transaction effectively values Newmont’s interest in the project at USD$25 million using a 10% discount rate.
“The purchase of Newmont’s interest in Amulsar marks the most significant juncture in the Company’s history since its discovery of the project in 2005,” stated Tim Coughlin, Lydian’s President and CEO, “This deal reflects Lydian’s ambition to put the Amulsar gold project into production by 2013 and the structure of the deal allows Lydian to elect either the royalty or one of the payment options, whichever is most economic at the time.”
Coughlin went on to note that the current resource is open, and that the company has plenty of additional targets to follow up, including the Erato Prospect, where the company drilled 229 meters @ 1 gram per tonne gold (including 32 metres at 2.0 g/t and 22 metres at 2.2 g/t gold) at the end of last year’s drill season.
“Metallurgical test work is confirming the highly positive results of previous work suggesting that this project will be economic at grades of lower than 0.9 grams per tonne gold,” Coughlin added.
Lydian currently has approximately USD$4.3 million in cash on hand, and this year’s work campaign is likely to cost in the region of USD$5 million to execute, which suggest the company is likely to tap the market for some capital in the next few months.
Speaking to Coughlin on the phone today, it is clear the company sees today’s news a positive move in the rapid development of Amulsar. Indeed, the removal of Newmont could be a blessing in disguise as the drill bit continues to turn in 2010.
It is also worth nothing that Lydian in no one trick pony. In September 2009 the company reported an NI 43-101 compliant inferred resource estimate for its 100% owned Drazhnje project in Kosovo of 3.21 million tonnes grading 2.51% lead and 5.11% zinc.
Disclosure: The author holds no positions in the company