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  • Didier Fohlen: Armenia's perception among international investors im

    Mediamax, Armenia
    Feb 13 2013

    Didier Fohlen: `Armenia's perception among international investors is
    very much better today'


    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.


    Senior Vice President of Lydian International Ltd, Didier Fohlen

    - 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.

    Ruben Harutyunian talked to Didier Fohlen.

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