Lydian International story gaining traction with investors and analysts

Armenia-focused gold miner Lydian International (TSE:LYD) is starting to gain some traction with investors.

The share price kicked into gear on August 8 and is up 43 per cent in the last six weeks.

In fact there is a real buzz around Lydian now that analysts have digested the fine detail of the preliminary feasibility study (PFS) on the Amulsar project in the mountainous former soviet state.

TD Securities’ analysis of the company is typical of the upbeat coverage of late. It set a C$4 a share price target for the shares, which are currently changing hands at C$2.80.

Broker Stifel Nicolaus is even more bullish, valuing the Lydian share at C$4.20 based on an NPV of around US$515 million – almost double the company’s market capitalisation.

July’s PFS covered the Tigranes and Artavasdes areas of Amulsar, which host 1.64 million potentially minable ounces of gold out of a total resource of 2.5 million ounces.

Annual production is predicted to be 123,000 ounces in the first three years rising to 256,000 ounces in year four through to year seven.

The economic assessment put cash costs of the open pit operation at US$419-US$499 per ounce, which is very much at the lower end of the cost curve. 

The mine itself would have an initial capital cost of US$162.6 million and it would have an internal rate of return of 45 per cent.

TDS analyst Daniel Earle expects the company to come up with a far more aggressive mine plan when it publishes the definitive feasibility study in the second quarter of next year.

He is modelling average annual gold production of 218,000 ounces at a cash cost of US$413 an ounce, with initial capital costs of US$275 million.

And he expects to see the resource base grow: “While the deposit is of only moderate size at present, we believe that the company has recently made a breakthrough in its understanding of the controls on mineralisation.”

Indeed recent drill results suggest that significant resource growth is possible, Earle says, pointing to intersections of 69 metres and 100 metres at grades of 3.8 grams and 1 gram per tonne respectively.

Initiating coverage with a “buy”, the analyst points out that Lydian is currently trading at six tenths of its net asset value, where competitors are on 0.9 times NAV.

Stifel’s Craig Stanley, meanwhile, indentifies to a number of catalysts that will help maintain the stock’s upward trajectory.

They include the metallurgical test work set to be released in the final quarter, an updated resource statement based on an aggressive drilling campaign, also before the year end, and the all-important bankable feasibility study (BFS) early next year.

One of the worries of investors new to the Lydian story is the potential sovereign risk associated with Armenia.

One look at Lydian’s shareholder register ought to assuage those fears.

Its leading shareholders are the International Finance Corporation and the European Bank for Reconstruction & Development - organisations whose mandate is to invest in the stable emerging economies of the world. 

“We believe the political risk of having its sole project in Armenia is manageable given the company's impressive in-country management team and the numerous mines in operation in the country,” says Stanley.

“In addition, the company’s largest shareholders include the IFC and the EBRD, both of which have invested in other sectors of the Armenian economy and should provide strategic support in permitting Amulsar."