Updated: Armenian gov't clears path for Lydian at Amulsar despite environmental concerns

The government of Armenia has published the results of a long-awaited public audit of Lydian International's (TSX: LYD) Amulsar gold project, paving the way for the company to move forward with development of the mine.

The Amulsar project, in Armenia's mountainous south, has been illegally blocked since June 2018 by locals and environmental activists, who claim the operation would threaten several endangered animal species. These include the world's rarest big cat, the Caucasian Leopard, of which there are thought to be only 10 left in Armenia.

Despite court rulings in Lydian's favour, police have not been able to restore uninterrupted access to the mine site, and ongoing demonstrations against the project continue.

The situation, however, may be about to change as the Armenian government told the company on August 16 that it would launch a criminal probe into the blockades.

Based on the company's estimates, not having access to supplies and people has cost Lydian about $100,000 a day and the loss of key professionals, not counting that it had to lay off 83% of its workforce and about 1,100 contracted jobs.

Based on the company's estimates, the blockade has cost it about $100,000 a day and the loss of key professionals.

"Dislocation-related costs will continue to be incurred until the illegal blockades are removed and unrestricted access for all purposes is available to the company," Lydian said when delivering second-quarter results this week. "Thereafter, the company anticipates additional time and funding will be needed for site restoration, sourcing of financing, if available, for completing construction and working capital until positive cash flows from operations can be achieved."

Lydian International's Amulsar gold property in southern Armenia. Credit: Lydian International.

Pressed by citizens, Armenia's new government launched in September last year a three-stage assessment of Amulsar. The objective was to determine the project's potential impact on the Southern Caucasus mountain range's wildlife and, particularly, on water resources.

The proposed mine sits above a tunnel that supplies water to Lake Sevan, the largest freshwater lake in the entire Caucasus region. Scientists have warned that acidic drainage from the mine would inevitably seep into the lake, posing a threat to Armenia's water system.

Amulsar is also near Jermuk, a spa town built around mineral springs, and the local economy is based on health tourism. Opponents to the mine claim construction dust has curbed the influx of visitors, and also affected crops and grazing. Cattle, they say, have increasingly refused to drink water from streams on the mountain since construction started, affecting local livelihoods.

As part of the third-party assessment of Amulsar, whose results were released on Aug. 14, authorities requested a review of the firm's Environmental and Social Impact Assessment (ESIA) and Environmental Impact Assessment (EIA), even though the latter had been previously approved by the Armenian authorities before the firm began construction.

Lydian cheered the audit report's findings, pointing out that Yura Ivanyan, the head of special investigative committee's Department for Investigation of Corruption-related Property Crimes and Cybercrimes, confirmed that there were no grounds for criminal charges against the company.

"Lydian is pleased to see the international audit has confirmed most of the same conclusions reached during either the EIA/ESIA process and/or confirmed through subsequent detailed design," the company said after reviewing a it.

"We are particularly pleased to see that the findings of the audit confirm that there is no link between the groundwater beneath the project site and the Jermuk Mineral waters, and that the project is not likely to result in any measurable effect on Lake Sevan even in the event of a catastrophic occurrence such as an earthquake," Lydian noted.

The company had said that if Armenia decided to shut down Amulsar, it would take the case to international arbitration under bilateral investment protection treaties with the U.K. and Canada.

Lydian International's Amulsar gold property in southern Armenia in June 2016. Credit: Lydian International.

People familiar with the matter, however, noted that while the audit's results were positive for Lydian, there are no guarantees the Armenian government would allow the company to move forward.

"Authorities may agree that there are no grounds for criminal proceedings, but they may not be as sure about the alleged impacts on Lake Sevan, leopards, and others," said one industry consultant, who requested anonymity.

Opposition to mining in Armenia has its roots in a long list of environmental disasters caused by previous operations, as well as based on allegations of corruption among authorities in charge of granting licences.

Lydian, however, has repeatedly highlighted that - unlike many previous projects - Amulsar is subject to the rigours of an Independent Advisory Panel.

"We look forward to reading the full text of the audit report and are confident it will confirm Lydian's prudential approach to environmental stewardship," interim chief executive, Edward Sellers, said Wednesday.

So far, the company has invested more than US$3 million in social projects, such as local businesses and infrastructure, to mitigate the potential impact of the gold mine. It has also vowed to establish a national park.

The country, in turn, is in desperate need of foreign investment and jobs that properly run and managed mining projects can bring.

Minerals and metals make up about half of Armenia's exports and mining accounted for about 3% of the country's economic output in 2017, government data shows.

The Amulsar mine will be a large-scale operation with annual gold production averaging around 225,000 oz. over an initial 10-year life.

The Amulsar gold project is in Armenia's mountainous south. The area is home to several endangered animal species.