LYD... Scotia's outlook..... Lydian International Ltd. (LYD-T C$1.56)
Updated Resources; Moving Towards FS
Leily Omoumi, MBA - (416) 945-4527
(Scotia Capital Inc. - Canada)
leily.omoumi@scotiabank.com
Michael Li - (416) 862-3910
(Scotia Capital Inc. - Canada)
michael-h.li@scotiabank.com
Div. (NTM) C$0.00
Div. (Curr.) C$0.00
Yield (Curr.) 0.0%
Rating: Sector Outperform Target 1-Yr: C$4.00 ROR 1-Yr: 156.4%
Risk Ranking: Speculative
Valuation: 1.16x NAV
Key Risks to Target: Multiple contraction, commodity prices, technical and operational risks, and geopolitical risks
Event
¦ LYD announced a new resource estimate at Amulsar (Armenia). M&I
resources increased slightly, while inferred resources increased
meaningfully. Grades have improved for both M&I and inf. resources.
Implications
¦ Based on a 0.4 g/t cut-off, M&I resources increased by 4% to 2.26 Moz,
while grades increased by 16% to 1.14 g/t, relative to the Sept. 2012
estimates. Inferred resources grew by 56% to 1.64 Moz, while grades
increased by 11% to 1.02 g/t. At a 0.35 g/t cut-off, M&I resources are
2.38Moz at 1.04 g/t and inferred resources are 1.73 g/t at 0.93 g/t.
¦ The new estimate will form the basis for an updated FS due before yearend.
Recall Amulsar's last reserve statement contained 2.3 Moz at 0.80
g/t. Given the increase in grades, reserve grade may improve slightly.
¦ The updated estimate is based on ~20,000 metres of diamond and RC
drilling as Lydian works towards completing an updated FS and better
understanding the extend of its deposits. A gold price of $1,200/oz was
used in this estimate (similar to Sept. 2012 estimate).
¦ We continue to like Lydian for the simplicity of the Amulsar heap leach
project, the low initial capital of the project (~$300M), and below
industry-average total cash costs (~$475/oz). Although this is a
challenging environment for pre-producers, we continue to believe
Amulsar is a stand-out project.
Recommendation
¦ We rate LYD SO. We have made no modelling changes.
Updated Feasibility Coming
¦ Lydian expects to release an updated feasibility study for the Amulsar project in Armenia
before year-end. Our modelling assumptions are primarily based on the bankable feasibility
study released in September 2012.
¦ The new resource estimate encompasses Tigranes, Artavasdes, Arshak, and Erato.
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