Hayk Aloyan: “At recent gold prices, the company will be paying about $35 million in taxes and royalties each year”
Interview with Geoteam CEO Mr. Hayk Aloyan
Could you explain as simply as possible how much money has already been invested in the project, how much money will be invested and when the company will start making a profit?
First I want to emphasize that Amulsar is a unique investment project and will have a visible positive impact on the economy of Armenia. Since we discovered the deposit the company has invested over US$ 69 million in exploration and other activities. As you know construction and mining haven’t started in Amulsar yet. Capital expenditures for construction and start of mining will be around US$ 426 million. It is not possible to say when the company will be making profit as we cannot predict the gold price to that degree of accuracy. That is why we emphasize the importance of this investment for Armenia, as it is not easy to attract investment in these times of market volatility. We expect to being paying significant taxes and royalties to the Armenian government from 2017, when the mine will be in production. Additionally, although we haven’t started the operations yet we have invested $1.6 million into development projects in local communities. We believe that the sustainable development of the adjacent communities should be one of the most important achievements of the project for the country.
How much gold will be extracted in 10 years, what is the cost of extraction and at what price it will be sold? Where will the extracted gold be exported to? The study also mentions you will be extracting silver.
The feasibility report estimates over a 10.4 year mine life. 2.1 million ounces of gold are recoverable at an all-in sustaining cost of $701 per ounce of gold. We cannot know for certain what exactly the international market price for gold will be in about 2 years when we start production, or over the life of the mine. But you will see that the feasibility study shows that the project is sustainable at a range of gold prices. As for the export, as you know we will be producing d’ore that is an alloy of gold and silver. Silver is a by-product of Amulsar gold mine. The d’ore produced in Armenia must be refined in one of the countries that have certified refineries. Refined gold and silver that meets market standards is then sold through an established exchange, such as the London Metal Exchange. Of course, taxes will be paid by Geoteam on the full profits no matter where it is sold.
According to the report, the internal rate of return (IRR), depending on the gold price, ranges between 13-26%. Is this a normal indicator for investors?
The gold price may well fluctuate; and although this is a normal consideration for any investor, however, I again want to emphasize that it takes a lot of effort to keep investors interested in projects, especially in less known destinations like Armenia. As a citizen of Armenia I am proud that Amulsar has brought the country to international investment spotlight. What you will see from the feasibility study is that the project provides an attractive rate of return across a variety of scenarios. It offers an after-tax unleveraged IRR of 20.2% based on a gold price of $1,250 per ounce (the base case).
The report provides for the amount of royalties and taxes payable by the company in percentage terms. Can you specify how much revenue in taxes in dollar terms Armenia’s budget will gain from Amulsar each year?
The project will be one of the largest foreign investment projects in Armenia.
At recent gold prices, the company will be paying about $35 million in taxes and royalties each year over the life of the mine starting from 2017.
The company will also pay approximately US$ 1m a year to local government budget in the form of land payments. However, the impact of the project on the economy will be significant also in terms of employment in the region, and the multiplier effect an operation like Amulsar will have on local businesses.
How important is the Feasibilty Study to investors, if they have already invested a lot of money? What impact will this report have on the mine operation and on potential investors? Can it prompt some interest towards Armenia?
The Feasibility Study is very important and positions Armenia as an attractive investment destination for foreign investors. It has produced an excellent outcome from both the technical and investor perspectives; it shows Amulsar to be a compelling investment opportunity and a modern mining operation.
Our plan to generate over $570 million of after-tax cash flow during the first five years of operations provides an attractive rate of return to pay back the initial investment and enhances our ability to add leverage to the planned financing arrangements. As for the interest towards Armenia, of course investors, not only in mining, but other spheres too are looking for success stories in any country to decide if they will invest there. From that point of view, we very much hope that Amulsar will become such a significant success story.
The economic arguments are usually not of interest for the environmental organisations, and they claim that the environmental damage cannot be compensated by economic benefits. How significant is the environmental impact of the project?
The concerns are very much understandable, given the objective issues in mining industry. However, I want to remind that countries like Canada, the US, Australia, Sweden etc, have vibrant mining industries. If mining can be performed in line with industry best practice in these countries, why can’t Armenia too have such modern mining industry? As you can see from the project design, we are using the latest mining technology, which is used in developed countries, to ensure that the mine leaves no tailings, will have no process discharge to the environment, and involves a smaller carbon footprint through being less energy-intensive.
We are committed to implementing this project in accordance with the Armenian law and international best practice standards, demanded by our investors and upheld by Lydian’s management team. And we – together with independent experts, civil society groups, the government, and the communities around Amulsar – will monitor very closely to ensure that these standards are maintained. We firmly believe that safe, well-managed and efficient mining has the potential to transform the quality of life in the region.
