lydian annual report 2011

www.lydianinternational.co.uk

2011 Annual ReportBuilding on first mover success

Lydian International is a mineral exploration and development company withexpertise and a proven track record in discovering and developing new goldprojects in unfamiliar and frontier settings.

The probability of discovering large, “World-Class” gold projects is higher inprospective yet under explored regions. Lydian has illustrated thisunequivocally with its discovery of the Amulsar gold project in Armenia in 2006.Lydian is also actively exploring in other prospective regions of Eastern Europewhere it is building and maintaining a promising portfolio of early stage pipe-line projects.

Lydian has a strong social agenda and a unique understanding of the complexpolitical backdrop to the region in which it operates. Lydian develops itsprojects responsibly with exceptional emphasis on social and environmentalawareness and care. The company minimises environmental impact andengages local communities in order to deliver relevant and sustainable socialdevelopment initiatives.

Lydian’s influential shareholders are the International Finance Corporation, partof the World Bank Group and the European Bank for Reconstruction andDevelopment. Both provide Lydian with in-country support and valuableadvice to manage environmental, social and governance risks, bolsteringLydian’s competitive advantage in securing and retaining high quality assets.

2011 Annual Report | Lydian International | 1

Table of Contents

Chief Executive Officer’s Statement ________________________________ 2Management’s Discussion and Analysis ____________________________ 7Financial Results of Operations ____________________________________ 13Appendix 1 __________________________________________________________ 26Appendix 2 __________________________________________________________ 27Report of Management ____________________________________________ 37Independent Auditors’ Report _____________________________________ 38Financial Statements _______________________________________________ 39

Consolidated Income Statements ________________________________ 39Consolidated Statements of Comprehensive Income ___________ 39Consolidated Statements of Financial Position ___________________ 40Consolidated Statements of Changes in Equity __________________ 41Consolidated Statements of Cash Flows __________________________ 43

Notes to Consolidated Financial Statements _____________________ 44

2011 was without doubt the busiest and most eventfulyear in Lydian’s life culminating in December with theCompany receiving the prestigious Mining JournalOutstanding Achievements award for Exploration atthe International Mines and Money Conference inLondon.

After approximately 35,000 metres of furtherexploration drilling, Amulsar now moves into theprivileged league of plus 3 million ounce goldresources with an updated CIM compliant resourceestimate of 68.2 Mt at 1.0 g/t Au (for 2.1 millionounces) of Indicated Category resources and 36.1 Mtat 0.9 g/t Au (for 1.1 million ounces) of InferredCategory resources. This puts this new discovery firmlyin the top 15% of all known gold deposits in the world:something for which both Lydian and Armenia shouldbe justifiably proud of.

What is maybe even more important is that thisresource still remains open in all directions. Goodresults from systematic step out drilling at Arshak in2011 have highlighted potential for approximately 1kilometre along strike to the southeast where previousdrilling has intersected low-grade but anomalous goldresults. The resource is also completely open at depth.

Of equal interest and importance is the amount ofresource ounces added this year by infill drilling: half

of the additional ounces added to the global resourcein 2011 were found simply by closing in the drill-spacing. This adds substantial confidence to thegeologic model at Amulsar as it confirms theconnectivity of gold mineralised faults and fracturesand opens up further resource potential at otherlocalities where the drill-spacing is still wider apart.

The Company therefore plans to drill a further 25,000metres of combined infill, step-out and explorationdrilling in 2012 with the aim being to push the totalcombined resource beyond the 4 million ounce markthis year.

In July of 2011 the Company released a PreliminaryEconomic Assessment of the Amulsar project. Thiswas based on the 2010 resource and on 1.64 millionmineable ounces only, but it still returned a robust$515M NPV and 45% IRR. Cash costs were estimatedto be low compared to industry averages and rangedfrom approximately $420 to $500/ounce for 5Mt and10Mt per-annum production scenarios respectively.

Bankable Feasibility work has been on-going and is ontrack for completion in Q2 2012. The production flow-chart has now been locked-in and comprises three-stage crushing, conveying and stacking,cyanidation-leaching and gold-silver recovery in aconventional carbon adsorption, desorption, andregeneration (ADR) plant.

As part of the Bankable Feasibility Study requirements,representative core and bulk surface samples weresent to Kappes, Cassiday & Associates for metallurgicaltesting. The results verified the excellent leachrecoveries obtained during previous testing ofcomposite samples at SGS and Wardell ArmstrongInternational. Average gold leach recoveries forTigranes and Artavasdes were 89.4% and 86.0%respectively.

Mine layout and mine design has been focussedspecifically on minimising any adverse environmentaland social impacts. The crushing plant andoverland/portable conveyors will be enclosed tominimise noise and dust, whilst the design of the HeapLeach Pad includes state-of-the-art solutionreticulation systems and breach monitoring andmitigation systems. Any waste dump run-off will be

2 | Lydian International | 2011 Annual Report

Chief Executive Officer’s StatementTim Coughlin, CEO

treated using lime neutralization, followed by acombined system of natural wetlands and an ion-exchange plant.

Lydian has identified and placed orders for its longlead time items including particularly the Caterpillarore mining fleet and has commenced discussions withengineering companies to complete detailedengineering design and engineering, procurementand construction management works.

Lydian is committed to helping its local communitiesand to leaving positive sustainable impacts that willbenefit the region and serve as a long-standing legacywell after the mine has been closed and rehabilitated.

Lydian will employ a local workforce to operate theAmulsar mine. A skills survey recently completed inthe project’s immediate communities reveals a ready

supply of suitably educated persons who could betrained as mining fleet operators, engineers andmechanics. Training of local professionals commencedtwo years ago with Company-supported graduatedegrees in geology and engineering. A trainingcomponent has also been added to the Company’smine-fleet delivery contract.

Elsewhere on the social side the Company hascompleted at least 10 of its current and on-goinginitiatives in the local village communities of Gorayk,Gndevaz and Saravan. These projects includedconstruction of a natural gas pipeline to serve theSaravan community, renovation of the kindergartenin the village of Gndevaz and implementation of the“Kinderwall” public internet program in Gorayk. TheCompany has also formalised a joint ventureagreement with the local Armenian NGO and Human



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Dignity and Peace Charity Foundation for theimplementation of new gardening technologies inlocal communities and has been working on otherjoint social initiatives with both local and internationalNGO’s. Elsewhere within the region and amongst itsbroader communities the Company has providedfunds for the Syunik Province Child Development

Fund, sponsored international sports events andpurchased an ambulance for the hospital in Jermuk.

Before centuries of tree harvesting, the lower slopesof the Amulsar region were dominated by evergreenforest. As part of a major reforestation andenvironmental rehabilitation project the Company will

Amulsar Gold Project Exploration

Upside



initially plant around 5,000, at least two metre tall,native poplar and birch saplings along relevantroadsides to minimise any immediate visual impactthe project may have. Following that and during andafter mine development and production, theCompany will expand this reforestation program tothe lower, once forested slopes of Amulsar thus

returning it to its original character and providing newhabitat for native wildlife.

At Amulsar, Lydian is now very much focussed onexpanding the resource, on completing its BankableFeasibility Study and on attaining all remainingmaterial permits. The Company already has its Heap

Arshak Upside Potential



Leach operation approved and is in the process ofsecuring final approval for its now expanded open pitand waste dump facility.

Lydian’s other exploration activities are now focussedon neighbouring Georgia and particularly on its newZoti gold project in the west of the country. TheCompany has established an office in the port city ofBatumi and is preparing geologic maps and collectingfurther geochemical and geophysical data inpreparation for drilling this year.

On the financing side the Company is well-funded toensure completion of its exploration programs,completion of the Bankable Feasibility Study anddetailed engineering components at Amulsar and toensure down payment and ordering of all mineinfrastructure.

2011 was an exciting year for Lydian and 2012promises to be even more so.


Management’s Discussion & AnalysisConsolidated Financial Condition and Results of Operations for the

three and twelve month periods ended December 31, 2011

The following is Management’s Discussion andAnalysis (“MD&A”) of the consolidated financialcondition and results of operations of LydianInternational Limited (“Lydian” or the “Company”) forthe three and twelve month periods ended December31, 2011. This discussion should be read in conjunctionwith the consolidated financial statements and thenotes thereto for the year ended December 31, 2011,prepared in accordance with the InternationalFinancial Reporting Standards (“IFRS”). Theinformation provided herein supplements, but doesnot form part of, the consolidated financialstatements. This discussion covers 2011 as well as thesubsequent period up to the date of this MD&A, March23, 2012. All monetary figures are expressed in BritishPounds unless otherwise indicated.

Business OverviewThe Company is a gold-focused mineral explorationand development company specialising in emergingand transitional environments. Currently the Companyis focused on Eastern Europe, primarily in the Caucasusregion, exploring and developing precious metalassets. The Company’s main project is a goldexploration and development project (the “AmulsarProject”) located in Armenia. In addition, the Companyholds a license covering an early-stage gold prospect(the “Zoti Project”) in the Guria region of Georgia.

The Company’s principal objective is to continue itsexploration and development of the Amulsar Project.The Company will continue the ongoing explorationdrilling and mine development program at theAmulsar Project and is conducting a bankablefeasibility study, for which the financial numbers areexpected to be completed in the second quarter of2012. The Company will also conduct detailedengineering studies to finalise mine design andcomplete the permitting process at Amulsar.Developing the Amulsar Project into a profitable goldmining operation will depend upon the Company’sability to raise sufficient project financing, acquire allpermits, complete construction and advance theAmulsar Project to production. The Companycurrently does not have any commercial operations orrevenue. The Company expects that its current assetsare sufficient to finance the Amulsar Project to andthrough the completion of the bankable feasibilitystudy and the necessary detailed engineering stages,carry out the work recommended in the TechnicalReport, continue exploration work on the Zoti Projectin Georgia and pay all amounts that become due onor prior to December 31, 2012 to Newmont OverseasExploration Limited (“Newmont”) pursuant to thepurchase agreement (the “Newmont PurchaseAgreement”) dated February 26, 2010 between theCompany and Newmont.


Management’s Discussion & AnalysisConsolidated Financial Condition and Results of Operations for thethree and twelve month periods ended December 31, 2011

Fourth Quarter and Recent Highlights

• The Company completed a bought deal equityfinancing, pursuant to which it issued 15,625,000and 2,343,750 ordinary shares (the “OrdinaryShares”) of the Company on March 9, 2012 andMarch 15, 2012, respectively, at a purchase priceof CAD$2.56 per Ordinary Share, for aggregategross proceeds to the Company of CAD$46million.

• On March 21, 2012 the Company announced thatthe European Bank of Reconstruction andDevelopment (the “EBRD”) were to exercise theirpre-emptive rights in full with respect to thebought deal above by purchasing an aggregate of1,419,732 Ordinary Shares (the “New Shares”) at apurchase price per Ordinary Share of CAD$2.56 foran aggregate purchase price of CAD$3,634,514.

• On March 13, 2012 the Company announced thatit received its environmental approval for theprocessing of gold-silver ore using heap leachtechnology as part of the permitting process at itsAmulsar Project in Armenia.

• On March 9, 2012, the Company filed a technicalreport (the “Technical Report”) titled “2012 MineralResource Estimate Amulsar Gold Project NI 43-101Technical Report” prepared by IndependentMining Consultants, Inc., dated March 3, 2012, inrespect of an updated resource estimate for itsAmulsar Project announced by the Company onJanuary 23, 2012 (see page 11).

• On March 5, 2012, the Company announced theappointment of Mr. Tim Richards as Senior MineManager to oversee the development of itsAmulsar Project.

• On March 5, 2012, the Company announced theengagement of Endeavour Financial to providefinancial advisory services with respect tofinancing the development of the Amulsar Project.

• On January 3, 2012, the Company announced thatit notified Newmont of its deferral of payment ofUS$5 million owing to Newmont until no laterthan December 31, 2012, which was then made infull together with interest (US$100,000) owingthereon on March 13, 2012.

• On December 15, 2011, the Company announcedthat International Finance Corporation (“IFC”)purchased an aggregate of 4,000,000 OrdinaryShares from the Company at a price of £0.3125(approximately CAD$0.50) per share for grossproceeds of £1,250,000 (approximatelyCAD$2,006,600), pursuant to the terms of anoption granted to IFC under the investor rightsand shareholders’ agreement between theCompany and IFC.

• On November 29, November 2, October 18,October 4 and September 19, 2011, the Companyreleased drill results from its 2011 drilling program,consisting of approximately 35,000 metres ofcombined diamond and reverse circulation drilling(for a total of approximately 90,000 metres).Drilling results to date indicate potential resourceextensions for up to 1km to the northeast ofTigranes, 1km to the southwest at Orontes, to thesoutheast at Arshak and at Erato to thenorthnorthwest of Tigranes/Artavasdes. Deeperdrill holes have also identified possible resourceextensions at depth and below the currentproposed pit outline.

• On November 15, 2011, the Company reportedfurther metallurgical results from the AmulsarProject, indicating average recoveries of 94% formaster composite samples obtained after 47 daysleaching.

• On October 11, 2011, the Company announcedthat its 100% owned subsidiary, GeorgianResource Company LLC, acquired a 40 yearcombined exploration-mining license covering anearly-stage gold prospect known as “Zoti” in theGuri region of the Ozurgeti province in Georgia.

• On October 3, 2011, the Company announced thechange of land status from agricultural toindustrial at its Amulsar Project.

• The Company also continued to make progresstoward meeting its goal of commencingproduction at its Amulsar Project in 2014, inrespect of which it expects to be able to producea bankable feasibility by around the end of thesecond quarter 2012.




Recent DevelopmentsUpdate of Mineral Resource

On March 9, 2012, the Company filed the TechnicalReport in respect of an updated mineral resourceestimate for its Amulsar Project that was announcedby the Company on January 23, 2012. The updatedresource estimate comprises 68.2 Mt at 1.0 g/t Au (2.1million ounces) of indicated category resources and

36.1 Mt at 0.9 g/t Au (1.1 million ounces) of inferredcategory resources (see Table 1), based on a 0.40 g/tgold cutoff grade.

The resource estimate in the Technical Report andsummarised below updates the resource estimatecontained in the preliminary economic assessment(the “PEA”) report on the Amulsar property titled“Development of Amulsar Heap Leach Facility,Preliminary Economic Assessment” dated August 12,



2011 and prepared by K D Engineering Company, Inc.(KDE). The resource estimate contained in the PEAdoes not include the results of any drilling sinceDecember 31, 2010.

The updated resource in the Technical Report wasdeveloped from approximately 35,000 metres ofadditional combined diamond and reverse circulationexploration drilling (for a total of approximately 90,000metres) carried out in 2011. Gold at the AmulsarProject is hosted primarily in sub-vertical faults,associated breccia veins and sheeted fractures withfaults and breccia veins generally trending northwest-southeastwards and sheeted fracture zones trendingnortheast-southwestwards. Sub-horizontal possiblystrata-bound mineralisation also controls some of thegold at the Amulsar Project.

The updated resource estimate comprised a total of1.7 million ounces gold in the indicated category and0.6 million ounces gold in inferred category (using a0.4g/t cut-off ) from the contiguous Tigranes andArtavasdes areas and 0.5 million ounces gold in theindicated category and 0.4 million ounces inferredcategory from the Erato prospect, which is locatedapproximately 900 metres to the northnorthwest ofTigranes & Artavasdes (see Table 2).



Table 1 Gold-Silver Mineral Resource

Gold Indicated Mineral Resource Inferred Mineral ResourceCutoff Tonnes Gold, g/t Silver, Ounces Ounces Tonnes Gold, g/t Silver, Ounces Ounces

Grade, g/t (x 1000) g/t Gold Silver (x 1000) g/t Gold Silver0.75 28,107 1.61 4.90 1,453,109 4,428,007 15,235 1.45 4.55 709,265 2,228,7000.50 51,153 1.16 4.17 1,902,840 6,858,117 27,189 1.08 4.37 943,219 3,820,0790.40 68,207 0.98 3.84 2,146,888 8,420,888 36,056 0.92 4.00 1,069,983 4,636,9800.30 95,798 0.80 3.47 2,454,779 10,687,685 48,907 0.77 3.63 1,212,336 5,707,8870.20 140,336 0.62 3.13 2,806,449 14,122,486 75,461 0.59 3.10 1,421,733 7,521,111

Table 2 Amulsar Gold-Silver Mineral Resource by Project Area

TIGRANES & ARTAVASDES AREASGold Indicated Mineral Resource Inferred Mineral ResourceCutoff Tonnes Gold, g/t Silver, Ounces Ounces Tonnes Gold, g/t Silver, Ounces Ounces

Grade, g/t (x 1000) g/t Gold Silver (x 1000) g/t Gold Silver0.75 21,409 1.61 5.29 1,108,893 3,641,244 8,204 1.31 5.44 344,482 1,434,9020.50 39,749 1.15 4.48 1,465,843 5,725,349 16,808 0.95 4.85 512,838 2,620,9300.40 53,337 0.97 4.12 1,661,690 7,065,185 23,142 0.81 4.36 603,420 3,244,0320.30 73,478 0.80 3.76 1,885,202 8,882,657 32,771 0.67 3.92 710,145 4,130,2230.20 105,303 0.63 3.44 2,136,327 11,646,540 48,790 0.53 3.55 836,095 5,568,739

ERATO PROSPECTGold Indicated Mineral Resource Inferred Mineral ResourceCutoff Tonnes Gold, g/t Silver, Ounces Ounces Tonnes Gold, g/t Silver, Ounces Ounces

Grade, g/t (x 1000) g/t Gold Silver (x 1000) g/t Gold Silver0.75 6,698 1.60 3.64 344,558 783,870 7,030 1.62 3.51 365,027 793,3410.50 11,403 1.19 3.08 436,645 1,129,191 10,380 1.29 3.59 430,178 1,198,0900.40 14,871 1.02 2.84 486,249 1,357,864 12,914 1.13 3.34 467,101 1,386,7720.30 22,320 0.79 2.52 568,352 1,808,391 16,136 0.97 3.06 502,710 1,587,5050.20 35,032 0.60 2.18 670,162 2,455,382 26,671 0.68 2.28 584,819 1,955,113

This mineral resource estimate has been confined within a theoretical floating cone open pit geometry which ensuresan extra level of confidence by precluding ounces that are unlikely to be mined. The floating cone parameters useda US$1,300/oz gold price and current estimates of project operating costs and gold recovery. At the 0.40 g/t goldcutoff grade, 98% of the unconfined global gold ounce estimate lies within this theoretical open pit geometry, whichthe Company believes indicates the robustness of the mineral resource.




Exploration Update and ActivitiesAmulsar Project

The Company’s Amulsar Project area covers a region of high-sulphidation, epithermal-type gold mineralisationlocated in central Armenia and was discovered by Lydian in 2006. The exploration licences for the Amulsar Projectare held 100% by Geoteam CJSC, an Armenian registered closed joint stock company. The outstanding shares ofGeoteam are held 95% by Lydian Resources Armenia Ltd. (a 100% owned indirect subsidiary of the Company) and5% by Lydian’s local director. In December 2010, the Company acquired an option to purchase this minority interest.The Company has made all of the payments of cash and Ordinary Shares that were required to be made by it priorto the date of this MD&A in order to maintain the option.

On August 22, 2011, the Company filed a Preliminary Economic Assessment (PEA) of the Amulsar Project on SEDAR.The PEA is based on the estimated resources at only the Tigranes and Artavasdes areas (i.e. not including the Eratoarea) and shows a pre-tax Base Case Net Present Value using a 5% discount rate amounting to US$515 million, withan IRR of 45%. The PEA was based on a US$1000 optimised pit-shell, 1.64m mineable ounces, US$1,200 gold price,85% recoveries and had a +30% contingency capital tolerance.

In 2011, the Company completed approximately 35,000 metres of combined diamond and reverse circulationexploration drilling. Results indicate that the current resource shell may extend further in all directions. This furtherdrilling resulted in the updated resource estimate summarized above. In addition, the Company identified furthergold mineralisation one kilometre away towards the southwest at the Orontes prospect area. On November 15,2011, the Company also reported metallurgical results from Amulsar showing average recoveries of 94% for MasterComposite Samples obtained after only 47 days leaching.

The Company contracted KD-Engineering (USA) to conduct a bankable feasibility study (BFS) at the Amulsar Project.The study team comprises KD-Engineering (process design), Golder Associates (USA; leach pads and geotechnicalwork), Independent Mining Consultants (USA; resources and pits) and Wardell Armstrong International (UK;environment and social). The financial numbers for the BFS are expected to be completed by around the end of Q22012.

On March 12, 2012 the Company announced that as part of the permitting process for the development of itsAmulsar project, it has received approval for the Company’s planned processing of gold-silver using heap leachtechnology. The Company now requires environmental impact assessment approval for its expanded open-pit andwaste dump facilities and land status change for the surface rights underlying the project infrastructure. Once thoseapprovals have been secured, detailed engineering plans will need to be submitted as they are complete forconstruction approvals.

Zoti Project

On October 11, 2011, the Company announced that its 100% own subsidiary Georgian Resource Company LLCacquired a 40 year combined exploration-mining license over a new gold project in Georgia known as the ZotiProject. The Company currently plans to carry out approximately 1,500 metres of exploratory drilling at the ZotiProject in 2012.

Selected Financial InformationThe financial information has been prepared in accordance with International Financial Reporting Standards (IFRS).All monetary amount references in this document are to British Pounds unless otherwise indicated.

Statement of OperationsThe following is a summary of selected information for the three and twelve month periods ended December 31,2011 and comparative financial information for the corresponding periods in the Company’s previous financial year.

British Pounds Three months ended December 31 Twelve months ended December 312011 (£) 2010 (£) 2011 (£) 2010 (£)

Interest income 14,226 14,566 44,297 25,073Joint partner contributions - - - -Total expenses 1,615,208 3,652,009 5,999,185 5,912,122Net income (loss) (1,600,982) (3,637,443) (5,954,888) (5,887,049)Loss per share (basic and diluted) 0.02 0.04 0.06 0.08

During the twelve month periods ended December 31, 2011 and 2010 the Company had no revenues. Its onlyincome was bank interest. In the twelve month period ended December 31, 2011, the Company recorded a loss of£5,954,888 (6 pence per share) compared to £5,887,049 (8 pence per share) during the corresponding period in2010. There were several increases in the Company’s cost structure in 2011 compared to 2010, including an increaseof: £1,067,762 of funds allocated to employee benefit reserves in respect of option vesting; £416,815 ofadministrative expenses, and £193,712 of effective interest charge relating to the unwinding of the discountattributable to the payment to Newmont. Costs relating to the disposal of property and plant incurred in year endedDecember 31, 2011 totaled to £99,315 compared to nil in 2010, exploration and evaluation assets write off pertainingto the Company’s Nor Arvik project and expenditures incurred in 2011 for its former Drazhnje lead-zinc and silverproject (the “Drazhnje Project”) in Kosovo totaled £165,215 compared to £2,113,572 impartment 2010.

There were no extraordinary transactions or significant end of reporting period adjustments during the twelvemonth period ended December 31, 2011.

During the twelve month period ended December 31, 2011, there were some fluctuations between the British Pound,Canadian Dollar, Euro, Armenian Dram, Georgian Lari and U.S. Dollar. This resulted in changes to the value of theCompany’s exploration assets as reported in British Pounds. Details of these changes are set out below. The Companyattempts to protect itself from variations in exchange rates by holding its cash in currencies roughly in proportionto the Company’s anticipated expenditures in those currencies.

Income Tax ExpenseThere was no tax payable by the Company in the twelve month period ended December 31, 2011 and the sameperiod in 2010. As at December 31, 2011, the Company had taxation losses of £5,986,965 (December 31, 2010-£4,956,551) that had not been recognised, as there is insufficient evidence of taxable profit in the near future.


Financial Results of Operations



Sumary of Operating Cash Flows, Investing and Financial ActivitiesThe following table summarises the Company’s cash flow for the three and twelve month periods ended December31, 2011 and comparative financial information for the corresponding interim periods in the Company’s previousfinancial year.

British Pounds Three months ended December 31 Twelve months ended December 312011 (£) 2010 (£) 2011 (£) 2010 (£)

Net cash provided (used) by operating activities (1,189,170) (122,589) (4,671,986) (2,606,805)Net cash used by investing activities (2,419,468) (1,129,301) (7,645,787) (6,466,916)Net cash provided (used) by financing activities 1,482,534 13,187,581 3,539,646 24,344,997

Summary of Balance Sheet DataThe following table summarises the Company’s financial position as at the dates indicated:

As at December 31, 2011 (£) As at December 31, 2010 (£)Current assets 8,712,341 17,237,596Property and equipment 476,012 402,587Intangible assets 95,522 59,350Exploration and evaluation assets 23,739,005 16,497,640Other non-current assets 1,371,935 686,274Other long-term financial assets 126,600 -Total Assets 34,521,415 34,883,447Current liabilities 7,002,493 3,313,826Non-current liabilities 28,800 2,648,561Equity 27,490,122 28,921,060Total liabilities and equity 34,521,415 34,883,447

During the fourth quarter of 2011, the cash and cash equivalents of the Company decreased by £2,038,958 as aresult of payments of exploration drilling services, payments to vendors for Amulsar Project development costs,payments to vendors for supply of services and goods, and payments to employees. As at December 31, 2011, theCompany’s cash and cash equivalents was £8,301,907 compared to £17,058,692 on December 31, 2010.

The Company’s net amount of exploration and evaluation assets (EEA) increased by £7,241,365 in the twelve monthperiod ended December 31, 2011, which include a write off of its Nor Arevik project and 2011 expenditures of theDrazhnje Project totaling £165,215 and exchange rate differences that resulted in a decrease of EEA of £241,230.The increase of EEA is mainly related to the cost of exploration drilling and development of the Amulsar Project,including payments of concession fees and duties, the cost of samples, laboratory assays and environmental studiesand other costs and cost associated with the acquisition of exploration-mining licenses in Georgia.

In the twelve month period ended December 31, 2011, investment in property, plant and equipment totaled£348,417, which was mainly aimed to support the exploration and development of the Amulsar Project. Within thesame period, a total of £99,315 relates to disposal of fixed and intangible assets. Other current assets increased by£231,530 during this period, mainly as result of prepayments to suppliers and deposits for the Zoti Project.

Exploration and Evaluation AssetsExploration and evaluation costs are costs incurred directly in exploration and evaluation as well as the cost ofmineral licenses as per IFRS 6.

Exploration and evaluation costs incurred during the three and twelve month periods ended December 31, 2011were £2,526,100 and £7,647,810, respectively, compared to £621,910 and £14,046,352 in the corresponding periodsin 2010 (of which the purchase of Newmont’s interest in the former joint venture between the Company andNewmont comprised £11,015,916). These exploration and evaluation costs were related to exploration work on theCompany’s exploration projects as follows:

Project Cumulative as at December 31, 2011 Cumulative as at December 31, 2010Armenia• Amulsar 23,535,396 16,451,783• Nor Arevik - 45,857Georgia• Zoti 203,609 -Kosovo• Drazhnje - -Total 23,739,005 16,497,640

The increase in exploration and evaluation assets for the Amulsar Project in the twelve month period endedDecember 31, 2011 from the same period in 2010 mainly relates to the cost of exploration drilling, development ofthe project, payments of concession fees and other duties, the cost of samples laboratory assays, payment for theextension of the exploration license area and the cost of environmental studies related to the project.

In 2011, the Company relinquished one of its early-stage Nor Arevik exploration licenses located in southern Armenia.The decision was made after the Company received and analysed the results of laboratory assays from explorationdrilling in 2011. Capitalised costs pertaining to that project in amount of £140,859 were charged as of December31, 2011.

The Company incurred £194,170 of EEA in 2011 with respect to the Zoti Project, which represents the cost of thelicense and exploration work.

Due to uncertainties regarding the Drazhnje Project, the exploration and evaluation assets attributable to Drazhnjewere impaired as of December 31, 2010. The Company recognised an impairment loss of £2,113,572 for the yearended December 31, 2010 as a loss from EEA write off. On July 29, 2011, the Company transferred its licenses andcertain other assets relating to the Drazhnje Project to Kosovo Metals Group JSC (“KMG”) in accordance with theterms of a binding Heads of Agreement dated March 31, 2011, between the Company and KMG.

The Company did not reverse the impairment losses attributable to the Drazhnje Project in 2011 due to theuncertainty of future economic benefits of the Drazhnje Project. The Company also determined that Kosovo ResourceCompany LLC (“KRC”), as an operating segment, was impaired as of December 31, 2011. The Company is in theprocess of completing its discontinuation of its operations in Kosovo.

In Armenia, the Company’s exploration activities are financed mainly in US Dollars, which are converted intoArmenian Drams by the Company’s Armenian subsidiary and then into British Pounds for the group accounts. Thecumulative totals are therefore affected by currency fluctuations between British Pounds, US Dollars and ArmenianDrams. There has been significant devaluation of the Armenian Dram in 2011 following strengthening in 2010, sothe cumulative expenditure in Armenia shown above can differ from the actual expenditure made in US Dollars.





On July 29, 2011, the Company completed the transfer of its licenses and certain other assets in connection with itsformer Drazhnje Project to KMG. The Company is in the process of winding up KRC through a members’ voluntaryliquidation process. When the liquidation process is completed, the Company will have no operations in Kosovo.

Summary of Quarterly ResultsThe following is a summary of results from the Company’s eight most recently completed quarters:

Q4 2011 (£) Q3 2011 (£) Q2 2011 (£) Q1 2011 (£)Net sales or total revenues - - - -Net income (loss) (1,600,982) (1,402,189) (1,598,306) (1,353,411)Loss per share (basic and diluted) 0.02 0.01 0.02 0.01

Q4 2010 (£) Q3 2010 (£) Q2 2010 (£) Q1 2010 (£)Net sales or total revenues - - - -Net income (loss) (3,637,443) (940,826) (840,892) (467,888)Loss per share (basic and diluted) 0.04 0.01 0.01 0.01

Outstanding Share DataA summary of outstanding shares options and warrants is set out below.

As at March 23, 2012 As at December 31, 2011 As at December 31, 2010Number Number Number

Ordinary Shares 123,464,168 104,075,686 93,659,798Other options - - 100,000Warrants 3,311,758 3,311,758 12,087,146

The Company has one class of issued equity shares, being Ordinary Shares.

Management and StaffingDuring the twelve month period ended December 31, 2011, there were no significant changes to the keymanagement and staffing of the Company other than those mentioned below. On March 5, 2012, the Companyannounced the appointment of Mr. Tim Richards as Senior Mine Manager to oversee the development of its AmulsarProject. Mr Richards is an Australian Mining Engineer with 12 years open-pit mine development and productionexperience acress Australia, Africa and Europe.

In January 2011, the Company established an advisory board to provide technical expertise and advice ondeveloping the Amulsar Project through the feasibility stage to production. The advisory board was initiallycomprised of Mr. Nerses Karamanukyan, Mr. Patrick Gorman, and Ms. Liz Wall. On March 15, 2011, who was Mr.Karamanukyan appointed as General Manager Caucasus of the Company.

On July 24, 2011, the Company hired a new Operations Manager and on July 27, 2011, the Company’s ProjectManager resigned.


Liquidity and Capital ResourcesLydian had working capital of £1,709,848 as at December 31, 2011 compared to £13,923,770 on December 31, 2010.The Company had total assets of £34,521,415 at December 31, 2011 compared to £34,883,447 on December 31,2010, which include deferred exploration expenditures of £23,739,005 (£16,497,640 on December 31, 2010).

The Company’s principal source of liquidity as at December 31, 2011 was cash and cash equivalents of £8,301,907compared to £17,058,692 on December 31, 2010. This decrease in the cash and cash equivalents balance wasprimarily the result of £4,671,986 million cash used in operating activities and £7,645,787 of capital expenditureson property, equipment and intangible assets, exploration costs, partially offset by net proceeds of £3,539,646 fromthe issuance of shares from warrants and stock options exercised during the year. Cash surplus to the Company’srequirements was invested in money market deposits.

Following the year ended December 31, 2011, the Company completed a CAD$46 million equity financing andreceived net proceeds of CAD$43,240,000 after deducting the underwriters’ fee of CAD$2,760,000. The Companyused US$5,100,000 of the net proceeds of the offering to pay all amounts that were owing to Newmont as of March13, 2012, and intends to use the remainder of the net proceeds to progress the Amulsar Project to and through thecompletion of a bankable feasibility study and the necessary detailed engineering stages, including carrying outthe work recommended in the Technical Report (approximately £6,800,000) and completing additional engineeringstudies (approximately £3,800,000); for continued exploration work on the Zoti Project (approximately £633,000);to pay US$5 million to Newmont on or prior to December 31, 2012 in accordance with the Newmont PurchaseAgreement; and for general working capital purposes and expenditures in the normal course of business(approximately £5,900,000). The Europen Bank of Reconstruction and Development are to exercise their pre-emptiverights in full with respect to the bought deal above by purchasing an aggregate of 1,419,732 Ordinary Shares (the“New Shares”) at a purchase price per Ordinary Share of CAD$2,56 for an aggregate purchase price of CAD£3,634,514.

It is management’s opinion, based on the Company’s current liquidity position and estimates of project expenses,that the Company’s liquid assets will be sufficient to discharge liabilities and fund the above-noted expenditures inconnection with the Amulsar Project and the Zoti Project. The future exploration and development of the AmulsarProject and the Zoti Project will require the Company to raise additional capital through a combination of equityand debt financings. The Company is conducting a bankable feasibility study, for which the financial numbers areexpected to be completed in the second quarter of 2012, and intends to conduct engineering studies to evaluatepotential development scenarios for the Amulsar Project, including its future capital requirements.

The Company’s liquidity is affected by a number of key factors and risks. Reference is made to the “Risks andUncertainties” section of the MD&A for a discussion of these factors and their impact on the Company’s liquidity.

The Company has made certain expenditure commitments to the licensing authorities for the Company’s projects.Should these expenditure targets not be met, the applicable licenses will not automatically be forfeited, but anyshortfall will be considered by the applicable regulatory authority as a factor in whether to renew such licenses.

Contractual ObligationsThe Company has contractual obligations as follows:

Total (£) Up to 1 year (£) 1-5 years (£) More than 5 years (£)Operating lease obligations 2,230,115 146,306 497,820 1,585,989Purchase obligations - - - -Total contractual obligations 2,230,115 146,306 497,820 1,585,989




Taxes Paid in Armenia and KosovoSummary of payments to the Armenian and Kosovo State Budgets

The following information is provided as part of an initiative by Publish What You Pay (a global civil society coalition)to achieve transparency of oil, gas and mining company payments to agencies and representatives of thosegovernments as a first step towards a more accountable system for the management of natural resources.

Amounts paid in Armenian Drams Amounts paid in Eurosto Armenian Government to Kosovo Government

12 months to 12 months to 12 months to 12 months toDecember 31, December 31, December 31, December 31,

2011 2010 2011 2010Fee for licenses area extension 8,700,000 - - -New license acquisition - 14,000,000 - -State duty on mining license 11,200,000 10,000,000 - -Concession fee 20,097,500 11,387,500 8,227 6,627Social Insurance Funds employer 39,988,100 25,193,100 5,286 7,945Social Insurance Funds individual 10,962,000 7,927,000 5,286 7,945Customs duty 11,431,179 1,436,022 - -Property tax 419,500 203,750 - -Income tax 108,320,000 65,523,100 4,188 13,165Non resident withholding tax 14,000,000 16,500,000 - -VAT 40,956,121 8,492,726 - -Nature protection fee 509,235 123,400 - -Penalties and fines - 4,012,200 - -Total 266,583,635 164,798,798 22,987 35,682Equivalent GBP 445,770 285,801 20,029 30,623

Financial and Other InstrumentsThe Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payableand investment in Tigris. The net fair value of the financial assets and financial liabilities approximates their carryingvalue. The Company’s exposure to changes in market interest rates, relates primarily to the Company’s cash deposits.The Company maintains a balance between the liquidity of cash assets and the interest rate return thereon. Thecarrying amount of financial assets, net of any provisions for losses, represents the Company’s maximum exposureto credit risk.

Significant Transactions, Contracts and Off Balance Sheet ArrangementsSignificant contracts existing as of December 31, 2011 are described below.

On April 23, 2010, the Company purchased from Newmont all of Newmont’s interest in the former joint venturebetween the Company and Newmont known as the Caucasus Venture, including all of Newmont’s interest in theAmulsar gold property in Armenia. The consideration was a mixture of committed and contingent payments. Thecommitted payments included the issuance by Lydian of three million Ordinary Shares to Newmont on the closingof the transaction and three payments of US$5 million; the first of which was paid in 2010 and the second was dueon or before December 31, 2011 and the third on or before the earlier of December 31, 2012 and the date that is 90days after a bankable feasibility on any portion of the Amulsar property is complete and the Company has receivedall the necessary material permits to move into production. The Company made the US$5 million payment that wasdue on December 31, 2012 on March 13, 2012, together with interest owing thereon, calculated at the rate of 10%per annum commencing on December 31, 2011.

In addition, the Company agreed to pay Newmont, following the start of commercial production at the AmulsarProject, a 3% Net Smelter Royalty (NSR). However, at any time prior to the date that is 20 days followingcommencement of commercial production, Lydian may at its option elect to buy out the 3% NSR and instead payto Newmont the aggregate sum of US$20 million, without interest, in 20 equal quarterly installments of US$1 millioncommencing on the first day of the third calendar month following the start of commercial production. Furthermore,the Company has a one-time option prior to the commencement of Commercial Production to prepay thesequarterly installments in a single cash payment using an annual discount rate of 10%. This equates to a payment ofapproximately US$15,600,000.

These potential post production payment(s) do constitute an “obligation or a constructive obligation”, as thetriggering event of commercial production has not yet occurred. Therefore, these potential payments are not shownon the balance sheet.

On December 9, 2010, the Company entered into an option agreement (the “Geoteam Option Agreement”) topurchase the remaining 5% non-controlling interest (the “non-controlling interest”) of the Company’s 95% indirectlyowned subsidiary. The aggregate purchase price payable by the Company in connection with any exercise of theCall Option or the Put Option will be CAD$500,000 in cash and 2,000,000 Ordinary Shares (the “Payment Shares”) inthe capital of the Company. On January 18, 2011, June 27, 2011 and December 20, 2011, the Company issued500,000, 250,000 and 250,000 Payment Shares, respectively, pursuant to the Geoteam Option Agreement. A furtherfour equal installments of 250,000 Ordinary Shares are issuable bi-annually in 2012 and 2013.

The Company does not have any other off-balance sheet type arrangements.

Risks and UncertantiesThe following risks and uncertainties, among others, should be considered when evaluating the Company and itsoutlook.

Mineral Resources

The Company’s mineral resources are estimates, and no assurance can be given that the estimated resources areaccurate or that the indicated level of gold will be produced. Such estimates are, in large part, based oninterpretations of geological data obtained from drill holes and other sampling techniques. Actual mineralisation





or formations may be different from those predicted. Further, it may take many years from the initial phase of drillingbefore production is possible, if at all, and during that time the economic feasibility of exploiting a discovery maychange. Mineral resource estimates for properties that have not commenced production are based, in manyinstances, on limited and widely spaced drill hole information, which is not necessarily indicative of the conditionsbetween and around drill holes. Accordingly, such mineral resource estimates may require revision as more drillinginformation becomes available or as actual production experience is gained. It should not be assumed that all orany part of the Company’s mineral resources constitutes or will be converted into reserves.

Metal Prices

Even if the Company’s exploration program is successful on its mineral projects, there are many factors beyond thecontrol of the Company that may affect the marketability of any minerals discovered. Metal prices have historicallyfluctuated widely and are affected by numerous factors beyond the Company’s control, including international,economic and political trends, expectations for inflation, currency exchange fluctuations, interest rates, global orregional consumption patterns, speculative activities and worldwide production levels. The effect of these factorscannot accurately be predicted.

Price Volatility of Other Commodities

The Company’s profitability is also affected by the market prices of commodities, which are consumed or otherwiseused in connection with the operations, such as diesel fuel, natural gas, electricity and cement. Prices of suchcommodities are also subject to volatile price movements over short periods of time and are affected by factors thatare beyond the Company’s control.

Foreign Operations

The Company’s significant exploration and development project is located in Armenia. This project could beadversely affected by exchange controls, currency fluctuations, taxation and laws or policies of Armenia affectingforeign trade, investment or taxation.

Changes in mining or investment policies or shifts in political attitude in Armenia may adversely affect the Company’sbusiness. Operations may be affected by governmental regulations with respect to restrictions on production, pricecontrols, export controls, income taxes, expropriation of property, maintenance of claims, environmental legislation,land use, land claims of local people, water use and mine safety. These factors cannot be accurately predicted.

Foreign Exchange

The Company operates internationally and is therefore exposed to foreign exchange risks arising from foreigncurrency fluctuations. The Company raises finance in Canadian Dollars, accounts in British Pounds and incursexpenses in mainly six currencies – the Euro, the British Pound, the U.S. Dollar, the Canadian Dollar, the ArmenianDram and the Georgian Lari. The Company’s risk management policy is to hold cash in the Euro, British Pound, theU.S. Dollar and the Canadian Dollar, broadly in line with its currency expenditure forecasts. The Company does notcurrently hedge its foreign exchange exposure.

Counterparty Risk

The Company does not have any significant credit risk exposure to any single counterparty or any group ofcounterparties having similar characteristics. We do not anticipate a loss for non-performance by any counterpartywith whom we have a commercial relationship.

Taxation Risk

The Armenia tax system could impose substantial burdens on the Company. The Company is subject to a broadrange of taxes imposed at federal, regional and local levels. Laws related to these taxes have been in force for arelatively short period relative to tax laws in more developed market economies and few precedents with regard tothe interpretation of these laws have been established. No assurances can be made that any new tax laws introducedby the Government of Armenia will not result in the Company having to pay significantly higher taxes, which couldhave a materially adverse effect on the Company’s business.

Environmental Risks and Hazards

All phases of the Company’s operations are subject to environmental regulations in the various jurisdictions in whichit operates. These regulations mandate, among other things, the maintenance of air and water quality standardsand land reclamation. Environmental legislation is evolving in a manner which will require stricter standards andenforcement, increased fines and penalties for non-compliance, more stringent environmental assessments ofproposed projects and a heightened degree of responsibility for companies and their officers, directors andemployees. There is no assurance that future changes in environmental regulations, if any, will not adversely affectthe Company’s operations. Environmental hazards may exist on the properties in which the Company holds interestswhich are unknown to the Company at present and which have been caused by previous or existing owners oroperators of the properties.

Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actionsthereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailedand may include corrective measures requiring capital expenditures, installation of additional equipment or remedialactions. Parties engaged in the exploration or development of mineral properties may be required to compensatethose suffering loss or damage by reason of the exploration activities and may have civil or criminal fines or penaltiesimposed for violations of applicable laws or regulations. Amendments to current laws, regulations and permitsgoverning operations and activities of exploration companies, or more stringent implementation thereof, couldhave a material adverse impact on the Company and cause increases in exploration expenses.

Exploration

Exploration is highly speculative in nature and exploration projects involve many risks that even a combination ofcareful evaluation, experience and knowledge may not eliminate. If a site with gold or other precious metalmineralisation is discovered (and this may not happen), it may take several years from the initial phases of drillinguntil production is possible, if at all. Substantial expenditures are normally required to locate and establish mineralreserves and to construct mining and processing facilities. While the discovery of an ore body may result insubstantial rewards, few properties that are explored are ultimately developed into producing mines.

Political

The majority of the Company’s operations are carried out in Eurasia and, as such, the Company’s operations areexposed to various levels of political risks and uncertainties. These risks and uncertainties vary from country tocountry and include, but are not limited to: terrorism; corruption; crime; hostage taking or detainment of personnel;military repression; extreme fluctuations in currency exchange rates; high rates of inflation; labour unrest; the risksof war or civil unrest; expropriation and nationalisation; renegotiation or nullification of existing concessions, licenses,permits and contracts; absence of reliable regulatory and judiciary process; changes in taxation policies; restrictionson foreign exchange and repatriation; changing political conditions; currency controls, and governmentalregulations that favour or require the awarding of contracts to local contractors or require foreign contractors toemploy citizens of, or purchase supplies from, a particular jurisdiction. Any changes in mining or investment policies





or shifts in political attitude in Eurasia may adversely affect the Company’s operations and financial condition. Failureto comply with applicable laws, regulations and local practices relating to mineral right applications and tenurecould result in loss, reduction or expropriation of entitlements.

Insurance

The Company’s business is subject to a number of other risks and hazards, including adverse environmentalconditions, industrial accidents, labour disputes, unusual or unexpected geological conditions, ground or slopefailures, cave-ins, changes in the regulatory environment and natural phenomena such as inclement weatherconditions, floods, hurricanes and earthquakes. Such occurrences could result in damage to mineral properties orproduction facilities, personal injury or death, environmental damage to the Company’s properties or the propertiesof others, monetary losses and possible legal liability.

Although the Company maintains insurance to protect against certain risks in such amounts as it considers to bereasonable, its insurance will not cover all the potential risks associated with Company’s operations. The Companymay also be unable to maintain insurance to cover these risks at economically feasible premiums. Insurance coveragemay not continue to be available or may not be adequate to cover any resulting liability. The Company might alsobecome subject to liability for pollution or other hazards which may not be insured against or which the Companymay elect not to insure against because of premium costs or other reasons. Losses from these events may cause theCompany to incur significant costs that could have a material adverse effect upon its financial performance andresults of operations.

Governmental Laws and Regulations

The activities of the Company are subject to various laws governing prospecting, development, production, taxes,labour standards and occupational health, toxic substances, land use, water use, land claims of local people andother matters. Although the Company currently carries out its operations in accordance with all applicable rulesand regulations, no assurance can be given that new rules and regulations will not be enacted or that existing rulesand regulations will not be applied in a manner that could limit or curtail production or development. The Company’soperations and development activities are subject to receiving and maintaining permits from appropriategovernmental authorities. There is no assurance that the Company will be successful in obtaining or maintainingthe necessary licences and permits to continue its exploration and development activities in the future.

Difficulty in Obtaining Future Financing

The further development and exploration of mineral properties in which the Company holds an interest or whichthe Company acquires may depend upon the Company’s ability to obtain financing through joint ventures, debtfinancing, equity financing or other means. There is no assurance that the Company will be successful in obtainingrequired financing as and when needed. Volatile precious metals markets may make it difficult or impossible forthe Company to obtain debt financing or equity financing on favorable terms or at all. Failure to obtain additionalfinancings on a timely basis may cause the Company to postpone development plans, forfeit rights in its propertiesor reduce or terminate its operations. Reduced liquidity or difficulty in obtaining future financing could have anadverse impact on the Company’s future cash flows, earnings, results of operations, and financial condition andcould result in a default under its agreement with Newmont pursuant to which the Company’s subsidiary acquireda 100% interest in the Venture.


Related Party TransactionsRelated parties include the Board of Directors, close family members and enterprises which are controlled by theseindividuals as well as certain persons performing similar functions.

The sole operating director of Geoteam CJSC and Kavkaz Zoloto CJSC, Hayk Aloyan, holds 5% of the shares inGeoteam and Kavkaz Zoloto. On January 18, 2011, on June 27, 2011 and on December 31, 2011 the Company issuedaccordingly 500,000, 250,000 and 250,000 Ordinary Shares to Hayk Aloyan pursuant to the Geoteam OptionAgreement.

The directors and key management are the directors of Lydian International Limited. The remuneration of directorsand key management was as follows:

Twelve months ended Twelve months endedDecember 31, 2011 (£) December 31, 2010 (£)

Aggregate emoluments 339,747 331,287Fair value of granted share options vest 926,357 285,048

The following table sets out the number of stock options awarded to directors of the Company under the Company’sstock option plan during the three and twelve month periods ended December 31, 2011.

Date of grant Number of options Exercise price Expiry May 2, 2011 1,500,000 CAD$2.52(1.59 pound) May 2, 2016 April 23, 2010 1,550,000 CAD$1.03 (67 pence) October 23, 2012

There were no other share based payments during reportable periods.

Critical Accounting Estimates and PoliciesCritical judgements in applying the Company’s accounting policies

In the application of the Company’s accounting policies, the directors are required to make judgments, estimatesand assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources.The estimates and associated assumptions are based on historical experience and other factors that are consideredto be relevant. Actual results may differ from these estimates.

The significant critical judgment that the directors have made in the process of applying the entity’s accountingpolicies and that have the most significant effect on the amounts recognised in the consolidated financial statementsis the policy on exploration and evaluation costs.

In particular, management is required to assess exploration and evaluation assets for impairment with reference tothe indicators provided in IFRS 6. Note 12 to the Company’s Consolidated Financial Statements as of December 31,2011 discloses the carrying values of such assets. As part of this assessment, management considered whetherindicators of impairment exist at December 31, 2011.

The recoverability of exploration and evaluation costs is dependent on a number of factors common to the naturalresource sector. These include the extent to which the Company can establish economically recoverable reserveson its properties, the availability of the Company to obtain necessary financing to complete the development ofsuch reserves and future profitable production or proceeds from the disposition thereof. The Company will use theevaluation work of professional geologists, geophysicists and engineers for estimates in determining whether to




commence or continue mining and processing. These estimates generally rely on scientific and economicassumptions, which in some instances may not be correct, and could result in the expenditure of substantial amountsof money on a deposit before it can be determined whether or not the deposit contains economically recoverablemineralisation.

Key sources of estimation uncertainty

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimatesare recognised in the period in which the estimate is revised if the revision affects only that period or in the periodof the revision and future periods if the revision affects both current and future periods.

Changes in accounting policies

During three and twelve month periods ended December 31, 2011 there were no changes in the Company’saccounting policies. In 2010 the Company adopted IFRS 3 Business Combinations (Revised) and IAS 27 Consolidatedand Separate Financial Statements (Amended) that resulted in how the Company accounts for the non-controllinginterest.

Disclosure Controls and Internal Controls over Financial ReportingDisclosure controls and procedures are designed to provide reasonable assurance that material information isgathered and reported to senior management, including the Chief Executive Officer and Chief Financial Officer, asappropriate to permit timely decisions regarding public disclosure. Management is responsible for establishing andmaintaining adequate internal control over financial reporting (“ICFR”). ICFR is a process designed by or under thesupervision of the Chief Executive Officer and Chief Financial Officer, and effected by the Board of Directors,management and other personnel to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with IFRS. The Company used theInternal Control – Integrated Framework issued by the Committee of Sponsoring Organisations of the TreadwayCommission (COSO) for the design of the Company’s ICFR. All internal control systems have inherent limitations andtherefore our ICFR can only provide reasonable assurance and may not prevent or detect misstatements due to erroror fraud.

The Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation of the design andoperating effectiveness of the Company’s disclosure controls and procedures and ICFR as of the date of this MD&A,that disclosure controls and procedures and ICFR are not effective due to the material weakness in ICFR as describedbelow. The material weakness identified did not result in any adjustments to the Company’s financial statementsfor the three months and year ended December 31, 2011 or any prior period.

A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurancethat the objectives of the control system are met. The Company continues to review and document its disclosurecontrols and procedures, including internal control over financial reporting, and may from time to time make changesaimed at enhancing their effectiveness and to ensure that its systems evolve with its business.

In order to ensure that its disclosure is reported in accordance with applicable requirements, the Company hasimplemented an internal procedure that requires all of its press releases to be reviewed by counsel. There have beenno other significant changes in the Company’s ICFR that occurred during the year ended December 31, 2011 thathas materially affected, or is reasonably likely to materially affect, the Company’s ICFR.

Management’s Responsibility For Financial StatementsThe information provided in this report, including the financial statements, is the responsibility of management. Inthe preparation of these statements, estimates are sometimes necessary to make a determination of future valuesfor certain assets or liabilities. Management believes such estimates are based on careful judgments and have beenproperly reflected in the accompanying financial statements.

Management maintains a system of internal controls to provide reasonable assurance that the Company’s assetsare safeguarded and to facilitate the preparation of relevant and timely information.

Information On Incurred ExpensesMaterial costs incurred in the twelve month periods ended December 31, 2011 and 2010 were as follows:

Cost type 2011 (£) 2010 (£)(1)Exploration and evaluation deferred expenditures 7,647,810 14,046,352(2)Employees benefit and expenses 3,007,019 1,708,707Administrative and other expenses 983,015 566,200Services and consumables used 683,957 649,943Audit and consulting expenses 329,320 367,966Interest expenses 547,743 354,031EEA write off 165,215 2,113,572Depreciation and amortisation 102,172 126,034Other costs 108,744 25,669

13,647,620 19,958,474

(1)These expenditures are capitalised as exploration and evaluating assets. (2)In 2010, the allocation to employee benefit reserves found (relating to vesting options) totalled to £556,895 whilethe corresponding number in the same period in 2011 was £1,624,657 so the net amount of increase is £1,067,762.The balance in the increase over this period relates to an increase in the number of employees and some increasesin salaries.




Appendix 1Cautionary Note Regarding Forward-Looking Statements

This MD&A contains “forward-looking statements” thatinvolve a number of risks and uncertainties. Forward-looking statements include, but are not limited to,statements with respect to the future price and theestimation of mineral reserves and resources, therealisation of mineral estimates, the timing and amount ofestimated future production, costs of production, capitalexpenditures, costs and timing of the development of newdeposits, success of exploration activities, permitting timelines, currency fluctuations, requirements for additionalcapital, government regulation of mining operations,environmental risks, unanticipated reclamation expenses,title disputes or claims, limitations on insurance coverageand timing and possible outcome of pending litigation.

Often, but not always, forward-looking statements can beidentified by the use of words such as “plans”, “expects”, or“does not expect”, “is expected”, “budget”, “scheduled”,“estimates”, “forecasts”, “intends”, “anticipates”, or “does notanticipate”, or “believes”, or variations of such words andphrases or that state that certain actions, events or results“may”, “could”, “would”, “might” or “will” be taken, occur orbe achieved. Forward-looking statements are based on theopinions and estimates of management as of the date suchstatements are made and they involve known andunknown risks, uncertainties and other factors which maycause the actual results, performance or achievements ofthe Company to be materially different from any otherfuture results, performance or achievements expressed orimplied by the forward-looking statements. Such factorsinclude, among others: the actual results of currentexploration activities; actual results of current reclamationactivities; conclusions of economic evaluations; changes inproject parameters as plans continue to be refined; futureprices of mineral resources; fluctuations in metal prices, aswell as those risk factors discussed or referred to in thisMD&A under the heading “Risk and Uncertainties” andother documents filed from time to time with the securitiesregulatory authorities in all provinces and territories ofCanada and Jersey. Although the Company has attemptedto identify important factors that could cause actualactions, events or results to differ materially from thosedescribed in forward-looking statements, there may beother factors that cause actions, events or results not to beanticipated, estimated or intended. There can be noassurance that forward-looking statements will prove to beaccurate, as actual results and future events could differmaterially from those anticipated in such statements. Suchstatements are based on a number of assumptions which

may prove to be incorrect, including, but not limited to,assumptions about:

• general business and economic conditions; • the supply and demand for, deliveries of, and the

level and volatility of prices of gold;• the timing of the receipt of regulatory and

governmental approvals for the Company’s projects; • the availability of financing for the Company’s

development of its properties on reasonable terms; • the ability to procure equipment and operating

supplies in sufficient quantities and on a timely basis; • the ability to attract and retain skilled staff; • exploration timetables;• planned production timetables;• market competition; and• the accuracy of the Company’s resource estimate

(including, with respect to size, grade andrecoverability) and the geological, operational andprice assumptions on which it is based.

The Company undertakes no obligation to update forward-looking statements if circumstances or management’sestimates or opinions should change except as required bysecurities regulatory requirements. Accordingly, readers arecautioned not to place undue reliance on forward-lookingstatements.

Cautionary Note to United States Investors ConcerningEstimates of Measured, Indicated and Inferred Resources:This MD&A uses the terms “Measured”, “Indicated” and“Inferred” Resources. United States investors are advisedthat while such terms are recognised and required byCanadian regulations, the U.S. Securities and ExchangeCommission (“SEC”) does not recognise them. “InferredMineral Resources” have a great amount of uncertainty asto their existence and as to their economic and legalfeasibility. It cannot be assumed that all or any part of anInferred Mineral Resource will ever be upgraded to a highercategory. Under Canadian rules, estimates of InferredMineral Resources may not form the basis of feasibility orother economic studies. United States investors arecautioned not to assume that all or any part of Measuredor Indicated Mineral Resources will ever be converted intoMineral Reserves. United States investors are also cautionednot to assume that all or any part of an Inferred MineralResource exists, or is economically or legally mineable.


Appendix 2Table of Drill results (Intersections greater than 1g/t gold)

2011 drilling programme at Amulsar

Year Drill Hole Dip Azimuth Total Depth(m) From (m) To (m) Intersection

(m) Gold (g/t)

DDA-079 -60 120 165.0

0.0 13.0 13.0 1.016.0 20.0 4.0 1.126.0 28.0 2.0 1.039.0 48.0 9.0 0.952.0 59.0 7.0 1.1

DDA-080 -60 30 60.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-081 -60 140 100.4 13.0 16.0 3.0 1.3DDA-082 -60 120 50.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-083 -60 120 40.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-084 -60 320 112.9 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-085 -60 120 80.0 0.0 42.0 42.0 0.3DDA-086 -60 110 269.6 48.0 56.0 8.0 1.4

DDA-087

-60 120 122.0 31.0 103.0 72.0 0.8

Including33.0 45.0 12.0 0.064.0 87.0 23.0 1.0

Including Sulphide 87.0 99.0 12.0 0.8DDA-088 -60 120 52.0 BOGGED AND LOSTDDA-089 -60 120 91.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-090 -60 110 175.9 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-091 -60 315 104.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-092 -60 120 192.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-093 -70 120 227.057.0 60.0 3.0 1.170.0 73.0 3.0 1.0

DDA-094 -60 210 182.6158.0 160.0 2.0 1.4164.0 168.0 4.0 1.0

DDA-095 -60 120 217.124.0 26.0 2.0 1.132.0 34.0 2.0 0.990.0 92.0 2.0 1.0

DDA-096 -60 120 206.9

0.0 69.0 69.0 1.079.0 84.0 5.0 0.9

122.0 127.0 5.0 1.2137.0 140.0 3.0 1.1

DDA-097 -60 110 80.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-098 -60 70 148.011.0 14.0 3.0 1.0

137.0 148.0 (EOH) 11.0 1.2DDA-099 -60 70 74.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-100 -60 70 158.9 125.0 132.0 7.0 1.0DDA-101 -60 280 47.0 23.0 24.0 1.0 2.1DDA-102 -60 280 50.5 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-103 -60 110 96.2

NO SIGNIFICANT INTERSECTIONS >1G/T GOLDNO SIGNIFICANT INTERSECTIONS >1G/T GOLDNO SIGNIFICANT INTERSECTIONS >1G/T GOLDNO SIGNIFICANT INTERSECTIONS >1G/T GOLDNO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-104 -60 110 81.0NO SIGNIFICANT INTERSECTIONS >1G/T GOLDNO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-105 -50 120 202.2

NO SIGNIFICANT INTERSECTIONS >1G/T GOLDNO SIGNIFICANT INTERSECTIONS >1G/T GOLDNO SIGNIFICANT INTERSECTIONS >1G/T GOLDNO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-106 -60 30 199.5

NO SIGNIFICANT INTERSECTIONS >1G/T GOLDNO SIGNIFICANT INTERSECTIONS >1G/T GOLDNO SIGNIFICANT INTERSECTIONS >1G/T GOLDNO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-107 -60 110 66.4 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-108 -60 70 57.5 0.0 18.0 18.0 1.0DDA-109 40 -60 189.9 0.0 101.0 101.0 2.2DDA-110 -60 245 57.2 1.0 3.0 2.0 1.6

Cut-off 0.2g/t gold, maximum down-hole internl dilution 10m. All intersections are oxide gold, not true widths.

2011


Appendix 2Table of Drill results (Intersections greater than 1g/t gold)2011 drilling programme at Amulsar


Drill Hole Dip Azimuth Total Depth(m) From (m) To (m) Intersection

(m) Gold (g/t)

DDA-111-60 250 150.1 55.0 124.0 69.0 3.8

Including 68.0 100.0 32.0 7.9DDA-112 -60 290 60.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-113 -60 290 25.5 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-114 -60 290 31.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-115 -60 115 180.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-116 -60 120 125.2 1.0 120.0 119.0 1.3DDA-117 -60 100 80.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-118 -60 65 159.0116.0 118.0 2.0 2.0128.0 132.0 4.0 1.0

DDA-119 -60 20 137.0 92.0 136.0 44.0 3.3DDA-120 -60 35 91.7 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-121 -60 160 76.0 59.0 61.0 2.0 1.0DDA-122 -60 80 147.5 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-123 -60 210 104.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-124 -60 215 64.7 37.0 45.0 8.0 1.0DDA-125 -60 210 85.4 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-126 -60 300 188.033.0 37.0 4.0 1.582.0 85.0 3.0 1.5

100.0 113.0 13.0 1.6DDA-127 -60 35 89.5 12.0 14.0 2.0 1.0DDA-128 -60 120 140.7 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-129 -60 35 73.0 22.0 24.0 2.0 1.0DDA-130 PQ CORE FOR METALLURGYDDA-131 -60 300 64.4 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-132 -60 30 88.5 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-133 -60 30 85.2 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-134 -60 35 170.0 22.0 55.0 33.0 1.0

DDA-135 -60 120 152.70.0 8.0 8.0 1.0

48.0 66.0 18.0 1.0DDA-136 -60 210 95.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDAM-137 PQ CORE FOR METALLURGYDDA-138 -60 40 85.0 4.0 7.0 3.0 1.0

DDA-139 -60 120 174.4

0.0 2.0 2.0 5.821.0 25.0 4.0 1.087.0 92.0 5.0 1.097.0 107.0 10.0 1.0

128.0 130.0 2.0 1.0DDAM-140 PQ CORE FOR METALLURGYDDA-141 -60 130 61.0 BOGGED AND LOST (TO BE REDRILLED)

DDA-142 -60 260 100.920.0 23.0 3.0 1.051.0 53.0 2.0 1.489.0 92.0 3.0 1.0

DDA-143 -60 260 64.4 BOGGED AND LOST (TO BE REDRILLED)DDA-144 -60 30 57.1 BOGGED AND LOST (TO BE REDRILLED)DDA-145 -60 70 73 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-146 -60 10 101.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-147 -60 250 112.70.0 20.0 20.0 1.9

48.0 111.0 63.0 2.0DDA-148 PQ CORE FOR METALLURGYDDA-149 -50 50 108.2 90.0 104.0 14.0 1.1DDA-150 -60 120 100 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-151 -60 210 136.5 89.0 92.0 1.0 1.1

DDA-152 -60 210 225.378.0 86.0 8.0 1.0

134.0 137.0 3.0 1.7208.0 218.0 10.0 1.0

DDA-153 -60 105 94 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDAG-154 -60 310 43.7 14.0 18.0 4.0 1.0

DDAG-154A -70 310 36.48.0 16.0 8.0 1.0

25.0 28.0 3.0 1.1

Year

2011





(m) Gold (g/t)

DDAG-154B GEOTECH HOLEDDA-155 -60 130 72.6 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-156 -60 125 209.5

48.0 61.0 13.0 1.170.0 80.0 10.0 1.087.0 96.0 9.0 1.2

110.0 156.0 46.0 1.0185.0 187.0 2.0 1.1

DDA-157 -60 230 12336.0 39.0 3.0 1.153.0 64.0 11.0 0.9

DDA-158 -60 305 71 54.0 64.0 10.0 1.0

DDA-159 -60 130 190.8121.0 132.0 11.0 1.1138.0 149.0 11.0 1.0

DDA-160 -60 125 110.3 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-161 -60 125 201.5 83.0 163.0 80.0 1.0DDA-162 -70 230 191.6 GEOTECHNICAL DRILL HOLEDDA-163 -60 90 98 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-164 -60 120 99.7 74.0 78.0 4.0 1.1DDA-165 -60 110 110.4 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-166 -65 245 105 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-167 -60 125 161.66.0 25.0 19.0 1.0

41.0 43.0 2.0 1.296.0 105.0 9.0 1.4

DDA-168 -60 190 120 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-169 PQ CORE FOR METALLURGYDDA-170 -70 125 164.5 GEOTECHNICAL DRILL HOLEDDA-171 -60 305 56.5 44.0 54.0 10.0 1.0DDA-172 -60 305 86.4 GEOTECHNICAL DRILL HOLE

DDA-173 -60 300 193.2

49.0 54.0 5.0 1.066.0 68.0 2.0 1.183.0 96.0 13.0 1.0

125.0 134.0 9.0 1.4149.0 168.0 19.0 1.5

DDA-174 PQ CORE FOR METALLURGY

DDA-175 80 -70 151.223.0 39.0 16.0 1.168.0 70.0 2.0 1.5

DDA-176 -60 300 52.8 GEOTECHNICAL DRILL HOLEDDA-177 -60 120 149.8 123.0 133.0 10.0 1.0

DDA-178 -60 205 140.922.0 26.0 4.0 1.045.0 124.0 79.0 1.0

DDA-179 -60 250 88 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-180 -60 115 916.0 15.0 9.0 1.0

29.0 44.0 15.0 1.0DDA-181 -60 240 172.5 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-182 -60 225 80 3.0 47.0 44.0 1.0

DDA-183 -60 215 1010.0 3.0 3.0 1.0

10.0 25.0 15.0 1.038.0 40.0 2.0 1.6

DDA-184 -60 210 94.11.0 4.0 3.0 1.1

34.0 38.0 4.0 1.185.0 87.0 2.0 1.0

DDA-185 -60 120 160 30.0 34.0 4.0 1.0DDA-186 -60 160 150 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-187 -60 215 90 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-188 -60 120 120 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDAGLP-189 GEOTECH HOLEDDAGLP-190 GEOTECH HOLEDDAGLP-191 GEOTECH HOLE

DDA-192 -70 300 136.4

2.0 22.0 20.0 1.036.0 45.0 9.0 0.9

100.0 106.0 6.0 1.0125.0 136.4 (EOH) 11.4 1.0


2011





(m) Gold (g/t)

DDA-193 -70 210 132.9 64.0 76.0 12.0 3.5DDA-194 -60 42 152 73.0 139.0 66.0 1.0

DDA-195 -60 302 116.450.0 52.0 2.0 1.2

109.0 111.0 2.0 1.9DDA-196 -60 310 85.3 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDAGLP-197 GEOTECH HOLEDDAGLP-197A GEOTECH HOLEDDAGLP-198 GEOTECH HOLEDDAGLP-199 GEOTECH HOLE

DDA-200 -60 304 399.6105.0 107.0 2.0 1.0144.0 193.0 49.0 1.2

DDAGLP-201 GEOTECH HOLEDDAGLP-202 GEOTECH HOLEDDAGLP-203 GEOTECH HOLEDDAGLP-204 GEOTECH HOLEDDAGLP-205 GEOTECH HOLEDDAGLP-206 GEOTECH HOLEDDAGLP-207 GEOTECH HOLEDDAGLP-208 GEOTECH HOLEDDAGLP-209 GEOTECH HOLEDDAGLP-210 GEOTECH HOLE

DDA-211 -60 123.5 270.9 216.0 225.0 9.0 1.0DDAGLP-212 GEOTECH HOLEDDAGLP-213 GEOTECH HOLEDDAGLP-214 GEOTECH HOLEDDAGLP-215 GEOTECH HOLEDDAGLP-216 GEOTECH HOLEDDAGLP-217 GEOTECH HOLEDDAGLP-218 GEOTECH HOLEDDAGLP-219 GEOTECH HOLE

DDA-220 -60 110 72 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDAGLP-221 GEOTECH HOLEDDAGLP-222 GEOTECH HOLE

DDA-223 -60 122.7 14630.0 32.0 2.0 1.047.0 146 (EOH) 99.0 4.0

DDA-224 -60 30 13 BOGGED AND ABANDONEDDDAGLP-225 GEOTECH HOLEDDAGLP-226 GEOTECH HOLEDDAGLP-227 GEOTECH HOLEDDAGLP-228 GEOTECH HOLEDDAGLP-229 GEOTECH HOLEDDAGLP-230 GEOTECH HOLEDDAGLP-231 GEOTECH HOLEDDAGLP-232 GEOTECH HOLEDDAGLP-233 GEOTECH HOLEDDAGLP-234 GEOTECH HOLEDDAGLP-235 GEOTECH HOLEDDAGLP-236 GEOTECH HOLE

DDAGLP-236A GEOTECH HOLEDDAGLP-237 GEOTECH HOLE

DDA-238 -60 110 81.5 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-239 -60 110 100 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDAGLP-240 GEOTECH HOLEDDAGLP-241 GEOTECH HOLEDDAGLP-242 GEOTECH HOLEDDAGLP-243 GEOTECH HOLEDDAGLP-244 GEOTECH HOLEDDAGLP-245 GEOTECH HOLE

2011





(m) Gold (g/t)

DDA-246 -60 120 220.648.0 50.0 2.0 1.1

149.0 151.0 2.0 1.6DDAGLP-247 GEOTECH HOLEDDAGLP-248 GEOTECH HOLEDDAGLP-249 GEOTECH HOLEDDAGLP-250 GEOTECH HOLE

DDAG-251 GEOTECH HOLEDDA-252 -60 120 73.5 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-253 -60 121.5 112.4 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDAGLP-254 GEOTECH HOLEDDAGLP-255 GEOTECH HOLEDDAGLP-256 GEOTECH HOLEDDAGLP-257 GEOTECH HOLEDDAGLP-258 GEOTECH HOLEDDAGLP-259 GEOTECH HOLEDDAGLP-260 GEOTECH HOLEDDAGLP-261 GEOTECH HOLEDDAGLP-262 GEOTECH HOLEDDAGLP-263 GEOTECH HOLEDDAGLP-264 GEOTECH HOLE

DDA-265 -60 128 85.80.0 39.0 39.0 1.0

55.0 59.0 4.0 1.0DDAGLP-266 GEOTECH HOLEDDAGLP-267 GEOTECH HOLEDDAGLP-268 GEOTECH HOLEDDAGLP-269 GEOTECH HOLE

DDA-270 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-271 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDRCA-304 -60 120 110.0 67.0 69.0 2.0 1.0RCA-305 -60 120 167.0 56.0 62.0 6.0 0.9

RCA-306 -60 300 160.02.0 5.0 3.0 0.0

75.0 130.0 55.0 1.1152.0 156.0 4.0 0.9

RCA-307 -60 120 200.0

64.0 77.0 13.0 1.1113.0 116.0 3.0 1.0127.0 139.0 12.0 1.0159.0 182.0 23.0 1.2

RCA-308-60 120 185.0

8.0 10.0 2.0 1.017.0 20.0 3.0 0.994.0 96.0 2.0 1.0

130.0 140.0 10.0 1.0130.0 185 (EOH) 55.0 1.6

Including 157.0 185 (EOH) 28.0 2.7RCA 309 -60 120 140.0 22.0 28.0 6.0 1.0RCA 310 -60 120 153.0 129.0 135.0 6.0 0.9RCA 311 -60 300 65.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

RCA 312 -60 120 125.02.0 13.0 11.0 1.0

26.0 46.0 20.0 1.1RCA 313 -60 110 110.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDRCA 314 -60 120 149.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

RCA 315 -60 120 150.0

22.0 32.0 10.0 0.942.0 48.0 6.0 1.158.0 61.0 3.0 1.179.0 85.0 6.0 1.0

107.0 109.0 2.0 1.8140.0 144.0 4.0 1.1

RCA-316 -60 30 126.0 71.0 126.0 (EOH) 55.0 1.0RCA-317 -60 30 140.0 99.0 140.0 (EOH) 41.0 0.9RCA-318 -60 30 167.0 102.0 146.0 44.0 1.0

RCA-319 -60 30 160.087 116 29 0.9

148 152 4 1.0


2011





(m) Gold (g/t)

RCA-320 -60 120 160.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDRCA-321 -60 30 139.0 93.0 117.0 24.0 1.0RCA-322 -60 210 180.0 119.0 126.0 7.0 1.0

RCA-323 120 95.0

3.0 5.0 2.0 1.110.0 12.0 2.0 1.238.0 42.0 4.0 1.152.0 55.0 3.0 1.0

RCA-324 300 83.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDRCA-325 300 23.0 BOGGED AND LOSTRCA-326 120 120.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDRCA-327 300 170.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDRCA-328 110 175.0 129.0 152.0 23.0 1.1RCA-329 110 125.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

RCA-330110 239.0

12.0 15.0 3.0 1.070.0 76.0 6.0 1.0

137.0 144.0 7.0 1.0172.0 239.0 (EOH) 67.0 1.0

Including 232.0 239.0 (EOH) 7.0 6.6

RCA-331 110 239.0

0.0 17.0 17.0 1.025.0 26.0 1.0 3.657.0 59.0 2.0 1.084.0 86.0 2.0 1.2

RCA-332 110 203.0 102.0 129.0 27.0 1.0

RCA-333 120 227.058.0 60.0 2.0 1.9

149.0 156.0 7.0 0.9RCA-334 300 119.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

RCA-335 300 239.0

62.0 65.0 3.0 1.092.0 101.0 9.0 1.0

115.0 117.0 2.0 1.0197.0 200.0 3.0 1.0

RCA-336 120 155.0 84.0 103.0 19.0 1.2RCA-337 120 107.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

RCA-338 120 117.024.0 26.0 2.0 1.146.0 54.0 8.0 0.992.0 103.0 11.0 1.0

RCA-339 -60 120 147.0 106.0 135.0 29.0 1.6RCA-340 -60 120 153.0 117.0 119.0 2.0 1.2

RCA-341 -60 120 191.090.0 116.0 26.0 1.0

125.0 131.0 6.0 1.4RCA-342 -60 120 197.0 139.0 192.0 53.0 1.0RCA-343 -60 120 131.0 75.0 108.0 33.0 1.0

RCA-344 -60 120 113.013.0 20.0 7.0 1.079.0 81.0 2.0 1.0

102.0 112.0 10.0 1.0

RCA-345 -60 120 151.014.0 21.0 7.0 1.0

129.0 141.0 12.0 1.0

RCA-346 -60 120 125.01.0 16.0 15.0 1.0

101.0 109.0 8.0 1.0

RCA-347 -60 50 167.01.0 21.0 20.0 1.1

141.0 144.0 3.0 1.1153.0 157.0 4.0 1.6

RCA-348 -60 50 215.0

5.0 8.0 3.0 1.010.0 15.0 5.0 1.022.0 132.0 110.0 1.0

159.0 163.0 4.0 1.1193 214 21 2.9

RCA-349 -60 40 191.039.0 45.0 6.0 0.956.0 58.0 2.0 1.282.0 103.0 21.0 10.7

2011





(m) Gold (g/t)

RCA-350 -60 50 143.0

11.0 17.0 6.0 1.037.0 52.0 15.0 1.059.0 63.0 4.0 1.168.0 70.0 2.0 1.173.0 83.0 10.0 1.096.0 98.0 2.0 1.0

112.0 114.0 2.0 1.2

RCA-351 -60 35 161.0

12.0 59.0 47.0 1.293.0 95.0 2.0 1.1

101.0 109.0 8.0 1.0141.0 146.0 5.0 1.3137.0 161 (EOH) 24.0 1.0

RCA-352 -60 50 185.0

1.0 4.0 3.0 1.130.0 40.0 10.0 1.056.0 64.0 8.0 1.0

120.0 140.0 20.0 1.0156.0 158.0 2.0 1.5

RCA-353 -60 45 179.00.0 73.0 72.0 1.0

110.0 112.0 2.0 1.399.0 168.0 68.0 1.2

RCA-354 -60 45 193.0

5.0 9.0 4.0 1.112.0 14.0 2.0 1.020.0 22.0 2.0 1.028.0 30.0 2.0 1.1

117.0 119.0 2.0 1.2135.0 138.0 3.0 1.1161.0 163.0 2.0 1.0

RCA-355 -60 50 191.0 31.0 34.0 3.0 1.0RCA-356 -60 310 184.0 2.0 22.0 20.0 2.0RCA-357 -60 315 119.0 77.0 87.0 10.0 1.0RCA-358 -60 100 131.0 37.0 106.0 68.0 1.0RCA-359 -60 310 113.0 26.0 48.0 22.0 2.2

RCA-360 -60 30 189.0

32.0 52.0 20.0 1.088.0 104.0 16.0 1.2

118.0 120.0 2.0 1.0132.0 137.0 5.0 2.0176.0 189(EOH) 13.0 1.0

RCA-361 -60 50 149.036.0 73.0 37.0 1.0

109.0 117.0 8.0 1.0133.0 135.0 2.0 1.2

RCA-362 -60 110 160.056.0 70.0 14.0 1.579.0 84.0 5.0 1.8

RCA-363 -60 115 131.0 25.0 30.0 5.0 1.3

RCA-364 -60 110 170.05.0 7.0 2.0 1.0

26.0 34.0 8.0 1.182.0 84.0 2.0 1.3

RCA-365 -60 115 119.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDRCA-366 -60 100 166.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

RCA-367 -60 110 143.021.0 28.0 7.0 1.153.0 57.0 4.0 1.2

RCA-368 -60 105 184.013.0 19.0 6.0 1.262.0 68.0 6.0 1.1

RCA-369 -60 120 185.0 0.0 98.0 98.0 1.5RCA-370 -60 125 107.0 4.0 6.0 2.0 1.0RCA-371 -60 190 113.0 58.0 77.0 19.0 1.0RCA-372 -60 30 160.0 31.0 74.0 43.0 0.9RCA-373 -60 120 144.0 109.0 136.0 27.0 1.4RCA-374 -60 115 149.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDRCA-375 -60 155 167.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

RCA-376 -60 115 113.058.0 64.0 6.0 1.0

112.0 113 (EOH) 1.0 1.5


2011




(m) Gold (g/t)

RCA-377 -60 120 191.0

22.0 30.0 8.0 1.591.0 94.0 3.0 1.0

112.0 116.0 4.0 1.0119.0 121.0 2.0 1.0140.0 147.0 7.0 1.0157.0 160.0 3.0 1.0

RCA-378 -60 130 197.00.0 28.0 28.0 1.0

46.0 68.0 22.0 1.0149.0 176.0 27.0 1.0

RCA-379 -60 265 137.02.0 9.0 7.0 1.1

19.0 23.0 4.0 1.099.0 109.0 10.0 1.1

RCA-380 -60 335 183.090.0 112.0 22.0 1.2

143.0 152.0 9.0 1.0162.0 164.0 2.0 1.0

RCA-381 -60 120 191.0

45.0 52.0 7.0 1.055.0 60.0 5.0 1.0

124.0 130.0 6.0 1.0136.0 138.0 2.0 1.1

RCA-382 -60 30 182.048.0 76.0 28.0 1.083.0 96.0 13.0 1.1

120.0 122.0 2.0 1.1RCA-383 -60 40 155.0 122.0 125.0 3.0 1.4

RCA-384 -60 130 215.0

7.0 9.0 2.0 1.065.0 67.0 2.0 1.193.0 110.0 17.0 1.3

133.0 136.0 3.0 1.1165.0 207.0 42.0 1.0

RCA-385 -60 30 137.0 48.0 54.0 6.0 1.0

RCA-386 -60 305 179.028.0 39.0 11.0 1.0

120.0 145.0 25.0 1.1RCA-387 -60 120 11.0 BOGGED AND LOST

RCA-388 -60 115 220.023.0 179.0 156.0 1.7

205.0 207.0 2.0 1.0

RCA-389 -50 30 137.02 56 54 1.1

88.0 90.0 2.0 1.1

RCA-390 -60 120 143.0

5.0 58.0 53.0 1.385.0 89.0 4.0 1.3

104.0 112.0 8.0 1.0127.0 129.0 2.0 1.9

RCA-391 -60 30 100.071.0 73.0 2.0 1.084.0 90.0 6.0 1.0

RCA-392 -60 25 149.052.0 77.0 25.0 1.0

131.0 133.0 2.0 1.1

RCA-393 -60 30 53.013.0 18.0 5.0 1.040.0 52.0 12.0 1.0

BOGGED AND LOST

RCA-394 -60 300 179.076.0 89.0 13.0 1.0

104.0 107.0 3.0 1.0142.0 167.0 25.0 1.0

RCA-395 -60 300 161.02.0 23.0 21.0 1.0

75.0 161 (EOH) 86.0 1.0RCA-396 -60 30 149.0 10.0 149(EOH) 139.0 1.0RCA-397 -60 25 131.0 105.0 111.0 6.0 1.0

RCA-398 -60 25 185.0

19.0 21.0 2.0 1.026.0 28.0 2.0 1.071.0 77.0 6.0 0.9

161.0 163.0 2.0 1.4


2011





(m) Gold (g/t)

RCAW-399 WATER HOLERCAW-400 WATER HOLERCAW-401 WATER HOLERCAW-402 WATER HOLE

RCAW-402A WATER HOLERCAW-403 WATER HOLERCAW-404 WATER HOLERCAW-405 WATER HOLE

RCAW-405A WATER HOLERCAW-406 WATER HOLERCAW-407 WATER HOLERCAW-408 WATER HOLERCA-409 -60 300 143.0 112.0 124.0 12.0 1.0

RCA-410 -60 30 155.053.0 69.0 16.0 1.4

122.0 151.0 29.0 1.0

RCA-411 -60 30 159

5.0 8.0 3.0 1.150.0 52.0 2.0 1.066.0 68.0 2.0 1.290.0 95.0 5.0 1.0

115.0 117.0 2.0 1.1

RCA-412 -60 30 200.041.0 46.0 5.0 1.278.0 147.0 69.0 1.1

190.0 194.0 4.0 1.2

RCA-413 -60 25 161.0

55.0 58.0 3.0 1.375.0 96.0 21.0 1.1

117.0 129.0 12.0 1.1135.0 138.0 3.0 1.0146.0 151.0 5.0 1.2

RCA-414 -60 25 107.0 24.0 30.0 6.0 1.0

RCA-415 -60 30 167.05.0 27.0 22.0 1.9

70.0 72.0 2.0 1.8131.0 138.0 7.0 1.0

RCA-416 -70 310 51.0 7.0 16.0 9.0 1.0

RCA-417 -60 30 185.051.0 54.0 3.0 1.0

120.0 178.0 58.0 1.0

RCA-418 -60 115 209.0132.0 142.0 10.0 1.0150.0 152.0 2.0 1.0155.0 174.0 19.0 1.0

RCA-419 -60 115 218.0

66.0 74.0 8.0 1.0134.0 161.0 27.0 1.0169.0 171.0 2.0 1.0188.0 215.0 27.0 4.2

RCA-420 -60 120 143.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDRCA-421 -60 115 179.0 109.0 148.0 39.0 1.0

RCA-422 -60 120 200.0114.0 146.0 31.0 1.6173.0 175.0 2.0 1.2

RCA-423 -60 210 195.099.0 102.0 3.0 1.2

121.0 123.0 2.0 1.0158.0 175.0 17.0 1.0

RCA-424 -60 300 160.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDRCA-425 -60 120 65.0 BOGGED AND LOSTRCA-426 -60 120 155.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

RCA-427 -60 115 131.063.0 68.0 5.0 2.984.0 89.0 5.0 1.3

RCA-428 -60 215 126.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDRCA-429 -60 210 119.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDRCA-430 -60 35 185.0 36.0 117.0 81.0 1.0

RCA-431 -60 30 139

64.0 71.0 7.0 1.076.0 78.0 2.0 1.084.0 97.0 13.0 1.0

107.0 127.0 20.0 1.0137.0 139 (EOH) 2.0 1.1


2011




(m) Gold (g/t)

RCA-432 -70 250 89.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDRCA-433 -60 300 166.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

RCA-434 -60 210 173

1.0 4.0 3.0 1.149.0 54.0 5.0 0.963.0 67.0 4.0 0.985.0 116.0 31.0 1.0

RCA-435 -60 300 116.0 81.0 84.0 3.0 1.1RCA-436 -60 300 143.0 61.0 83.0 22.0 1.0

RCA-437 -60 110 17947.0 58.0 11.0 1.1

103.0 113.0 10.0 1.1

RCA-438 -60 110 1731.0 36.0 35.0 1.0

63.0 91.0 28.0 1.0

RCA-439 -60 110 177

1.0 10.0 9.0 1.018.0 24.0 6.0 1.090.0 92.0 1.0 1.0

110.0 124.0 14.0 1.0157.0 159.0 2.0 1.0

RCA-440 -60 110 29.0 BOGGED AND ABANDONED

RCA-441 -60 105 25169.0 75.0 6.0 1.985.0 89.0 4.0 1.1

105.0 251(EOH) 146.0 1.6RCA-442 -61.3 116.6 239.0 209.0 239 (EOH) 30.0 1.0

RCA-443 -60 117.5 17387.0 92.0 5.0 1.3

117.0 169.0 52.0 0.9RCA-444 -60 36 170.0 27.0 128.0 101.0 1.1RCA-445 -60 305 197.0 42.0 180.0 138.0 1.5RCA-446 -60 120 119.0 70.0 74.0 4.0 0.9RCA-447 120.5 -60 137 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

RCA-448 -62.3 117.1 15559.0 61.0 2.0 1.385.0 99.0 14.0 1.0

RCA-449 -60 120 20978.0 80.0 2.0 2.2

187.0 190.0 3.0 1.1197.0 206.0 9.0 1.0

RCA-450 -60 110 24541.0 83.0 42.0 1.0

192.0 194.0 2.0 1.0211.0 215.0 4.0 1.0

RCA-451 -63.7 109.8 16726.0 32.0 6.0 0.956.0 59.0 3.0 1.072.0 74.0 2.0 1.179.0 88.0 9.0 0.9

RCA-452 -62.4 103.3 125 71.0 74.0 3.0 1.0RCA-453 -61 105 188 144.0 148.0 4.0 1.6

RCA-454 -62 117.2 1611.0 22.0 21.0 1.0

49.0 53.0 4.0 1.8

RCA-455 -65 208.2 14321.0 55.0 34.0 1.193.0 96.0 3.0 1.1


2011

We are responsible for the preparation and fairpresentation of the Consolidated Financial Statements,as well as the financial reporting process that gives riseto such Consolidated Financial Statements. Thisresponsibility requires us to make significant accountingjudgments and estimates. For example, we are requiredto choose accounting principles and methods that areappropriate to the Company’s circumstances, and we arerequired to make estimates and assumptions that affectamounts reported. Fulfilling this responsibility requiresthe preparation and presentation of our ConsolidatedFinancial Statements in accordance with internationalfinancial reporting standards.

We also have responsibility for the preparation and fairpresentation of other financial information in this reportand to ensure the consistency of this information withthe financial statements.

We are responsible for developing and implementinginternal controls over the financial reporting process.These controls are designed to provide reasonableassurance that relevant and reliable financial informationis produced. To gather and control financial data, wehave established accounting and reporting systemssupported by internal controls over financial reportingand an internal audit program. We believe that ourinternal controls over financial reporting providereasonable assurance that our assets are safeguardedagainst loss from unauthorized use or disposition, thatreceipts and expenditures of the Company are madeonly in accordance with authorization of managementand directors of the Company and that our records arereliable for preparing our Consolidated FinancialStatements and other financial information inaccordance with applicable international financialreporting standards and in accordance with applicablesecurities rules and regulations. All internal controlsystems, no matter how well designed, have inherentlimitations. Therefore, even those systems determinedto be effective can provide only reasonable assurancewith respect to financial statement preparation andpresentation. We have established disclosure controlsand procedures, internal controls over financialreporting and corporate-wide policies to ensure thatLydian International’s consolidated financial position,results of operations and cash flows are presented fairly.Our disclosure controls and procedures are designed toensure timely disclosure and communication of all

material information required by regulators. We oversee,with assistance from management, these controls andprocedures and all required regulatory disclosures.

To ensure the integrity of our financial statements, wecarefully select and train qualified personnel. We alsoensure our organisational structure provides appropriatedelegation of authority and division of responsibilities.Our policies and procedures are communicatedthroughout the organisation.

Our Board of Directors is responsible for reviewing andapproving the Consolidated Financial Statements andfor overseeing management’s performance of itsfinancial reporting responsibilities. Their financialstatement-related responsibilities are fulfilled mainlythrough the Audit Committee. The Audit Committee iscomposed entirely of independent directors andincludes three directors with financial expertise. TheAudit Committee meets regularly with management andthe independent registered Chartered Accountants toreview accounting policies, financial reporting andinternal control issues and to ensure each party isproperly discharging its responsibilities. The AuditCommittee is responsible for the appointment andcompensation of the independent registered CharteredAccountants and also considers their independence,reviews their fees and (subject to applicable securitieslaws) pre-approves their retention for any permittednon-audit services and their fee for such services. Theindependent registered Chartered Accountants have fulland unlimited access to the Audit Committee, with andwithout the presence of management.

Timothy CoughlinPresident and Chief Executive OfficerMarch 23, 2012

Roderick CorrieChief Financial OfficerMarch 23, 2012


Report of ManagementAs of March 23, 2012

To the Shareholders of Lydian International Limited


Independent Auditors’ ReportAs of March 31, 2012To the Shareholders of Lydian International Limited

We have audited the accompanying consolidatedfinancial statements of Lydian International Limited andits subsidiaries, which comprise the consolidatedstatement of financial position as at December 31, 2011and 2010, and the consolidated income statements,statements of comprehensive income, statements ofchanges in equity, and statements of cash flows for theyear ended December 31, 2011 and 2010, and asummary of significant accounting policies and otherexplanatory information.

Management’s Responsibility for theConsolidated Financial Statements

Management is responsible for the preparation and fairpresentation of these consolidated financial statementsin accordance with International Financial ReportingStandards, and for such internal control as managementdetermines is necessary to enable the preparation ofconsolidated financial statements that are free frommaterial misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on theseconsolidated financial statements based on our audits.We conducted our audits in accordance withInternational Standards on Auditing. Those standardsrequire that we comply with ethical requirements andplan and perform the audit to obtain reasonableassurance whether the consolidated financialstatements are free from material misstatement.

An audit involves performing procedures to obtain auditevidence about the amounts and disclosures in theconsolidated financial statements. The proceduresselected depend on the auditor’s judgment, includingthe assessment of the risks of material misstatement ofthe consolidated financial statements, whether due tofraud or error. In making those risk assessments, theauditor considers internal control relevant to the entity’spreparation and fair presentation of the consolidatedfinancial statements in order to design audit proceduresthat are appropriate in the circumstances, but not for thepurpose of expressing an opinion on the effectivenessof the entity’s internal control. An audit also includesevaluating the appropriateness of accounting policiesused and the reasonableness of accounting estimatesmade by management, as well as evaluating the overall

presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained issufficient and appropriate to provide a basis for our auditopinion.

Opinion

In our opinion, the consolidated financial statementspresent fairly, in all material respects, the consolidatedfinancial position of Lydian International Limited and itssubsidiaries as at December 31, 2011 and 2010, and theirfinancial performance and cash flows for the years thenended in accordance with International FinancialReporting Standards.

Signed “Grant Thornton LLP”Chartered AccountantsLicensed Public AccountantsMarch 23, 2012Mississauga, Canada

Consolidated Income StatementsFor years ended December 31, 2011 and 2010

December 31, 2011 December 31, 2010Notes £ £

Interest income 5 44,297 25,073Total income 44,297 25,073

Employee salaries and benefits expense 6 (3,007,019) (1,708,707)Services and consumables used (683,957) (649,943)Administrative and other expenses (983,015) (566,200)Consulting expenses (329,320) (367,966)Depreciation and amortisation expenses (102,172) (126,034)Interest expense 21 (547,743) (354,031)Other gains (losses) 7 (345,959) (2,139,241)Total expenses (5,999,185) (5,912,122)

Loss before tax (5,954,888) (5,887,049)Income taxes 8 - -Loss for the year (5,954,888) (5,887,049)

Loss for the year attributable to:Common shareholders (5,899,696) (5,856,554)Non-controlling interest (55,192) (30,495)

(5,954,888) (5,887,049)

Loss per share attributable to owners of the parent (basic and diluted)

9 (0.06) (0.08)

Consolidated Statements of Comprehensive IncomeFor years ended December 31, 2011 and 2010


Loss for the year (5,954,888) (5,887,049)Other comprehensive income: Exchange differences arising on translation of foreign operations

(640,353) 102,959

Total comprehensive loss for the year (6,595,241) (5,784,090)

Comprehensive loss for the year attributable to:Common shareholders (6,512,381) (5,750,878)Non-controlling interest (82,860) (33,212)

(6,595,241) (5,784,090)


Consolidated Financial StatementsFor the years Ending December 31, 2011 and 2010

Consolidated Statements of Financial PositionDecember 31, 2011 December 31, 2010

Notes £ £ASSETSNon-current assetsProperty and equipment 10 476,012 402,587Intangible assets 11 95,522 59,350Exploration and evaluation assets 12 23,739,005 16,497,640Other non-current assets 13 1,371,935 686,274Other long-term financial assets 14 126,600 -Total non-current assets 25,809,074 17,645,851

Current assetsCash and cash equivalents 15 8,301,907 17,058,692Other current assets 16 410,434 178,904Total current assets 8,712,341 17,237,596

TOTAL ASSETS 34,521,415 34,883,447

EQUITY AND LIABILITIESCapital and reservesShare capital 17 43,850,290 37,778,041Warrants 18 345,076 1,202,829Equity settled employee benefits reserve 19 2,079,136 655,985Translation of foreign operations (164,441) 448,244Other reserves – shares issuable 20 - 715,506Other reserves – option to purchase non-controlling interest 20 (1,795,654) (1,037,816)Accumulated deficit (17,232,781) (11,333,085)Total equity attributable to the parent 27,081,626 28,429,704Non-controlling interest 408,496 491,356Total equity 27,490,122 28,921,060

Non-current liabilitiesDue to Newmont 21 - 2,648,561Provisions 22 28,800 -Total non-current liabilities 28,800 2,648,561

Current liabilitiesAccrued liabilities and other payables 23 858,361 399,648Current portion of Due to Newmont 21 6,144,132 2,914,178Total current liabilities 7,002,493 3,313,826

TOTAL EQUITY AND LIABILITIES 34,521,415 34,883,447



Consolidated Statements of Changes in EquityShare capital Equity settled Other

including, employee Translation Reserves Nonpremium and benefits of foreign Other Share Accumulated Attributable controlling

discounts Warrants reserve operations reserves Issuable deficit to owners interest Total£ £ £ £ £ £ £ £ £ £

Balance at December 31, 2009 9,265,576 2,870,252 322,682 342,568 - - (5,476,531) 7,324,547 - 7,324,547New equity share capital subscribed 22,852,747 - - - - - - 22,852,747 - 22,852,747Equity share capital issued in Newmont deal (Note 21) 1,954,143 - - - - - - 1,954,143 - 1,954,143Cost of shares issued (1,419,039) - - - - - - (1,419,039) - (1,419,039)Proceeds from exercised warrants 2,562,533 - - - - - - 2,562,533 - 2,562,533Proceeds from exercised options 671,066 - - - - - - 671,066 - 671,066Attributable to exercised warrants 1,706,097 (1,706,097) - - - - - - -Attributable to exercised options 208,404 - (208,404) - - - - - -Attributable to expired warrants 252,402 (252,402) - - - - - - -Attributable to expired options 15,188 - (15,188) - - - - - -Issue of warrants (195,167) 195,167 - - - - - - -Modification of warrants (95,909) 95,909 - - - - - - -Employee share options issued during the year - - 556,895 - - - - 556,895 - 556,895Non controlling interest arising from Newmont deal - - - - - - - - 524,568 524,568Prepayment on option and shares issuable to purchase non-controlling interest (Note 20) - - - - (1,037,816) 715,506 - (322,310) - (322,310)Total comprehensive loss for the year - - - 105,676 - - (5,856,554) (5,750,878) (33,212) (5,784,090)Balance at December 31, 2010 37,778,041 1,202,829 655,985 448,244 (1,037,816) 715,506 (11,333,085) 28,429,704 491,356 28,921,060



Consolidated Statements of Changes in Equity

Share capital Equity settled Otherincluding, employee Translation Reserves Non

premium and benefits of foreign Other Share Accumulated Attributable controllingdiscounts Warrants reserve operations reserves Issuable deficit to owners interest Total

£ £ £ £ £ £ £ £ £ £Balance at December 31, 2010 37,778,041 1,202,829 655,985 448,244 (1,037,816) 715,506 (11,333,085) 28,429,704 491,356 28,921,060Proceeds from exercised warrants 3,088,622 - - - - 3,088,622 - 3,088,622Proceeds from exercised options 451,024 - - - - 451,024 - 451,024Attributable to exercised warrants 857,753 (857,753) - - - - - - -Attributable to exercised options 172,656 (172,656) - - - - - - -Attributable to expired options 28,850 (28,850) - - - - - - -Employee share options issued during the year 1,624,657 - - - - 1,624,657 1,624,657Prepayment on option and shares issuable to purchase non-controllinginterest (Note 20) 1,473,344 - - (757,838) (715,506) - -Total comprehensive loss for the year - - - (612,685) (5,899,696) (6,512,381) (82,860) (6,595,241)Balance at December 31, 2011 43,850,290 345,076 2,079,136 (164,441) (1,795,654) - (17,232,781) 27,081,626 408,496 27,490,122



Consolidated Statements of Cash Flows


Cash flows from operating activitiesPayments to suppliers and employees (4,671,986) (2,606,805)Net cash outflow from operating activities (4,671,986) (2,606,805)

Cash flows from investing activitiesInterest received 44,297 25,073Payments for property and equipment and intangible assets 10,11 (413,348) (213,678)Exploration costs paid 12 (7,082,435) (6,278,311)Long term investment 14 (129,500) -Deposits made 16 (64,801) -Net cash used by investing activities (7,645,787) (6,466,916)

Cash flows from financing activitiesProceeds from issuance of share capital 3,539,646 26,086,346Payments for share issue costs - (1,419,039)Payment for other equity reserves - (322,310)Net cash generated in financing activities 3,539,646 24,344,997

Net (decrease) increase in cash and cash equivalents (8,778,127) 15,271,276

Cash and cash equivalents, beginning of year 17,058,692 2,234,790

Effects of exchange rate changes on the balance of cash held in foreign currencies 21,342 (447,374)

Cash and cash equivalents, end of the year 8,301,907 17,058,692



1. General InformationLydian International Limited (the “Company”) is a company continued under the laws of Jersey effective on December 12, 2007 (formerly existingunder the laws of Alberta, Canada). The registered office address of the Company is 1st Floor, Capstan House, La Route es Nouaux, St. Helier, JerseyJE2 4ZY, Channel Islands. The Company’s ordinary shares (“Ordinary Shares”) began trading on the Toronto Stock Exchange (“TSX”) on January 10,2008 under the symbol “LYD”.

The Company, together with its subsidiaries, (the ‘Group’) is a mineral exploration and development group of companies focused on emerging andtransitional environments, and is developing precious and base metal assets located in Armenia and Georgia under exploration licenses granted bylocal authorities. The Group’s main exploration project is gold at Amulsar, Armenia.

The principal accounting policies of the Group are further described in Note 3.

2. Adoption of New and Revised Accounting Standardsi) Standards and Interpretations effective in the current period

In the current period the Group has adopted the new and revised Standards and Interpretations issued by the International Accounting StandardsBoard (the “IASB”) and International Financial Reporting Interpretations Committee (the “IFRIC”) of the IASB that are relevant to its operations andeffective for annual reporting periods beginning on January 1, 2011.

ii) Standards and Interpretations in issue but not yet adopted

Amendment to IAS 1, “Financial statement presentation”

The main change resulting from these amendments is a requirement for entities to group items presented in Othercomprehensive income (OCI) on the basis of whether they are potentially reclassifiable to profit or loss subsequently(reclassification adjustments). The amendments do not address which items are presented in OCI.

IFRS 9 “Financial Instruments”

The IASB aims to replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety. IFRS 9 is being issued inphases. To date, the chapters dealing with recognition, classification, measurement and derecognition of financial assets andliabilities have been issued. These chapters are effective for annual periods beginning January 1, 2015. Further chapters dealingwith impairment methodology and hedge accounting are still being developed. Management have yet to assess the impact ofthis new standard on the consolidated financial statements. However, they do not expect to implement IFRS 9 until all of itschapters have been published and they can comprehensively assess the impact of all changes.

Consolidation Standards

A package of consolidation standards are effective for annual periods beginning or after January 1, 2013. Information on thesenew standards is presented below. The Group’s management have yet to assess the impact of these new and revised standardson the Group’s consolidated financial statements.

IFRS 10 “Consolidated Financial Statements” supersedes IAS 27 “Consolidated and Separate Financial Statements” and SIC 12“Consolidation – Special Purpose Entities”. It revised the definition of control together with accompanying guidance to identifyan interest in a subsidiary. However, the requirements and mechanics of consolidation and the accounting for any non-controlling interests and changes in control remain the same.

IFRS 11 “Joint Arrangements” supersedes IAS 31 “Interests in Joint Ventures”. It aligns more closely the accounting by theinvestors with their rights and obligations relating to the joint arrangement. In addition, IAS 31’s option of using proportionateconsolidation for joint ventures has been eliminated. IFRS 11 now requires the use of the equity accounting method, which iscurrently used for investments in associates.

IFRS 12 “Disclosure of Interests in Other Entities” integrates and makes consistent the disclosure requirements for various typesof investments, including unconsolidated structured entities. It introduces new disclosure requirements about the risks to whichan entity is exposed from its involvement with structured entities.


Notes to the ConsolidatedFinancial StatementsFor the years Ending December 31, 2011 and 2010

IFRS 13 “Fair Value Measurement” does not affect which items are required to be fair-valued, but clarifies the definition of fairvalue and provides related guidance and enhanced disclosures about fair value measurements. It is applicable for annualperiods beginning on or after January 1, 2013. The Group’s management have yet to assess the impact of this new standard onthe Group’s consolidated financial statements.

Management anticipates that those standards and interpretations deemed applicable to the Company’s business will beadopted in the Company’s financial statements of future periods as they become effective and that the adoption will have nomaterial impact on the financial statements of the Company in the periods of initial application other than for additionaldisclosures.

3. Significant Accounting PoliciesThe principal accounting policies applied in the preparation of these consolidated financials are set out below. These policies have been consistentlyapplied to all the financial periods presented unless otherwise stated.

Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) as issued by theInternational Accounting Standards Board as of December 31, 2011.

Basis of preparation

The consolidated financial statements have been prepared on the historical cost basis and presented in British Pounds.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its ‘subsidiaries’).Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from itsactivities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whetherthe Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They aredeconsolidated from the date that control ceases.

The results of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from the effective date ofacquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiariesto bring their accounting policies into line with those used by other members of the Group. All intra-group transactions, balances, income andexpenses are eliminated in full on consolidation.

Non-controlling interests, presented as part of equity, represent the portion of a subsidiary’s profit or loss and net assets that is not held by theCompany. The Company attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controllinginterests based on their respective ownership interests. Transactions with non-controlling interests that do not result in a loss of control are accountedfor as transactions with equity owners of the group. Any difference between the amount of the adjustment to the non-controlling interest and anyconsideration paid or received is recognised as a separate reserve within equity.


Notes to the ConsolidatedFinancial Statements

For the years Ending December 31, 2011 and 2010

Details of the Company’s direct and indirect subsidiaries at December 31, 2011 and December 31, 2010 are as follows:

Place of incorporation Effective Ownership InterestName of subsidiary or Registration 2011 2010 Principal activity

Lydian Holdings Ltd (BVI) British Virgin Islands 100% 100% Intermediate holding companyLydian Resources Kosovo (BVI) British Virgin Islands 100% 100% Intermediate holding companyLydian Resources Armenia (BVI) British Virgin Islands 100% 100% Intermediate holding companyLydian Resources Georgia Limited Jersey 100% 100% Intermediate holding companyGeoteam CJSC Armenia 95% 95% Mineral explorationGeorgian Resource Company LLC Georgia 100% 100% Mineral explorationKavkaz Zoloto CJSC Armenia 95% 95% Dormant companyKosovo Resource Company LLC Kosovo 100% 100% *No activities,

in liquidation process

*Currently Kosovo Resource Company LLC is in Members’ Voluntary Liquidation process.

Interest in joint ventures

Where a consolidated member of the Group participates in unincorporated joint ventures, that member accounts directly for its proportionate shareof the jointly controlled assets, liabilities and related income and expenses which are then similarly included in the consolidated financial statementsof the Group.

Foreign currencies

The individual financial statements of each entity in the Group are prepared in the currency of the primary economic environment in which theentity operates (its “functional currency”). For the purpose of the consolidated financial statements, the results and financial position of each entityare expressed in British Pounds, which is presentation currency for these consolidated financial statements. Although the parent company has afunctional currency of Canadian Dollars, management assesses the Company’s performance in British Pounds.

In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreigncurrencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting date, monetary items denominatedin foreign currencies are retranslated at rates prevailing at the reporting date. Non-monetary items that are measured in terms of historical cost ina foreign currency are not retranslated. Exchange differences are recognised in profit or loss in the period in which they arise.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s operations are expressed in British Poundsusing exchange rates prevailing at the reporting date. Income and expense items are translated at the average exchange rates for the period, unlessexchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transaction are used. Exchangedifferences arising, if any, are recognised directly into other comprehensive income and transferred to the Group’s translation of foreign operationsreserve. Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed.

Fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translatedat the exchange rates prevailing at the acquisition date.

Share-based payments

Equity-settled awards, including share options and warrants, are measured at fair value at the date of grant and recognised over the vesting period,based on the Group’s estimate of equity-settled awards that will eventually vest, along with a corresponding increase in equity.

Fair value is measured using the Black-Scholes Option Pricing Model taking into consideration management’s best estimate of the expected life ofthe option, the expected share price volatility, the risk free rate, the expected dividend yield and the estimated number of shares that will eventuallyvest.

Taxation

The group has no taxable profit and no current income tax.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and thecorresponding tax base used in the computation of taxable profit, and are accounted for using the liability method. Deferred tax liabilities aregenerally recognised for all taxable temporary differences, and deferred tax assets are generally recognised for all deductible temporary differences



to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Suchassets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a businesscombination) of the related asset or liability in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries except where the group is ableto control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferredtax assets arising from deductible temporary differences associated with such investments are only recognised to the extent that it is probable thatthere will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in theforeseeable future.

The carrying amount of deferred tax assets is reviewed at each reporting date and increased or reduced to the extent that it is probable, or no longerprobable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at tax rates that are expected to apply in the period in which the liability is settled or the asset realisedbased on tax rates that have been enacted or substantively enacted by the reporting date. The measurement of deferred tax liabilities and assetsreflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carryingamount of its assets and liabilities.

Current and deferred tax are recognised as an expense or income in the profit or loss, except when they relate to items credited or debited directlyto equity, in which case the tax is also recognised directly in equity, or where they arise from the initial accounting in a business combination.

Property and equipment

Property and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Where an item of property andequipment comprises major components having different useful lives, they are accounted for as separate items of property and equipment foramortisation purposes.

The gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference between the salesproceeds and the carrying amount of the asset and is recognised in the income statement.

Expenditure to replace a component of an item of property equipment that is accounted for separately is capitalised and the existing carryingamount of the component written off. Other subsequent expenditure is capitalised if future economic benefits will arise from the expenditure. Allother expenditure, including repair and maintenance, is recognised in the income statement as incurred.

Depreciation is charged to the income statement based on the cost, less estimated residual value, of the asset on a straight-line basis over theestimated useful life. Depreciation commences when the assets are available for use. The estimated useful lives are as follows:

• Motor vehicles 3 – 5 years• Equipment 1 – 5 years

Intangible assets

Intangible assets, which are acquired by the Group entities and which have finite useful lives are stated at costs less accumulated amortisation andimpairment losses.

Amortisation is charged to the income statement on a straight line basis over the estimated useful lives of the intangible assets, which are estimatedto be 3-10 years for computer software.

Impairment of land and intangible assets with indefinite useful lives or not available for use

Assets that have an indefinite useful life that are not subject to amortisation or are not available for use are evaluated for impairment annually. Animpairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.

The recoverable amount is the higher of the fair value less costs to sell and value in use. If the recoverable amount of an asset or cash generatingunit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount.Impairment losses are recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate ofits recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had noimpairment loss been recognised for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognised as incomeimmediately.




Impairment of property and equipment and intangible assets with finite lives

Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amountmay not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount.

The recoverable amount is the higher of the fair value less costs to sell and value in use. If the recoverable amount of an asset or cash generatingunit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount.Impairment losses are recognised as an expense immediately.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after theimpairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount ofthe property and equipment at the date the impairment is reversed does not exceed what the cost less accumulated depreciation would have beenhad the impairment not been recognised.

Exploration and evaluation assets

Exploration and evaluation expenditures comprise costs incurred directly in exploration and evaluation as well as the cost of mineral licenses. Theyare capitalised as exploration and evaluation assets subsequent to acquisition of the licenses and pending determination of the feasibility of theproject. Borrowing costs attributable to the exploration and evaluation of mineral licences are expensed as incurred.

When the existence of economically recoverable reserves and commercial viability are established, the related exploration and evaluation assetsare reclassified as intangible assets or property, plant and equipment as appropriate.

Where a project is abandoned or is determined not to be economically viable, the related costs are written off. Impairment is assessed when factsand circumstances suggest that the carrying amount of an asset may exceed its recoverable amount.

Supplies

Supplies are sample bags, small tools and other similar items stored to support drilling operations. Supplies are stated at the lower of cost and netrealisable value. Net realisable value is the estimated selling price in the ordinary course of business and selling expenses. The cost of supplies isbased on the first-in first-out principle and includes expenditure incurred in acquiring the supplies and bringing them to their existing location andcondition.

Financial assets

Financial assets other than hedging instruments are divided into the following categories:• loans and receivables• financial assets at fair value through profit or loss• available-for-sale financial assets• held-to-maturity investments.

Financial assets are assigned to the different categories on initial recognition, depending on the characteristics of the instrument and its purpose.A financial instrument’s category is relevant for the way it is measured and whether any resulting income and expense is recognised in profit or lossor directly in equity.

Generally, the Group recognises all financial assets using settlement day accounting. An assessment of whether a financial asset is impaired is madeat least at each reporting date. All income and expense relating to financial assets are recognised in the income statement except for income or losson any available-for-sale financial assets which are recognised in equity.

Other receivables

Other receivables are initially recognised at fair value. Subsequently they are measured at amortised cost less provision for impairment. A provisionfor impairment of receivables is established when there is objective evidence that the Group may not be able to collect all amounts due accordingto the original terms of the receivables. Significant financial difficulties of the debtor and default and delinquency in payments are consideredindicators that the receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present valueof the estimated future cash flows, discounted at the original effective interest rate.

The balance of the allowance is adjusted by recording a charge or income to the statement of income of the reporting period.

Any amount written-off with respect to other receivable balances is charged against the existing allowance for doubtful accounts. All accountsreceivable for which collection is not considered probable are written-off.



Other Investments

Investments in equity securities that are neither subsidiaries nor associates are categorised as available-for-sale instruments. These assets aremeasured at fair value, both initially and subsequently, with changes in fair value, except for impairment losses and certain foreign exchange gainsand losses, recognised in other comprehensive income until the asset is sold. Impairment losses are recognised in the consolidated income statementas incurred, as are foreign exchange gains and losses arising on monetary items. Foreign exchange gains and losses arising on non-monetary items,such as an investment in an equity instrument, are recognised in other comprehensive income. When an investment is derecognised, the cumulativegain or loss in accumulated other comprehensive income is reclassified to the consolidated income statement.

Impairment of financial assets

Financial assets, other than those carried at fair value through profit or loss, are assessed for indicators of impairment at each reporting date. Financialassets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financialasset, the estimated future cash flows of the financial asset have been impacted.

For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the presentvalue of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the financial asset is reduced by theimpairment loss directly for all financial assets with the exception of trade and other receivables where the carrying amount is reduced through theuse of an allowance account.

With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decreasecan be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed throughprofit or loss to the extent that the carrying amount of the financial asset at the date the impairment is reversed does not exceed what the amortisedcost would have been had the impairment not been recognised.

In respect of available-for-sale equity instruments, any increase in fair value subsequent to an impairment loss is recognised directly in equity.

Financial liabilities

The Group’s financial liabilities include accrued liabilities and other payables and the amount due to Newmont, which are initially recognised at fairvalue and subsequently stated at amortised cost. Trade payables are classified as current liabilities unless the Group has an unconditional right todefer settlement of the liability for at least 12 months after reporting date.

Equity

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Equity instrumentsissued by the Group are recorded at the proceeds received, net of direct issue costs.

Restoration and rehabilitation

A provision for restoration and rehabilitation is recognised when there is a present obligation as a result of exploration and development activitiesundertaken, it is probable that an outflow of economic benefits will be required to settle the obligation, and the amount of the provision can bemeasured reliably. The estimated future obligations include the costs of dismantling and removal of facilities, restoration and monitoring of theaffected areas. The provision for future restoration costs is the best estimate of the present value of the expenditure required to settle the restorationobligation at the reporting date. Future restoration costs are reviewed annually and any changes in the estimate are reflected in the present valueof the restoration provision at each reporting date.

The initial estimate of the restoration and rehabilitation provision relating to exploration and development activities is capitalised into the cost ofthe related asset and amortised on the same basis as the related asset. Changes in the estimate of the provision of restoration and rehabilitation aretreated in the same manner, except that the unwinding of the effect of discounting on the provision is recognised as a finance cost rather thanbeing capitalised into the cost of the related asset.

Interest income

Interest income and expenses are reported on an accrual basis using the effective interest method.

Employee benefits

The Group makes contributions for the benefit of employees to the Jersey, Armenian and Georgia State pension funds. The contributions areexpensed as incurred.




Provisions

A provision is recognised in the Statement of Financial Position when the Group has a legal or constructive obligation as a result of past event, andit is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined bydiscounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, whereappropriate, the risks specific to the liability.

Operating leases

Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is morerepresentative of the time pattern in which economic benefits from the leased asset are consumed.

Loss per share

Basic loss per ordinary share is calculated by dividing the loss attributed to shareholders of the parent for the period by the weighted averagenumber of ordinary shares outstanding during the period. Diluted loss per ordinary share is calculated by adjusting the weighted average numberof ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares.

Business segments

The Group operates in one business segment, mineral exploration.

Geographical segments

The directors of the Group are of the opinion that three geographical segments, Armenia, Georgia and head offices in Jersey (Channel Islands),existed as at December 31, 2011 and December 31, 2010. At December 31, 2010, Kosovo represented a geographical segment which was wounddown in 2011.

Other reserves

Other reserves are equity instruments of the Company for purchase of non-controlling interests in its subsidiaries.

4. Critical Accounting Judgments and Key Sources of Estimation UncertaintyCritical judgments in applying the Group’s accounting policies

In the application of the Group’s accounting policies, which are described in note 3, management is required to make judgments, estimates andassumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associatedassumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The most significant critical judgment that members of management have made in the process of applying the entity’s accounting policies andthat have the most significant effect on the amounts recognised in the consolidated financial statements is the policy on exploration and evaluationassets.

In particular, management is required to assess exploration and evaluation assets for impairment. Note 12 discloses the carrying values of suchassets. As part of this assessment, management has carried out an assessment whether there are indicators of impairment. If there are indicators,management performs an impairment test on the major assets within this balance.

The recoverability of exploration and evaluation assets is dependent on a number of factors common to the natural resource sector. These includethe extent to which the Group can continue to renew its exploration and future development licenses with local authorities, establish economicallyrecoverable reserves on its properties, the availability of the Group to obtain necessary financing to complete the development of such reservesand future profitable production or proceeds from the disposition thereof. The Group will use the evaluation work of professional geologists,geophysicists and engineers for estimates in determining whether to commence or continue mining and processing. These estimates generally relyon scientific and economic assumptions, which in some instances may not be correct, and could result in the expenditure of substantial amountsof money on a deposit before it can be determined whether or not the deposit contains economically recoverable mineralisation.

Key sources of estimation uncertainty

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period inwhich the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects bothcurrent and future periods.





There are tax matters that have not yet been confirmed by taxation authorities. While management believes the provision for income taxes isadequate, these amounts are subject to measurement uncertainty. Adjustments required, if any, to these provisions will be reflected in the periodwhere it is determined that adjustments are warranted.

The Black-Scholes Option Pricing Model was developed for use in estimating the fair value of traded options which were fully tradable with novesting restrictions. This option valuation model requires the input of highly subjective assumptions including the expected stock price volatility.Because the Company’s stock options and warrants have characteristics significantly different from those of traded options and because changesin the subjective input assumptions can materially affect the calculated fair value, such value is subject to measurement uncertainty.

5. Geographical SegmentsThe Group is engaged in one business activity, mineral exploration. The three key geographical segments for these activities are located in Armenia,Kosovo and Georgia. The Group’s head office activities are located in Jersey (Channel Islands) which relate to administrative matters.

All transactions between segments are measured at fair value. All balances, income and expenses between segments are eliminated in full onconsolidation.

The geographical segmented information on income statement items is given below:

As of and for year ended As of and for year ended December 31, 2011 December 31, 2010 £ £ Interest income Armenia - - Georgia - - Kosovo - - Head office activities 44,297 25,073 44,297 25,073 Loss for the year Armenia 1,103,851 665,230 Georgia 9,372 - Kosovo 292,712 2,496,815 Head office activities 4,548,953 2,725,004 5,954,888 5,887,049 Loss from disposal of property and equipment Armenia 8,715 - Georgia - - Kosovo 90,600 - Head office activities - - 99,315 - Depreciation and amortisation Armenia 28,393 26,175 Gorgia - - Kosovo 56,483 96,604 Head office activities 17,296 3,255 102,172 126,034 Property, equipment and intangible asset expenditures Armenia 384,192 75,370 Georgia - - Kosovo - 89,853 Head office activities 29,156 48,455 413,348 213,678


The geographical segmented information on certain Statement of Financial Position items is given below:

As of December 31, 2011 As of December 31, 2010 £ £ Exploration and evaluation assets Armenia 23,535,396 16,497,640 Georgia 203,609 - Kosovo - - Head office activities - - 23,739,005 16,497,640 Property and equipment Armenia 454,800 250,142 Georgia - - Kosovo - 142,000 Head office activities 21,212 10,445 476,012 402,587 Intangible assets Armenia 59,283 19,912 Georgia - - Kosovo - 3,503 Head office activities 36,239 35,935 95,522 59,350

December 31, 2011Armenia Kosovo Georgia Head office activities Eliminations Consolidated

£ £ £ £ £ £Total assets 25,662,197 - 268,609 34,995,611 (26,405,002) 34,521,415Total liabilities 21,360,459 5,197,678 279,783 6,742,717 (26,549,344) 7,031,293

December 31, 2010Armenia Kosovo Georgia Head office activities Eliminations Consolidated

£ £ £ £ £ £Total assets 17,505,160 375,305 - 33,505,501 (16,502,519) 34,883,447Total liabilities 11,305,236 5,384,814 - 5,798,857 (16,526,520) 5,962,387





6. Employee Salaries and Benefit ExpensesYear ended December 31, 2011 Year ended December 31, 2010

£ £Salaries and other compensation (1,382,362) (1,151,812)Allocation to equity settled employee benefits reserve (1,624,657) (556,895)

(3,007,019) (1,708,707)

7. Other Gains (Losses)Year ended December 31, 2011 Year ended December 31, 2010

£ £Disposal of property and equipment (99,315) -Other (loss) gain (14,026) 3,633Exploration and evaluation assets write-off (Note 11) (165,215) (2,113,572)Foreign currency losses (67,403) (29,302)

(345,959) (2,139,241)

8. TaxationThere was no taxes payable by the Group in the year ended December 31, 2011 and corresponding period in 2010.

Year ended December31, 2011 Year ended December 31, 2010£ £

Loss before taxation (5,954,888) (5,887,049)Tax at 17.0% (2010, 16.0 %) (1,012,331) (941,928)Items which are not deductible for tax purposes 837,161 338,340Losses not recognised 175,170 603,588Income tax expense - -

The Group had taxation losses under jurisdiction of Jersey (Channel Islands), Armenia, Georgia and Kosovo (subject to confirmation with the taxauthorities) as at December 31, 2011 amounting to approximately £5,986,965 (December 31, 2010: £4,956,551) that have not been recognised asthere is insufficient evidence of taxable profits.

Tax losses incurred by Armenian and Georgian companies expire in the fifth year subsequent to when they are incurred.

The tax rate in Armenia is 20%, in Kosovo is 10% and in Georgia is 15%. Expenses incurred at the head office are non-deductible. The effective taxrate for these Consolidated Financial Statements is calculated as weighted average of tax losses to deductible expenses in each jurisdiction.

9. Loss Per ShareLoss per share of £0.06 for the year ended December 31, 2011 (December 31, 2010: £0.08) has been calculated on the basis of the net loss of£5,899,696 (December 31, 2010 loss: £5,856,554) on 97,130,280 (December 31, 2010: 75,128,582) shares being the weighted average number ofshares in issue.

As a result of the losses incurred during the years ended December 31, 2011 and 2010, the potential shares to be issued from the exercise of optionsand warrants are not included in the computation of diluted per share amounts since the result would be anti-dilutive. Accordingly, the diluted lossper share and the basic loss per share for all periods presented are the same.


10. Property and Equipment COST Motor Vehicles Equipment Land Total £ £ £ £ At January 1, 2010 107,387 533,380 - 640,767 Additions 33,567 139,383 - 172,950 Exchange difference 4,535 7,651 - 12,186 As at December 31, 2010 145,489 680,414 - 825,903 Additions 133,269 214,989 159 348,417 Disposal (32,364) (395,697) - (428,061) Exchange difference (4,962) (10,864) 1 (15,825) As at December 31, 2011 241,432 488,842 160 730,434

ACCUMULATED DEPRECIATION Motor Vehicles Equipment Land Total £ £ £ £ At January 1, 2010 48,829 213,910 - 262,739 Charge for the year 24,233 134,819 - 159,052 Exchange difference 1,218 307 - 1,525 As at December 31, 2010 74,280 349,036 - 423,316 Charge for the year 38,810 127,133 - 165,943 Disposals (30,433) (299,282) - (329,715) Exchange difference (1,905) (3,217) - (5,122) As at December 31, 2011 80,752 173,670 - 254,422

CARRYING AMOUNT Motor Vehicles Equipment Land Total £ £ £ £ At December 31, 2011 160,680 315,172 160 476,012 At December 31, 2010 71,209 331,378 - 402,587

In the year ended December 31, 2011, depreciation of £78,749 has been capitalised to exploration and evaluation costs (2010: £45,213).





11. Intangible AssetsCOST Computer Software

£As at January 1, 2010 57,806Additions 40,728Exchange difference 2,183As at December 31, 2010 100,717

Additions 64,931Disposal (26,481)Exchange difference (1,998)As at December 31, 2011 137,169

ACCUMULATED AMORTISATION £As at January 1, 2010 24,055Charge for the year 17,078Exchange difference 234As at December 31, 2010 41,367

Charge for the year 26,341Disposal (25,512)Exchange difference (549)As at December 31, 2011 41,647

CARRYING AMOUNT

At December 31, 2011 95,522At December 31, 2010 59,350

In year ended December 31, 2011, amortisation of £11,363 has been capitalised to exploration and evaluation costs (2010: £4,883).

12. Exploration and Evaluation Assets (“EEA”)Cost Armenia Georgia Armenia Kosovo projects Total

project Amulsar project Zoti project Nor Arevik£ £ £ £ £

At January 1, 2010 1,977,063 - - 2,319,251 4,296,314Additions 13,904,136 - 44,808 97,408 14,046,352EEA write off - - - (2,113,572) (2,113,572)Exchange difference 570,584 - 1,049 (303,087) 268,546At December 31, 2010 16,451,783 - 45,857 - 16,497,640

Additions 7,331,629 194,170 97,655 24,356 7,647,810EEA write off - - (140,859) (24,356) (165,215)Exchange difference (248,016) 9,439 (2,653) - (241,230)At December 31, 2011 23,535,396 203,609 - - 23,739,005


The increase of deferred exploration expenditures in the twelve month period ended December 31, 2011 in the Armenia Amulsar project was mainlya result of exploration drilling and studies costs, development cost of the project, mining license state duty and exploration license concession feepayments, capitalised salaries of employees engaged in exploration, rentals for areas under exploration, costs of environmental studies, and costspertaining to exploration camp maintenance.

The Management of the Company decided to relinquish one of its early stage exploration licenses called Nor Arevik located in southern Armenia.The decision was taken after receiving and analysing results of laboratory assays from exploration drilling holes drilled earlier in 2011. Due to lowmineralisation the Company lost its interest in further exploration in the area. Capitalised costs pertaining to that project in amount of £140,859were charged to income as of December 31, 2011.

During September 2011 the Company’s 100% owned subsidiary Georgian Resource Company LLC acquired a combined exploration mining licenseover Zoti, an early-stage gold project in Georgia. The balance of EEA at the Georgian project Zoti represents the cost of the license and cost ofexploration studies.

IFRS 6 requires that regular impairment assessments are made. The directors carried out a review as of December 31, 2011 and are satisfied that onthe basis of the current plans and status of operations, there are no indications of impairment on the Amulsar or Zoti assets.

In 2011, the Company decided not to continue with its projects in Kosovo and relinquished the corresponding licenses. As of December 31, 2011the carrying value of these projects totaling £165,215 (December 31, 2010: £2,113,572 was written off in the income statement (Note 7). On July 29,2011 the Company transferred one of the licenses “Drazhnje license” and relevant in-country exploration assets to Kosovo Metals Group (“KMG”).

Non-cash transactions that increased EEA are as follows:

Year ended December 31, 2011 Year ended December 31, 2010£ £

Purchase of Newmont interest - 7,687,418Payable to suppliers of drilling services and project development 446,463 30,527Capitalised amortisation and depreciation 90,112 50,096Mine rehabilitation reserve 28,800 -

565,375 7,768,041

13. Other Non-Current AssetsOther non-current assets at December 31, 2011 and 2010 relate to Geoteam CJSC and Kavkaz Zoloto CJSC long-term receivables from the Stateinput VAT and borrowings provided to persons who provide regular services to Geoteam CJSC. VAT input will be refunded by the Tax Authorities oroffset with other tax liabilities through future sales of product or services. Borrowings are refunded on a regular basis from income received fromprovision of services. Management believes that the receivables from the State and borrowings are fully recoverable.

December 31, 2011 December 31, 2010£ £

VAT input Geoteam CJSC 1,356,726 682,394VAT input Kavkaz Zoloto CJSC 12,760 3,880Long term borrowings 2,449 -

1,371,935 686,274

14. Other Long-Term Financial AssetsOther long-term financial assets relate to purchase of 1,000,000 ordinary shares of Tigris Resources Limited which represents approximately 3.9% ofits share capital. Tigris Resources Limited is focused on discovering, acquiring and developing gold and copper projects in Turkey and is not a listedcompany. At December 31, 2011, the carrying value approximates its fair value.





15. Cash and EquivalentsFor the purpose of the cash flow statement, cash and cash equivalents include cash on hand and in banks and investments in money marketinstruments. As at December 31, 2011 and 2010 , the money market investments had a one month maturity period.

16. Other Current AssetsThe Group as at December 31, 2011 and 2010 holds the following other current assets:

December 31, 2011 December 31, 2010£ £

Supplies 10,531 8,153VAT and HST refundable 25,304 27,716Deposits 124,801 60,000Other receivables and prepayments 249,798 83,035

410,434 178,904

17. Share CapitalShare capital of the Company consists of fully paid ordinary shares. The Company has one class of shares, being ordinary shares. The Company isauthorised to issue an unlimited number of ordinary shares. The Company’s ordinary shares have no par value. All shares are equally eligible toreceive dividends and repayment of capital and represent one vote at the shareholders’ meeting of the Company.

2011 2010Number of ordinary shares issued and fully paid:Total outstanding number of shares, January 1 93,659,798 52,891,191Issued under share based payment 1,000,000 3,000,000Shares issued for cash - 29,033,857Shares issued on exercise of warrants and share options 9,415,888 8,734,750Total outstanding number of shares, December 31 104,075,686 93,659,798

During the year ended December 31, 2011 the Company issued a total of 1,000,000 shares for payment of “Geoteam Option Agreement” (Note 20).

During the year ended December 31, 2011 the Company issued 8,675,388 and 740,500 ordinary shares pursuant to the exercise of warrants andshare options, respectively.

18. WarrantsAt December 31, 2011 the Company had 3,311,758 (December 31, 2010: 11,987,146) outstanding investor and broker warrants to subscribe forordinary shares at a price CAD$0.59 (approximately 37 pence). Warrants may be exercised at any time from the date of vesting to the date of theirexpiry converting into one ordinary share of the Company.

A total of 8,675,388 warrants were exercised to ordinary shares of the Company during the year ended December 31, 2011 (December 31, 2010:6,887,250).

No warrants were granted in the year ended December 31, 2011. A total of 945,300 investor warrants were granted during the year ended December31, 2010. The fair value of warrants granted in 2010 was £195,167 and was recorded in the statement of changes in equity.

The incremental fair value of warrants modified in 2010 was £95,909 and was allocated in the statement of changes in equity. The fair value wasdetermined using the Black Scholes Option Pricing Model using assumptions as disclosed below. On May 14, 2010, the Company amended theterms of 4,000,000 outstanding warrants (the “IFC Warrants”) held by International Finance Corporation, an insider of the Company by virtue of it


holding more than 14% of the issued and outstanding ordinary shares, to extend the expiry date of the IFC Warrants from January 10, 2011 toJanuary 10, 2012.

The following reconciles the outstanding and exercisable share warrants granted under by the Company:

Number of Warrants Weighted average exercise priceBalance at December 31, 2009 18,739,581 36 penceInvestor warrants granted 945,300 47 penceWarrants exercised (6,887,250) 37 penceWarrants expired (810,485) 44 penceBalance at December 31, 2010 11,987,146 36 penceWarrants exercised (8,675,388) 36 penceBalance at December 31, 2011 3,311,758 37 pence

The warrants outstanding and exercisable at the end of the reporting period can be exercised any time before May 22, 2014.

Weighted average exercise price of outstanding warrants are adjusted to their equivalents in British Pounds.

The warrants issued and modified were priced using the Black Scholes Option Pricing Model using the following assumptions:

2011 2010Expected volatility - 66%Expected option life - 2-3.5 yearsRisk free rate - 1.6%Dividend yield - 0%

19. Share Based Payments - Employee Share Option PlanThe Company’s employee share option plan grants options to employees, directors and service providers of the Company to purchase ordinaryshares of the Company. In accordance with terms of the employee share option plan, the exercise price of the granted options shall be determinedat the time the option is granted provided that such price shall be not less than the market price of the ordinary shares. Share options grantedunder the plan carry no rights to dividends and no voting rights.

Each of the Company’s share options are convertible into one ordinary share of the Company. Share options may be exercised at any time from thedate of vesting to the date of their expiry.

Charges in relation to equity settled share-based payments are credited to an Equity settled employee benefits reserve’, therefore no liabilities havebeen recorded in respect to these plans.

The following summarises the outstanding share options granted under the employee share option plan:

Number of options Weighted average exercise priceBalance at December 31, 2009 2,475,000 27 penceGranted Expired 3,110,000 79 pence

(125,000) 36 penceExercised (1,847,500) 38 pence

Balance at December 31, 2010 3,612,500 67 pence



Number of options Weighted averageexercise price

Granted 2,290,000 1.58 poundsExpired (175,000) 69 penceExercised (740,500) 61 pence

Balance at December 31, 2011 4,987,000 1.12 pounds

Outstanding options Exercisable optionsRange of exercise price Number Weighted Weighted Weighted

outstanding average average Number averageremaining life exercise price exercisable exercise price

years £ £Less than £0.63 (CAD $1) 345,000 0.6 0.28 345,000 0.28£0.63-£1.26(CAD$1-$1.99) 1,962,000 0.8 0.67 1,962,000 0.67£1.27-£1.90(CAD$2-$3) 2,680,000 3.8 1.56 1,467,500 1.54

4,987,000 2.3 1.12 3,774,500 0.97

The weighted average share price during the year ended December 31, 2011 was £1.54 (December 31, 2010: 93 pence).

Weighted average exercise price of outstanding share options are adjusted to their equivalents in British Pounds.

The weighted average fair value per share options granted during the year ended December 31, 2011 was 81 pence (year ended December 31,2009: 31 pence). Options were priced using the Black Scholes Option Pricing Model using the following assumptions:

2011 2010Expected volatility 63% 66%Expected option life 5 years 2 yearsRisk free rate 1.7% 1.6%Dividend yield 0% 0%

During the year ended December 31, 2011 £1,624,657 (December 31, 2010: £556,895) was included in employee benefits expense in the consolidatedincome statement.

The share options outstanding and exercisable at December 31, 2011 had a weighted average remaining contractual life of 2.3 years (December 31,2010: 1.7 years).

20. Other Reserves - Option to Purchase Non-Controlling InterestOn December 9, 2010, the Company entered into an option agreement (the “Geoteam Option Agreement”) to purchase the remaining 5% non-controlling interest (the “non-controlling interest”) of the Company’s 95% indirectly owned subsidiary, Geoteam CJSC. In accordance with the termsof the option (the “Call Option”), the Company has the right to purchase the non-controlling interest on the earlier of December 9, 2013 and theoccurrence of certain transactions, including a transaction involving a change of control of the Company.

The Company also granted an option (the “Put Option”) to the holder of the non-controlling interest, whereby the holder of the non-controllinginterest can require the Company to purchase the non-controlling interest at any time during the period of the Call Option if the Company is indefault of its obligations under the call option or at the end of the option period, December 9, 2013. The aggregate purchase price payable by theCompany in connection with any exercise of the Call Option or the Put Option will be CAD$500,000 in cash and 2,000,000 ordinary shares (the“Payment Shares”) in the capital of the Company. Under the Geoteam Option Agreement during 2011 and 2010 the Company issued 1,000,000ordinary shares. During the year ended December 31, 2011 the Company has recognised a total of £757,838 pursuant to 500,000 ordinary sharesissued (December 31, 2010: £1,037,816 for 500,000 shares issuable and a cash installment of CAD$500,000). During 2011, the Company issuedshares for £715,506 (CAD$1,100,000) considered issuable at the end of 2010.




21. Due to NewmontOn February 26, 2010, the Company entered into an agreement (the “Purchase Agreement”) with Newmont pursuant to which the Company’s 95%owned subsidiary, Geoteam CJSC, purchased all of Newmont’s interest in the joint venture known as the Caucasus Venture (the “Venture”) betweenthe Company and Newmont. In consideration for the purchase of Newmont’s interest in the Venture and the related termination of the Venture, theCompany will; (i) issue to Newmont three million ordinary shares and (ii) make certain pre-production and then post-production payments toNewmont. The post production payments are dependent on production occurring and this allows Lydian to fund the required payments out ofdirect revenue from the Amulsar gold project or through alternate available funds. See Note 27.

Prior to production, the Company is obligated to pay Newmont US$15 million in three US$5 million installments. The first was paid on the Closing,the second was due on or before December 31, 2011 and the third on or before the earlier of December 31, 2012 and the date that is 90 days aftera bankable feasibility on any portion of the Amulsar property is complete and the Company has received all the necessary material permits to moveinto production. Pursuant to the terms of the agreement with Newmont, in December 2011 the Company notified Newmont of its intention to deferthe second US$5 million payment to no later than December 31, 2012, the deferred payment was charged interest at the rate of 10% per annumcommencing December 31, 2011 until it was paid on March 13, 2012. The third installment is recorded using a discount of 10%, the rate negotiatedbetween the parties for purposes of determining amounts payable should the Company exercise its rights to settle prior to the maturity dates.

US $ £Undiscounted amount payable at December 31, 2010 10,000,000 6,411,489Discount at 10% (1,323,392) (848,750)Amortised cost as of December 31, 2010 8,676,608 5,562,739

US $ £Undiscounted amount payable at December 31, 2011 10,000,000 6,437,510Discount at 10% (455,732) (293,378)Amortised cost as of December 31, 2011 9,544,268 6,144,132

Within the year ended December 31, 2011 £547,743 was recorded as an effective interest charge relating to unwinding of the discount and hasbeen reflected in the income statement (year ended December 31, 2010: £354,031).

22. ProvisionsThe provision for restoration and rehabilitation represents the present value of future outflow of economic benefits that will be required by theconcession agreement signed between Geoteam CJSC and Government of the Republic of Armenia. The provision recognised as of December 31,2011 relates only to rehabilitation of Amulsar mine areas affected by exploration activities as development of the mine has not commenced.

December 31, 2011 December 31, 2010 £ £Balance at December 31, 2010 - -Additions 28,800 -Balance at December 31, 2011 28,800 -

23. Accrued Liabilities and Other Payables December 31, 2011 December 31, 2010 £ £Accrued liabilities and trade payables 727,197 302,948Wage accruals 131,164 96,700 858,361 399,648



24. Financial Risk ManagementThe Group manages its exposure to financial risks by operating in a manner that minimises its exposure to the extent practical. The main financialrisks affecting the Group are discussed below:

Capital risk management

The Group manages its capital structure and makes adjustments to it, based on the funds available to the Group, in order to support the acquisition,exploration and development of mineral properties. The Board of Directors does not establish quantitative return on capital criteria for management,but rather relies on the expertise of the Group’s management to sustain future development of the business.

The properties in which the Group currently has an interest are in the exploration stage, as such, the Group is dependent on external financing tofund its activities. The Group intends to raise additional finance by issuing new share capital, debt or entering into joint arrangements to carry outplanned exploration and to pay for administrative costs. The Group will continue to assess new properties and seek to acquire an interest in additionalproperties if it believes there is sufficient geologic or economic potential and if it has adequate available or committed financial resources to completesuch acquisitions.

Management reviews its capital management approach on an interim basis. Management believes that its approach, given the relative size of theGroup, is reasonable. The Group is not subject to externally imposed capital requirements.

The Group defines capital as the aggregate of total equity, excluding non-controlling interest, which totals £27,081,626 (December 31, 2010:£28,429,704). Total equity comprises share capital, warrants, and reserves and accumulated deficit as disclosed in the consolidated statements ofchanges in equity.

Liquidity risk

The ultimate responsibility for liquidity risk rests with the Board of Directors, which has built an appropriate liquidity risk management frameworkfor the management of the Group’s short, medium and long-term funding and liquidity management requirements.

The Group’s cash requirements and balances are projected for the Group as a whole and for each country in which operations and capitalexpenditures are conducted. The Group plans to meet these requirements through the mix of available funds, equity financing on a required basis,project debt financing, if available, entering into joint arrangements and cash to be provided by the exercise of warrants and share options in thefuture.

To date the Group has relied on shareholder funding to finance its operations. As the Group has finite cash resources and no material income, theliquidity risk is significant and is managed by controls over timing of expenditures.

All short-term financial liabilities which relate to accrued liabilities and other payables and due to Newmont as disclosed in note 21 and 23 maturewithin one year of December 31, 2011.

Currency risk

Currency risk is the risk that the value of financial instruments will fluctuate due to changes in foreign exchange rates. Currency risk arises whenfuture commercial transactions and recognised assets and liabilities are denominated in a currency that is not the Group’s measurement currency.The Group’s management monitors the exchange rate fluctuations on a continuous basis and acts accordingly.

The Group’s expenses include amounts incurred in British Pounds, Armenian Dram, Canadian Dollar, Euros, Georgian Laries and the U.S. Dollar. TheGroup’s exchange risk is therefore related to movements between these currencies. The Group has a downside risk to strengthening of the Euro,Armenian Dram, Georgian Lari or U.S. and Canadian Dollar as this increases expenses in British Pound terms.

The Group’s currency risk policy is to diversify its cash resources in the British Pound, the U.S. Dollar, the Canadian Dollar and the Euro roughly inproportion to expected future expenditure over the following twelve months.

This is done to reduce the risk of the Group holding virtually all of its monetary assets in a single currency when the expenditure base is spread overfive main currencies.

Currency risk sensitivity

The following table details the Group’s sensitivity to a 10% increase and decrease in the British Pound against the relevant foreign currencies. A 10%increase or decrease is used when reporting currency risk internally to key management personnel and represents management’s assessment of




the reasonably possible change in foreign exchange rates. The sensitivity analysis includes on outstanding foreign currency denominated monetaryitems and adjusts their translation at the period end for a 10% change in foreign currency rates. The sensitivity analysis includes loans to operationswithin the Group where the denomination of the loan is in currency other than the currency of the lender.

The Group’s net assets and liabilities are predominately held in British Pounds, U.S. Dollars, Canadian Dollars, Euros and Armenians Drams. Thenumbers below indicate an influence on equity where the British Pound strengthens 10% against the relevant currency.

Canadian Dollar Euro U.S. Dollar Armenian Dram Georgian LariOther comprehensive December 31, 2011 289,801 11,513 284,410 2,311,861 18,402income (profit or loss) (£) December 31, 2010 1,398,277 25,882 361,842 924,902 -

Interest rate risk

Interest rate risk refers to the risk that the value of a financial instrument or cash flows associated with the instrument will fluctuate due to changesin market interest rates. Other than the deferred amount due to Newmont, the Group has no other fixed or floating rate borrowings. Cash and cashequivalents also bear interest at floating rates.

Interest rate sensitivity

A 100 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and representsmanagement’s assessment of the reasonably possible change in interest rates. With a 100 basis point increase in interest rates the income would behigher by £112,350 and in case of decrease the loss higher by £44,297 for the twelve month period ended December 31, 2011. This analysis assumesall other variables are assumed constant.

Credit risk management

Credit risk arises when a failure by counter parties to discharge their obligations could reduce the amount of future cash inflows from financial assetson hand at the reporting date.

As the Group has no revenue or trade receivables, management considers credit risk as low. Up front deposits are on occasion paid to major suppliersprimarily relating to exploration drilling contracts. The payment of these deposits is considered by the management on a case by case basis and theprogress on the contract carefully reviewed. During the years ended December 31, 2011 and December 31, 2010 there were no material impairmentprovisions required for any of the financial assets. There are no material financial assets that the Group considers past due. At December 31, 2011,the Group did not have any significant credit risk exposure to any counterparty or any group of counterparties having similar characteristics.

The credit risk on cash and cash equivalents is considered by management to be limited because the counterparties are financial institutions withhigh credit ratings assigned by international credit rating agencies.

The carrying amount of financial assets recorded in the consolidated financial statements represents the Group’s maximum exposure to credit risk.

Financial assets

Fixed rate financial assets are cash held on fixed term deposit. Cash at bank is held to finance the Group’s short-term cash requirements. The Groupinvests its available cash in bank deposits only.

At December 31, 2011 and December 31, 2010, cash and cash equivalents were as follows:

Average Averageperiod for interest rates

Fixed rate which rates are for fixed rateassets Cash assets Total fixed (months) assets

£ £ £December 31, 2011 6,742,322 1,559,585 8,301,907 One 0.4%December 31, 2010 16,139,215 919,477 17,058,692 One 0.4%

Fair value of financial assets and liabilities

All financial assets and financial liabilities are recorded at amortised cost in the consolidated financial statements. Management believes that thecarrying amounts of financial assets and financial liabilities recorded at amortised cost in the consolidated financial statements approximate theirfair values due to their short-term nature. The Newmont liability bears interest at a rate that approximates the estimated market rate of interest.





25. Related Party TransactionsThe parent and ultimate controlling party of the Group is Lydian International Limited. No individual party had overall control of the Company orGroup during the periods being presented.

Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and arenot disclosed in this note.

Details of transactions between the Group and other related parties are disclosed below.

Related parties include the Board of Directors, close family members and enterprises which are controlled by these individuals as well as certainpersons performing similar functions.

The non-executive members of the Board of Directors do not have employment or service contracts with Lydian International Limited and neitherare they entitled to any termination benefits. None of the directors are entitled to pension benefits.

The sole director and country manager of Geoteam CJSC and director of Kavkaz Zoloto CJSC holds 5% of the shares in Geoteam CJSC and 5% of theshares in Kavkaz Zoloto CJSC. Within 2011 pursuant to “Geoteam Option Agreement” the Company issued to Hayk Aloyan 1,000,000 ordinary shares(Note 20).

The directors and key management are the directors of Lydian International Limited. The remuneration of directors and key management was asfollows:

Year ended December 31, 2011 Year ended December 31, 2010£ £

Aggregate emoluments 339,747 331,287Share based payments 926,357 285,048

26. Operating Lease and Purchase CommitmentsThe Group leases office premises with a lease term of up to 3 years. The group does not have an option to purchase the leased asset at the expiry ofthe lease period. In 2011 Geoteam CJSC has endorsed long term rent contracts for lands under rock allocations. Non-cancellable operating leasecommitments are disclosed below:

December 31, 2011 December 31, 2010 £ £Up to one year 146,306 68,137More than one year and no later than five years 497,820 55,279More than five years 1,585,989 - 2,230,115 123,416

27. ContingenciesNewmont Deal

On April 23, 2010 the Group purchased all of Newmont’s interests in the Group’s joint venture which included Newmont’ interests in the Amulsargold property. The consideration was a combination of committed and contingent payments. The committed payments included 3 million ordinaryshares of the Company and one payment of US$5 million, which have now been issued and paid – the second on 13 March 13, 2012 - and onepayment of US$5 million which is due by the end of 2012 (Note 21).

In addition the Group agreed to pay Newmont, following the start of commercial production, a 3% Net Smelter Royalty (“NSR”). However, betweenApril 23, 2010 and the date that is 20 days following commencement of commercial production, Lydian may at its option elect to buy out the 3%NSR and instead pay to Newmont the aggregate sum of US$20 million (approximately £12.8 million), without interest, in 20 equal quarterlyinstallments of US$1 million commencing on the first day of the third calendar month following the start of commercial production. Furthermore,the Company has a one-time option prior to the commencement of commercial production to prepay these quarterly installments in a single cashpayment using an annual discount rate of 10%. This equates to a single payment of approximately US$15.6 million (approximately £10.6 million).



These potential post production payment(s) do not meet the definition of an obligation or a constructive obligation as the triggering event,commencement of commercial production, has not happened yet. These potential payments are therefore not recorded on the consolidatedStatement of Financial Position at December 31, 2011.

Drazhnje licenses

On July 29, 2011 the Company completed the transfer of Drazhnje licenses (the Property) to KMG as per agreement with it (Note 12). KMG agreedto commence Commercial Production at a date no later than end 2014. In the event that Commercial Production commences, KMG will pay to Lydiana CAD$2 million cash payment and an overriding perpetual net smelter royalty of 2% on all metals produced at the Property.

Economic benefits attributable to this agreement are contingent and assets from it are not recognised in these financial statements.

28. Other MattersArmenia and Georgia related risks

The Group’s operations are subject to extensive government laws and regulations, concerning mine safety, subsoil and land use and environmentalprotection in Armenia and Georgia. The Group incurs substantial capital and operating costs to comply with increasingly complex laws andregulations covering its operations. Regulation in Armenia and Georgia governing discharge of materials into the environment is likely to evolve ina manner which will require stricter standards of compliance. Non-compliance with environmental regulations or the increasing cost of compliancewith such regulations could have a material adverse effect on the Group’s business, operating results and financial condition.

The Armenian and Georgian tax systems could impose substantial burdens on the Group.

The Group is subject to a broad range of taxes imposed at federal, regional and local levels. Laws related to these taxes have been in force for a shortperiod relative to tax laws in more developed market economies and few precedents with regard to the interpretation of these laws have beenestablished. New tax laws introduced by the governments may result in the Group having to pay significantly higher taxes, which could have amaterially adverse effect on the Group’s business.

Social risks and business environment

Some of the Group’s assets are located in Armenia and Georgia, countries which are establishing a more western-style business environment. Thereare still substantial differences between Armenia and Georgia and the developed business environment and the systems in the West. Some of thesedifferences and the ongoing process could adversely affect the Group and its operations or disrupt normal business activity. Armenia and Georgiaare still developing the legal framework required for market economy. Failure to obtain approvals from Armenian and Georgian authorities couldcause the Group’s operations to suffer or could result in the loss of its mineral rights or its assets.

29. Subsequent EventsOn February 27, 2012 the Company filed a preliminary short form prospectus in respect of a bought deal offering. The Company entered into anunderwriting agreement with GMP Securities L.P. and Scotiabank which have agreed to purchase 15,625,000 ordinary shares of the Company at apurchase price of CAD$2.56 per ordinary share for aggregate gross proceeds to the Company of CAD$40 million which was completed on March 9,2012. In addition, the Company has granted the underwriters an option to purchase up to an additional 2,343,750 ordinary shares at the offeringprice. The option was exercised on March 15, 2012. Also the EBRD took up its pre-emptive rights on March 21, 2011and a further 1,419,732 ordinaryshares were issued to them at a purchase price of CAD$2.56 per ordinary share.

The consolidated financial statements for the year ended December 31, 2011 have been approved for issue by the Board of Directors on March 23,2012.


AuditorsGrant Thornton LLPSuite 401, 350 Burnhamthorpe Road WMississauga, Ontario L5B 3J1CanadaTel: +1 416 360 2369Fax: +1 905 804 0509Attn: Jeremy JagtE Mail: [email protected]: www.grantthornton.ca

Corporate LawyersIrwin Lowy LLP 130 Adelaide Street West Suite 1010 Toronto, Ontario M5H 3P5 CanadaTel: +1 416 361 2515 Fax: +1 416 361 2519Attn: Eric Lowy Email: [email protected] Website: www.irwinlowy.com

Transfer AgentsOlympia Transfer Services Inc. Suite 920, 120 Adelaide Street West Toronto, Ontario M5H 1T1 CanadaTel: +1 416 364 7185 Fax: +1 416 364 1827 Attn: Lisa Clarkin Email: [email protected] Website: www.olympiatrust.com

Head Office1st Floor, Capstan House La Route Es Nouaux St. Helier Jersey JE2 4ZJ, Channel IslandsTel: +44 1534 747 890Fax: +44 1534 758 708Attn. Andy McNallyE-mail: [email protected]

Investor Relations - Global1st Floor, Capstan House La Route Es Nouaux St. Helier Jersey JE2 4ZJ, Channel IslandsTel: +44 1534 715 472Mobile: +44 7797 738 777Attn. Lucy Fowler E-mail: [email protected]

Toronto Office34, King Street East 9th Floor Toronto Ontario M5C 2X8 CanadaTel: +1 416 504 8001E-mail: [email protected]

Operations Office - ArmeniaAygedzor District 1, Building 22, Apartment 37, Yerevan 0019, Republic of ArmeniaTel: +3 741 058 6037Fax: +3 741 054 6037Attn. Hayk AloyanE-mail: [email protected]

lydian annual report 2011

Documents

financial statements

consolidated income

gold projects

amulsar gold project

report of management

world bank group

strong social agenda

known gold deposits