lydian annual report 2012 final

www.lydianinternational.co.uk

2012 Annual Report

Lydian International Limited is a gold-focused mineral exploration anddevelopment company, specialising in exploring and developingprecious metal assets in Eastern Europe, primarily in the Caucasusregion.

Lydian continues to focus primarily on the exploration anddevelopment of its Amulsar Project, a 100% owned Lydian discoveredgold project, located in Armenia. In addition, Lydian is also carrying outexploration work at its Kela Project, an early-stage gold prospect in theGuria region of Georgia, and continuing to build and maintain apromising pipeline of other early stage projects.

Lydian has a strong social agenda and a thorough understanding ofthe complex political environment in the regions in which it operates.Lydian is committed to developing its projects responsibly, with anemphasis on social and environmental awareness and care. TheCompany maintains strict environmental compliance and seeks toemploy leading practices to minimise the environmental impact of itsactivities. Lydian also regularly engages local communities in order todeliver relevant and sustainable social development initiatives.

2012 Annual Report | Lydian International | 3

Table of Contents

Chief Executive Officer’s Statement ________________________________ 4Management’s Discussion and Analysis ____________________________ 6Financial Results of Operations ____________________________________ 12Appendix 1 __________________________________________________________ 26Appendix 2 __________________________________________________________ 27Report of Management ____________________________________________ 33Independent Auditors’ Report _____________________________________ 34Financial Statements _______________________________________________ 35

Consolidated Income Statements ________________________________ 35Consolidated Statements of Comprehensive Income ___________ 35Consolidated Statements of Financial Position ___________________ 36Consolidated Statements of Changes in Equity __________________ 37Consolidated Statements of Cash Flows __________________________ 39

Notes to Consolidated Financial Statements _____________________ 40

I am pleased to have this opportunity to share myperspective on the past year, and our vision for yourCompany going forward, in this Chief ExecutiveOfficer’s Statement.

Lydian delivered a strong operational performance in2012. Some highlights of the Company’sachievements in 2012 included completing afeasibility study for the Amulsar Project and makingsignificant advances in our understanding of thegeology and expanding the resource and reservepotential of the Amulsar Project.

The feasibility study for Amulsar confirmed thefavorable economics of the project and included anestimated pre-tax net present value (NPV) of US $646million at a 5% discount rate, generating an internalrate of return (IRR) of 27.7%, based on a US $1200 goldprice. This estimate was based on mineral reserves ofonly 2.3 million ounces. Using the same reservenumber, but a US $1500 gold price, the NPV exceedsUS $1 billion. Cash costs were estimated at acompetitive US $468.5, with the all-important totalcosts (including taxes and royalties and makingassumptions about likely future gold prices) estimatedto range between US $700 and US $800 an ounce.

With total costs for gold mines around the worldaveraging around US $1150 an ounce, and Amulsar’stotal costs expected to fall between US $700-$800 anounce, we believe that the Amulsar project iscomparatively well-positioned in terms of true-marginand resilience in the face of gold price fluctuations.

After approximately 20,000 metres of drillingcompleted by your Company in 2012, the estimatedmineral resources at Amulsar now stand at animpressive 1.8 million ounces of Measured categoryresources, 0.6 million ounces of Indicated CategoryResources and 1.7 million ounces of Inferred CategoryResources. Recent exploration drilling at Amulsar, hasidentified further resource potential both laterally andbelow the currently proposed pit-shells, and/but alsoin the proposed locations of the crushing andconveying facilities.

As a result of these encouraging results, yourCompany has determined that the heap leach facilityproposed in the feasibility study is going to be toosmall to accommodate the current estimated tonnagepotential of the planned operations. Furthermore, thenew mining licence granted to the company inOctober 2012 allows a further four year constructionperiod for the project. As a result of these factors, theCompany decided to re-examine its original minedesign and carry out additional mine planning inorder to ensure that its final development plansmaximise the value of the Amulsar Project. In thisregard, we have engaged independent consultants toprepare an updated feasibility study based on arevised layout, which we expect to be able to releasein the third quarter of 2013.

The Company initiated development work at Amulsarin 2013 with a view to commencing production in late2015. To meet this ambition, Lydian assembled in 2012a highly experienced team of mine-builders,sustainability & mine-site environmental, health &safety, and logistics and supply specialists. TheAmulsar site now has a mine-site culture rather thanexploration culture, and earthworks and civilengineering works have now commenced.

Lydian is committed to helping its local communitiesand to leaving positive sustainable impacts that willbenefit the region and serve as a long-standing legacy

4 | Lydian International | 2012 Annual Report

Chief Executive Officer’s StatementTim Coughlin, CEO


Chief Executive Officer’s StatementTim Coughlin, CEO

well after the planned Amulsar mine has been closedand rehabilitated. We are immensely proud of ourwork on the environment and socially in the regionand grateful for the continued support of the localcommunity in Armenia. The Company is preparing anEnvironmental and Social Impact Assessment (ESIA) inline with Equator Principles (i.e. the World Bank’s bestpractice measures), both as part of our commitmentto best practices and in order to meet therequirements of our shareholders and so as to be ableto raise international financing for the constructionand operation of the Amulsar project. The ESIA isexpected to be available this year.

While Lydian has been making significant operationsprogress and adding to the intrinsic value of itsprojects, the market has taken a different view of theexploration/development sectors as a whole. This view

weighed heavily on the Company’s market valuationin 2012 and into 2013. Mining sector marketcapitalisations decreased on average by 40% acrossthe board, and the market was largely indiscriminatein terms of its sell-off of resource sector stocks.

However, having raised capital in March 2012, Lydianremained relatively strong throughout the year andrelative to its peers, finished flat and in the midfield byDecember 2012.

On the investor side, we believe that 2013 will beabout differentiating ourselves and trying to ensurethat, in terms of investor interest, Lydian captures itsfair share of the predicted “flight to quality”. After all,by any measurement, the Amulsar project stacks upas one of the World’s most robust and exciting newgold projects.


Management’s Discussion & AnalysisConsolidated Financial Condition and Results of Operations for thethree and twelve month periods ended December 31, 2012

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 endedDecember 31, 2012. This discussion should be readin conjunction with the consolidated financialstatements and the notes thereto for the year endedDecember 31, 2012, prepared in accordance with theInternational Financial Reporting Standards (“IFRS”).The information provided herein supplements, butdoes not form part of, the consolidated financialstatements. This discussion covers 2012 as well asthe subsequent period up to the date of this MD&A,March 21, 2013. All monetary figures are expressedin British Pounds unless otherwise indicated.

Business OverviewThe Company is a gold-focused mineral explorationand development company specialising in emergingand transitional environments. Currently theCompany is focused on Eastern Europe, primarily inthe Caucasus region, exploring and developingprecious metal assets. The Company’s main project isa gold exploration and development project (the“Amulsar Project”) located in Armenia. In addition,

the Company holds a licence covering an early-stagegold prospect (the “Kela Project” formerly the “ZotiProject”) in the Guria region of Georgia.

The Company’s principal objective is to continue itsexploration and development of the AmulsarProject. The Company will continue the ongoingexploration drilling and mine development programat the Amulsar Project. On December 18, 2012, theCompany filed the Amulsar Technical Report (asdefined below) on Sedar, which amended thepreviously filed feasibility study. The Company hassince engaged the authors of the Amulsar TechnicalReport to, among other things, further update thereport to reflect certain proposed changes in the sitelayout, production schedule and crusherconfigurations for the Amulsar Project. The revisedfeasibility study is expected to be completed in thethird quarter of 2013. The Company also plans toconduct detailed engineering studies to finalisemine design and to allow the completion of theconstruction approval process for the AmulsarProject. In addition, the Company is currentlydeveloping a comprehensive environmental andsocial impact assessment (ESIA) in accordance withapplicable requirements.


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

three and twelve month periods ended December 31, 2012

Developing the Amulsar Project into a profitable goldmining operation will depend upon the Company’sability to raise sufficient project financing, acquire allpermits and complete construction. The Companycurrently does not have any commercial operationsor revenue. The Company expects that its currentassets are sufficient to finance the Amulsar Project toand through the completion of the revised feasibilitystudy and the necessary detailed engineering stagesand pay all amounts that are currently due toNewmont Overseas Exploration Limited (“Newmont”)pursuant to the purchase agreement (the “NewmontPurchase Agreement”) dated February 26, 2010between the Company and Newmont on December31, 2012, and payable by December 31, 2013.

Fourth Quarter and Recent Highlights

• On March 5, 2013, the Company announced anupdated mineral resource estimate for its Amulsarproject as summarised below.

• On February 19, 2013, the Company released ageological update, including that it is planning tocarry out a 40,000 metre drill program in 2013, asignificant component of which will be aimed attesting newly identified targets.

• On February 11, 2013, the Company announcedthat Dr. Geoffrey Cowley, a metallurgical engineer,had been appointed as a non-executive directorof the Company replacing Peter Mullens whoresigned from the Company’s board of directors.

• On January 14, 2013, the Company announced theremaining results from its 2012 drill program forthirty holes, and included 111 metres at 1.1 g/tgold outside the current pit-shell at Arshak and 89metres at 1 g/t gold below the current pit shell atErato.

• On December 17, 2012, the Company announcedthat SNC-Lavalin had considered ten differentcrushing and screening plant configurations anda preferred configuration consisting of oneprimary gyratory crusher, two secondary double-deck screens, two secondary cone crushers, threetertiary double-deck screens and three tertiarycone crushers was selected.

• On November 20, 2012, the Company announcedthat drilling suggested new resource potentialboth laterally and below the currently proposedpit-shells. The Company also announced that ithad decided to re-examine its original minedesign and carry out additional mine planning andthat it retained SNC-Lavalin to complete a newfeasibility-level (±15% cost contingency) crushertrade-off study. In addition, the Companyannounced that Golder Associates Inc. hadupdated its heap leach site alternatives analysisand identified additional potential valley-fill andconventional heap leach pad locations that couldhost more capacity than the currently permittedlocation.

• On October 23, 2012, September 24, 2012 andAugust 21, 2012 the Company released drill resultsshowing the Company’s progress in meeting itsgoal of testing resource extension along-strike andat depth, and providing sufficient evidence toconvert inferred category resources to measuredand indicated categories.

• On October 17, 2012, the Company announcedthat Mr. Huw Williams resigned from theCompany’s board of directors.

• On October 2, 2012, the Company announced thatit had entered into a new mining licenceagreement with the Government of Armenia.



Recent DevelopmentsUpdate of Mineral Resource

On November 19, 2012, the Company announced acorrected mineral reserve estimate as set out in thetechnical report (the “Amulsar Technical Report”)titled “Lydian International Ltd., Amulsar ResourceUpdate and Heap Leach Feasibility Study” datedSeptember 3, 2012, amended November 26, 2012

and prepared by KD Engineering, under the directionof Mr. Joseph M. Keane, P.E; Golder Associates, underthe direction of Mr. Richard Kiel, P.E and Mr. PeteLemke, P.E; Independent Mining Consultants, underthe direction of Mr. Herb Welhener; and WardellArmstrong International, under the guidance of Mr.John Eyre, FRICS MIMMM MIQ CEnv.

The mineral reserve estimate was established bytabulating the undiluted tonnes and grades of




proven and probable material within the designedfinal pit that is scheduled as ore to the crusher overthe mine life. A floating cone algorithm(independently verified by Whittle optimisations)was used to determine the final pit design andinternal phase designs. The floating coneoptimisation algorithm is a commonly used andaccepted industry tool for providing guidance tomine design.

The table opposite details the mineral reserves asper the feasibility schedule, with a dilution factor of7%. The average grade of the dilution material is

assumed to be 0.15 g/t gold head grade and 1.5 g/tsilver head grade. These dilution grades aresignificantly below the average grades of blockssurrounding scheduled undiluted ore, which are 0.21g/t gold and 2.2 g/t silver (when surroundinginferred material is zeroed).The estimated provenand probable reserves total approximately 2.26million ounces of gold, as described in the table onpage 10.


DiluteD ORe ReseRves

Contained Recoverable Contained Metal Recoverable MetalOre Gold Silver Gold Silver Gold Silver Gold Silver

Category ktonnes g/t g/t g/t g/t oz. oz. oz. oz.Proven 51,143 0.801 3.37 0.713 1.31 1,317,000 5,541,000 1,172,000 2,154,000Probable 43,751 0.692 3.15 0.609 1.08 973,000 4,435,000 857,000 1,526,000Proven andProbable 94,894 0.750 3.27 0.665 1.21 2,290,000 9,976,000 2,029,000 3,680,000

Note: The above numbers may not calculate exactly due to rounding.

On March 5, 2013, the Company announced an updated independent mineral resource estimate for the AmulsarProject, as summarised below. At a cut-off grade of 0.35 g/t Au, the mineral resources are estimated at 52.4 Mt at1.05 g/t Au (1.77 million ounces) of Measured category resources, 18.1 Mt at 1.02 g/t Au (0.59 million ounces) ofIndicated category resources and 58.0 Mt at 0.93 g/t Au (1.73 million ounces) of Inferred category resources fromthe contiguous Tigranes, Artavasdes, Arshak areas and from the Erato area.

MeAsuReDGold Cut-off Grade (g/t) Tonnes (x 1000) Gold (g/t) Contained Gold (ounces)

0.30 59,600 0.96 1,838,0000.35 52,400 1.05 1,769,0000.40 46,200 1.14 1,693,000

iNDiCAteDGold Cut-off Grade (g/t) Tonnes (x 1000) Gold (g/t) Contained Gold (ounces)

0.30 21,500 0.91 629,0000.35 18,100 1.02 593,0000.40 15,400 1.14 565,000

iNFeRReDGold Cut-off Grade (g/t) Tonnes (x 1000) Gold (g/t) Contained Gold (ounces)

0.30 70,100 0.82 1,847,0000.35 58,000 0.93 1,734,0000.40 49,900 1.02 1,636,000

The mineral reserve and mineral resource estimates were prepared in accordance with Canadian SecuritiesAdministrators National Instrument 43-101 Standards of Disclosure for Mineral Projects (“NI 43-101”) and theCanadian Institute of Mining (“CIM”) definitions for mineral resources.

The independent updated mineral resource estimate for the Amulsar Project was prepared by AMC Consultants(UK) Limited (“AMC”), under the supervision of Mr. G. David Keller, P.Geo. (APGO#1235) of AMC, a “qualifiedperson”, as defined in National Instrument 43-101, and was developed from an additional 19,867 metres ofcombined diamond and reverse circulation drilling, which was completed in 2012 (for a total of 109,650 metres).Resource estimation has been completed using the geostatistical technique, Localised Multiple Indicator Kriging(“Localised MIK”). Localised MIK is a form of Multiple Indicator Kriging (“MIK”) where the grades are ‘mapped’directly into selective mining unit (“SMU”) sized blocks from a MIK estimate. Specific gravity measurements wereaveraged, with average values applied to appropriate block model units for the estimation of mineral resources.





The CIM requirement for “reasonable prospects for economic extraction” generally implies that quantity andgrade estimates meet certain economic thresholds and that mineral resources are reported at an appropriate cut-off grade, taking into account extraction scenarios and processing recovery. AMC concluded that the Amulsargold project is amenable to open pit extraction. To assist with determining a reasonable reporting cut-off grade,AMC considered economic parameters , including a gold price assumption of US$1200/oz gold, based on whichAMC considers that resource blocks above a grade of 0.30g/t Au show reasonable prospects for economicextraction from an open pit mine, and can therefore be reported as a mineral resource.

exploration update and ActivitiesAmulsar Project

The Company’s Amulsar Project area covers a region of high-sulphidation, epithermal-type gold mineralisationlocated in Southern Armenia and was discovered by Lydian in 2006. The exploration licences for the Amulsar Projectare held 100% by Geoteam CJSC, a wholly-owned indirect subsidiary of the Company.

On October 2, 2012, the Company announced that it had entered into a new mining licence agreement with theGovernment of Armenia.

The main focus for 2013 is the continued development of the Project. This includes obtaining the final majorpermit for a new proposed heap leach site, undertaking a revised feasibility study, commissioning detailedengineering designs and undertaking development works on the ground such as haul roads and starting work onthe waste dump.

During 2013, the Company also intends to complete 40,000 metres of further drilling with the aim of testingresource extensions along-strike and at depth (70% of the drilling is aimed at areas below our current resourcepits) with a view to providing sufficient evidence to convert current inferred category resources to measured andindicated categories.

Kela Project

The Kela Project (previously referred to by the Company as the “Zoti Project”) is an early-stage gold prospectknown in the Guri region of the Ozurgeti province in Georgia. On October 11, 2011, the Company announced thatits 100% owned subsidiary, Georgian Resource Company LLC, acquired a 40 year combined exploration-mininglicence over the Kela Project.

In 2012, the Company carried out surface exploration activities at the Kela Project. The Company is focussed onthe continued exploration and development of the Amulsar Project and, as a result, does not currently plan todedicate significant resources or available funds to the Kela Project in the short term.

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 31,2012 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 312012 (£) 2011 (£) 2012 (£) 2011 (£) 2010 (£)

Interest income 35,895 14,226 220,007 44,297 25,073Total expenses 1,578,416 1,615,208 6,640,881 5,999,185 5,912,122Net income (loss) (1,542,521) (1,600,982) (6,420,874) (5,954,888) (5,887,049)loss per share (basic and diluted) (0.01) (0.02) (0.05) (0.06) (0.08)

During the twelve month periods ended December 31, 2012 and 2011, the Company had no revenues. Its onlyincome was bank interest and income from the sale of shares of Tigris Resource Limited in September 2012. In thetwelve month period ended December 31, 2012, the Company recorded a loss of £6,420,874 (5 pence per share)compared to £5,954,888 (6 pence per share) during the corresponding period in 2011. There were several changesin the Company’s cost structure in 2012 compared to 2011, the most significant of which were: a £175,710 increasein interest income; a £559,485 increase in salaries and other compensation paid to employees; a £521,580 decreasein expenses relating to funds allocated to employee benefit reserves in respect of option vesting; a £638,259 increasein administrative expenses; and a £164,431 increase in expenses relating to services and consumables used.

The main changes in the Company’s cost structure in fourth quarter of 2012 compared with the same period in 2011were as follows; a £42,501 increase in employee salaries and benefit expenses; a £107,704 increase in administrativeexpenses; a £69,411decrease in interest expenses; £11,718 increase in depreciation expenditures.

There were no extraordinary transactions or significant end of reporting period adjustments during the twelvemonth period ended December 31, 2012.

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, Geoteam CJSC (“Geoteam”). On September 24, 2012, the Company completed the acquisition ofthe non-controlling interest pursuant to the terms of the Geoteam Option Agreement. As a result of the acquisition,the Company now indirectly owns 100% of the Amulsar Project through its 100% indirect ownership of Geoteam.The purchase price for the non-controlling interest was satisfied by the Company in full by paying to the vendorCAD $500,000 in cash on December 22, 2010, and issuing 2,000,000 Ordinary Shares. The 2,000,000 Ordinary Shareswere issued in installments of 500,000, 250,000, 250,000, 250,000 and 750,000 on January 18, 2011, June 27, 2011,December 20, 2011, June 25, 2012 and September 24, 2012, respectively.

During the twelve month period ended December 31, 2012, there were fluctuations between the British Pound,Canadian Dollar, Euro, Armenian Dram, Georgian Lari and the U.S. Dollar. This resulted in changes to the value ofthe Company’s exploration assets as reported in British Pounds. Details of these changes are set out below. TheCompany attempts to protect itself from variations in exchange rates by holding its cash in currencies roughly inproportion to the Company’s anticipated expenditures in those currencies.


Financial Results of Operations



income tax expenseThere was no tax payable by the Company in the twelve month period ended December 31, 2012 and the sameperiod in 2011. As at December 31, 2012, the Company had taxation losses of £2,103,315 (December 31, 2011-£5,986,965) that had not been recognised, as there is insufficient evidence of taxable profit in the near future. As aresult of the liquidation of Kosovo Resource Company, a taxation loss of £4,911,725 was written off as of November16, 2012.

summary 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, 2012 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 312012 (£) 2011 (£) 2012 (£) 2011 (£) 2010 (£)

Net cash provided (used) by operating activities (1,536,668) (1,189,170) (6,490,355) (4,671,986) (2,606,805)

Net cash used by investing activities (3,284,688) (2,419,468) (12,869,969) (7,645,787) (6,466,916)

Net cash provided (used) byfinancing activities 1,168,203 1,482,534 31,586,505 3,539,646 24,344,997

The increase of cash outflows in investing activities in 2012 compared with 2011 relates mainly to payments madeby the Company to Newmont in the amount of £3,245,307 pursuant to the Newmont Purchase Agreement, and inthe amount of £1,870,083 for the purchase of two D10T bulldozers and RC drill rigs.

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

As at December 31, 2012 (£) As at December 31, 2011 (£) As at December 31, 2010 (£)Current assets 20,539,443 8,712,341 17,237,596Property and equipment 2,360,999 476,012 402,587Intangible assets 122,886 95,522 59,350Exploration and evaluation assets 29,640,711 23,739,005 16,497,640Other non-current assets 2,105,903 1,371,935 686,274Other long-term financial assets - 126,600 -total Assets 54,769,942 34,521,415 34,883,447Current liabilities 3,651,766 7,002,493 3,313,826Non-current liabilities 522,383 28,800 2,648,561Equity 50,595,793 27,490,122 28,921,060total liabilities and equity 54,769,942 34,521,415 34,883,447

During the fourth quarter of 2012, the cash and cash equivalents of the Company decreased by £3,393,342 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, 2012, theCompany’s cash and cash equivalents was £20,113,998 compared to £8,301,907 on December 31, 2011.

The Company’s net amount of exploration and evaluation assets (EEA) increased by £5,901,706 in the twelve monthsperiod ended December 31, 2012. The increase of EEA is mainly related to the cost of exploration drilling anddevelopment of the Amulsar Project, including payments of state duties, the cost of samples, laboratory assays andenvironmental studies and other costs and costs associated with surface exploration studies carried out in Georgia.

In the twelve month period ended December 31, 2012, the net amount of property, plant and equipment increasedby £1,884,987, which was mainly a result of purchase of items for support of exploration and development of theAmulsar Project. During the same period other current assets increased by £15,011.

During the fourth quarter of 2012, the net amount of property, plant and equipment increased by £1,503,470,balance of evaluation and exploration assets increased by £3,594,494, non-current refundable taxes increased by£593,446, non-current accrued payables increased by £366,382 in result of deferred VAT for import of equipmentin to Armenia. During the same period share capital of the Company increased by £1,655,450 in result of exercisedshare options.

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

Exploration and evaluation costs incurred during the three and twelve month periods ended December 31, 2012were £3,233,017 and £8,027,932, respectively, compared to £2,526,100 and £7,647,810, in the corresponding periodsin 2011. These exploration and evaluation costs were related to exploration work on the Company’s explorationprojects. The cumulative amount of such costs as at December 31 of 2012 and 2011 are as follows:

Project Cumulative as at December 31, 2012 Cumulative as at December 31, 2011Armenia• Amulsar 29,311,305 23,535,396Georgia• Kela 329,406 203,609total 29,640,711 23,739,005

The increase in exploration and evaluation assets for the Amulsar Project in the twelve month period endedDecember 31, 2012 from the same period in 2011 relates primarily to the cost of exploration drilling, developmentof the project, payments of state duties, the cost of samples laboratory assays, payment for the extension of theexploration licence area and the cost of environmental studies related to the project.





The following table represents expenditures capitalised at the Amulsar Project during the twelve month periodended December 31, 2012 and the corresponding period in 2011.

Year ended December 31, 2012 Year ended December 31, 2011£ £

(1) Project Development 3,080,457 1,762,746Drilling costs 1,862,511 2,930,740Laboratory analyses 529,722 898,785Capitalised salaries 683,909 425,842Supplies and materials 533,400 548,457Capitalised depreciation and amortisation 147,857 90,112Land rents 116,850 32,235Plant hiring 486,683 432,672State duties and fees 15,690 130,039Other 430,920 170,752

7,887,999 7,424,380

(1)Engineering design, Bankable Feasibility Study, consulting, etc.

The Company’s expenditures relating to the Kela Project in 2012 totaled £139,933, which mainly relate to surfaceexploration work, geological consultancy and sample analyses. In Armenia, the Company’s exploration activitiesare financed mainly in US dollars, which are converted into Armenian Drams by the Company’s Armenian subsidiaryand then into British Pounds for the group accounts. The cumulative totals are affected by currency fluctuationsbetween British Pounds, US Dollars and Armenian Drams. There was a significant devaluation of the Armenian Dramin 2012 and 2011. As a result, the cumulative expenditures in Armenia shown above differ from the actualexpenditures made in U.S. Dollars.

In November 2012, the Company completed the winding up of its former subsidiary, Kosovo Resource Company,through a members’ voluntary liquidation process. The Company no longer has any operations in Kosovo.

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

Q4 2012 (£) Q3 2012 (£) Q2 2012 (£) Q1 2012 (£)Net sales or total revenues - - - -Net income (loss) (1,542,521) (1,916,592) (1,370,306) (1,591,455)Loss per share (basic and diluted) 0.01 0.02 0.01 0.01

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


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

As at March 21, 2012 As at December 31, 2012 As at December 31, 2011Number Number Number

Ordinary Shares 130,172,926 126,861,168 104,075,686Other options 4,695,000 4,780,000 4,987,000Warrants - 3,311,758 3,311,758

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

Management and staffingDuring the twelve month period ended December 31, 2012 and subsequently prior to the date of this MD&A, thefollowing changes in the key management and staffing of the Company occurred:

• In August 2012, Didier Fohlen, Senior Vice President, Sustainability & Governance, commenced his employmentwith the Company;

• In October 2012, Mr. Huw Williams resigned from the Company’s board of directors; and

• In February 2013 Dr. Geoffrey Cowley was appointed as a director of the Company replacing Mr. Peter Mullenswho resigned as a director.

liquidity and Capital ResourcesLydian had working capital of £16,887,677 as at December 31, 2012 compared to £1,709,848 on December 31, 2011.The Company had total assets of £54,769,942 at December 31, 2012 compared to £34,521,415 on December 31,2011, which include deferred exploration expenditures of £29,640,711 (£23,739,005 on December 31, 2011).

The Company’s principal source of liquidity as at December 31, 2012 was cash and cash equivalents of £20,113,998compared to £8,301,907 on December 31, 2011. This increase in the cash and cash equivalents balance was primarilythe result of an amount received by the Company in connection with the issuance of shares (described below)pursuant to a bought deal financing, a related private placement financing and the exercise of stock options foraggregate gross proceeds of £31,586,505 offset by £6,490,355 used in operating activities and £12,869,969 cashused in capital expenditures, property, equipment and intangible assets, exploration costs and a payment toNewmont. Cash surplus to the Company’s requirements was invested in bank money market deposits.

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 Kela Project. The future exploration and development of the AmulsarProject and the Kela Project will require the Company to raise additional capital through a combination of equityand debt or other financing options. The Company is conducting a revised bankable feasibility study, for which thefinancial numbers are expected to be completed in the third quarter of 2013, and intends to conduct engineeringstudies to evaluate potential development scenarios for the Amulsar Project, including its future capitalrequirements.




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 licences will not automatically be forfeited, but anyshortfall will be considered by the applicable regulatory authority as a factor in whether to renew such licences.

Contractual ObligationsThe Company has contractual obligations as follows:

Total (£) Up to 1 year (£) 1-5 years (£) More than 5 years (£)Operating lease obligations 2,707,097 263,729 941,286 1,502,082Purchase obligations - - - -Total contractual obligations 2,707,097 263,729 941,286 1,502,082

taxes Paid in ArmeniaSummary of payments to the Armenian 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 Dramsto Armenian Government

12 months to 12 months toDecember 31, December 31,

2012 2011Fee for licences area extension - 8,700,000State duty on mining licence 10,000,000 11,200,000Concession fee - 20,097,500Social Insurance Funds employer 57,799,655 39,988,100Social Insurance Funds individual 14,887,344 10,962,000Customs duty 3,459,798 11,431,179Property tax 416,800 419,500Income tax 132,313,366 108,320,000Non resident withholding tax 13,000,000 14,000,000VAT 5,957,025 40,956,121Nature protection fee 23,590 509,235Total 237,857,578 266,583,635Equivalent GBP 373,192 445,770

Financial and Other instrumentsThe Company’s financial instruments consist of cash and cash equivalents, accounts receivable and accounts payable.The net fair value of the financial assets and financial liabilities approximates their carrying value. The Company’sexposure to changes in market interest rates relates primarily to the Company’s cash deposits. The Companymaintains a balance between the liquidity of cash assets and the interest rate return thereon. The carrying amountof financial assets, net of any provisions for losses, represents the Company’s maximum exposure to credit risk.

significant transactions, Contracts and Off Balance sheet ArrangementsSignificant contracts existing as of December 31, 2012 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, of which: the first was paid in 2010, the second was due onDecember 31, 2011 and paid on March 13, 2012, together with interest owing thereon; and the third became dueon December 31, 2012. The Company has notified Newmont that it has decided to defer making this third installmentpayment until no later than December 31, 2013. This deferred payment amount of US$5 million will bear interest atthe rate of 10% per annum commencing December 31, 2012 until it is paid.

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 singlepayment of approximately US$15.6 million.

These potential post production payment(s) do not 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.

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. Such a 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. The 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 mainly in 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, licences,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 governmental regulations 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.

Government Laws and Regulations

The activities of the Company are subject to various laws governing prospecting, development, production, taxes,labour standards, occupational health and safety requirements, environmental standards including toxic substances,air quality, land use and water quality and use, land claims of local people and other matters. Although the Companycurrently carries out its operations in accordance with all applicable rules and regulations, no assurance can be giventhat new rules and regulations will not be enacted or that existing rules and regulations will not be applied in amanner that could limit or curtail production or development. The Company’s operations and development activitiesare subject to receiving and maintaining permits from appropriate governmental authorities. There is no assurancethat the Company will be successful in obtaining or maintaining the necessary licences and permits to continue itsexploration 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 and/or capital markets may make itdifficult or impossible for the Company to obtain debt financing or equity financing on favorable terms or at all.Failure to obtain additional financings on a timely basis may cause the Company to postpone development plans,forfeit rights in its properties or reduce or terminate its operations. Reduced liquidity or difficulty in obtaining futurefinancing could have an adverse impact on the Company’s future cash flows, earnings, results of operations, andfinancial condition and could result in a default under its agreement with Newmont pursuant to which theCompany’s subsidiary acquired a 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.

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, Geoteam CJSC (“Geoteam”) that was held by Hayk Aloyan, a director and manager of Geoteam.On September 24, 2012, the Company completed the acquisition of the non-controlling interest pursuant to theterms of the Geoteam Option Agreement. As a result of the acquisition, the Company now indirectly owns 100% ofthe Amulsar gold project through its 100% indirect ownership of Geoteam. The purchase price for the non-controlling interest was satisfied by the Company in full by paying to Mr. Aloyan CAD $500,000 in cash on December22, 2010, and issuing 2,000,000 Ordinary Shares. The 2,000,000 Ordinary Shares were issued in installments of500,000, 250,000, 250,000, 250,000 and 750,000 on January 18, 2011, June 27, 2011, December 20, 2011, June 25,2012 and September 24, 2012, respectively.

From July 2011 up to September 2012 the Company owned 1,000,000 ordinary shares of Tigris Resources Limited.During the year ended December 31, 2012 the Company recorded a total of £18,575 receivable as compensationfor payments made on behalf of Tigris Resources Limited or services rendered to it.

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, 2012 (£) December 31, 2011 (£)

Aggregate emoluments 452,343 339,747Fair value of granted share options vest 478,648 926,357

The following table sets out the number of stock options awarded to directors of the Company under the Company’sstock option plan during the twelve month periods ended December 31, 2012 and 2011.

Date of grant Number of options Exercise price Expiry December 3, 2012 1,200,000 CAD$2.12(GBP1.33) December 3, 2015 May 2, 2011 1,500,000 CAD$2.52(GBP1.59) May 2, 2016

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 most significant critical judgments that members of management have made in the process of applying theentity’s accounting policies and that have the most significant effect on the amounts recognised in the consolidatedfinancial statements are the policies on exploration and evaluation assets and functional currencies.




In particular, management is required to assess exploration and evaluation assets for impairment with reference tothe indicators provided in IFRS 6. Note 14 to the Company’s Consolidated Financial Statements as of December 31,2012 discloses the carrying values of such assets. As part of this assessment, management considered whetherindicators of impairment exist at December 31, 2012.

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 tocommence 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.

The functional currency for the Company and each of the Company’s subsidiaries is the currency of the primaryeconomic environment in which each entity operates. The Company has determined the functional currency of theparent company is the Canadian dollar and the functional currencies of its material subsidiaries, Geoteam CJSC andGeorgia Resource Company LLC, are the Armenian Dram and Georgian Lari, respectively. Determination of functionalcurrency may involve certain judgments to determine the primary economic environment and the Companyreconsiders the functional currency of its entities if there is a change in events and conditions which determinedthe primary economic environment.

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. The most significant sourcesof estimation uncertainty that members of management have identified in the application of accounting policiesare as follows:

There are tax matters that have not yet been confirmed by taxation authorities. While management believes thatVAT input amounts are recoverable and the provision for income taxes is adequate, these amounts are subject tomeasurement uncertainty. Adjustments required, if any, to these provisions will be reflected in the period where itis determined that adjustments are warranted.

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

Fair value is measured using the Black-Scholes Option Pricing Model taking into consideration management’s bestestimate of the expected life of the option, the expected share price volatility, the risk free rate, the expected dividendyield and the estimated number of shares that will eventually vest.

Changes in accounting policies

During three and twelve month periods ended December 31, 2012 there were no changes in the Company’saccounting policies.

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 affected 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 December 31, 2012,that disclosure controls and procedures and ICFR were effective.

There were no significant changes in the Company’s internal controls or in other factors that could significantlyaffect those controls subsequent to the date the Chief Executive Officer and Chief Financial Officer completed theirevaluation, nor were there any significant deficiencies or material weaknesses in the Company’s internal controlsrequiring corrective actions.

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 makechanges aimed 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, 2012 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, 2012 and 2011 were as follows:

Cost type 2012 (£) 2011 (£)(1)Exploration and evaluation deferred expenditures 8,027,932 7,647,810Employees benefit and expenses 3,044,924 3,007,019Administrative and other expenses 1,950,594 1,312,335Services and consumables used 848,388 683,957Interest expenses 349,651 547,743EEA write off - 165,215Depreciation and amortisation 71,315 102,172Other costs 376,009 180,744

14,668,813 13,647,620

(1)These expenditures are capitalised as exploration and evaluating assets.


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, permittingtimelines, currency fluctuations, requirements foradditional capital, government regulation of miningoperations, environmental risks, unanticipatedreclamation expenses, title disputes or claims, limitationson insurance coverage and timing and possible outcomeof 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 “Risks 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. Such

statements are based on a number of assumptions whichmay 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 development and 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)

2012 drilling programme at Amulsar

Year Drill Hole Dip AzimuthTotal Depth

(m)From (m) To (m) Intersection (m) Gold (g/t)

2012

DDA-272 -60 120 154.0 71.0 124.0 53.0 1.0DDA-273 -60 130 104.8 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-274 -60 160 130.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-275 -60 90 130.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-276 -60 290 197.7 164.0 197.7 (EOH) 37.7 1.0DDA-277 -60 110 154.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-278 -60 101 254.849.0 51.0 2.0 1.288.0 96.0 8.0 1.0

104.0 127.0 23.0 1.0DDA-279 -60 36 144.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-280 -60 30 135.8

39.0 72.0 33.0 0.977.0 81.5 4.5 1.294.5 96.5 2.0 1.1

107.5 110.5 3.0 1.5119.3 123.3 4.0 1.0

DDA-281 -60 300 203.483.5 85.5 2.0 1.2

105.5 144.0 38.5 1.0167.0 172.0 5.0 1.0

DDA-282 -60 113 99.8 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-283 -60 115 65.1 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-284 -60 130 250.9 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-285 -60 25 185.03.0 16.0 13.0 1.5

123.0 160.0 37.0 1.0DDA-286 -60 215 63.9 2.0 40.0 38.0 1.0

DDAG-287 -90 0 25.0 GEOTECHNICAL DRILL HOLEDDA - 288 -60 120 20.7 BOGGED AND LOSTDDA - 289 -60 120 240.1 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-290 -60 110 315.0

167.0 190.0 23.0 1.0205.0 207.0 2.0 1.0231.0 236.0 5.0 0.9261.0 266.0 4.0 1.2304.0 311.0 7.0 1.6

DDAG-291 -90 0 41.0 GEOTECHNICAL DRILL HOLEDDAG-292 -90 0 35.0 GEOTECHNICAL DRILL HOLEDDAG-293 -90 0 21.9 GEOTECHNICAL DRILL HOLEDDAG-294 -90 0 40.0 GEOTECHNICAL DRILL HOLEDDAG-295 -90 0 12 SOIL CORING (NO SAMPLING)DDAG-296 -90 0 12 SOIL CORING (NO SAMPLING)DDAG-297 -90 0 15 SOIL CORING (NO SAMPLING)DDAG-298 -90 0 10 SOIL CORING (NO SAMPLING)DDAG-299 -90 0 17.8 SOIL CORING (NO SAMPLING)DDAG-300 -90 0 4.7 SOIL CORING (NO SAMPLING)DDAG-301 -90 0 6 SOIL CORING (NO SAMPLING)DDAG-302 -90 0 8.2 SOIL CORING (NO SAMPLING)DDAG-303 -90 0 6.5 SOIL CORING (NO SAMPLING)

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


Appendix 2Table of Drill results (Intersections greater than 1g/t gold)2012 drilling programme at Amulsar




2012

DDAG-304 -90 0 10.5 SOIL CORING (NO SAMPLING)DDAG-305 -90 0 41.4 GEOTECHNICAL DRILL HOLEDDA-306 -60 110 37.9 BOGGED AND LOSTDDA-307 -60 110 175.2 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-308 -60 110 226.9159.0 161.0 2.0 1.0177.0 179.0 2.0 1.0

DDAG-309 -90 0 38.3 0.0 10.0 10.0 1.2DDA-310 -60 0 172.5 166.0 170.0 4.0 1.0

DDA-311 -60 30 217.00.0 32.0 32.0 1.8

109.0 206.0 94.0 1.0DDA-312 -60 110 101.0 60.0 62.0 2.0 1.1

DDA-313 -60 110 265.017.0 95.0 88.0 1.0

246.0 265 (EOH) 19.0 1.2DDAG-314 -90 0 36.0 GEOTECH NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDAG-315 -90 0 50.0 GEOTECH NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-316 -90 0 111.1 66.0 74.0 8.0 1.0

DDAG-317 -90 0 27.1 0 27.1 27.1 1.5DDA-318 -63 180 97.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-319 -60 120 276.0

79.0 81.0 2.0 1.0147.0 164.0 17.0 1.0217.0 222.0 5.0 1.0247.0 250.0 3.0 1.1

DDAG-320 -90 0 40.0 GEOTECH NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDAG-321 -90 0 38.0 GEOTECH NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-322 -60 125 320.1

61.0 92.0 31.0 2.0134.0 142.0 8.0 1.0214.0 223.0 9.0 1.0300.0 302.0 2.0 1.1

DDA-323 -60 40 10.6 BOGGED AND LOST

DDA-324 -60 220 106.439.0 44.0 5.0 1.264.0 66.0 2.0 1.087.0 90.0 3.0 1.1

DDA-325 -65 25 72.5 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDAG-326 -90 0 43.0 GEOTECH NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-327 -60 110 86.6 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-328 -63 5 45.7 BOGGED AND LOST

DDAG-329 -90 0 GEOTECH NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-330 -60 210 166.1 37.0 92.0 55.0 1.0DDA-331 -60 110 297.1 155.0 201.0 46.0 1.4DDA-332 -60 300 134.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-333 -60 265 100.0 BOGGED AND LOSTDDA-334 -60 30 327.8 108.0 202.0 94.0 1.0






2012

DDA-335 47.30.0 20.0 20.0 1.0

-60 210 35.0 40.0 5.0 1.2BOGGED AND LOST

DDA-336 -60 110 146.1 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-337 -60 120 300.0

86.0 99.0 13.0 1.0129.0 157 28.0 1.0216.0 234.0 18.0 1.7294.0 296.0 2.0 1.0

DDA-338 -60 36 201.4 95.0 187.0 92.0 1.1DDA-339 -60 95 31.2 BOGGED AND LOST

DDA-340 -60 115 259.0

23.0 106.0 83.0 1.0181.0 201.0 20.0 1.0246.0 249.0 3.0 1.2252.0 257.0 5.0 1.0

DDA-341 -60 20 158.063.0 92.0 29.0 1.0

135.0 138.0 3.0 1.0DDA-342 -60 225 150.0 104.0 118.0 14.0 1.0

DDA-343 -60 220 58.045.0 53.0 8.0 2.0

BOGGED AND LOSTDDA-344 -60 30 15.1 BOGGED AND LOSTDDA-345 -60 40 98.1 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-346 -60 210 23.215.0 22.0 7.0 1.0

BOGGED AND LOSTDDA-347 -60 220 127.0 52.0 112.0 60.0 1.4

DDA-348 -60 310 275.9

13.0 15.0 2.0 1.268.0 70.0 2.0 1.1

183.0 185.0 2.0 1.2215.0 223.0 8.0 1.0255.0 275.9 (EOH) 20.9 1.2


DDA-350 -60 115 274.5

0.0 46.0 46.0 1.0103.0 112.0 9.0 1.0178.0 239.0 61.0 1.1256.0 261.0 5.0 1.1

DDA-351 -60 105 200.0139.0 161.0 22.0 1.0184.0 193.0 9.0 1.0

DDA-352 -60 170 117.02.0 4.0 2.0 1.2

23.0 63.0 40.0 1.090.0 93.0 3.0 1.1

DDA-353 -60 320 293.5

28.0 48.0 20.0 1.069.0 74.0 5.0 1.082.0 101.0 19.0 1.1

208.0 212.0 4.0 1.0







2012

DDA-354 -60 225 249.5141.0 154.0 13.0 1.0163.0 167.0 4.0 1.0189.0 192.0 3.0 1.0

DDA-355 -60 300 290.997.0 101.0 4.0 1.0

115.0 121.0 6.0 1.0DDA-356 -60 30 16.1 BOGGED AND LOST

DDA-357 -60 300 14.10.0 14.1 (EOH) 14.1 1.8

BOGGED AND LOSTDDA-358 -60 115 230.6 78.0 176.0 98.0 1.9

DDA-359 -60 290 107.033.0 38.0 5.0 1.1

BOGGED AND LOST

DDA-360 -60 120 295.112.0 14.0 2.0 1.2

131.0 191.0 60.0 1.0DDA-361 -60 300 84.7 0.0 68.0 68.0 1.2

DDA-362 -60 205 105.80.0 19.0 19.0 1.0

46.0 67.0 21.0 1.0DDA-363 -60 305 148.5 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDDDA-364 -60 210 88.3 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-365 -60 310 161.53.0 6.0 3.0 1.0

23.0 44.0 21.0 1.6128.0 130.0 2.0 5.6


DDA-367-60 290 351.5

63.0 82.0 19.0 1.0100.0 105.0 5.0 1.8158.0 173.0 15.0 1.0240.0 329.0 89.0 1.0

Including 301.0 323.0 22.0 3.2

DDA-368-60 300 302.4

11.0 18.0 7.0 1.338.0 40.0 2.0 1.1

111.0 183.0 72.0 1.1Including 140.0 167.0 27.0 2.3

-60 300 302 258.0 276.0 18.0 1.0DDAG-369 -90 0 297.8 GEOTECH NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-370 -60 100 404.5

155.0 174.0 19.0 1.0230.0 240.0 10.0 1.0342.0 380.0 38.0 1.0401.0 404.5 (EOH) 3.5 1.0

DDAG-371 -70 180 208.7 GEOTECH NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

DDA-372 -60 290 255.4160.0 165.0 5.0 1.1232.0 240.0 8.0 1.0

DDA-373 -60 300 306.1

19.0 35.0 16.0 1.260.0 67.0 7.0 1.0

293.0 304.0 11.0 1.0






2012

RCA-456 -60 30 186.0

24.0 27.0 3.0 1.1124.0 135.0 11.0 1.0159.0 163.0 4.0 1.0171.0 173.0 2.0 1.0

RCA-457 -60 30 190.0121.0 123.0 2.0 1.4157.0 184.0 27.0 2.4

RCA-458 -90 300 167.011.0 15.0 4.0 1.055.0 60.0 5.0 1.166.0 70.0 4.0 1.0

RCA-459 -60 210 150.04.0 19.0 15.0 1.0

72.0 78.0 6.0 1.0106.0 111.0 5.0 0.9

RCA-460 -60 30 150.00.0 11.0 11.0 1.2

99.0 101.0 2.0 1.0110.0 114.0 4.0 1.0

RCA-461 -60 30 168.0

32.0 48.0 8.0 1.151.0 62.0 11.0 1.066.0 70.0 4.0 1.082.0 84.0 2.0 1.0

111.0 133.0 22.0 1.0RCA-462 -60 210 150.0 105.0 110.0 5.0 1.3

RCA-463 -60 320 162.011.0 13.0 2.0 1.169.0 95.0 26.0 1.0

RCA-464 -60 210 138.0 2.0 124.0 122.0 0.9

RCA-465 -60 210 240.024.0 49.0 25.0 1.088.0 90.0 2.0 1.070.0 129.0 59.0 1.0

RCA-466 -60 210 113.0 66.0 111.0 45.0 1.0

RCA-467 -60 210 162.059.0 79.0 20.0 1.096.0 124.0 28.0 1.2

RCA-468 -60 30 150.094.0 110.0 16.0 1.0

118.0 120.0 2.0 1.1RCA-469 -60 30 150.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDRCA-470 -60 210 55.0 BOGGED AND LOST

RCA-471 -60 300 132.017.0 29.0 12.0 1.085.0 114.0 29.0 1.0

RCA-472 -60 290 156.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDRCA-473 -60 30 18.0 BOGGED AND LOST

RCA-473A -70 35 122.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDRCA-474 -90 0 92.0 BOGGED AND LOSTRCA-475 -60 170 125.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDRCA-476 -60 155 107.0 38.0 50.0 12.0 1.3RCA-477 -60 120 136.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDRCA-478 -60 245 203.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD







2012

RCA-479 -60 110 197.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDRCA-480 -60 230 203.0 154.0 171.0 17.0 1.0RCA-481 -60 120 23.0 BOGGED AND LOST

RCA-482 -60 210 157.0102.0 104.0 2.0 1.2126.0 128.0 2.0 1.1

RCA-483 -60 30 120.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

RCA-484-60 220 143.0 17.0 128.0 111.0 1.1

Including 39.0 75.0 36.0 2.7RCA-485 -60 305 125 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

RCA-486 -60 210 139.01.0 13.0 12.0 1.1

43.0 48.0 5.0 1.079.0 114.0 35.0 1.8

RCA-487 -60 210 70.03.0 6.0 3.0 1.3

13.0 15.0 2.0 1.132.0 37.0 5.0 1.0

RCA-488 -60 240 198.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

RCA-489 -60 315 203.0164.0 168.0 4.0 1.0179.0 182.0 3.0 1.0

RCA-490 -60 300 185.00.0 21.0 21.0 1.1

112.0 121.0 9.0 1.2139.0 153.0 14.0 1.0

RCA-491 -60 210 119.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDRCA-492 -60 25 133.0 25.0 30.0 5.0 1.1RCA-493 -60 210 42.0 2.0 32.0 30.0 1.0

RCA-494 -60 215 146.029.0 48.0 19.0 1.190.0 92.0 2.0 1.1

RCA-495 -60 125 225.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLDRCA-496 -60 250 96.0 NO SIGNIFICANT INTERSECTIONS >1G/T GOLD

RCA-497 -60 120 240.0

35.0 38.0 3.0 1.247.0 51.0 4.0 1.077.0 79.0 2.0 1.0

125.0 146.0 21.0 1.0149.0 151.0 2.0 1.0

RCA-498 -60 210 145.0 54.0 59.0 5.0 1.2

RCA-499 -60 315 258.0

18.0 28.0 10.0 1.054.0 58.0 4.0 1.0

124.0 126.0 2.0 1.2144.0 146.0 2.0 2.3157.0 187.0 30.0 1.0191.0 196.0 5.0 1.1

RCA-500 -60 120 131.0 3.0 6.0 3.0 1.5

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, 2013

Roderick CorrieChief Financial OfficerMarch 23, 2013


Report of ManagementAs of March 23, 2013

To the Shareholders of Lydian International Limited


Independent Auditors’ ReportAs of March 21, 2013To 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, 2012and 2011, and the consolidated income statements,statements of comprehensive income, statements ofchanges in equity, and statements of cash flows for theyear ended December 31, 2012 and 2011, 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 (IFRS) as issued by the InternationalAccounting Standards Board (IASB), and for such internalcontrol as management determines is necessary toenable the preparation of consolidated financialstatements that are free from material 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 policies

used and the reasonableness of accounting estimatesmade by management, as well as evaluating the overallpresentation 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, 2012 and 2011, and theirfinancial performance and cash flows for the years thenended in accordance with IFRS as issued by the IASB.

Signed “Grant Thornton LLP”Chartered AccountantsLicensed Public AccountantsMarch 21, 2013Mississauga, Canada

Consolidated income statementsFor years ended December 31, 2012 and 2011

December 31, 2012 December 31, 2011Notes £ £

Interest income 5 220,007 44,297total income 220,007 44,297

Employee salaries and benefits expense 6 (3,044,924) (3,007,019)Services and consumables used 7 (848,388) (683,957)Administrative and other expenses 8 (1,950,594) (1,312,335)Depreciation and amortisation expenses 12,13 (71,315) (102,172)Interest expense (349,651) (547,743)Other losses 9 (376,009) (345,959)total expenses (6,640,881) (5,999,185)

loss before tax (6,420,874) (5,954,888)Income taxes 10 - -loss for the year (6,420,874) (5,954,888)

Loss for the year attributable to:Common shareholders (6,384,282) (5,899,696)Non-controlling interest (36,592) (55,192)

(6,420,874) (5,954,888)

loss per share attributable to ownersof the parent (basic and diluted) 11 (0.05) (0.06)

Consolidated statements of Comprehensive incomeFor years ended December 31, 2012 and 2011


Loss for the year (6,420,874) (5,954,888)

Other comprehensive income: Exchange differencesarising on translation of foreign operations (3,163,037) (640,353)

total comprehensive loss for the year (9,583,911) (6,595,241)

Comprehensive loss for the year attributable to:Common shareholders (9,487,376) (6,512,381)Non-controlling interest (96,535) (82,860)

(9,583,911) (6,595,241)


Consolidated Financial StatementsFor the years Ending December 31, 2012 and 2011

Consolidated statements of Financial PositionDecember 31, 2012 December 31, 2011

Notes £ £AssetsNon-current assetsProperty and equipment 12 2,360,999 476,012Intangible assets 13 122,886 95,522Exploration and evaluation assets 14 29,640,711 23,739,005Other non-current assets 15 2,105,903 1,371,935Other long-term financial assets 16 - 126,600total non-current assets 34,230,499 25,809,074

Current assetsCash and cash equivalents 17 20,113,998 8,301,907Other current assets 18 425,445 410,434total current assets 20,539,443 8,712,341

tOtAl Assets 54,769,942 34,521,415

eQuitY AND liABilitiesCapital and reservesShare capital 19 77,632,082 43,850,290Warrants 20 345,076 345,076Equity settled employee benefits reserve 21 2,368,034 2,079,136Translation of foreign operations (3,267,535) (164,441)Other reserves – option to purchase non-controlling interest 22 - (1,795,654)Accumulated deficit (26,481,864) (17,232,781)total equity attributable to the parent 50,595,793 27,081,626Non-controlling interest - 408,496total equity 50,595,793 27,490,122

Non-current liabilitiesOther non-current liability 24 366,382 -Provisions 25 156,001 28,800total non-current liabilities 522,383 28,800

Current liabilitiesAccrued liabilities and other payables 26 576,948 858,361Current portion of Due to Newmont 23 3,074,818 6,144,132total current liabilities 3,651,766 7,002,493

tOtAl eQuitY AND liABilities 54,769,942 34,521,415



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, 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

Proceeds from exercised warrants 3,088,622 - - - - - - 3,088,622 - 3,088,622

Proceeds from exercised options 451,024 - - - - - - 451,024 - 451,024

Attributable 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 - 1,624,657

Prepayment on option and shares issuable to purchase non-controlling interest (Note 22) 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 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, 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

Issue of new shares (Note 19) 31,941,086 - - - - - - 31,941,086 - 31,941,086

Cost of shares issued (1,881,581) - - - - - - (1,881,581) - (1,881,581)

Equity share capital issued in purchase of non-controlling interest (Note 22) 1,381,108 - - - (1,381,108) - - - - -

Proceeds from exercised options 1,527,000 - - - - - - 1,527,000 - 1,527,000

Attributable to exercised options 609,714 - (609,714) - - - - - - -

Attributable to expired options 204,465 - (204,465) - - - - - - -

Employee share options issued during the year - - 1,103,077 - - - - 1,103,077 1,103,077

Total comprehensive loss for the year - - - (3,103,094) - - (6,384,282) (9,487,376) (96,535) (9,583,911)

Purchase of non-controllinginterest - - - - 3,176,762 - (2,864,801) 311,961 (311,961) -

Balance at December 31, 2012 77,632,082 345,076 2,368,034 (3,267,535) - - (26,481,864) 50,595,793 - 50,595,793



Consolidated statements of Cash Flows


Cash flows from operating activitiesPayments to suppliers and employees (6,490,355) (4,671,986)Net cash used in operating activities (6,490,355) (4,671,986)

Cash flows for investing activitiesInterest received 220,007 44,297Payments for property and equipment and intangible assets 12,13 (2,219,665) (413,348)Exploration and evaluation amounts paid 14 (7,752,766) (7,082,435)Payments to Newmount for settlement of debt (3,245,307) -Long term (investment)/disposals 16 139,248 (129,500)Proceeds from fixed assets disposal 7,362 -Deposits made 18 (18,848) (64,801)Net cash used in investing activities (12,869,969) (7,645,787)

Cash flows from financing activitiesProceeds from issuance of share capital, net 31,586,505 3,539,646Net cash generated from financing activities 31,586,505 3,539,646

Net increase (decrease) in cash and cash equivalents 12,226,181 (8,778,127)

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

Effects of exchange rate changes on the balance of cash held in foreign currencies (414,090) 21,342

Cash and cash equivalents, end of the year 20,113,998 8,301,907



1. General informationLydian International Limited (the “Company”) is a company continued under the laws of Jersey effective on December 12, 2007(formerly existing under the laws of Alberta, Canada). The registered office address of the Company is Ground Floor, Charles House,Charles Street, St Helier, JE2 4SF Channel Islands. The Company’s ordinary shares (“Ordinary Shares”) began trading on the TorontoStock 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 focussedon emerging and transitional environments, and is developing precious and base metal assets located in Armenia and Georgiaunder exploration licences granted by local authorities. The Group’s main exploration project is gold at Amulsar, Armenia. Inconducting operations in Armenia and Georgia, the Company is subject to considerations and risks not typically associated withcompanies operating in Canada. These include risks such as political, economic and legal environments in an emerging market.The Company’s results may be adversely affected by changes in political and social conditions and by changes in governmentalpolicies with respect to mining laws and regulations, currency conversion and remittance abroad and rates and methods of taxation.

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

There were no new standards or revised Standards and Interpretations issued by the International Accounting Standards Board(the “IASB”) and International Financial Reporting Interpretations Committee (the “IFRIC”) of the IASB that are relevant to the Group’soperations for the annual reporting period beginning on January 1, 2012.

ii) Standards and Interpretations in issue but not yet adopted

Management anticipates that those standards and interpretations deemed applicable to the Company’s business will be adoptedin the Company’s financial statements of future periods as they become effective and that the adoption will have no materialimpact on the financial statements of the Company in the periods of initial application other than for additional disclosures. Thosewhich management currently believes are or will be applicable are as follows:

IFRS 9 Financial Instruments

This Standard issued in November 2009 and amended in October 2010 introduces new requirements for the classification andmeasurement of financial assets and financial liabilities and for derecognition. IFRS 9 requires all recognised financial assets thatare within the scope of IAS 39 Financial Instruments: Recognition and Measurement to be subsequently measured at amortisedcost or fair value. Specifically, debt instruments that are held within a business model whose objective is to collect the contractualcash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstandingare generally measured at amortised cost at the end of subsequent accounting periods. All other debt instruments and equityinstruments are measured at their fair values at the end of subsequent accounting periods.

The most significant effect of IFRS 9 regarding the classification and measurement of financial liabilities relates to the accountingfor changes in fair value of a financial liability (designated as at fair value through profit or loss) attributable to changes in thecredit risk of that liability

IFRS 9 is effective for annual periods beginning on or after January 1, 2015, with earlier application permitted. The managementanticipate that IFRS 9 will be adopted in the Group’s consolidated financial statements for the annual period beginning January 1,2015 and that the application of the new Standard will not have a significant impact on amounts reported in respect of the Group’sfinancial assets and financial liabilities.

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 has not completed its assessment of the impact of these new andrevised standards on the Group’s consolidated financial statements.


Notes to the ConsolidatedFinancial StatementsFor the years Ending December 31, 2012 and 2011

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 identify aninterest in a subsidiary. However, the requirements and mechanics of consolidation and the accounting for any non-controllinginterests 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 the investorswith their rights and obligations relating to the joint arrangement. In addition, IAS 31’s option of using proportionate consolidationfor joint ventures has been eliminated. IFRS 11 now requires the use of the equity accounting method, which is currently used forinvestments in associates.

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

IFRS 13 Fair Value Measurement

IFRS 13 does not affect which items are required to be fair-valued, but clarifies the definition of fair value and provides relatedguidance and enhanced disclosures about fair value measurements. IFRS 13 is applicable for annual periods beginning on or afterJanuary 1, 2013. The Group’s management has not completed its assessment of the impact of this new standard on the Group’sconsolidated financial statements.

Amendments to IAS 1 Presentation of Financial Statements

The Amendments to IAS 1 require an entity to group items presented in other comprehensive income into those that, in accordancewith other IFRSs:

(a) will not be reclassified subsequently to profit or loss and

(b) will be reclassified subsequently to profit or loss when specific conditions are met.

This amendment is applicable for annual periods beginning on or after July 1, 2012.

The Group’s management expects this will change the current presentation of items in other comprehensive income; however, itwill not affect the measurement or recognition of such items.

IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine

IFRIC 20 sets out authoritative guidance on accounting for costs incurred by mining companies in removing waste materials togain access to mineral ore deposits (“stripping costs”).

The material removed when stripping in the production phase will not necessarily be 100 per cent waste; often it will be acombination of ore and waste. The ratio of ore to waste can range from uneconomic low grade to profitable high grade. Removalof material with a low ratio of ore to waste may produce some usable material, which can be used to produce inventory. Thisremoval might also provide access to deeper levels of material that have a higher ratio of ore to waste. There can therefore be twobenefits accruing to the entity from the stripping activity: usable ore that can be used to produce inventory and improved accessto further quantities of material that will be mined in future periods.

IFRIC 20 considers when and how to account separately for these two benefits arising from the stripping activity, as well as howto measure these benefits both initially and subsequently.

IFRIC 20 applies for annual periods beginning on or after 1 January 2013. Earlier application is permitted. It applies to strippingcosts incurred on or after the beginning of the earliest period presented.

Management anticipates that IFRIC 20 will be adopted in the Group’s financial statements for the annual period beginning onJanuary 1, 2013 and that the application of the new Interpretation will not have a significant impact on the financial statements.


Notes to the ConsolidatedFinancial Statements

For the years Ending December 31, 2012 and 2011

3. significant Accounting PoliciesThe principal accounting policies applied in the preparation of these consolidated financials are set out below. These policies havebeen consistently applied 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 the International Accounting Standards Board as of December 31, 2012.

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 entityso as to obtain benefits from its activities. The existence and effect of potential voting rights that are currently exercisable orconvertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated fromthe date on which control is transferred to the Group. They are deconsolidated 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 theeffective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to thefinancial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.All intra-group transactions, balances, income and expenses 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 isnot held by the Company. The Company attributes total comprehensive income or loss of subsidiaries between the owners of theparent and the non-controlling interests based on their respective ownership interests. Transactions with non-controlling intereststhat do not result in a loss of control are accounted for as transactions with equity owners of the group. Any difference betweenthe amount of the adjustment to the non-controlling interest and any consideration paid or received is recognised as a separatereserve within equity.

Details of the Company’s direct and indirect subsidiaries at December 31, 2012 and December 31, 2011 are as follows:

Place of incorporation effective Ownership interestName of subsidiary or Registration 2012 2011 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 100% 95% Mineral explorationGeorgian Resource Company LLC Georgia 100% 100% Mineral explorationKavkaz Zoloto CJSC Armenia 95% 95% Dormant companyKosovo Resource Company LLC Kosovo N/A 100% *Liquidation company

*Kosovo Resource Company LLC was liquidated on November 16, 2012.

Interest in joint ventures

Where a consolidated member of the Group participates in unincorporated joint ventures, that member accounts directly for itsproportionate share of the jointly controlled assets, liabilities and related income and expenses which are then similarly includedin the consolidated financial statements of the Group.



Foreign currencies

The individual financial statements of each entity in the Group are prepared in the currency of the primary economic environmentin which the entity operates (its “functional currency”). For the purpose of the consolidated financial statements, the results andfinancial position of each entity are expressed in British Pounds, which is presentation currency for these consolidated financialstatements. Although the parent company has a functional currency of Canadian Dollars, management assesses the Company’sperformance in British Pounds.

In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency(foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting date,monetary items denominated in foreign currencies are retranslated at rates prevailing at the reporting date. Non-monetary itemsthat are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised inprofit 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 expressedin British Pounds using exchange rates prevailing at the reporting date. Income and expense items are translated at the averageexchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange ratesat the dates of the transaction are used. Exchange differences arising, if any, are recognised directly into other comprehensiveincome and transferred to the Group’s translation of foreign operations reserve. Such exchange differences are recognised in profitor 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 operationand translated at 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 overthe vesting period, based on the Group’s estimate of equity-settled awards that will eventually vest, along with a correspondingincrease in equity.

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

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 financialstatements and the corresponding tax base used in the computation of taxable profit, and are accounted for using the liabilitymethod. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are generallyrecognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available againstwhich those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporarydifference arises from goodwill or from the initial recognition (other than in a business combination) of the related asset or liabilityin 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 wherethe group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reversein the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments areonly recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits ofthe temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each reporting date and increased or reduced to the extent that it isprobable, or no longer probable 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 settledor the asset realised based on tax rates that have been enacted or substantively enacted by the reporting date. The measurementof deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects,at the reporting date, to recover or settle the carrying amount 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 creditedor debited directly to equity, in which case the tax is also recognised directly in equity, or where they arise from the initial accountingin a business combination.

Property and equipment

Property and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Where an itemof property and equipment comprises major components having different useful lives, they are accounted for as separate itemsof property and equipment for amortisation purposes.

The gain or loss arising on the disposal or retirement of an item of property and equipment is determined as the difference betweenthe sales proceeds 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 theexisting carrying amount of the component written off. Other subsequent expenditure is capitalised if future economic benefitswill arise from the expenditure. All other expenditure, including repair and maintenance, is recognised in the income statementas incurred.

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

Machinery 5 yearsEquipment 1 – 5 yearsMotor vehicles 3 – 5 yearsStructures 5 yearsFixtures, fittings and other 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 accumulatedamortisation and impairment losses.

Amortisation is charged to the income statement on a straight line basis over the estimated useful lives of the intangible assets,which are estimated to 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 impairmentannually. 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 orcash generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit isreduced 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 therevised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount thatwould have been determined had no impairment loss been recognised for the asset or cash-generating unit in prior years. Areversal of an impairment loss is recognised as income immediately.

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 thatthe carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carryingamount 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 orcash generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit isreduced 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 eventoccurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss tothe extent that the carrying amount of the property and equipment at the date the impairment is reversed does not exceed whatthe cost less accumulated depreciation would have been had 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 ofmineral licences. They are capitalised as exploration and evaluation assets subsequent to acquisition of the licences and pendingdetermination of the technical and economic feasibility of the project. Borrowing costs attributable to the exploration andevaluation of mineral licences are expensed as incurred.

When the existence of economically recoverable reserves and commercial viability are established, the related exploration andevaluation assets are 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 isassessed when facts and 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 lowerof cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business and sellingexpenses. The cost of supplies is based on the first-in first-out principle and includes expenditure incurred in acquiring the suppliesand bringing them to their existing location and condition.

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 instrumentand its purpose. A financial instrument’s category is relevant for the way it is subsequently measured and whether any resultingincome and expense is recognised in profit or loss or directly in equity.

Generally, the Group recognises all financial assets using settlement day accounting. An assessment of whether a financial assetis impaired is made at least at each reporting date. All income and expense relating to financial assets are recognised in the incomestatement except for income or loss on 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 forimpairment. A provision for impairment of receivables is established when there is objective evidence that the Group may not beable to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor anddefault and delinquency in payments are considered indicators that the receivable is impaired. The amount of the provision is thedifference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted at the originaleffective 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 accounts receivable 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. Theseassets are measured at fair value, both initially and subsequently, with changes in fair value, except for impairment losses andcertain foreign exchange gains and losses, recognised in other comprehensive income until the asset is sold. Impairment lossesare recognised in the consolidated income statement as 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, arerecognised in other comprehensive income. When an investment is derecognised, the cumulative gain or loss in accumulatedother 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 eachreporting date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurredafter the initial recognition of the financial asset, 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 amountand the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of thefinancial asset is reduced by the impairment loss directly for all financial assets with the exception of trade and other receivableswhere the carrying amount is reduced through the use of an allowance account.

With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreasesand the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognisedimpairment loss is reversed through profit or loss to the extent that the carrying amount of the financial asset at the date theimpairment is reversed does not exceed what the amortised cost 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 directlyin equity.

Financial liabilities

The Group’s financial liabilities include accrued liabilities and other payables and the amount due to Newmont, which are initiallyrecognised at fair value and subsequently stated at amortised cost. Trade payables are classified as current liabilities unless theGroup has an unconditional right to defer 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 instruments issued 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 anddevelopment activities undertaken, it is probable that an outflow of economic benefits will be required to settle the obligation,and the amount of the provision can be measured reliably. The estimated future obligations include the costs of dismantling andremoval of facilities, restoration and monitoring of the affected areas. The provision for future restoration costs is the best estimateof the present value of the expenditure required to settle the restoration obligation at the reporting date. Future restoration costsare reviewed annually and any changes in the estimate are reflected in the present value of the restoration provision at eachreporting date.

The initial estimate of the restoration and rehabilitation provision relating to exploration and development activities is capitalisedinto the cost of the related asset and amortised on the same basis as the related asset. Changes in the estimate of the provision ofrestoration and rehabilitation are treated in the same manner, except that the unwinding of the effect of discounting on theprovision is recognised as a finance cost rather than being 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. Thecontributions are expensed as incurred.




Provisions

A provision is recognised in the Statement of Financial Position when the Group has a legal or constructive obligation as a resultof a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect ismaterial, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current marketassessments of the time value of money and, where appropriate, 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 anothersystematic basis is more representative 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 weightedaverage number of ordinary shares outstanding during the period. Diluted loss per ordinary share is calculated by adjusting theweighted average number of 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, 2012 and December 31, 2011. At December 31, 2010, Kosovo represented ageographical segment which was wound down in 2011 and liquidated in 2012.

Other reserves

Other reserves represent balances carried relating to the purchase of non-controlling interests in the Company’s subsidiaries.

Non-current accrued liabilities

Non-current accrued liabilities are Value Added Tax (VAT) payable for import of certain assets which are deferred from two up tothree years according to Armenian legislation.

4. Critical Accounting Judgments and Key sources of estimation uncertainty Critical 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 and 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 considered to be relevant.Actual results may differ from these estimates.

The most significant critical judgments that members of management 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 statements are thepolicies on exploration and evaluation assets and functional currencies.

In particular, management is required to assess exploration and evaluation assets for impairment. Note 14 discloses the carryingvalues of such assets. As part of this assessment, management has carried out an assessment whether there are indicators ofimpairment. 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 resourcesector. These include the extent to which the Group can continue to renew its exploration and future development licences withlocal authorities, establish economically recoverable reserves on its properties, the availability of the Group to obtain necessaryfinancing to complete the development of such reserves and 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 determiningwhether to commence or continue mining and processing. These estimates generally rely on scientific and economic assumptions,which in some instances may not be correct, and could result in the expenditure of substantial amounts of money on a depositbefore it can be determined whether or not the deposit contains economically recoverable mineralisation.

The functional currency for the Company and each of the Company’s subsidiaries is the currency of the primary economicenvironment in which each entity operates. The Company has determined the functional currency of the parent company is theCanadian dollar and the functional currencies of its material subsidiaries, Geoteam CJSC and Georgia Resource Company LLC, arethe Armenian Dram and Georgian Lari, respectively. Determination of functional currency may involve certain judgements todetermine the primary economic environment and the Company reconsiders the functional currency of its entities if there is achange in events and conditions which determined the primary economic environment.

Key sources of estimation uncertainty

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognisedin the period in which the estimate is revised if the revision affects only that period or in the period of the revision and futureperiods if the revision affects both current and future periods. The most significant sources of estimation uncertainty that membersof management have identified in the application of accounting policies are as follows:

There are tax matters that have not yet been confirmed by taxation authorities. While management believes that VAT inputamounts are recoverable and the provision for income taxes is adequate, these amounts are subject to measurement uncertainty.Adjustments required, if any, to these provisions will be reflected in the period where it is determined that adjustments arewarranted.

The Black-Scholes Option Pricing Model was developed for use in estimating the fair value of traded options which were fullytradable with no vesting restrictions. This option valuation model requires the input of highly subjective assumptions includingthe expected stock price volatility. Because the Company’s stock options and warrants have characteristics significantly differentfrom those of traded options and because changes in the subjective input assumptions can materially affect the calculated fairvalue, 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 arelocated in Armenia, Kosovo and Georgia. The Group’s head office activities are located in Jersey (Channel Islands) which relate toadministrative matters.

All transactions between segments are measured at exchange amounts. All balances, income and expenses between segmentsare eliminated in full on consolidation.

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, 2012 December 31, 2011 £ £ interest income Armenia 5,281 - Georgia - - Kosovo - - Head office 214,726 44,297 220,007 44,297 loss for the year Armenia 1,078,827 1,103,851 Georgia 444,051 9,372 Kosovo - 2,92,712 Head office 4,897,996 4,548,953 6,420,874 5,954,888 Profit (loss) from disposal of property and equipment Armenia 1,012 (8,715) Georgia - - Kosovo - (90,600) Head office - - 1,012 (99,315) Depreciation and amortisation Armenia 25,413 28,393 Gorgia 9,255 - Kosovo - 56,483 Head office 36,647 17,296 71,315 102,172 Property, equipment and intangible asset expenditures Armenia 2,049,580 384,192 Georgia 73,948 - Kosovo - - Head office 96,137 29,156 2,219,665 413,348



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

As of December 31, 2012 As of December 31, 2011 £ £ exploration and evaluation assets Armenia 29,311,305 23,535,396 Georgia 329,406 203,609 Kosovo - - Head office - - 29,640,711 23,739,005 Property and equipment Armenia 2,243,803 454,800 Georgia 63,518 - Kosovo - - Head office 53,678 21,212 2,360,999 476,012 intangible assets Armenia 65,059 59,283 Georgia - - Kosovo - - Head office 57,827 36,239 12,886 95,522

December 31, 2012Armenia Kosovo Georgia Head office Eliminations Consolidated

£ £ £ £ £ £Total assets 33,921,672 - 517,910 52,063,040 (31,732,680) 54,769,942Total liabilities 31,893,126 - 969,997 3,387,159 (32,076,133) 4,174,149

December 31, 2011Armenia Kosovo Georgia Head office 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




6. employee salaries and Benefit expensesYear ended December 31, 2012 Year ended December 31, 2011

£ £Salaries and other compensation (1,941,847) (1,382,362)Share based compensation (1,103,077) (1,624,657)

(3,044,924) (3,007,019)

7. services and Consumables usedYear ended December 31, 2012 Year ended December 31, 2011

£ £Consulting and experts’ fees (234,907) (189,620)Insurance (96,777) (97,785)Professional fees (251,034) (185,086)Investor relations department expenses (74,160) (66,302)Conference participation expenses (76,233) (47,547)Other (115,277) (97,617)

(848,388) (683,957)

8. Administrative and Other expensesYear ended December 31, 2012 Year ended December 31, 2011

£ £Office operating (359,059) (165,130)Travel (566,256) (327,674)Representative expenses (105,278) (95,792)Research and development (95,236) (72,951)Audit and legal fees (488,406) (329,320)Donations and sponsorship (200,907) (153,917)Other (135,452) (167,551)

(1,950,594) (1,312,335)

9. Other Gains (losses)Year ended December 31, 2012 Year ended December 31, 2011

£ £Disposal of property and equipment 1,012 (99,315)Investment disposal 12,626 -Other (loss) gain 1,118 (14,026)Exploration and evaluation assets write-off (Note 11) - (165,215)Foreign currency losses (390,765) (67,403)

(376,009) (345,959)



10. taxationThere was no taxes payable by the Group in the year ended December 31, 2012 and corresponding period in 2011.

Year ended December31, 2012 Year ended December 31, 2011£ £

Loss before taxation (6,420,874) (5,954,888)Tax at 18.0% (2017, 17.0 %) (1,155,757) (1,012,331)Items which are not deductible for tax purposes 970,704 837,161Losses not recognised 185,323 175,170Income tax expense - -

The Group had taxation losses under jurisdiction of Jersey (Channel Islands), Armenia and Georgia as at December 31, 2012amounting to approximately £2,103,315 (December 31, 2011: £5,986,965) that have not been recognised as there is insufficientevidence of taxable profits. As a result of the liquidation of Kosovo Resource Company, taxation losses in amount of £4,911,725were utilised as of November 16, 2012.

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% 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 eachjurisdiction.

11. loss Per shareLoss per share of £0.05 for the year ended December 31, 2012 (December 31, 2011-£0.06) has been calculated on the basis of thenet loss of £6,384,282 (December 31, 2011 loss: £5,899,696) on 120,651,005 (December 31, 2011: 97,130,280) shares being theweighted average number of shares in issue.

As a result of the losses incurred during the years ended December 31, 2012 and 2011, the potential shares to be issued from theexercise of options and warrants are not included in the computation of diluted per share amounts since the result would be anti-dilutive. Accordingly, the diluted loss per share and the basic loss per share for all periods presented are the same.




12. Property and equipment COst lands and Fixtures and Machinery equipment vehicles structures fittings, other Constructions total

£ £ £ £ £ £ £ At January 1, 2011 - 578,265 145,490 - 102,146 - 825,901 Additions - 154,672 133,269 42,802 17,674 - 348,417 Disposal - (395,187) (32,364) - (510) - (428,061) Exchange difference - (6,096) (4,961) 178 (4,944) - (15,823) As at December 31, 2011 - 331,654 241,434 42,980 114,366 - 730,434 Additions 1,870,083 149,355 72,124 - 33,075 22,880 2,147,517 Disposal - (3,635) (11,604) - (2,333) - (17,572) Exchange difference (34,222) (28,599) (21,297) (3,554) (11,018) (418) (98,108) As at December 31, 2012 1,835,861 448,775 280,657 39,426 135,090 22,462 2,762,271

ACCuMulAteD lands and Fixtures and DePReCiAtiON Machinery equipment vehicles structures fittings, other Constructions total

£ £ £ £ At January 1, 2011 - 301,636 74,276 - 47,404 - 423,316 Charge for the year - 106,269 38,810 640 20,224 - 165,943 Disposal - (298,080) (30,433) - (1,202) - (329,715) Exchange difference - (1,123) (1,901) 3 (2,101) - (5,122) As at December 31, 2011 - 108,702 80,752 643 64,325 - 254,422 Charge for the year 16,255 84,533 50,535 1,803 28,576 - 181,702 Disposal - (742) (9,814) - (668) - (11,224) Exchange difference (298) (10,023) (7,539) (85) (5,683) - (23,628) As at December 31, 2012 15,957 182,470 113,934 2,361 86,550 - 401,272

CARRYiNG lands and Fixtures and AMOuNt Machinery equipment vehicles structures fittings, other Constructions total

£ £ £ £ At December 31, 2012 1,819,904 266,787 166,723 37,065 48,058 22,462 2,360,999 At December 31, 2011 - 222,952 160,682 42,337 50,041 - 476,012

In the year ended December 31, 2012, depreciation of £132,119 has been capitalised to exploration and evaluation costs (2011: £78,749).


13. intangible AssetsCOst Computer software

£As at January 1, 2011 100,717Additions 64,931Disposal (26,481)Exchange difference (1,998)As at December 31, 2011 137,169

Additions 72,144Disposal (941)exchange difference (9,828)As at December 31, 2012 198,544

ACCuMulAteD AMORtisAtiON £As at January 1, 2011 41,367Charge for the year 26,341Disposal (25,512)Exchange difference (549)As at December 31, 2011 41,647

Charge for the year 37,470Disposal (124)exchange difference (3,335)As at December 31, 2012 75,658

CARRYiNG AMOuNt

At December 31, 2012 122,886At December 31, 2011 95,522

In year ended December 31, 2012, amortisation of £15,738 has been capitalised to exploration and evaluation costs (2011: £11,363).

14. exploration and evaluation Assets (“eeA”)Cost Armenia Georgia project Kela (previously Armenia Kosovo projects total

project Amulsar known as the ‘Zoti project’) project Nor Arevik

£ £ £ £ £At January 1, 2011 16,451,783 - 45,857 - 16,497,640Additions 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

Additions 7,887,999 139,933 - - 8,027,932Exchange difference (2,112,090) (14,136) - - (2,126,226)At December 31, 2012 29,311,305 329,406 - - 29,640,711



The net balance of exploration and evaluation assets as of December 31, 2012 compared to December 31, 2011 increased by£5,901,706. During the year ended December 31, 2012 investment in exploration and evaluation assets of the Amulsar projecttotaled to £7,887,999; of which £2,112,090 is off-set due to the strengthening of British Pounds against Armenian Dram. Duringthe year ended December 31, 2012 the investment in the Amulsar project consisted of drilling, exploration studies, maintenancecosts, lease payments and environmental studies etc. During the year ended December 31, 2012 costs of exploration studies atthe Kela project totaled to £139,933, primarily related to surface exploration studies.

IFRS 6 requires that regular impairment assessments are made. The directors carried out a review as of December 31, 2012 and aresatisfied that on the basis of the current plans and status of operations, there are no indications of impairment on the Amulsar orKela assets.

Non-cash transactions that increased EEA are as follows:


Payable to suppliers of drilling services and project development - 446,463Capitalised amortisation and depreciation 147,857 90,112Mine rehabilitation reserve 127,201 28,800

275,058 565,375

15. Other Non-Current AssetsOther non-current assets at December 31, 2012 and 2011 relate to Geoteam CJSC and Kavkaz Zoloto CJSC long-term receivablesfrom the State input VAT and borrowings provided to persons who provide regular services to Geoteam CJSC. VAT input will berefunded by the Tax Authorities or offset with other tax liabilities through future sales of product or services. Borrowings arerefunded on a regular basis from income received from provision of services. Management believes that the receivables from theState and borrowings are fully recoverable.

December 31, 2012 December 31, 2011£ £

VAT input Geoteam CJSC 2,094,208 1,356,726VAT input Kavkaz Zoloto CJSC 11,695 12,760Long term borrowings - 2,449

2,105,903 1,371,935

16. Other long-term Financial AssetsOther long-term financial assets were related to 1,000,000 ordinary shares of Tigris Resources Limited which representsapproximately 3.9% of its share capital which were sold on September 5, 2012, for net profit of £12,626. Tigris Resources Limitedis focused on discovering, acquiring and developing gold and copper projects in Turkey and is not a listed company. At December31, 2011 the carrying value approximates its fair value.




17. Cash and Cash equivalentsFor the purpose of the cash flow statement, cash and cash equivalents include cash on hand and in banks and investments inmoney market instruments. As at December 31, 2012 and 2011, the money market investments had a one month maturity period.Components of cash and cash equivalents are as follows:


Cash 1,950,817 1,559,585Money market investments 18,163,181 6,742,322

20,113,998 8,301,907

18. Other Current AssetsThe Group as at December 31, 2012 and 2011 holds the following other current assets:


Supplies 16,213 10,531VAT and GST refundable 26,544 25,304Deposits 143,649 124,801Other receivables and prepayments 239,039 249,798

425,445 410,434

19. share CapitalShare capital of the Company consists of fully paid ordinary shares. The Company has one class of shares, being ordinary shares.The Company is authorised to issue an unlimited number of ordinary shares. The Company’s ordinary shares have no par value. Allshares are equally eligible to receive dividends and repayment of capital and represent one vote at the shareholders’ meeting ofthe Company.

2012 2011Number of ordinary shares issued and fully paid:Total outstanding number of shares, January 1 104,075,686 93,659,798Issued under share based payment 1,000,000 1,000,000Shares issued for cash 19,388,482 -Shares issued on exercise of warrants and share options 2,397,000 9,415,888Total outstanding number of shares, December 31 126,861,168 104,075,686

On March 9, 2012 the Company issued to GMP Securities L.P. and Scotiabank (underwriters) 15,625,000 ordinary shares at a purchaseprice of CAD $2.56 per ordinary share. On March 31, 2012 underwriters have exercised their option to purchase additional 2,343,750ordinary shares of the Company at the same purchase price per ordinary share. On March 28, 2012 the European Bank ofReconstruction and Development took up its pre-emptive rights on purchase of 1,419,732 ordinary shares at a purchase price ofCAD $2.56 per ordinary share.



During the year ended December 31, 2012 the Company issued 2,397,000 ordinary shares pursuant to exercise of share options.During the year ended December 31, 2011 the Company issued 8,675,388 and 740,500 ordinary shares pursuant to the exerciseof warrants and share options, respectively.

During the year ended December 31, 2012 the Company issued a total of 1,000,000 (year ended in 2011 1,000,000) shares forpayment of shares owing under the “Geoteam Option Agreement”, (Note 22).

20. WarrantsAt December 31, 2012 the Company had 3,311,758 (December 31, 2011: 3,311,758) outstanding investor and broker warrants tosubscribe for ordinary shares at a price CAD$0.59 (approximately 36 pence). Warrants may be exercised at any time from the dateof vesting to the date of their expiry converting into one ordinary share of the Company.

No warrants were exercised during the year ended December 31, 2012, a total of 8,675,388 warrants were exercised to ordinaryshares of the Company within the year ended December 31, 2011.

There were no grants of warrants during the years ended December 31, 2012 and 2011.

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

Number of Warrants Weighted average exercise priceBalance at December 31, 2010 11,987,146 36 pence

Warrants exercised (8,675,388) 36 penceBalance at December 31, 2011 3,311,758 37 pence

Balance at December 31, 2012 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.

21. share Based Payments - employee share Option PlanThe Company’s employee share option plan grants options to employees, directors and service providers of the Company topurchase ordinary shares of the Company. In accordance with terms of the employee share option plan, the exercise price of thegranted options shall be determined at the time the option is granted provided that such price shall be not less than the marketprice of the ordinary shares. Share options granted under 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 atany time from the date 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’, thereforeno liabilities have been 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, 2010 3,612,500 67 penceGranted 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

Granted 2,610,000 1.39 poundsExpired (420,000) 1.45 poundsExercised (2,397,000) 64 pence

Balance at December 31, 2012 4,780,000 1.45 pounds

Outstanding options exercisable optionsRange of exercise price Number Weighted Weighted Weighted

outstanding average average Number averageremaining life exercise price exercisable exercise price

years £ ££1.24-£1.85 (CAD $2-$3) 4,780,000 2.8 1.45 2,505,000 1.54

4,780,000 2.8 1.45 2,505,000 1.54

The weighted average share price during the year ended December 31, 2012 was £1.45 (December 31, 2011: £1.54).

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

The weighted average fair value per share option granted during the year ended December 31, 2012 was 53 pence (year endedDecember 31, 2011: 81 pence). Options were priced using the Black Scholes Option Pricing Model using the following assumptions:

2012 2011Expected volatility 39-59% 63%Expected option life 2-3 years 5 yearsRisk free rate 1.1-1.3% 1.7%Dividend yield 0% 0%

During the year ended December 31, 2012 £1,103,077 (December 31, 2011: £1,624,657) was included in employee benefits expensein the consolidated income statement.

The share options outstanding and exercisable at December 31, 2012 had a weighted average remaining contractual life of 3.3years (December 31, 2011: 2.3 years).

22. Other Reserves - Option to Purchase Non-Controlling interestOn December 9, 2010, the Company entered into an option agreement (the “Geoteam Option Agreement”) to purchase theremaining 5% non-controlling interest (the “non-controlling interest”) of the Company’s 95% indirectly owned subsidiary, GeoteamCJSC. In accordance with the terms of the option (the “Call Option”), the Company has the right to purchase the non-controllinginterest on the earlier of December 9, 2013 and the occurrence of certain transactions, including a transaction involving a changeof 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 thenon-controlling interest can require the Company to purchase the non-controlling interest at any time during the period of theCall Option if the Company is in default of its obligations under the Call Option or at the end of the option period, December 9,2013. The aggregate purchase price payable by the Company in connection with any exercise of the Call Option or the Put Optionwill be CAD $500,000 in cash and 2,000,000 ordinary shares (the “Payment Shares”) in the capital of the Company. Under theGeoteam Option Agreement during year 2011 the Company issued 1,000,000 ordinary shares. On June 25, 2012 the Companyissued 250,000 shares and on September 24, 2012, the Company issued the remaining 750,000 shares resulting in theextinguishment of the non-controlling interest in Geoteam CJSC.

During the year ended December 31, 2012 the Company recognised £1,381,108 in Other reserves pursuant to 1,000,000 ordinaryshares issued under the option agreement. During the year ended December 31, 2011 the Company recognised a total of £757,838pursuant to 500,000 ordinary shares issued.

23. Due to NewmontOn February 26, 2010, the Company entered into an agreement (the “Purchase Agreement”) with Newmont pursuant to whichthe Company’s 95% owned subsidiary, Geoteam CJSC, purchased all of Newmont’s interest in the joint venture known as theCaucasus Venture (the “Venture”) between the Company and Newmont. In consideration for the purchase of Newmont’s interestin the Venture and the related termination of the Venture, the Company was to; (i) issue to Newmont three million ordinary sharesand (ii) make certain pre-production and then post-production payments to Newmont. The post production payments aredependent on production occurring and this allows Lydian to fund the required payments out of direct revenue from the Amulsargold project or through alternate available funds. See Note 30.

Prior to production, the Company is obligated to pay Newmont US$15 million in three US$5 million installments. The first was paidon the Closing, the second was due on or before December 31, 2011 and paid on March 13, 2012 with interest accrued for deferredpayment from December 31, 2011 to actual date of payment and the third on or before the earlier of December 31, 2012 and thedate that is 90 days 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. Pursuant to the terms of the agreement with Newmont, in December2012 the Company notified Newmont of its intention to defer the third US$5 million payment to no later than December 31, 2013,the deferred payment bears interest at the rate of 10% per annum commencing December 31, 2012 until it is paid.

The following reconciles movements in the amount due to Newmont:

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

us $ £Undiscounted amount payable at December 31, 2011 10,000,000 6,437,510Interest accrued 100,000 62,641Cash payment (5,100,000) (3,245,307)Exchange rate difference - (180,026)Amortised cost as of December 31, 2012 5,000,000 3,074,818

During the year ended December 31, 2012, £287,202 was recorded as an effective interest charge relating to unwinding of thediscount and has been reflected in the income statement (year ended December 31, 2011: £547,743).



24. Non-Current Accrued liabilitiesNon-current accrued liabilities are VAT payable for import of certain equipment into Armenia, whereby VAT payments are deferredup to three years given that property is not sold, whereby the VAT is payable immediately.

25. ProvisionsThe provision for restoration and rehabilitation represents the estimated present value of future outflow of economic benefits thatwill be required by the concession agreement signed between Geoteam CJSC and Government of the Republic of Armenia. Theprovision recognised as of December 31, 2012 relates only to rehabilitation of Amulsar mine areas affected by exploration activitiesas commercial production has not been reached. Though the provisions are not due within the next year, the effect of discountingis not material and has not been reflected.

December 31, 2012 December 31, 2011 £ £Balance at December 31, 2011 28,800 -Additions 127,201 28,800Balance at December 31, 2012 156,001 28,000

26. Accrued liabilities and Other Payables December 31, 2012 December 31, 2011 £ £Accrued liabilities and trade payables 437,185 727,197Wage accruals 139,763 131,164 576,948 858,361

27. 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 financial risks 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 supportthe acquisition, exploration and development of mineral properties. The Board of Directors does not establish quantitative returnon capital criteria for management, but rather relies on the expertise of the Group’s management to sustain future developmentof the business.

The properties in which the Group currently has an interest are in the exploration stage, as such, the Group is dependent on externalfinancing to fund its activities. The Group intends to raise additional financing by issuing new share capital, debt, selling a royaltyor stream, or entering into joint arrangements to carry out planned exploration and to pay for administrative costs. The Group willcontinue to assess new properties and seek to acquire an interest in additional properties if it believes there is sufficient geologicor economic potential and if it has adequate available or committed financial resources to complete such acquisitions.


Management reviews its capital management approach on an interim basis. Management believes that its approach, given therelative size of the Group, 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 £50,595,793 (December31, 2011: £27,081,626). Total equity comprises share capital, warrants, and reserves and accumulated deficit as disclosed in theconsolidated statements of changes in equity.

Liquidity risk

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

The Group’s cash requirements and balances are projected for the Group, for a period covering at least the next 12 months, as awhole and for each country in which operations and capital expenditures are conducted. The Group plans to meet theserequirements through the mix of available funds, equity financing on a required basis, project debt financing, if available, enteringinto joint arrangements and cash to be provided by the exercise of warrants and share options in the future.

To date the Group has relied on shareholder funding to finance its operations. As the Group has finite cash resources and nomaterial income, the liquidity 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 note23 and 26 mature within one year of December 31, 2012.

Currency risk

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

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

The Group’s currency risk policy is to diversify its cash resources in the British Pound, the US Dollar, the Canadian Dollar and theEuro roughly in proportion 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 expenditurebase is spread over five main currencies.

Currency risk sensitivity

The following table details the Group’s sensitivity to a 10% increase or decrease in the British Pound against the relevant foreigncurrencies. A 10% increase or decrease is used when reporting currency risk internally to key management personnel and representsmanagement’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis includesoutstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change inforeign currency rates. The sensitivity analysis includes loans to operations within the Group where the denomination of the loanis in currency other than the currency of the lender.

The Group’s net assets and liabilities are predominately held in British Pounds, US Dollars, Canadian Dollars, Euros and ArmeniansDrams. The numbers 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, 2012 (705,599) (7,399) (762,718) (3,005,514) (38,377)income (profit or loss) (£) December 31, 2011 (289,801) (11,513) (284,410) (2,311,861) (18,402)




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 fluctuatedue to changes in market interest rates. Other than the deferred amount due to Newmont, the Group has no other fixed or floatingrate borrowings. Cash and cash equivalents 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 andrepresents management’s assessment of the reasonably possible change in interest rates. With a 100 basis point increase in interestrates the income would be higher by £173,655 and in case of decrease the loss higher by £173,655 for the twelve month periodended December 31, 2012. This analysis assumes all 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 inflowsfrom financial assets on 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 occasionpaid to major suppliers primarily relating to exploration drilling contracts. The payment of these deposits is considered by themanagement on a case by case basis and the progress on the contract carefully reviewed. During the years ended December 31,2012 and December 31, 2011 there were no material impairment provisions required for any of the financial assets. There are nomaterial financial assets that the Group considers past due. At December 31, 2012, the Group did not have any significant creditrisk 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 financialinstitutions with high credit ratings assigned by international credit rating agencies.

The carrying amount of financial assets recorded in the consolidated financial statements represents the Group’s maximumexposure 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 cashrequirements. The Group invests its available cash in bank deposits only.

At December 31, 2012 and December 31, 2011, 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, 2012 18,163,181 1,950,817 20,113,998 One 1.08December 31, 2011 6,742,322 1,559,585 8,301,907 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. Managementbelieves that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the consolidated financialstatements approximate their fair values due to their short-term nature. The Newmont liability bears interest at a rate thatapproximates the estimated market rate of interest.



28. Related Party transactionsThe parent and ultimate controlling party of the Group is Lydian International Limited. No individual party had overall control ofthe Company or Group during the periods being presented.

Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated onconsolidation and are not 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 aswell as certain persons performing similar functions.

The non-executive members of the Board of Directors do not have employment or service contracts with Lydian InternationalLimited and neither are 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 previously held 5% of the shares inGeoteam CJSC and continue to hold 5% of the shares in Kavkaz Zoloto CJSC. Within the year ended December 31, 2012 pursuantto “Geoteam Option Agreement” the Company issued to Hayk Aloyan 1,000,000 ordinary shares (year ended December 31, 2011,1,000,000) (Note 22).

From July 2011 up to September 2012 the Company owned 1,000,000 ordinary shares of Tigris Resources Limited (Note 16). Duringthe year ended December 31, 2012 the Company recorded a total of £18,575 receivable as compensation for payments done onTigris Resources Limited behalf and services rendered to it.

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


Aggregate emoluments 452,343 339,747Share based payments 478,648 926,357

29. Operating lease and Purchase CommitmentsThe Group leases office premises with a lease term of up to 9 years. The group does not have an option to purchase the leasedasset at the expiry of the lease period. In 2011 Geoteam CJSC has endorsed long term rent contracts for lands under rock allocations.Non-cancellable operating lease commitments are disclosed below:

December 31, 2012 December 31, 2011 £ £Up to one year 263,729 146,306More than one year and no later than five years 941,286 497,820More than five years 1,502,082 1,585,989 2,707,097 2,230,115




30. ContingenciesNewmont Deal

On April 23, 2010 the Group purchased all of Newmont’s interests in the Group’s joint venture which included Newmont’ interestsin the Amulsar gold property. The consideration was a combination of committed and contingent payments. The committedpayments included 3 million ordinary shares of the Company, which have now been issued and three payments of US$5 million,the first was paid in 2010, the second on March 13, 2012 and the third payment was due by the end of 2012 but has been deferredaccording to Company’s notification (Note 23).

In addition the Group agreed to pay Newmont, following the start of commercial production, a 3% Net Smelter Royalty (“NSR”).However, between April 23, 2010 and the date that is 20 days following commencement of commercial production, Lydian mayat its option elect to buy out the 3% NSR and instead pay to Newmont the aggregate sum of US$20 million (approximately £12.8million), without interest, in 20 equal quarterly installments of US$1 million commencing on the first day of the third calendarmonth following the start of commercial production. Furthermore, the Company has a one-time option prior to thecommencement of commercial production to prepay these quarterly installments in a single cash payment using an annualdiscount 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 thetriggering event, commencement of commercial production, has not occurred. These potential payments are therefore notrecorded on the consolidated Statement of Financial Position at December 31, 2012.

Drazhnje licences

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

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

31. subsequent eventsOn March 4, 2013 International Finance Corporation exercised its 3,311,758 ordinary share purchase warrants of the Company;the exercise price per share was 38 pence (CAD 0.59).

The consolidated financial statements for the year ended December 31, 2012 have been approved for issue by the board of directorson March 21, 2013.



AuditorsGrant Thornton LLPSuite 401, 350 Burnhamthorpe Road WMississauga, Ontario L5B 3J1CanadaTel: +1 416 366 0100Fax: +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 OfficeGround Floor, Charles HouseCharles StreetSt HelierJersey JE2 4SF Channel IslandsTel: +44 1534 747890Fax: +44 1534 758708Att. Nicole CooneyEmail: [email protected]

investor Relations - GlobalGround Floor, Charles HouseCharles StreetSt HelierJersey JE2 4SF Channel IslandsTel: +44 1534 715473Mobile +447797 742800Att. Donna PugsleyEmail: [email protected]

Operations Office - Armenia37 Hanrapetutyan Street4th FloorYerevan 0010Republic of ArmeniaTel: +3 741 058 6037Fax: +3 741 054 6037Attn. Hayk AloyanE-mail: [email protected]

lydian annual report 2012 final

Documents

financial statements

amulsar project

consolidated income

kela project

acompetitive us

strong social agenda

earlystage gold prospect

gold price