Lydian is a private junior exploration company with 96 shareholders. The current major shareholders are Newmont (9.4%), CIM Special Situations Fund (7.8%), Target Generation Solutions (7.2%), Peter Mullens (6.8%), and Key Special Situations Fund (5.2%).

The capital expenditure for 2007-2008 for the investment program in exploration, feasibility studies and project assessments is estimated at approximately $8 million (equivalent to approximately GBP4 million). The proposed IFC investment is a GBP1.0 million equity investment with matching warrants.

1.96 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan
Equity	1.96

* These investment figures are indicative

Lydian’s main projects are located in Kosovo, South Central Armenia and Western Turkey. The Draznja license area in Kosovo is located in a partly forested hilly area approximately 35km northeast from the capital Pristina in the municipality of Podujevo. The Crepulja license area in Kosovo is located in a partly forested hilly area 17 km west of the town of Mitrovica. The Rahovac license area in Kosovo is located in a hilly area immediately north to northwest of the municipal capital of Rahovac, west of the capital Pristina. The Armulsar license area in Armenia is located in a sparsely vegetated mountainous area approximately 176 km by road to the southeast of Yerevan. The Muratdag license area in Turkey is located in a mountainous area 255km by road east of the regional centre of Izmir in Western Turkey.

The proposed IFC investment will contribute to continued exploration and associated feasibility studies for the company’s main assets. The direct development impacts during the exploration and feasibility study stage are expected to be small. Because the investment predates any feasibility studies, it is not yet possible to fully quantify or specify the potential development impacts during production stage. Potential development impacts at the mine production stage could include employment, foreign currency generating exports, and taxes and royalties at the federal, regional and local levels.

IFC will play a proactive advisory role with regard to community relations, governance, linkages with the local business community and achieving best practice environmental and social standards. IFC will help the company build its internal environmental and social management capacity and implement its projects in line with international best practice.

IFC’s E&S due diligence for the proposed equity investment in Lydian has been conducted at both corporate level and project level. A team of environmental and social specialists undertook a week’s appraisal of the projects in Kosovo, including visits to the Draznja, Crepulja and Rahovac prospects and interacted with the Company’s consultants and management team on the project details, development plan, the environmental and social impact assessments, consultation conducted to-date, and any updates required thereafter. Additional visits took place in Turkey at the Muratdag property and in Armenia at Armulsar. Discussions were also held with Lydian’s senior corporate executives in the UK, and the exploration and development teams in Pristina, Izmir and Yerevan.

The following Performance Standards (PS) applicable to this project are:

- PS1: Social & Environmental Assessment and Management Systems
- PS2: Labor & Working Conditions
- PS3: Pollution Prevention & Abatement
- PS4: Community Health, Safety & Security

The key environmental, social and occupational health & safety and community aspects and issues associated with this project include:

Corporate level:

- Social & environmental management;
- Labor & working conditions;
- Land acquisition and economic displacement; and
- Community health, safety & security.

Project level:
- Exploration activities: dust and noise control, water management including drainage, drilling pads and access roads rehabilitation, use of forested and agriculture land for exploration and development, occupational health and safety, visual impacts and community safety; and
- Surrounding communities: traffic, land acquisition and economic displacement; and emergency preparedness & response.

Lydian has prepared a comprehensive set of documents that address corporate and local HSEC management and potential key environmental and social impacts during exploration. It is aimed at developing best practice and will demonstrate that during both the exploration and development of projects, these greenfield mining projects will be in compliance with the environmental, labor, health and safety regulations respectively of Kosovo, Armenia and Turkey, as well as international good practice under the guidance of IFC Performance Standards.

It is expected that a significant benefit of the potential future development of Lydian’s properties will accrue to governments of the host countries in the form of taxes and royalties to different levels of government. From fiscal year 2007 onwards, the Company will disclose all payments made to governments (this sentence has been added on May 29, 2007). On balance, IFC considers the governance risks to realization of project benefits to be reasonable.