Over the last ten years, Dynacor Gold Mines Inc. (TSX: DNG) has generated an annual return of +32% compared to -38% coming from its peers trading in the S&P TSX Global Gold Index. Analysts covering Dynacor such as Ryan Irvine, president of Keystone Financial with a $3.10 BUY on the stock says, “While we tread very lightly in commodity-based businesses, the stock appears to offer good speculative value at present and offers a unique exposure to gold without the typical significant deposit specific risk seen with traditional junior gold producers.”
The company’s business model offers investors a proven and more consistent path to participate in the gold market. Dynacor’s core business is built on providing ore processing service to hundreds of miners which is a more stable and less risky business than operating a mine.
Miners in the country look to Dynacor as their fair, trustworthy and reliable provider as well as the leader in this specialized niche of the mining space. It poured its first gold bar in Peru more than twenty years ago. Dynacor mitigates the risks of mining given its resources come from a country rich with thousands of high-grade gold producers, hereby diversifying the risk of supply coming from a single mine source.
There is also no risk from potential nationalization, royalty increases or labor disruptions as the ore does not come from foreign mining companies, but rather solely from Peru’s small-scale miners. Over the years of cultivating relationships, building trust and growing its network, Dynacor has perfected the complex business of processing from various types of ore.
A short time ago, the company from its old mill location, Huanca was buying ore from 250 different miners. Step forward to today and the new plant at its new location, Chala and you will see the company has successfully grown its portfolio of miners by more than 60% in the last year to over 400 high-grade gold miners.
Looking ahead in 2018, Dynacor is in the enviable position of starting the year at a record level of throughput. In the first quarter of last year, the company averaged 200 TPD (tonnes per day) well below expected throughput levels for the first quarter, 2018. The company will generate more production than last year, with lower costs.
Dynacor Gold Mines Inc. and PX Group (Switzerland) have confirmed the strategic alliance between PX Precinox and Dynacor Gold Mines. PX Precinox is the only privately held Swiss refinery and manufacturer of finished and semi-finished precious metal products for the high-tech and luxury industries. This strategic alliance involves:
Jointly developing a business for business responsible gold program under which all the gold produced by Dynacor will be marketed under the label PX Impact Gold and sold to some of the world’s leading luxury jewellery and watch manufacturers which are very keen to purchase socially responsible traceable gold produced by artisanal miners. The buyers of PX Impact Gold will pay a small premium that is then used to finance socio-economic development projects in Peru for artisanal miners and their communities.
An exclusive gold supply agreement, under which Dynacor has obtained very favourable commercial conditions and has initiated a technical exchange and co-operation program.
PX IMPACT exemplifies the group’s values. Here, the familiar prefix stands for environmental, social and ethical practices that respect human rights and are an integral part of a management system that guarantees complete traceability across the supply chain. PX IMPACT means ethical gold.
The IMPACT is very real. The school library that opened in May 2016 is a prime example. The group makes a lasting and positive contribution to the economic, social and environmental development of mining communities.
Putting convictions into practice. The family-owned group goes beyond the official certifications awarded to it, and which attest to the provenance and responsible, environmentally sustainable production of gold. It looks further and takes responsibility. And joins forces with Dynacor Gold Inc.
PX IMPACT gold is traced. From leaving the mines in Peru to refining in Switzerland, we never let PX Impact gold out of our sight. By keeping constant track, we can guarantee it contains no traces of mercury.
In early October 2016, we achieved a very important milestone for Dynacor when we poured our first gold Doré bar at our new modern efficient Veta Dorada plant located in Chala, in the heart of one of the most important gold producing regions of Peru. We finished the construction of the plant in May and the final stages of the permitting process followed quickly in step allowing us to begin operating the plant in September. No production or processing problems have been encountered and the plant met 100% of its design specifications.
In 2016, we focussed our human and financial resources on finishing the construction and the start-up of our new Veta Dorada plant and therefore our exploration activities were limited. However, because of the very significant discoveries at Tumipampa during the 2013-2015 exploration campaign, including the discovery of a large Cu-Au porphyry, Dynacor doubled its land holdings at Tumipampa to 9,756 hectares.
Management is currently looking at all the possible pathways to accelerate the development and valuation of this mineral rich property where we have discovered 4 types of mineralization: gold mineralized veins, a Cu-Au porphyry, a zone with disseminated gold and finally polymetallic skarn structures.
Over the next 2-3 years Dynacor’s strategy for growth in ore processing will be articulated along two main paths:
a) We will focus on operating the most modern and efficient gold ore processing facility in Peru and I expect that by the end of 2017 we will be operating the plant between 300-360 tpd and will have produced close to 90,000 ounces of gold. This will propel Dynacor to the number one spot in terms of ore processing in Peru and make your Company a leading edge in terms of environmental performance and social responsibility. Further expansion, in 2018 and 2019, of our milling capacity to 450-600 tpd will be implemented in step with market conditions.
b) Dynacor will actively pursue new strategic partnerships and/or opportunities outside of Peru in ore processing. It will thus be able to leverage its unique know-how and expertise that it has acquired over the last 18 years working with artisanal and small scale miners and their communities.
Finally, I would like to personally thank our management both in Peru and in Canada as well as our more than 325 employees for their continued hard work and dedication which is much appreciated and will continue to be the motor of our growth. I would also like to thank our shareholders for their continued confidence in Dynacor’s management team and the Board of Directors. We will continue to strive to add value to your company.
The new administration under Pedro Pablo Kuczynski has put into effect a decree to simplify the local mining formalization process in Peru by no later than the end of the year. The new rule is designed to increase and bring back more ore providers via an orderly and simple process with less confusion. The President of the Councils of Ministers Peru, Fernando Zavala, said yesterday (November 21, 2016), a new legislative decree was enacted to promote and strengthen the process of formalization of local mining activity by the 31st of December. Premier Zavala goes on to say that he reaffirms the commitment to support all miners currently in the formalization process.
According to the Economic Studies of the Scotia Bank, in September, mining production from the informal and illegal miners (currently unregistered) broke a monthly production record set back in September, 2011. The main source of Peru’s gold production comes from informal and illegal miners. Informal gold production estimated by MEM (Ministry of Energy and Mines) from January to September, 2016 was 19.1 MT (million tons) or 17% of total gold production in Peru. Interestingly this is 24% more than Latin America’s largest gold mine, Yanacocha which according to MEM estimates produced 15.4 MT in the same period.
As of February, 2016 the MEM began including in the national gold report estimates of informal and illegal gold production from various mining regions throughout Peru. Without the inclusion of this, year to date national gold production would have been 5% less.
Toll Milling | Company Advances Tumipampa gold-copper project in Peru
Below is our interview with Dale Nejmeldeen – Director, Investor Relations
Peru’s new president, Pedro Pablo Kuczynski, has said he will implement policies that favour investment in the mining sector and also plans to enhance and streamline the formalization process for a sub-sector of artisanal miners, Dynacor Gold Mines (TSX: DNG; US-OTC: DNGDF) says, and that’s good news not only for the country’s economy, but for the company, too, which just opened a brand-new processing plant near the city of Chala, 600 km south of Lima, that treats ore purchased from approved local miners.
“We’re hearing that as many as 250,000 to 300,000 local miners are still out of the formalization process,” says Dale Nejmeldeen, Dynacor’s director of investor relations. “If they were not approved by April 2012 as registered miners, legal ore processors like Dynacor were not permitted to buy ore from them.”
Nejmeldeen notes that the recently elected president, who earned bachelor’s degrees in politics and economics from Oxford University and a master’s in economics from Princeton and is also a former minister of mines, wants to try to bring at least half of the country’s unregistered informal miners in the country into the formal sector and has already made a number of announcements to that effect.
“Even if they bring half of them into the formal sector, these registered miners will be dealing with companies like Dynacor, which pays its taxes, so there’s a lot of tax revenue they’re looking at here,” Nejmeldeen says in a telephone interview from his office in Vancouver.
According to the energy and mines ministry, Nejmeldeen says, small scale miners generated an estimated US$3 billion in annual revenue and produced about 20% of Peru’s gold output last year.
But Nejmeldeen is realistic about the pace of change in Peru, particularly given that President Kuczynski’s party, the PPK, holds only 18 of the 130 seats in Congress. By contrast, the party of his strongest opponent, Keiko Fujimori, the daughter of former president Alberto Fujimori, has 73 seats.
Currently Dynacor buys ore from about 300 registered miners and in the three months ended June 30 recorded its 21st consecutive profitable quarter. Production in the second quarter reached 17,525 oz. gold, up from 16,594 oz. gold in the second quarter of 2015, earning the company US$1.1 million, or 3¢ per share, compared to the year-earlier quarter’s US$0.8 million, or 2¢ per share.
The company acquired its first ore processing plant, Metalex-Huanca, 450 km south of Lima, in 1998, and inaugurated its second, Veta Dorada, on Oct. 3.
The US$15 million carbon-in-pulp plant, about 5 km off Peru’s main Pan American Highway, is fully permitted for 300 tonnes per day and has been specifically designed for processing ore from multiple ore suppliers. It has also been designed to be readily expandable to 450 tonnes per day and then to 600 tonnes per day by adding additional lines and ball mills.
Nejmeldeen says Veta Dorada is currently running at about 250 tonnes per day but should reach 300 tonnes per day by the end of this year, and 360 tonnes per day by April 2017.
The mill’s location in an underpopulated area is also ideal, he says. “It is a great spot because it’s in the middle of the desert — we have plenty of room. There is 15 years of tailings space available on one side of the mill, and we purchased another piece of land on the other side of the road and can increase the tailings another ten years when the time comes.”
Dynacor expects that the new plant will increase the company’s gold production by at least 40%.
In addition to ore processing, Dynacor is also advancing its Tumipampa gold-copper project, 500 km southeast of Lima. The company says it’s close to putting out a resource estimate that will largely encompass the high-grade gold found within the project’s Manto Dorado, Manto Nazareno, and Lisa epithermal vein and mantos systems.
So far, the mineralization has been traced from surface up to 500 metres down-dip, and Dynacor believees that the mineralization could extend for another 2.3 km towards a porphyry system that was discovered during surface exploration late last year.
Tumipampa sits at 4,500 metres above sea level on a barren plateau that straddles the Andahuaylas-Yauri porphyry and skarn belt to the east and a regionally trending corridor of epithermal gold and silver mineralization to the west — both known to host large base and precious metal deposits.
Alonso Sanchez, the company’s chief geologist, is eager to start drilling the disseminated zone, Nejmeldeen says. The Peruvian geologist believes that much like Barrick Gold’s (TSX: ABX; NYSE: ABX) Lagunas Norte mine, Tumipampa’s disseminated zone hosts breccias, stockworks and veinlets of its own. The disseminated zone in Tumipampa is located in similar types of host rocks such as sandstone and cuarcite from the cretaceous period. (Lagunas Norte, on the western flank of the Peruvian Andes, about 140 km east of the coastal city of Trujillo, produced 560,000 oz. gold last year at all-in-sustaining costs of US$509 per oz.)
In addition, Dynacor has discovered that there is coal in the sandstone at Tumipampa, which is also similar to Lagunas Norte, Nejmeldeen says. “Finding coal in the sandstone at Tumipampa’s disseminated is noteworthy as coal helps to capture and hold the gold,” he explains in a later email. “All this, plus important values of gold found on the surface, together with geophysical chargeability anomalies, lead Mr. Sanchez and others in the area to believe there is another economic disseminated breccia in the making.”
Currently Dynacor’s closest neighbours at Tumipampa include MMG, with its Las Bambas copper project to the east; Southern Copper (NYSE: SCCO), with its Los Chancas copper project to the east; Panoro Minerals (TSXV: PML), with its Antilla copper-molybdenum project to the south; and Bear Creek Mining’s (TSXV: BCM) La Yegua copper-molybdenum-gold project to the northeast.
North and northeast are Minas Buenaventura’s (NYSE: BVN) Orcopampa gold-silver mine; Hochschild Mining’s (US-OTC: HCHDF) Arcata gold-silver and Pallancata silver projects; Hudbay Minerals’ (TSX: HBM; NYSE: HBM) Constancia gold-copper mine; and First Quantum Minerals’ (TSX: FM) Haquira copper-gold project.
Nejmeldeen believes more and more companies are scouting the area and staking claims. Over the last year, for instance, Southern Copper increased the size of its Los Chances claim by staking land eastward to within 2 km of Tumipampa’s border, Dynacor says. “This whole area is heating up,” Nejmeldeen says. “Just recently there has been a barrage of claim activity by seniors located immediately adjacent to Tumipampa. At the front of the list is Barrick, with claims surrounding Dynacor. Other noteworthy companies in the area are Anglo American, Buenaventura, Southern Peru, IamGold, Super Strong Mining (China) and Fresnillo Peru.”
Last week Dynacor Gold Mines Inc. TSX:DNG | OTC:DNGDF received its final operating permit to open the brand new Veta Dorada 300 tpd (tonnes per day) (102,000 tonnes per year) ore processing plant located in Chala, Peru. The opening of this mill significantly improves the small-scale mining service industry. Not only will the Company, its shareholders, its employees, and the government of Peru greatly benefit from this new state of the art facility, but most importantly so will the small scale miners themselves. It’s a classic win win scenario for everybody involved in the Dynacor ore processing business.
Since the announcement, the Company is receiving an influx of queries from the market on how much more profit this new mill will generate in the coming months. So let’s dive in to this exercise by breaking down the numbers and using the Company’s historical performance as a conservative guide. The advantage with Dynacor is the Company boasts 21 consecutive quarters of profit to back it all up. The Company provides a one-of-a-kind transparency tool for shareholders with its quarterly five-year performance review. The report posted on the Company’s corporate website breaks down over fifteen different valuation metrics. (see five-year performance review).
Armed with the five-year performance review as our guide we can forecast the following.
If we start at 300 tpd and use the old mill’s average gold grades (1 oz/t), recoveries (93%) and 340 days of operating as a comparable we can assume the following: Dynacor should produce in the neighborhood of 95,000 ounces per year, this is an increase of at least 40% from previous years. (see press release dated September 2, 2016).
Now here is where it becomes very interesting and indeed quite simple to forecast future profits. Over the last three years, the old mill’s gross profit margin averaged 17% together with a three-year gold price average of US $1229/oz. Given today’s gold price is above US $1300/oz and the Company is on record for stating it expects a surge in profit margins due to plant modernization and economies of scale, we can assume if we use the old mill’s numbers to forecast the new mill’s profits, this model is quite conservative.
Therefore if Dynacor produces 95,000 ounces at even the lower three year gold price average of US $1229/oz it will realize US $117 million in sales. Applying the old mill’s average gross profit margin of 17%, we find that the new mill should generate approximately US $20 million in gross profit. Given the Company’s current share count of 38.4 million we arrive at US $0.53 gross profit per share. Converting this to Canadian dollar at $1.30, it moves to CAN $0.69 per share.
The new Veta Dorada plant was designed and built to facilitate future capacity increases in a stepwise fashion to 360 tpd, 450 tpd and 600 tpd. In the next blog post, we will go a few steps further by breaking these numbers down using 360, 450 and 600 tpd assumptions.