Stakeholder: Can you comment on the upcoming political change and how it will impact Dynacor?
Dynacor: It’s an election year in Peru. In the first term it was narrowed down to two contenders running for the presidency. The two contenders are Keiko Fujimori and Pedro Pablo Kuczynski. Update: The final results are to be released this week.
Both contenders have said they plan to restart the small-scale mining formalization process. At this time, there are seven steps to the formalization process. However, this process has been stalled at steps three and four. There are hundreds of thousands of miners (estimates 300-400 thousand) in Peru. When they started the formalization process about 70,000 listed. Only 39,000 of these miners made it past the 2nd & 3rd steps. This tells us there are 100’s of thousands of miners that still need to go through the formalization process. The formalization process has been designed in a way that the remaining miners can no longer enter due to the fact the entry deadline was on April 20 2012.
We are very pleased to hear that there is a strong desire from both Fujimori and Kuczynski to reopen the formalization process to the hundreds of thousand miners that didn’t make the cutoff date. We certainly cannot expect to see 100% of these miners make the grade, but consider if there are 50-60% more. It will make a major difference to our operation as a number of these newly formalized miners will make their way to Dynacor’s new Veta Dorada plant.
Current President Humala’s term ends on July 28th. Whoever is in power at this time anticipates launching a new set of formalization rules shortly thereafter. Then we could see a huge opportunity to increase our capacity to 600 then 1200 tpd in the future. This new surplus of small-scale and newly formalized miners would open up much more supply for us. Over the next two years we could see another meaningful increase in our gold production.
Even so with out this surplus of miners reentering the field, we are quite confident that we will be at 300 tpd by the end of the year. As everything we hear from our guys on the ground and in the market is that this is something we should be able to accomplish.
Stakeholder: Can Dynacor increase its capacity by 20% at both the Huanca and Chala plants without a permit?
Dynacor: Yes. Dynacor owns two milling assets with each 300 tpd permits in place. We may without the need of an additional permit increase the capacity at both mills to 360 tpd giving us a total of 720 tpd.
Stakeholder: Could you provide a scenario whereby the Metallex mill at Huanca could play a role in the future production?
Dynacor: What we will do with Huanca soley depends on how many tons we can buy. The Metallex plant at Huanca is an asset that just may surprise the market in the shorter term. When we expand the Veta Dorada plant at Chala to 450-600 tpd, we will need another expansion permit and of course additional construction. This together with the permit will take another 1.5 years complete.
This is how the Metalex plant at Huanca fits in the shorter term; in the interim, let us say we can buy 450 tpd, we certainly won’t leave it there and just stop at 360 tpd. We will buy it all and immediately set a course to feed the Huanca mill.
Stakeholder: Will a new crew of 200 employees be hired for the Huanca mill?
Dynacor: No as we will do most of the work at the new plant. Purchasing, weighing, assessing grades and crushing ore will first be carried out at Chala. Then we will load ore onto our trucks and deliver it to the Huanca plant. A small crew of approximately 30 employees will be stationed at Huanca to process the crushed ore.
The plan this year calls for us to transfer all the original production from Huanca to Chala and feed it to the maximum capacity. The Huanca plant gives us the flexibility on the upside. We expect to see one or two mills shut down once Chala opens. At the end of the day, if there is only one ore processing company that survives in Peru it will be ours.
Stakeholder: Is there a concern about protesting by the small mills if the big new Veta Dorada plant is the culprit of the others shutting down?
Dynacor: No. The other mill operators do not employ a lot of people, as they are small operations that only run at 20-30% of their capacity. The only other significant ore processor is privately owned Laytaruma. Today, they are the largest operator in the country. However, we will take the number one position over with the opening of Veta Dorada. In other words, the day is quickly coming when Dynacor will be the largest ore processing company in Peru. This, together with our solid reputation and longevity in the business will put us in a very strong position.
We are preparing for a price war as soon as we open up Veta Dorada. We are proven veterans in this game, fought through and prevailed price wars in the past. We know what to expect. As a whole, we do not see any problems because we have a very good reputation and have all the support of our employees and suppliers.
Stakeholder: How long will the price war last?
Stay tuned for part 3 of 5…