Updating investors on its Krumovgrad gold project in southern Bulgaria, Dundee Precious Metals (TSX: DPM) says it could start construction before October and has revised its construction capital cost estimate to US$178 million, up from a US$164-million estimate in March 2014.
The company says it has nearly cleared the last permitting hurdle for a construction permit. Subject to financing and board approval, production could kick off in the second half of 2018.
The increase in the cost estimate is owed to higher levels of definition from detailed engineering in the first quarter and updated contractor and equipment pricing, along with execution and operational readiness plans. The new estimate includes a US$12.4-million contingency, and was partly offset by savings associated with leasing the mine fleet.
Rick Howes, Dundee’s president and CEO, could not be reached for comment.
Once in production, Krumovgrad would be Dundee’s second operating mine in the country. Its first, Chelopech, is 70 km east of Sofia, the national capital, in central-western Bulgaria, on the southern Balkan Ranges. Chelopech produces a copper concentrate containing gold and silver and a pyrite concentrate containing gold. Last year the operation produced a total 115,000 oz. gold, 39.8 million lb. copper and 242 million oz. silver.
Dundee acquired Chelopech in September 2003, and since then annual ore processed has increased from 523,810 tonnes in 2004 to 2.1 million tonnes in 2014.
Krumovgrad could produce 85,700 oz. gold and 38,700 oz. silver per year over an eight-year mine life at total cash costs of US$404 per equivalent oz. gold, yielding earnings before interest, taxes, depreciation and amortization of US$66 million a year.
Over its mine life, Krumovgrad would churn out 685,549 oz. gold and 309,915 oz. silver.
At US$1,250 per oz. gold and US$15 per oz. silver, payback would take 2.4 years and the mine would generate a post-tax net present value, at a 5% discount rate, of US$187.6 million and a 24.8% internal rate of return.
Dundee says the project can be funded from internally generated cash flow and supplemented with available lines of credit under the company’s revolving credit facility, in addition to proceeds from the March sale of its Kapan mine in southern Armenia to Polymetal International (LSE: POLY).
Dundee sold Kapan, which produces a copper concentrate and a zinc concentrate, both containing gold and silver, for US$10 million in cash, US$15 million in Polymetal shares and a 2% net smelter return royalty on future production capped at US$25 million.
In addition to Chelopech and Krumovgrad, Dundee owns the Tsumeb smelter, a copper concentrate processing facility in Namibia, and has interests in several gold development properties across Bulgaria, Serbia and northern Canada.
It also owns 100% of Avala Resources and has a 12% interest in Sabina Gold & Silver (TSX: SBB).
On June 20, Dundee announced that it had entered into a an agreement with a syndicate of investment dealers that would purchase on a bought-deal basis 15.8 million shares of the company at $3 per share for gross proceeds of $47.5 million. The underwriters can buy up to another 2.4 million shares for total proceeds of $54.7 million.
Concurrent with the offering, Dundee intends to undertake a non-brokered private placement of 840,000 shares of the company at $3 per share for additional proceeds of $2.5 million.
The company says the proceeds of both financings “will be used to lower drawdowns under its revolver credit facility, support advancing its growth initiatives and for general corporate purposes.”
At press time Dundee’s shares traded at $2.98 apiece within a 52-week trading range of 87¢ and $3.47.
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