Dundee Precious Metals eyes producer status (March 01, 2004)

Not satisfied to watch from the sidelines, investment company Dundee Precious Metals (DPM-T) plans to join the ranks of gold producers by developing two recent Bulgarian acquisitions itself.

“The primary motivation for this change is to provide shareholders with advantages that will accrue from the quality of the company’s gold mining assets in Bulgaria. We feel that we were fortunate to acquire these assets and the best opportunity for shareholders to benefit from this purchase is to change the mandate of the company,” says Dundee CEO Jonathan Goodman.

In September, Dundee picked up the operating Chelopech gold-copper mine in central Bulgaria and the Ada Tepe exploration properties in the eastern part of the country.

Dundee plans to sink about US$40 million into upgrading Chelopech with the goal of tripling production to 1.5 million tonnes mined ore per year. Dundee says the mine currently produces about 500,000 tonnes of ore annually from underground workings.

Chelopech mined around 609,185 tonnes of ore grading 4 grams gold and 1.6% copper, to produce 48,000 oz. gold in 2002.

Measured and indicated resources at Chelopech, 75 km east of the capital Sofia, are pegged at 17.9 million tonnes grading 4 grams gold and 11 grams silver per tonne plus 1.5% copper, with the bulk lying in the indicated category.

Inferred resources stand at 27.4 million tonnes running 3.7 grams gold, 9 grams silver and 1.4% copper. The estimates are based on a cutoff grade of 4 grams gold equivalent.

Infill drilling aimed at increasing confidence in the resource estimate and optimizing the ultimate throughput rate, is ongoing.

At Ada Tepe, indicated resources stand at 1.5 million tonnes running 7.3 grams gold and 4.3 grams silver; the inferred category contains 4.7 million tonnes averaging 3.7 grams gold and 1.5 grams silver. Both estimates employ a 1-gram-gold cutoff.

A feasibility study is currently under way at Ada Tepe. A past scoping study of the project envisaged a low-cost open-pit operation producing 150,000 oz. of gold per year for six years.

Dundee says the two assets will form the initial base of its operating activities, adding that it has more than US$45 million in cash and marketable securities on hand.

As part of its plan, the company will also terminate its investment management agreement with Goodman & Co. and affiliate Dundee Bancorp (dbc.a-t). Goodman has agreed to convert its 3,000 common shares (which represents the entire issue) in Dundee Precious Metals (DPM) into a like number of class A shares. The conversion will allow Dundee Precious Metals to continue with a single class of shares.

Dundee Bancorp will receive 925,000 class A DPM shares; it already has 845,311 shares, or about 9% of the total outstanding. Bancorp will be granted an option on another 500,000 shares at $36.57 per share. The warrants are good for only two days following Dundee’s transformation.

When the dust settles, DPM plans to reclassify all class A shares as common shares, and split its shares on a 50-to-1 basis.

The news sent shares in Dundee Precious Metals up $4.90, or about 16%, to a new 52-week high of $36 in afternoon trading in Toronto on Feb. 24.