Dundee Precious Metals rushes Serbian gold discovery to high-margin PEA

Dundee Precious Metals (TSX: DPM) assembled a study backing development for its Čoka Rakita gold discovery in Serbia in 18 months. 

With an initial investment of US$381 million and at a US$1,700 per oz. base gold price, Čoka Rakita would have an after-tax net present value (at a 5% discount) of US$588 million and an internal rate of return of 33%, according to the preliminary economic assessment (PEA), released on Wednesday. Over its 10-year life, the mine would inject US$891 million of free cash flow into Dundee’s coffers.

The proposed 129,000-oz. per-year mine has all-in sustaining costs (AISC) of US$715 per oz. of metal, according to the PEA. Its AISC is expected to be in the industry’s lowest-cost quartile.

“The PEA highlights an executable, high-margin project that provides a much-needed boost to Dundee’s growth profile and to some extent alleviates investor concerns around the efficient use of Dundee’s robust and growing cash reserves,” BMO Capital Market analyst Raj Ray says.

The company aims to fast-track Čoka Rakita, kicking off with a pre-feasibility study in the first quarter of next year, construction by mid-2026 and output two years later. The analyst maintains an outperform rating and a target price at $16 per share on the company’s stock.

“The PEA confirms our view that Čoka Rakita is a very robust project with the potential to add strong economic returns and very high-margin gold production growth to our portfolio,” CEO David Rae said in a release with the PEA.

Dundee, which operates the Chelopech and Ada Tepe gold-copper mines in Bulgaria, has the Čoka Rakita gold-copper and Timok gold projects in its development pipeline in neighbouring Serbia, where it has been operating since 2004.

Balkan jewel

Čoka Rakita is essential to the company’s growth. Dundee forecasts average production of around 240,000 oz. over the next three years, with Ada Tepe expected to ramp down in 2026 as it comes towards the end of its life. The company expects gold AISC to remain below US$1,000 per oz. over the next three years.

The company-wide copper production outlook is about 33 million lb. per year.

Dundee released an initial resource for Čoka Rakita in December, outlining an inferred 9.8 million tonnes grading 5.7 grams gold per tonne and 1.21 grams silver for 1.8 million oz. and 382 million oz. of metals, respectively.

With an 850,000-tonne a year processing facility, sustaining capital over the life of the mine is expected to be US$83 million, and closure costs are projected at US$31 million. Payback would be in 2.4 years thanks to the accelerated average of 164,000 oz. per year in the first five years of the mine plan.

The project is about 160 km southeast of the capital Belgrade and 320 km from Chelopech. This location offers easy access to roads, power lines and technical support, leveraging the region’s rich mining history and the company’s experience in underground mining.

Emerging mining camp

Since drilling started in November, Dundee completed about 12,000 metres, adding to the 81,000 metres underpinning the resource estimate. The Čoka Rakita deposit remains open to the northeast and southwest, and Dundee is also pursuing other skarn targets on four neighbouring licences.

BMO’s Ray says camp-scale potential exists at the Čoka Rakita licence. Scout drilling at Dumitru Potok, 1.5 km from Čoka Rakita, has confirmed the potential for high-grade skarn copper-gold mineralization, he said in a February note. Intercepts then included 26 metres grading 3.54% copper and 3.03 grams gold per tonne from 1,155 metres depth.

Dundee has budgeted between US$20 million and US$22 million for exploration activities in Serbia this year. In February, the company walked away after launching a US$287 million cash-and-shares offer for Osino Resources (TSXV: OSI). It was beaten by a $368 million bid by China’s Yintai Gold.

In March, Dundee sold the non-core Tsumeb smelter in Namibia for US$49 million. Acquired in 2010, the smelter processed concentrate from the Chelopech mine. However, advances in the global smelting market and changes in concentrate quality now allow Dundee to use other third-party facilities on more favourable terms, it said. 

The company’s shares closed less than 1% stronger on Thursday at $10.63 apiece, having touched $7.79 and $10.94 over the last year. Its market capitalization is $1.92 billion.