Dynacor fires up Chala mill in Peru

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.

Dynacor Gold Mines’ Chala gold processing plant in Peru, 600 km south of Lima, which treats ore extracted by local miners. Credit: Dynacor Gold Mines.

“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.

Examining a rock sample at Dynacor Gold Mines’ Tumipampa gold-copper project, 500 km southeast of Lima. Credit: Dynacor Gold Mines.

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.)

The road entrance to Dynacor Gold Mines’ Tumipampa gold-copper project, 500 km southeast of Lima. Credit: Dynacor Gold Mines.

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.”