Dynacor hits record production at Peru mill

Dynacor Gold Mines’ (DNG-T) share price jumped after the company announced it had produced the most gold in a month yet at its mill in Peru.

The company, which buys and processes ore from small-scale local producers, counted 5,701 oz. gold produced in July from 6,554 short tons at a grade of 0.941 oz. per ton. The total represents a 6.9% increase, compared with the 5,334 oz. gold produced in June.

On news of the total the company’s share price climbed 13¢, or 20% to 78¢, with 278,000 shares traded.

The higher production was owing to especially high-grade ore the company bought from local producers, with Dynacor noting that it expects grades to return to previous levels of 0.65 oz. per ton to 0.8 oz. per ton in the coming months.

The production levels, however, help offset May production of 2,663 oz. gold. In May, the company bought less ore because it was looking into how its local partners complied with new and more stringently enforced producer and environmental laws in Peru, leading to the lower production.

The July grades and production could also help offset the lower margins the company achieved in the second quarter, due to decreased inputs and lower grades. In the quarter ending June 30, Dynacor produced 12,392 oz. gold for $20.6 million in sales and an operating margin of $3 million. The operating margin worked out to 14.8%, or US$246 per oz. gold, compared with 17.9%, or US$269 per oz. gold, in the same quarter in 2011. The company had net income of US$1.2 million in the quarter, compared with US$2.6 million in the second quarter of 2011.

The company is keeping with its 2012 guidance, reporting that it is “well on track to meet or exceed” its 50,000 oz. target. The company expects to process 75,000 short tons of ore and achieve $85 million in gold and silver sales this year, compared with 64,000 tons of ore and $74.6 million in sales in 2011. Production is up from last year since capacity at the company’s Acari mill upgraded from 180 tons per day to 220 tons per day.

To increase production, the company plans to build a 300-ton-per-day mill in Chala, Peru, in 2013. It’s waiting on environmental and construction permits to start the project. The mill is expected to cost $4.5 million, which the company will fund through debt and working capital, while the mill should bring annual processing capacity to 100,000 tons a year.

On the exploration front, Dynacor is waiting for permits to start drilling its Tumipampa project, which sits 500 km east of Lima in the Apurimac department. The company cites the more stringently enforced environmental rules, combined with a general backlog in the system, for the delay. It submitted its social-development agreement with the Pachaconas community to the government in February.

Dynacor had planned to start a $2.3-million, 4,100-metre drill program on Tumipampa in April so it could have a resource estimate out in 2013, but the drills have yet to start turning. In the meantime the company is working to prepare drill pads and road access.

The company has also added to its land holdings in the area, and controls 48.4 sq. km at Tumipampa. Dynacor’s property is surrounded by several majors, including Buenaventura, First Quantum, Xstrata, Southern Copper, BHP Billiton and two Chinese companies.

Dynacor is waiting for a verdict in a tax liability case winding through the Peruvian courts. The government claims the company owes $42.2 million in taxes, interest and penalties related to its operations between 2003 and 2009. A Peru tax tribunal upheld the sum in December 2011, leading to Dynacor challenging the ruling in Peru’s judicial tribunal in March, but with no clear time frame for a resolution.

The company ended the second quarter with $9.1 million in working capital. Dynacor has 35.6 million shares outstanding, with roughly 62% held by institutions.