Dynacor to dabble in energy

Dynacor Mines (DYN-T, MSDRF-O) has signed a joint-venture agreement with two hydroelectricity companies to ensure it will have enough power to run its Huaura tungsten mill using two old hydro plants on the Pasto Bueno property, in northern Peru.

A surge in economic growth in Peru has put stress on its power generation capacity and the national system can hardly keep up with demand. Peru’s economy is projected to grow 7.5% to 8% in 2007.

That’s why Dynacor, based in Montreal, has to count on a diesel power generator to run the Huaura mill. But at nearly 4,000 metres altitude, diesel has half the efficiency it does at sea level, says Dynacor chairman Jean Martineau.

Martineau says it will cost Dynacor three times less for hydroelectricity by next August, saving the company US$50,000 to US$60,000 per month in energy costs. The mill uses 1,500 gallons of diesel each day, at a rate of US24 per kilowatt-hour.

“It’s very expensive and we are not in full production now,” Martineau says.

Dynacor began preproduction at Pasto Bueno in September 2006 at a rate of 50 tonnes of ore per day. The company ramped up to 144 tonnes per day in January, and expects to reach 250 tonnes per day by the second quarter and 350 tonnes per day by 2008. The property has two mills — one with a capacity for 250 tonnes per day and the other, not yet functioning, for 800 tonnes per day. Proven and probable reserves for the project are about 224,000 tonnes at an average grade of 2.04% WO3. Dynacor is spending US$2 million to increase reserves at the Huayllapon sector at Pasto Beuno, which is 2 km east of the Huaura sector, currently being mined.

In April, Dynacor will be able to connect to the national electricity system at a cost of about US7.5 per kilowatt hour, but the company will still need its diesel generator because power consumption is restricted between 6 p.m. and 11 p.m., the prime time for electricity use.

There are two hydroelectric plants on the property that are no longer in use: the smaller one, which can produce about 125 kilowatts per hour, needs repairs; and the 800-kilowatt-per-hour generator needs to be completely replaced. A reservoir and dam already exist, but need refurbishing.

A new company is being created to finance, develop and operate the hydroelectric projects, in which Dynacor has a 44% interest, Stucky of Switzerland holds 51% and Electrokraft of Peru holds 5%. Martineau says Stucky has made deals to sell carbon credits (for producing hydroelectricity) under the Kyoto Protocol to companies in Europe, which will help fund the project.

It will cost between US$1.2 to US$1.5 million for the first phase of the project, which will see the plant produce up to 2 megawatts by the end of the year — enough power for Dynacor. By the end of 2008, the company hopes to produce 4.9 megawatts as a source of revenue.

The new company would sell the power to either Peru’s national power system or neighbouring mines. Martineau says there are several mines within a 50-km radius.

The potential of the Pelagatos River, which crosses the Pasto Bueno property, is currently being evaluated. Beyond the 4.9 megawatts, Martineau says there is potential to produce 10 to 12 megawatts. However, that would require discussions with local communities.

Dynacor has the option to increase its interest in the joint venture to 80% but Martineau emphasized that Dynacor is not going to become an energy company.

“We are miners first,” he says. “But in mining energy is very, very important. That’s why we wanted our foot in this company — to control our costs.”

Martineau is interested in developing other mining projects.

The company also recently announced the creation of a spinoff company for its gold assets. These include the Acari mine, 428 km south of Lima, which is expected to produce about 20,000 oz. gold this year; the nearby Tumipampa exploration property; and the Casaden exploration property, 30 km southwest of Newmont Mining’s (nmc-t, nem-n) Yanacocha mine in Northern Peru, which produced 2.57 million oz. gold in 2006.