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Dynacor will use cashflow boost from new Peruvian mill to fund precious metals exploration
“We are a Montreal-based firm that operates exclusively in Peru,” says Jean Martineau of Dynacor Gold Mines Inc (TSE:DNG).
“We’ve been there since 1996 and we have two subsidiaries, exploration and ore processing. We have a mill where we buy from small legal miners – we buy ore and sell gold, and with the profits we pay for the exploration.”
In a nutshell it’s the classic old-school model for a junior mining company – cash flow to keep the lights on and to fund a certain amount of exploration.
In Dynacor’s case, though, the cash flow business is by no means playing second fiddle to dreams of exploration success.
On the contrary: the model of hoovering up high quality ore from legally registered artisanal miners has proved so successful that the company has just financed and completed a capacity expansion.
A newly constructed mill at Veta Dorada has set initial throughput at around 300 tonnes of ore per day, following the completion of ramp up, although the next set of quarterlies will not fully reflect that output.
And the company isn’t stopping there. That initial output will be followed by another step-change in the fourth quarter when throughput is likely to go to 360 tonnes. In due course output could increase exponentially again, first to 450 tonnes and then to 600 tonnes per day, depending on what the gold price does.
That’s not bad at all, considering capacity was a mere 50 tonnes before the expansion process began.
What’s more, the construction of new plant has allowed for significant streamlining of the cost base, as Martineau explains.
“The last mill was not linked to the national grid,” he says. “Now we are linked. Costs are decreasing substantially. Electricity costs are down from US27cents to US8cents per Kilowatt Hour. Tailings costs are down to US$2 from US$12 and US$13 per tonne. And we are next to a highway – transportation costs are down.”
All told, the gross margin on offer is likely to be pretty healthy. The base target is 17%, according to Martineau, but there is substantial scope for improvement on that as the output rises.
“We did 73,000 ounces last year,” he says. “Our target is to process 90,000 ounces this year, and after that we will rise to between 105,000 and 108,000 ounces.”
In a bear market, such as the one we’ve all just been through, the ability to secure cash from such an operation is invaluable.
“We did it to avoid dilution,” says Martineau. But in a downturn that was as bad as the last one it did more than that – it ensured the company’s survival.
Now though, the market is moving round again and value is once more being put on exploration.
Here, Dynacor is set very fair, with a property portfolio that encompasses high grade gold veins, a huge skarn, a very large porphyry and widely disseminated gold.
With this embarrassment of riches it’s a good thing that Dynacor’s cash flow looks set to rise as there’ll be plenty to spend the money on.
What’s more, it’s a propitious region for exploration success. Peru is one of the world’s great producers of gold and copper, as Martineau points out.
“We’re surrounded by these big porphyrys,” he says, “like Las Bambas and Hudbay’s (TSE:HBM) Constancia project. We’re right in the centre of this geological formation there. Our next target will be to drill the disseminated zone.”
Story by ProactiveInvestors
Source: http://www.proactiveinvestors.com/companies/news/175148/dynacor-will-use-cashflow-boost-from-new-peruvian-mill-to-fund-precious-metals-exploration-175148.html
