From the Chairman
The financial and economic calamity that now engulfs the world has tested the will of many investors. In uncertain times investors tend to move to safe haven investments, including gold and gold securities. Notwithstanding the dramatic equity market sell-off, confidence and liquidity will return to our markets and with it a rebound in pricing levels. DPM is well positioned to take advantage of this rebound. We remain focused on creating and delivering long term value for shareholders. During 2008, DPM’s management team succeeded in reaching an agreement with the Bulgarian government on its Chelopech Mine expansion and obtained approval of the project’s environmental impact assessment. This has allowed the Company to commission and complete an update to its 2005 feasibility study and to apply for the necessary permits to move ahead with the project.
Also, in this adverse market environment the Company was able to demonstrate strong shareholder commitment by raising the equity capital needed to weather the downturn and advance key projects. During 2008 DPM employees worked diligently to improve productivity at all operations and to improve relations with governments at all levels – activity that will prevail throughout 2009. DPM is also actively pursuing opportunities to realize value from its exploration and redevelopment assets located in Serbia, Canada and Armenia. The recent agreement struck on the proposed sale of DPM’s Back River project to Sabina is an illustration of such value creation.
We thank you for your continued support and look forward to an exciting year ahead for DPM and its shareholders.
William G. Wilson
Chairman
March 30, 2009
From the President and Chief Executive Officer
Throughout 2008, the DPM group made solid, positive advances ensuring the nearer term development and expansion of its Bulgarian assets. External events have, however, introduced significant market and economic challenges necessitating a retrenchment and restructuring of operations and exploration activities.
We completed our agreement with the Bulgarian Government on the future development and expansion of the Chelopech mine and received a positive decision on the associated environmental impact assessment (“EIA”). As part of this arrangement, we are moving forward to complete our Public Private Partnership with the Government of Bulgaria for the development of a dedicated, value-added metals processing facility to treat the Chelopech gold/copper concentrate into finished metal, adjacent to the existing mine/mill facilities. In addition, we modified and extended our existing concentrate sales arrangements to ensure a ready outlet for our intermediate concentrate product while we complete the permitting and construction of the value-added metals processing facility. The flexibility this concentrate sales arrangement provides, given the uncertainty of the financial markets and regulatory environment, is important as we look to advance this project.
We have now received the updated definitive feasibility study for the Chelopech Expansion Project. Based on the updated cost estimate of US$216 million on a go forward basis and assuming a gold price of US$800 per ounce and a copper price of US$1.75 per pound, the project has a very favourable internal rate of return of greater than 27%. At the expanded rate of 2 million tonnes per year, the Chelopech mine will produce 139,600 ounces of gold and 48 million pounds of copper at an all-in cash cost of US$430 per ounce of gold and US$0.94 per pound of copper, on a coproduct costing basis. On a by-product costing basis, the facility will have an all-in cost of US$150 per ounce of gold. Either way the economics are very attractive.
There also remains considerable potential that is not reflected in the study, namely:
1. Exploration upside - the deposits are not yet fully delineated;
2. Metallurgical upside - there may be opportunities to expand the gold recoveries by creating and treating a pyrite concentrate; and
3. Further expansions - which would add incremental production as well as lower the unit costs due to economies of scale.
We see this expansion as the start of the optimization of the Chelopech orebody and we are advancing the final permitting and financing of the project. The Government of Bulgaria has restarted the EIA process at Krumovgrad, a highly prospective open pit gold project. We are presently working to finalize our report on the Natura 2000 compatibility assessment that is now due as part of the EIA process. When the EIA was completed in 2005, Bulgaria was not yet part of the EU and Natura 2000 did not exist. We are also using this time to establish a dialogue with the local community and build additional support for the project. We believe that the Krumovgrad gold project will be a very positive and significant development for the local communities, the Bulgarian economy, in general, and DPM shareholders.
As the global financial and economic crisis took hold and devastated capital markets and the underlying economy during the fourth quarter of 2008, we took action to conserve cash and enhance liquidity by putting all exploration activities on care and maintenance and shutting down redevelopment and production activities at our Armenian mine. In addition, we raised $80 million in an equity financing, notwithstanding a very tough equity capital market.
Our goal with respect to the balance of our properties is, in the nearer term, one of realization of value. With the onset of the financial crisis, we are now focused on our Bulgarian assets and are seeking out more creative ways to unlock the values of the rest of our exploration and redevelopment assets. As recently announced, we have reached a definitive agreement with Sabina Silver Corporation for the sale of our Back River project located in Nunavut, for cash and Sabina stock. Back River is an excellent exploration property that will complement the adjacent Sabina.
Jonathan Goodman
President and Chief Executive Officer
March 30, 2009