From the Chairman
The turbulence in the financial markets which began late in 2008 continued into 2009. With commercial and sovereign risks continuing to be a significant concern, gold and gold securities have become even more desirable havens for investors. Reacting to these changed conditions, your company reorganized its management structure, continued to focus on key projects which will benefit shareholders in the near and long term and raised necessary finances to ensure completion of these projects. DPM employees continue to work diligently to improve productivity at all operations and to improve relations with governments at all levels.
During 2009, DPM’s management team obtained the necessary permits for the Chelopech mine/mill expansion. Construction is underway and on schedule for completion in the second half of 2011. From a financial viewpoint, this project is extremely robust.To assure an outlet for Chelopech concentrate, DPM contracted with a smelter in Namibia to process the entire mine’s production. This association culminated in early 2010 with the purchase of the smelter.
In September 2009, the Bulgarian Ministry of Environment and Waters issued a Commercial Discovery Certificate for the Krumovgrad gold deposit. Following receipt of this certificate, DPM applied to the Government for conversion of the property into a mining concession. DPM continues to pursue opportunities to realize value from its exploration and redevelopment assets located in Serbia and Armenia.
We were saddened by the death of Mr. Brian Steck in November 2009. Brian served as a director with distinction in the interests of shareholders. His counsel will be missed. Mr. R. Peter Gillin was appointed to serve out Brian’s term. Mr. John Lydall has advised the Board that he will not be standing for election at the next Annual Meeting. John’s wise counsel contributed significantly to the deliberations of the Board. Mr. Donald Young has been proposed as a candidate for election to the Board at the next Annual Meeting.
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, 2010
From the President and Chief Executive Officer
While 2009 was a challenging year, due to the financial crisis which started in late 2008 and continued into 2009, we are pleased with the advances achieved on several fronts. The Chelopech mine/mill expansion project is presently being constructed and is on track to double mine output to two million tonnes of ore per year by the third quarter of 2011. Importantly, the processing of the Chelopech concentrate by Namibia Custom Smelter is now fully secured through DPM’s recent purchase of the custom smelter from Weatherly International. The Deno Gold operation in Armenia is generating profits and further optimizing its operations through a mine/mill expansion to 600,000 tonnes of ore per year. We are nearing completion of the sale of our Serbian exploration interests to two TSX-V listed companies, in return for a substantive ownership interest in each of the companies and their commitments to advance exploration and development of the projects. The Company is on track to meet its strategic objectives – to optimize current operations and advance the Krumovgrad gold development project.
CHELOPECH
At the fully expanded production rate, Chelopech will produce 140,000 ounces of gold and close to 50 million pounds of copper annually at a unit cash cost, excluding royalty, of approximately US$30/tonne of ore compared to US$55/tonne of ore in 2009. As of December 31, 2009, there remains approximately US$94 million to be spent to complete the project. In addition, the success of our exploration drilling during 2009 has served to more than offset the amount mined. Further exploration drilling budgeted for 2010 will work towards delineating two new zones that were discovered in late 2009. The Tsumeb smelter in Namibia is a specialty smelter that was originally constructed to treat specialty concentrates like those at Chelopech. The smelter is completing a plant expansion from 120,000 tonnes of concentrate per year to over 240,000 tonnes of concentrate per year, which is more than adequate to process the 140,000 to 150,000 tonnes of concentrate that Chelopech will produce once it has been fully expanded. In addition to processing Chelopech concentrate, expanded opportunities will exist for the smelter to source and process other complex concentrates, providing the Company with a competitive advantage.
KRUMOVGRAD
At Krumovgrad, we are carrying out a review of certain key aspects of the proposed open pit gold development, including the process technology and tailings facility to optimize the project’s future profitability and ensure acceptance by the local community. Final test work is underway and a revised plan for the future development of this project will be completed by the second quarter of 2010.
ARMENIA
The year 2009 was a pivotal one for Deno Gold. During the shutdown, from November 2008 to the restart of operations in April 2009, we were able to identify areas of significant cost reduction and develop a more efficient mine plan. As a result, unit costs were reduced by over 30% and the mine generated profits in the last two quarters of the year. With some wind in our sails, in 2010, we are planning to expand the mine from about 400,000 to 600,000 tonnes per year to further enhance the operation and its profitability. It is anticipated that the majority of the expansion costs will be funded from internally generated cash flows. Our plans for this year also include addressing certain land acquisition issues and the restart of definition drilling for the proposed open pit – paving the way for future expansions. We also continue to evaluate all strategic opportunities and partnerships which could enhance the value of this project.
SERBIA
As previously announced, we have made the decision to take our Serbian assets public through two transactions with TSX-V listed entities. The first transaction, with Rodeo Capital, involves the sale of DPM’s Timok assets in return for equity and equity-linked consideration that includes a controlling interest in Rodeo upon completion of its announced equity offering. There are two very exciting projects in the Timok area that warrant further exploration drilling. The first is a porphyry gold/copper belt that has an initial resource and over seven drill ready targets. The second target is in a sediment hosted gold belt that extends over a distance of 25 kilometres. In 2009, two drill hole intersections at the Kraku Pestar anomaly returned significant widths of gold mineralization grading between 0.85 and 1.15 grams per tonne. The second transaction, with Queensland Minerals, involves the sale of DPM’s molybdenum assets and a second porphyry copper/gold project in return for equity and equity-linked consideration that includes a 47.5% interest in Queensland upon completion of its announced C$10 million equity offering. These strategic decisions will provide greater transparency to our Serbian assets while leaving us with two exciting portfolio investments.
These two new equity positions, together with Sabina, go a long way toward rebuilding DPM’s investment portfolio that was liquidated prior to the financial crisis. Since they acquired our Back River property in 2009, Sabina (15%-owned) has made two new discoveries and their stock has been performing well.
We are very excited about the direction the Company is taking and the opportunities it provides to grow our assets and increase overall profitability. We recently concluded an equity offering to raise gross proceeds of C$66 million which, together with continued strong gold prices and operating cash flow, is expected to assist the Company in meeting its nearer and medium term goals.
The onset of the financial crisis brought about many challenges and opportunities. To take advantage of those, we had to restructure our Company and asked an already committed management group to step up their game. I am very proud of the work that has been done by the DPM team and would like to thank them for the achievements that we have made. Thank you also to our shareholders for their patience and understanding during these difficult times.
Jonathan Goodman
President and Chief Executive Officer
March 30, 2010