Operations - Armenia

Last Updated:  August 2010

DENO GOLD OPERATIONS
Kapan

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The Deno Gold operations are situated in the town of Kapan, approximately 320 kilometres south east of Yerevan, the capital city of the Republic of Armenia ("RA").  Deno Gold’s principal underground mining operation is located on the Shahumyan concession.  The complex includes two primary crushing stations, a processing plant and various infrastructure facilities that were built to support the operation.

The processing plant produces two concentrates, a copper, gold, silver concentrate and a zinc concentrate, by staged flotation. Both concentrates are transported by road to the town of Ararat (60 kilometres south of Yerevan) where they are offloaded onto a rail system for transport to the Black Sea via Georgia.  The Shahumyan deposit does not contain material quantities of deleterious elements which would incur penalties in the treatment of concentrate. 

Background

Deno Gold operates the Shahumyan mine under a 25 year license agreement, in effect since 1995.  Initially, under the license agreement, Deno Gold was given the right to develop and mine the Shahumyan and Centralni mine concessions until 2010 and 2017, respectively.  However, in an agreement reached on January 15, 2009 between Deno Gold and the RA's Ministry, it was agreed
 
(i) In accordance with the requirments of RA Law on Concessions the Shahumyan mine license will be extended for an additional 12 years to 2032 and the license agreement will be extended to the full extent of the mining license;
 
(ii) The annual mine production schedule will be reduced to 300,000 tonnes, and;

(iii) the Centralni licence will be terminated and all contractual responsibility of Deno Gold, in its entirety, with respect to such licence will be waived and with the exception of certain very limited reclamation works and the preparation and implementation of a mine underground closure and conservation plan, all in compliance with RA legislation.

In response to the global economic slowdown and the significant decrease in metal prices in the second half of 2008, the Company suspended operations and exploration activity at Deno Gold in November 2008, pending an economic and metal price recovery.  

While on care and maintenance, the Company proactively worked to enhance overall efficiencies through training of underground mine and process plant personnel and the refurbishment of plant and equipment.  In response to the very positive regulatory and operational advances made by Deno Gold in the five month period (ended March 2009) it was on temporary care and maintenance, including (i) the finalization of its agreement with the Armenian government on the extension of its Shahumyan mine license and other critical aspects of its License Agreement, (ii) increased mine productivity and associated economies of scale related to improved mining methodology, (iii) higher ore grades alongside improved dilution control, (iv) improved metal recovery rates, and (v) lower unit operating costs (in part, due to the devaluation of the Armenian Dram), DPM elected to restart its operations at the Kapan facilities and mining operations recommenced on April 1, 2009.

Deno Gold has agreed commercial terms for the sale of all its zinc concentrate production for 2010 and 2011 and for the sale of its 2010 copper/gold concentrate production. 

Production, Costs, Deliveries and Net Revenue
[Click To View Data Table]

Historical Mineral Resource Estimate

The above resource estimate is based on prior data and reports obtained and prepared by previous operators and information provided by the State.  The Company has not completed the work necessary to verify the classification of the Mineral Resource estimates.  The Company is not treating the above Mineral Resource as NI 43-101 defined resources verified by a qualified person.  The historical estimates should not be relied upon.  This property will require considerable further evaluation which DPM's management and consultants intend to carry out in due course.

The underground resource was re-evaluated, as part of a requirement to update the reserves periodically, in country by Geoeconomica, a group of consultants under the Minister of Energy and Natural Resources that performs mining project work in compliance with the Armenian legislation, and approved by the RA State Reserve Committee in 2009.  This reserve estimate concentrates on the mining of narrow vein resources and is currently being utilized in the underground development in conjunction with updated drilling. 

Shahumyan Open Pit Mineral Resource Estimate

The Mineral Resource estimate for the pitable Shahumyan Deposit below was prepared by Coffey using an historical database containing approximately 291 kilometres of historical diamond drilling, 18 kilometres of development channel sampling, 40 kilometres of vein channel sampling and 6 kilometres of more recent non-DPM small diameter diamond drilling. In addition, 12,833 metres of diamond drilling, completed and supervised by DPM, was used as a reference data set in statistical analysis during the resource estimate. Coffey used a series of estimation constraints including an initial mineralization indicator kriging estimation pass to identify blocks containing mineralization, followed by ‘cutting’ of ‘outlier’ grade samples (7% Cu, 25g/t Au, 20% Zn and 300g/t Ag) and a multi pass estimation process wherein the higher grade population (defined as greater than 3.5% Cu, 10g/t Au, 10% Zn and 120g/t Ag) was omitted from all but the initial close range estimation pass. The grade estimate was classified as a Mineral Resource in accordance with the Canadian Institute of Mining (“CIM”) guidelines and reported in accordance with NI 43-101. The Coffey resource estimate shows that a very significant open pit polymetallic resource exists at Shahumyan.

10mE x 10mN x 10mRL Block Size – 5m Capped Input Composite Data

Note: AuEq US$ price assumptions: Cu $5,511.6/t ($2.50/lb), Au $850/oz, Ag $16/oz and Zn $2,204.6/t ($1.00/lb).

The Mineral Resources above are reported in an independent and NI 43-101 compliant technical report entitled “Technical Report for the Kapan Project, Kapan Armenia”, dated March 30, 2009, prepared by Brett L. Gossage and Brian R. Wolfe of Coffey Mining Pty Ltd., both of whom are QPs under NI 43-101, and filed on Sedar at www.sedar.com on March 31, 2009.

The information in the above table has been prepared under the supervision of Dr. Julian Barnes, a Qualified Person within the meaning of NI 43-101 and independent of the Company.

Mine and Mill Expansion

Deno Gold is currently expanding its mill to increase throughput to 600,000 tonnes per year.  The mill expansion consists primarily of additions of flotation cells and additional underground mining equipment to meet the mill throughput requirements.  Construction was designed to minimize mill downtime with completion expected in the third quarter of 2010. 

The mill expansion construction works commenced April 2010 with the removal of older flotation cells, piping, and electrical and installation of supporting structures.  The first 3.5m³ zinc cleaner flotation cells started to arrive in May 2010 and were installed and commissioned in June 2010.  During this period, the remaining 16m³ cells for the copper circuit arrived and are currently being installed along with the supporting conditioning tank and trash screen.  In early July 2010, the 16m³ cells were commissioned and the work on the copper cleaner section for the remaining 3.5m³ copper cleaner cell installation was completed in July 2010.  The mill expansion is on schedule and is expected to be completed in the third quarter of 2010.

Deliveries of the new mining equipment began in the second quarter of 2010 and it is expected that the deliveries of the new equipment will be completed in the third quarter of 2010.  This new equipment has already started to positively impact production and the tonnes of ore mined have steadily been ramping up to meet the planned 600,000 tonnes annual expansion target.