Operations - Armenia
KAPAN MINE
Armenia
Profile
In 2006, DPM acquired 80% of Deno Gold and increased its ownership to 95% late in 2007. Its primary mining operation (Shahumyan) is an underground mine from which separate copper and zinc sulphide concentrates, containing gold and silver by-products, are produced. The secondary deposit is an underground mine (Centralni), which historically has produced more than 30 million tonnes of copper ore. Both deposits remain open at depth. These deposits and associated surface infrastructure are located within the town of Kapan, which is some 320 kilometres by road to the south east of the capital city of Yerevan.
The focus at Deno Gold has been and continues to be on environment, health, safety and operational sustainability and a resource definition drilling program. Plans and specific measures for addressing key risks have been identified and are being implemented, including high priority items such as training, procedures and controls. Approximately US$18.5 million has been budgeted in 2008 for resource definition drilling and related activities adjacent to the existing mine workings. The intent of this program is to confirm the scale of the deposit, enable NI 43-101 compliant resources to be estimated and to assist in the identification of potential mine/plant expansion opportunities. To assist in this effort, an onsite laboratory, independently managed by SGS SA, has been built and is in the initial phase of commissioning.
Background
The Deno Gold mining area is located in the southeastern corner of Armenia and forms part of the Tethyan tectonic belt which extends from southeast Asia to Europe. This belt contains world class porphyry copper-gold, polymetallic vein array and epithermal gold-silver deposits, and is host to the Chelopech deposit in Bulgaria and the Bor deposits in Serbia.
The Deno Gold mining operation consists of two parts, a copper deposit known as Centralni and a polymetallic deposit of copper, gold, silver, zinc and lead, known as Shahumyan. Shahumyan is an underground mine from which separate copper and zinc sulphide concentrates, containing gold and silver by-products, are produced. Centralni, the secondary deposit, is an underground mine which has historically produced more than 30 million tonnes of copper ore. Production from the Centralni deposit started in the 1950s, initially from underground and then from both underground and an open pit, and records indicate that more than 30mt at approximately 1.3% Cu have been extracted to date. Both deposits remain open at depth.
These operations are located approximately 1.5km from the town of Kapan and some 320km south of the Armenian capital of Yerevan. Deno Gold produces a copper (with gold) concentrate and a zinc concentrate. The concentrate produced is readily saleable due to the lack of impurities or deleterious elements. Concentrates from the project are transported by road to the town of Ararat (60km south of Yerevan) where they are offloaded onto the rail system for transport to the Black Sea via Georgia. Deno Gold has contracted sales for its based forecast production for copper for 2008 and for zinc to 2009.
The complex comprises two underground mines, a rail transport system, two primary crushing stations and ore stockpiles, a processing plant (which historically processed in excess of 1 million tonnes of ore per year) and various infrastructure facilities that were built to support the operation.
Historical Resources
As part of standard Soviet era practice, extensive diamond drilling and underground development was undertaken at both the Shahumyan and Centralni deposits. For example, databases compiled by Deno Gold, based on Soviet era records, indicate that over 290,000m of surface and underground diamond drilling and 32,000m of underground channel sampling was completed to assess the Shahumyan deposit. No drill core remains from the Soviet era exploration programs. Based on information compiled by Deno Gold, Soviet era reports prepared for, and reportedly approved by, the Armenian government listed the following combined C1 and C2 resources for the Shahumyan and Centralni deposits.
All resource estimates quoted herein are based on prior data and reports obtained and prepared by previous operators and information provided by the State. The Corporation has not completed the work necessary to verify the classification of the Mineral Resource estimates. The Corporation is not treating the Mineral Resource estimates as NI 43-101 defined resources verified by a qualified person. The historical estimates are for general background information only and 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 dates of the estimates are not known but pre-date February 1, 2001.
It is understood that the resources were compiled using a sectional, polygonal estimation method, however, the exact estimation parameters are not known. As part of its due diligence process, DPM staff independently collected over 700kg of samples throughout the accessible sections of the Shahumyan deposit for assay, mineralogical studies and metallurgical test work. Assaying of the DPM samples confirmed the overall tenor of the mineralization. In addition, mining and processing of the deposit since Deno Gold’s acquisition of the project in 2003 has confirmed the tenor of the deposit. DPM has also independently sampled the mill feed and tails from the processing plant, including reference samples from previous years of production.
Project Development
Since acquiring the Kapan Mine, an assessment of health, safety and environmental risks has been completed and plans for addressing these risks on a prioritized basis have been prepared and are being systematically implemented. The health and safety function has been strengthened with the addition of an experienced safety professional, new safety reporting and the implementation of incident follow up procedures. As a result, a clearer picture is emerging of safety performance and weaknesses. Specific measures including training, procedures and controls have been targeted as the highest priority items. This is an ongoing process and, although immediate risks to employee and community safety will be mitigated, management expects improvements will be incremental and will occur over a number of years.
There are concurrent changes being implemented to tailings management and water management practices. These changes are intended to provide for incremental improvement toward international best practice over the next two to three years. A review of the existing arrangements for tailings management indicated that an alternative should be put in place as a matter of priority. As a result, the design and construction work on an alternative site that was already underway was expedited and the design was modified to meet international standards. This new facility is regarded as a temporary facility with a life of several years at current production rates. A design concept has been prepared for a long-term alternative and preliminary engineering has commenced. When exploration is further advanced and the future production schedule is better understood, engineering will be advanced and permitting will commence to provide sufficient storage for an assumed resource and production upgrade and to switch to open pit mining. The temporary facility has been commissioned and, as a result, the risks identified with the existing facility are not expected to impinge on production.
DPM plans to undertake an extensive drilling program as part of its proposed activities in order to confirm the scale of the deposit and to enable NI 43-101 compliant resources to be estimated and used as the source for mine scheduling as part of a definitive feasibility study. The Corporation had budgeted up to $21.3 million for the 2007 exploration program, of which $10.3 million was spent in 2007. The commencement of the exploration program was delayed due to the late arrival of drill rigs into Armenia.
An exploration license, for an aggregate area of 350 km2 surrounding the Deno Gold project area, was granted to the Company in April 2007 for an initial three year period. A thorough program of first pass exploration is planned, including helicopter based geophysics, soil and stream sediment sampling and geological mapping. The geophysical program was completed during the third quarter of 2007. Further data processing and interpretation of this data is required.
A number of relationships have been developed with local and international non-governmental organizations (“NGO”) active in Kapan and the Syunik region. A cooperation and training program has been initiated with the Armenian Forests NGO and Deno Gold is participating with the Organization for Security and Co-operation in Europe and the government of Armenia on a number of fronts, including infrastructure and related needs assessment, business development and incubation.
DPM’s approach is to treat the existing operation as a development project, whereby current ore production from underground mining will be supplemented with material from one or more new open pits as soon as suitable resources are proven and permitting obtained. Capital expenditure for existing infrastructure has now been restricted until resource definition is completed. Once medium-term plans are in place, the appropriate capital will be allocated to the mine to enable the increased production rates to be achieved, with the resulting improvement in financial results.
Focus at the Deno Gold mine continues to be on the long-term development project and not on maximizing production. Until exploration is completed and the long-term plans are in place, the results of the day-to-day operations will not be consistent.