CHELOPECH MINE
Sofia District, Bulgaria
Profile
The Chelopech mine is an operating copper/gold mine in Bulgaria (the “Chelopech Mine”) which is planned to be expanded based on the results of a December 2005 DFS and is in the process of obtaining permits for conversion from copper/gold concentrate to onsite finished copper metal and gold doré bullion production. The operation mined 906,070 tonnes of ore and produced 65,060 tonnes of copper/ gold concentrate in 2007. The Corporation has entered into sales contracts for its based forecast production for 2008. In addition, at the end of 2007, 9,200 tonnes were rolled over for delivery in the first quarter of 2008. The delay in the approval of the Chelopech EIA on the mine expansion and POX plant has caused the Corporation to postpone the increase in production and the completion of the surface facilities to 2010 at the earliest. For the year 2008, the Corporation plans to invest approximately US$38.0 million in Chelopech on further upgrades to the existing plant, mines and site infrastructure related to the expansion project. All non-critical capital expenditures related to the expansion have been deferred until such time as the EIA is approved by the Bulgarian government.
Background
The Chelopech Mine is located in central-western Bulgaria approximately 70 kilometres east of Sofia, the national capital, on the southern flank of the Balkan Ranges. The deposit lies in the northern part of the Panagyurishte mining district where a number of cupriferous massive sulphide and porphyry copper deposits exist.
The Mining License covers an area of 266 hectares. Under Bulgarian regulations, the Mining License area is applied for on the basis of geographical coordinates. The physical boundaries of the Mining License are not surveyed and marked on the ground. The Mining License covers the immediate area of the Chelopech mining operation and the immediate surrounds.
The Republic of Bulgaria currently holds a 1.5% royalty on the Chelopech Mine. Negotiations between the Corporation and the Bulgarian Government at the time of acquisition resulted in arrangements for only 50% of the royalty to be paid by the Corporation to the Government for a seven year period ending in 2010. The remaining 50% of the royalty is to be deposited by the Corporation into an account that is dedicated to fund environmental remediation projects at the Chelopech Mine. Under the terms of the recently announced agreement-in-principle reached with the Bulgarian Government, DPM will pay a higher royalty calculated in accordance with the existing Ordinance on Royalty Computation on a sliding scale. It will be between 2% and 8% at a profitability ratio of between 10% and 60% and will replace the existing royalty which was to expire in 2010.
The Corporation owns the land upon which the facilities are constructed and operates under a Concession Agreement that was granted in 1999 for a period of 30 years.
Production, Costs, Deliveries and Net Revenue
|
(in thousands of US$ except as otherwise stated) |
|
Twelve Months |
|
As at December 31, |
|
|
2007 |
2006 |
|
Ore mined (mt) |
|
|
906,070 |
920,150 |
|
Ore processed (mt) |
|
|
913,440 |
952,753 |
|
Head grade (ore milled) |
|
|
|
|
|
Copper (%) |
|
|
1.35 |
1.41 |
|
Gold (g/mt) |
|
|
3.92 |
3.99 |
|
Concentrate produced (mt) |
|
|
65,060 |
70,108 |
|
Metals contained in concentrate produced |
|
|
|
|
|
Copper (lbs) |
|
|
23,620,146 |
25,361,802 |
|
Copper (% recovered) |
|
|
87.1 |
85.3 |
|
Gold (ounces) |
|
|
75,075 |
70,781 |
|
Gold (% recovered) |
|
|
65.2 |
58.0 |
|
Cash cost per tonne of ore processed (US$) (1), (3) |
|
|
|
|
$ |
46.84 |
$ |
39.48 |
|
Cash cost per pound of copper in concentrate (1), (2), (3) |
|
|
|
|
$ |
1.03 |
$ |
0.92 |
|
Cash cost per ounce of gold in concentrate (1), (2), (3) |
|
|
|
|
$ |
227 |
$ |
182 |
|
Gross Value of Metals Sold (US$000) (2) |
|
|
|
|
$ |
118,664 |
$ |
101,492 |
|
Net Revenue |
|
|
|
|
|
|
|
|
|
Sales (US$000) (4) |
|
|
|
|
$ |
98,872 |
$ |
93,476 |
|
Sales (Cdn$000)(4) |
|
|
|
|
$ |
106,461 |
$ |
106,233 |
| Deliveries |
|
|
|
|
|
Concentrate (dmt) |
|
|
66,712 |
64,939 |
|
Copper in concentrate (lbs) |
|
|
22,739,659 |
22,673,114 |
|
Gold in concentrate (ounces) |
|
|
66,158 |
58,569 |
|
(1) Costs are reported in U.S. dollars for the purpose of comparing costs to revenues, though the majority of costs incurred are denominated in non-U.S. dollars. Cash costs consists of all production related expenses including mining, processing, services, royalties and general and administrative costs. The fourth quarter 2006 and year 2006 cash cost measures have been recalculated to be in line with the revised definition.
(2) Gold and copper are accounted for as co-products. Copper units are converted into gold units using the ratio of the average gold value to the average copper value for the period. Total cash costs are net of by-product silver sales revenue.
(3) A reconciliation of these non-GAAP measures is shown in the table entitled “Reconciliation of Non-GAAP Measures to Canadian GAAP Cost of Sales” under “Non-GAAP Financial Measures” below.
(4) Deductions from gross metal values are made for treatment charges, penalties, transportation and other selling costs to arrive at the value received for concentrate sold. |
Mineral Resources
Chelopech Resource Report", dated March 24, 2008; Cut-off Grade @ 4.0g/t Equivalent Gold is based on the following formula: (Au g/t + 2xCu%); the MPF outlined in the DFS is not designed for the recovery of silver in commercial quantities however, studies have been initiated in order to maximize the payable metal content of the Chelopech deposit. Metals that will be targeted include zinc, silver and other elements.
Expansion Project and Permitting
On November 3, 2005, the Corporation completed and filed an EIA with the Bulgarian MoEW. On December 8, 2005, the Board approved an investment of US$175 million (which included an additional expenditure of up to US$25 million for the purchase of an oxygen plant) based on the results of an independent DFS for the completion of the mine expansion and the construction of direct metal production facilities at Chelopech using POX technology. A benefit from the use of this technology is the conversion of the arsenic to ferric arsenate which, within existing EU environmental standards, is suitable for safe disposal in a TMF.
At year end, the Corporation had invested approximately US$81 million on the expansion project, principally engineering, procurement and construction management costs related to the pressure oxidation plant, mine upgrades, Nadejda mine access decline, acquisition and refurbishment of an oxygen plant and the first phase of the mine cemented back-fill plant. Work completed to date ensures the Corporation is well positioned for procurement of long lead items. Following the agreement-in-principle recently reached with the Bulgarian government, DPM is currently preparing to update the DFS for the expansion project.
Two hearings of the Supreme Expert Environmental Council of Bulgaria (the “Council”) were held during March 2006 to consider the Corporation’s EIA on the Chelopech Expansion Project. At each hearing, the Council voted overwhelmingly in support of the project. On March 29, 2006, as a precautionary measure in order to preserve its rights under Bulgarian law, the Corporation filed an Appeal Claim with the Supreme Administrative Court of Bulgaria (the “Court”) against the MoEW for failing to render a resolution of the Chelopech EIA within the statutory time limit. On October 24, 2006, the Bulgarian Court ruled in favour of the Corporation's claim that the MoEW's failure to issue a final resolution on the Chelopech EIA was unlawful and should be interpreted as a silent refusal and has ordered the Minister to issue a final resolution on the project. The decision was appealed by the MoEW and on April 26, 2007, the Court again revoked the silent refusal and the MoEW has been instructed to render a decision on the Chelopech EIA. The decision of the Court cannot be appealed.
On June 6, 2007, DPM filed a formal complaint with the European Commission (“EC”) against the Bulgarian government. The complaint states that the MoEW has failed to perform its obligations and that its inaction is in direct violation of several provisions of European Community law. Continuing delays by the MoEW may force the Corporation to seek redress in the International Courts for international treaty violations and may result in a relocation of the planned metals processing facility to a more collaborative jurisdiction. DPM has requested that the EC exercise its full powers to investigate the ongoing failure of the MoEW to perform its lawful obligations. The complaint is being assessed by the EC who will then decide whether or not to open an infringement procedure against the State of Bulgaria for failing to comply with its obligations under the European Union (“EU”) and EC Treaties.
As a result of the delay in the approval of the EIA, the schedule for ramp-up in production and completion of the facilities has been postponed to 2010 at the earliest. Any further delay in the approval of the EIA may lead to further extension of the schedule.
On March 10, 2008, the Corporation announced that it entered into an agreement-in-principle with the Bulgarian government concerning the proposed expansion of the Chelopech Mine. Under the terms of the agreement-in-principle, DPM will pay a higher royalty for all the metals that can be mined economically at the Chelopech site. This new royalty will be calculated in accordance with the existing Ordinance on Royalty Computation on a sliding scale. It will be between 2% and 8% at a profitability ratio of between 10% and 60% and will replace the one entered into by DPM in 2004 and that was set to expire in 2010. As well, DPM will provide a full environmental reclamation bond covering the Chelopech Mine, one of the first of its kind in Europe.
In addition to a higher royalty, Bulgaria and DPM have agreed-in-principle to enter into a public private partnership (“PPP”) for the MPF to be built at the Chelopech Mine site. Under the terms of this PPP, Bulgaria's Silver Fund will own 25% of this new facility. The new smelter will take close to 18 months to complete, from receipt of all permits. Once completed, the new smelter is expected to add, directly and indirectly, 150 new jobs to the Bulgarian economy. The operation of this new smelter will be in compliance with all local and international requirements.
In accordance with the Bulgarian constitution, the Bulgarian Council of Ministers must approve any and all agreements reached between DPM and the government concerning the new royalty and the PPP. Once all of these agreements are finalized and approved, the MOEW is expected to finalize the EIA permit for the Chelopech expansion project.