Operations - Bulgaria - Chelopech Gold/Copper Mine

Last Updated:  December 1, 2009

CHELOPECH MINE
Sofia District, Bulgaria

Profile

The Chelopech mine is an operating gold/copper mine and ore concentrating facility located at Chelopech, Bulgaria (the “Chelopech Mine”), which DPM has operated since late 2003.  The concentrate produced contains a high concentration of arsenic which limits the opportunities for sales to third party smelters and reduces the realizable return on the value of the metals contained in the concentrate. To overcome these constraints, and maximize the potential economic value of the complex, DPM proposes to increase mine production to 2.0 mtpa and construct a facility to produce copper and gold metals for direct sale to end users. This process will also convert the arsenic present in the concentrate into an environmentally stable form, suitable for safe disposal into a tailings management facility (“TMF”) located on site.

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 Company 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.

Mineral Reserves and Resources

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

3.2g/t AuEq Cut-Off Grade;  Cut-off Grade AuEq formula: Au (g/t) + 2.5 x Cu (%). Mineral Resources are inclusive of Mineral Reserves.

In July 2008, the Company received Bulgarian Government approval of the Environmental Impact Assessment (“EIA”) for the Chelopech Project, which includes the doubling of the mine and mill production capacity to two million tonnes of ore per year and the installation of an MPF that incorporates pressure oxidation (“POX”), carbon in leach (“CIL”) cyanidation and extraction and electrowinning (“SX/EW”) to treat the copper/gold concentrate and produce copper cathode and gold doré; upgrade of the existing tailings management facilities and construction of a new facility for storage of the POX-CIL tailings (the “POX TMF”).

Pursuant to a memorandum of understanding with the Bulgarian Government, the Bulgarian Government may own a 25% interest in a yet to be formed joint stock company that will construct, own and operate the Chelopech metals processing facility (“MPF”). In addition, the Company will pay a higher royalty in accordance with the Bulgarian Ordinance on Royalty Computation for all the metals that can be mined economically from the Chelopech deposit. The royalty is calculated on a sliding scale of 2% to 8% at a profitability ratio of 10% to 60%. The new royalty, which came into effect on July 31, 2008, replaced the 1.5% fixed rate entered into in 2004. The royalty in excess of 1.5% is accrued but is payable only after the start of construction of the MPF.

As at September 30, 2009, the Company had invested US$113.7 million in the Project for engineering, procurement and construction management on the POX plant, mine upgrades, the construction of the Nadejda decline for access from surface to underground, acquisition and refurbishment of an oxygen plant, the first phase of the mine backfill plant and upgrades and improvements to existing site infrastructure.

In the third quarter of 2009, activities related to the Chelopech mine and mill expansion project progressed in the areas of the paste fill plant, upgrade to the tailings facility and modifications to the process circuit to allow tailings reclaim, which will increase the rate of placement of hydraulic backfill. Preliminary work related to the upgrade of the concentrator, including demolition, excavation and installation of flotation cells, continued. A construction permit was obtained for the construction of the paste plant foundations and work commenced in late September 2009 with target completion date by end of December 2009. 

A comprehensive review of the mine and mill expansion plans at Chelopech resulted in certain scope changes being made to optimize the planned investment. Such changes include the installation of an underground crushing and conveying system in lieu of a shaft upgrade to facilitate the increase in mine output to two million tonnes of ore per year. The scope changes increased total expansion capital by US$42.5 million and decreased projected unit operating cost by US$6 per tonne (US$12.0 million per year). The estimated capital cost to complete the mine and mill expansion project, including the installation of an underground crushing and conveying system but excluding capital spending required to complete the MPF, special projects associated with on-going operations and sustaining capital, is US$102.0 million. This amount includes approximately US$19.0 million that is forecast to be spent in the year 2009. Completion of the mine and mill expansion is planned for the second quarter of 2011. Following commissioning, unit operating cost for the expanded facility is expected to decrease to approximately US$34 per tonne of ore processed.

Development of the Project requires the acquisition of land from a variety of landowners in the Chelopech and Chavdar Municipalities. The land is required for the new TMF and a buffer zone around the existing and new TMF. The land purchase program is well advanced and the Company is projecting that all land issues will be resolved by the first quarter of 2010.

Project Permitting

The permitting process for the construction of the MPF involves various ministries and government agencies. The environmental permits, such as the EIA, the IPPC and Working with Hazardous Substances (“Seveso”) are prerequisites for issuance of the construction permit. The TMFs are being permitted under the European Mine Waste Directive law as it is applied in Bulgaria. The EIA was approved by the Ministry of Environment and Waters (“MoEW”) in July 2008. The IPPC permit was issued by the MoEW on September 11, 2009. The Seveso application is being processed and it is expected that the Seveso permit will be issued in the fourth quarter of 2009. The Project is fully compliant with all European safety and environmental directives and industry Best Available Techniques requirements, as determined by IPPC, and the engineering has passed through rigorous audit and been certified by The International Cyanide Management Institute as being compliant with the International Cyanide Management Code. Other permits required for construction of various components of the facility are either in hand or in process.

On October 29, 2008, the Company received a subpoena from the Supreme Administrative Court of Bulgaria (the “Court) for a court hearing on February 18, 2009, to which Chelopech Mining EAD was summoned as an interested party to litigation proceedings initiated by the village of Poibrene, Bulgaria, which is approximately 50 kilometers away from Chelopech. Subsequently, the Company found that the claim was made against the EIA Resolution and had been consolidated with three other claims into one hearing. On June 3, 2009, the Village of Poibrene’s claim was withdrawn, thus reducing the number of claims from four to three. No specific reason was included in the request for withdrawal.

The first court hearing on all the claims took place on February 18, 2009. A second hearing took place on June 3, 2009 to allow the Company and the MoEW to review the new evidence presented by the claimant at the hearing and to allow a court expert to provide an expert answer on whether the water balance calculations included in the Project investment proposal were correctly prepared. The expert statement was positive for the Company, confirming the correctness of the calculations. Upon request by the claimant, the court assigned another task to a court expert, namely to determine whether alternatives for the entire investment proposal or only for some parts of it have been considered in the EIA. A third hearing took place on September 30, 2009 to review the expert statement, which was also positive for the Company confirming that, in accordance with the statutory requirement, alternatives for all sections of the investment proposal had been considered and described in the EIA. As no further requests were made by either party, the court announced completion of the pleadings and advised that a decision on the case will be made within the statutory time period.  On November 5, 2009, a court decision on the appeals proceedings was announced by the Court. The decision of the Court is for revocation of the EIA resolution issued by the MoEW in July 2008 and a return of the EIA administrative file to the MoEW for another review.  Based on a review of the Court’s decision, it is the Company’s view that the Court’s reasons for their decision are unsubstantiated and without merit.  This decision does not impact Chelopech Mining’s current operations and the construction of its mine and mill expansion currently being implemented. It is noted that none of the claimants have appealed the MoEW direction for pre-emptive execution, included in the EIA Resolution, which means that the Company can continue with the implementation of the Project while the court proceedings are ongoing.