Dundee Precious Metals sells Armenian Gold Asset
Canadian Dundee Precious Metals Inc. has decided to sell its loss-making Kapan gold mining field in Armenia, which has proved reserves of 1.4 million gold ounces, 24 million ounces of silver to Polymetal, one of Russia’s largest gold producers.
The amount of the deal is estimated at about US$50 million. Under the terms of the agreement, Polymetal will pay annual royalties to Dundee in the amount of 2% of future Kapan production, which, however, should not exceed US$25 million in total. The deal is expected to be finally closed no later than on 30 June.
Under the terms of the deal, Dundee will sell all its infrastructure at the field as well as an enriching factory.
According to Vitaly Nesis, head of Polymetal, the deal has a significant importance for the Russian company, as it allows Polymetal to create a synergy with another gold mining asset, operated by the company in Armenia and which is known as Lichkvaz.
The Lichkvaz gold mining field is located 70 km away from Kapan, while its resources are estimated at 0.5 million ounces of gold.
Nesis said that Polymetal sees the potential of turning out of Kapan in a large processing hub, that will process ore from other gold mining fields of the entire South Caucasus region.
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Dundee acquired Kapan in 2006 and for the last five years has invested US$75 million in the development of the field. To date, Kapan has been a loss-making asset of Dundee, however there is a possibility that its sale to Polymetal will allow to significantly improve its financial performance.
In 2015 revenue of Kapan project amounted to US$35 million, EBITDA of – $ 5 million, while a net loss of – $48 million. During the period of 2014-2015, the losses of the asset amounted to $100 million.
As part of the plans for the increase of the profitability of the asset, Polymetal plans to reduce production costs, up to $723 per ounce in 2015, that will become mainly due to the reduction of “expensive expats” (the company employs approximately 20 Canadians), as well as the growth of production.
In the meantime analysts of the Russian Ministry of Industry and Trade believe that Dundee had taken a right decision to sell a problematic mine in Armenia, a jurisdiction of which cannot be considered as a safe place.
The same position is shared by top-management of Dundee. According to Rick House, CEO of the company, sale of Kapan will allow the company to focus on the implementation of other foreign projects, and in particular the Chelopech and Krumovgrad mining assets located in Bulgaria and Tsumeb smelter in Namibia.
In the case of Chelopech, the mine currently specializes on the production of copper and pyrite concentrates. In order to process the pyrite concentrate, Dundee had to build a new pyrite recovery circuit, which made it possible to increase the annual gold production at the mine by more than 54 thousand ounces (in 2015 Chelopech delivered 169,725 ounces of gold, of which 54,774 ounces came from the pyrite circuit).
According to the last estimates, Chelopech holds 22.83 million tons of ore, grading 3.14 grams of gold per ton of ore, classified as mineral reserves (around 2.3 million ounces of gold).
In addition to Chelopech, Dundee plans to pay bigger attention for the development of Krumovgrad, the second mining project located in Bulgaria. Krumovgrad holds 807 thousand of gold, classified as reserves. It is estimated that this property should be delivering 85,700 ounces of gold per year.
Eugene Gerden is an international free-lance writer, based in St. Petersburg, who specializes on writing in the field of mining, metals and rare earth metals. ... <Read more about Eugene Gerden>