GOLD: Dundee expects to start construction at Krumovgrad in Q3

In an update to investors on its Krumovgrad gold project in southern Bulgaria, Dundee Precious Metals (TSX: DPM) says it could start construction as early as the third quarter of this year and has revised its construction capital cost estimate to US$178 million, up from an estimate in March 2014 of US$164 million.

The company says it has nearly cleared the last permitting hurdle and expects to have the final construction permit approved by the end of June. Subject to financing and board approval, first production could kick off in the second half of 2018.

Dundee says the increase in the cost estimate was primarily due to higher levels of definition resulting from the completion during the first quarter of 2016 of detailed engineering work and updated contractor and equipment pricing, along with completed execution and operational readiness plans. The new estimate includes a contingency of US$12.4 million, and was partially offset by savings associated with leasing the mine fleet.

Rick Howes, Dundee’s president and CEO, could not be reached for comment.

Once in production, Krumovgrad will be Dundee’s second operating mine in the country. Its first, Chelopech, is 70 km east of Sofia, the national capital, in central-western Bulgaria, on the southern flank of the Balkan Ranges. Chelopech produces a copper concentrate containing gold and silver and a pyrite concentrate contain gold. (Last year the operation produced a total of 115,000 oz. gold, 39.8 million lb. of copper and 242 million oz. silver.)

Dundee acquired Chelopech in Sept. 2003 and since then annual ore processed has increased from 523,810 tonnes in 2004 to 2.1 million tonnes in 2014.

Krumovgrad is forecast to produce 85,700 oz. gold and 38,700 oz. silver a year over a mine life of eight years at total cash costs of US$404 per gold-equivalent oz, yielding EBITDA of US$66 million a year. Over its mine life, Krumovgrad will churn out a total of 685,549 oz. gold and 309,915 oz. silver.

At a gold price of US$1,250 per oz. and a silver price of US$15 per oz., payback would take 2.4 years and the mine would generate a post-tax net present value, at a 5% discount rate, of US$187.6 million and an internal rate of return of 24.8%.

Dundee says the project can be funded from internally generated cash flow and supplemented with available lines of credit under the company’s revolving credit facility, in addition to proceeds from the sale in March of its Kapan mine in southern Armenia to Polymetal International (LSE: POLY). Dundee sold Kapan, which produces a copper concentrate and a zinc concentrate, both containing gold and silver, for a combination of US$10 million in cash, US$15 million in Polymetal shares, and a 2% net smelter return royalty on future production capped at US$25 million.

In addition to Chelopech and Krumovgrad, Dundee owns the Tsumeb smelter, a copper concentrate processing facility in Namibia, and has interests in several gold development properties across Bulgaria, Serbia and northern Canada. It recently completed its acquisition of Avala Resources and also has a 12% interest in Sabina Gold & Silver Corp. (TSX: SBB).