ANNUAL INFORMATION FORM
For the Financial Year Ended 2010 DECEMBER 31, 2010 March 25, 2011
1 Adelaide Street East, Ste. 500 Toronto, Ontario M5C 2V9 Tel: (416) 365-5191 Fax: (416) 365-9080
Table of Contents
PRELIMINARY NOTES ...... 3
CORPORATE STRUCTURE ...... 7
GENERAL DEVELOPMENT OF THE BUSINESS ...... 8
DESCRIPTION OF THE BUSINESS ...... 10
MINERAL PROJECTS ...... 18 Chelopech Mine, Chelopech, Bulgaria ...... 18 Krumovgrad Gold Project, Krumovgrad, Bulgaria ...... 32 Deno Gold, Kapan, Armenia ...... 40 RISK FACTORS ...... 51
DIVIDEND POLICY ...... 60
DESCRIPTION OF SHARE CAPITAL ...... 60
MARKET FOR SECURITIES ...... 61
DIRECTORS AND OFFICERS ...... 62
LEGAL PROCEEDINGS ...... 65
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS ...... 66
AUDIT COMMITTEE DISCLOSURE ...... 66
TRANSFER AGENT AND REGISTRAR ...... 67
INTERESTS OF EXPERTS ...... 68
ADDITIONAL INFORMATION...... 68
GLOSSARY OF TERMS ...... 69
APPENDIX “A” ...... 73
Dundee Precious Metals 2 Annual Information Form
PRELIMINARY NOTES
Cautionary Note Regarding Forward-Looking Information This AIF contains “Forward-Looking Information” (as defined in Canadian securities laws) that involves a number of risks and uncertainties. Statements that constitute forward-looking information (“Forward- Looking Statements”) include, but are not limited to, statements with respect to the future price of gold, copper, zinc and silver, the estimation of mineral reserves and resources, the realization of mineral estimates, the timing and amount of estimated future production, costs of production, capital expenditures, costs and timing of the development of new deposits, success of exploration activities, permitting time lines, currency fluctuations, requirements for additional capital, government regulation of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims, limitations on insurance coverage and timing and possible outcome of pending litigation. Often, but not always, Forward-Looking Statements can be identified by the use of words such as “plans”, “expects”, or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates”, or “does not anticipate”, or “believes”, or variations of such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, “occur” or be “achieved”. Forward- Looking Statements are based on the opinions and estimates of management as of the date such statements are made, and they involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Corporation to be materially different from any other future results, performance or achievements expressed or implied by the Forward-Looking Statements. Such factors include, among others: the actual results of current exploration activities; actual results of current reclamation activities; conclusions of economic evaluations; changes in project parameters as plans continue to be refined; future prices of gold, copper, zinc and silver; possible variations in ore grade or recovery rates; failure of plant, equipment or processes to operate as anticipated; accidents, labour disputes and other risks of the mining industry; delays in obtaining governmental approvals or financing or in the completion of development or construction activities, fluctuations in metal prices, as well as those risk factors discussed or referred to in this AIF under the heading “Risk Factors” and other documents filed from time to time with the securities regulatory authorities in all provinces and territories of Canada and available at www.sedar.com. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in Forward-Looking Statements, there may be other factors that cause actions, events or results not to be anticipated, estimated or intended. There can be no assurance that Forward-Looking Statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Other than as it may be required by law, the Company undertakes no obligation to update Forward-Looking Statements if circumstances or management’s estimates or opinions should change. Accordingly, readers are cautioned not to place undue reliance on Forward-Looking Statements. Cautionary Note to United States Investors Concerning Estimates of Measured, Indicated and Inferred Resources: This AIF uses the terms “Measured”, “Indicated” and “Inferred” Resources. United States investors are advised that while such terms are recognized and required by Canadian regulations, the United States Securities and Exchange Commission (“SEC”) does not recognize them. “Inferred Mineral Resources” have a great amount of uncertainty as to their existence, and as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or other economic studies. United States investors are cautioned not to assume that all or any part of Measured or Indicated Mineral Resources will ever be converted into Mineral Reserves. United States investors are also cautioned not to assume that all or any part of an Inferred Mineral Resource exists, or is economically or legally mineable. Currency All dollar amounts referred to herein are in US dollars, unless stated otherwise.
Date of Information All information in this AIF is as of December 31, 2010, unless otherwise indicated.
Dundee Precious Metals 3 Annual Information Form Metric Equivalents The following table sets forth the factors for converting imperial measurements into metric equivalents:
To convert from Imperial To Metric Multiply by: Acres Hectares 0.404686 Feet Metres 0.304800 Miles Kilometres 1.609344 Tons Tonnes 0.907185 Ounce (troy)/Ton Grams/Tonne 34.285700
Resource and Reserve Estimates Unless otherwise stated, all resource and reserve estimates contained in this document are calculated in accordance with National Instrument 43-101, Standards of Disclosure for Mineral Projects (“NI 43-101”) of the Canadian Securities Administrators and the Canadian Institute of Mining, Metallurgy and Petroleum (“CIM”), as the CIM Standards on Mineral Resources and Reserves Definitions and Guidelines adopted by CIM Council on December 11, 2005 and subsequently amended. These standards differ from the requirements of the SEC. Accordingly, resource and reserve information in this document may not be comparable to similar information reported in the United States.
Technical Information Unless otherwise stated, the technical information in this AIF has been prepared in accordance with Canadian regulatory requirements set out in NI 43-101, and reviewed by Dr. Julian Barnes, Technical Consultant, formerly Executive Vice President of DPM, and Craig Lawrence Barker, Director, Exploration and Resource/Reserve Estimation of DPM, both of whom are Qualified Persons under NI 43-101 and not independent of the Company.
Defined Terms and Abbreviations The following are defined terms and abbreviations that are used throughout this AIF:
“2012 Warrant” A common share purchase warrant that entitles the holder to purchase one common share of the Company at $15.00 per share until June 29, 2012 and is listed for trading on the TSX.
“2015 Warrant” A common share purchase warrant that entitles the holder to purchase one common share of the Company at $3.25 per share until November 20, 2015 and is listed for trading on the TSX.
“Ada Tepe Resource An independent technical report entitled “Krumovgrad Project – Ada Tepe Report” Deposit, Database Review, Geological Modelling and Resource Estimate - December 2004 Update” dated March 2005, prepared by Brett Gossage, BAppSc (Geology), Manager of Resources, at RSG, now Coffey Mining, who is a QP under NI 43-101, and filed on Sedar at www.sedar.com on March 21, 2005.
“Ada Tepe Technical An independent technical report entitled “Krumovgrad Gold Project – Ada Report” Tepe Deposit, Definitive Feasibility Study, Technical Report” dated August 2005, Amended and Restated January 5, 2007, prepared by Brett Gossage, BAppSc (Geology), Manager of Resources, John Hearne, BEng, MAusIMM, Principal Mining Engineer, at RSG, now Coffey Mining, Michael Davis BEng, MAusIMM, Principal Process Engineer at Ausenco, Christopher Hogg, BEng, MIEA, Associate Civil/Geotech Engineer at Coffey, and John Fergus Anckorn, BSc (Hons), MSc, MAusIMM, Technical Director at AMEC, all of whom are QPs under NI 43-101, and filed on Sedar at www.sedar.com on January 12, 2007.
Dundee Precious Metals 4 Annual Information Form “AIF” Annual information form
“AMEC” AMEC Earth & Environmental UK Ltd.
“As2O3” Arsenic trioxide
“Ausenco” Ausenco Ltd.
“Avala” Avala Resources Ltd.
“BMM” Balkan Mineral & Mining AD
“Board” The board of directors of Dundee Precious Metals Inc.
“Chelopech 2011 A technical report entitled “Technical Report for the Chelopech Project, Report” Bulgaria” dated March 24, 2011, prepared by Brian R. Wolfe, BSc Hons (Geo), Post Grad Cert (Geostat), MAusIMM, Principal Resource Geologist, at Coffey Mining and independent of DPM, Gordon Fellows, BSc (Eng), MSc (Mining), MMSA, Technical Services Manager, of CME, and Craig Barker, BSc (Geo), Post Grad Dip (Geo), AIG, Director, Exploration and Resource/Reserve Estimation, of DPM, all of whom are QPs under NI 43-101, and filed on Sedar at www.sedar.com on March 25, 2011.
“CME” Chelopech Mining EAD
“Coffey” Coffey Geosciences Pty Ltd.
“Coffey Mining” Coffey Mining Pty Ltd. (and formerly RSG Global Pty Ltd.)
“CoM” Council of Ministers
“Common Share” A common share in the capital of the Company
“Company” or “DPM” Dundee Precious Metals Inc.
“CSR” Corporate Social Responsibility
“Deno Gold” Deno Gold Mining Company CJSC
“Deno Gold Resource An independent technical report entitled “Technical Report for the Kapan Report” Project, Kapan, Armenia”, dated March 30, 2009, prepared by Brett L. Gossage, BAppSc (Geol), Post Grad Cert (Geostats), MAusIMM, Senior Principal, and Brian R. Wolfe, BSc Hons (Geol), Post Grad Cert (Geostat), MAusIMM, Associate, at Coffey Mining, both of whom are QPs under NI 43- 101, and filed on Sedar at www.sedar.com on March 31, 2009.
“DFS” Definitive feasibility study
“DHEM” Down hole electromagnetic
“EBRD” European Bank for Reconstruction and Development
“EIA” Environmental Impact Assessment
“EPCM” Engineering Procurement and Construction Management
“G&G” Geology and Geophysics AD, Sofia
Dundee Precious Metals 5 Annual Information Form “GeoEngineering” GeoEngineering, Assenovgrad
“HSE” Health, safety and environment
“LDC” Louis Dreyfus Commodities Metals Suisse SA
“Metali” Dundee Plemeniti Metali d.o.o.
“Mine/Mill Expansion” A project designed to increase Chelopech mine and mill production to two or the “Project” million tonnes of ore per year.
“MPF” Metal Production Facility
“MoEET” Bulgarian Ministry of Economy, Energy and Tourism
“MoEW” Bulgarian Ministry of the Environment and Waters
“Molyco” Dundee Moly Company d.o.o.
“MOU” Memorandum of Understanding
“Navan” Navan Mining plc
“NCS” Namibia Custom Smelters (Pty) Ltd.
“NI 43-101” National Instrument 43-101, Standards of Disclosure for Mineral Projects.
“PJV” PJV Resources Inc.
“QP” A Qualified Person under NI 43-101
“QML” Queensland Minerals Ltd.
“RA” Republic of Armenia
“RIEW” Regional Inspectorate of Environment and Water
“Rodeo” Rodeo Capital Corp.
“RSG” RSG Global Pty Ltd. Effective September 2006, RSG was acquired by Coffey International limited and integrated with Coffey Mining.
“Sabina” Sabina Gold & Silver Corporation
“SGE” Sofia Geological Exploration
“SGS” SGS Laboratories
“TMF” Tailings Management Facility
“TSX” Toronto Stock Exchange
“TSXV” TSX Venture Exchange
“Vatrin” Vatrin Investment Limited
“WTI” Weatherly International plc
Dundee Precious Metals 6 Annual Information Form CORPORATE STRUCTURE
Dundee Precious Metals Inc. was amalgamated under the Canada Business Corporations Act (the “CBCA”) by articles of amalgamation dated September 2, 1983. The Company’s name was changed by articles of amendment on June 9, 1999. The investment restrictions set forth in Schedule “B” of the articles of the Company were amended on August 13, 1997 and November 10, 2000, and subsequently removed in their entirety on April 16, 2004, pursuant to articles of amendment upon the Company’s conversion from a closed-end precious metals investment company to an operating mining company (the “Conversion”). As part of the Conversion, the Company completed a capital reorganization and eliminated its dual class structure. The Company amended its articles on April 16, 2004 which resulted in: (a) the reclassification of the 3,000 outstanding common shares in the capital of the Company as class A shares in the capital of the Company (the “Class A Shares”); (b) the subdivision of each issued and outstanding Class A Share (including the 3,000 outstanding common shares in the capital of the Company reclassified as Class A Shares) into five (5) Class A Shares; (c) the cancellation of the existing class of common shares in the capital of the Company; (d) the reclassification of all of the unissued and all of the issued and outstanding Class A Shares as a new class of common shares in the capital of the Company (the “Common Shares”); and (e) the creation of an unlimited number of preference shares in the capital of the Company (the “Preference Shares”) issuable in series. A summary of the attributes of the new Common Shares and the Preference Shares is provided herein under the heading “Description of Share Capital”. The Company amended its articles on May 18, 2010, to allow directors to appoint directors within the minimum and the maximum number permitted by the Company’s articles.
The head and registered office of the Company is Dundee Place, 1 Adelaide Street East, Ste. 500, Toronto, Ontario, M5C 2V9.
The following chart illustrates certain of the Company’s subsidiaries (the “Subsidiaries”) and the jurisdiction of incorporation of each company as of the date hereof. All Subsidiaries are 100% owned unless otherwise noted.
DUNDEE PRECIOUS METALS INC. (Canada)
DUNDEE PRECIOUS ACQUISITION INC. (Ontario)
DUNDEE PRECIOUS DPM ASSURANCE (BARBADOS) INC. (BARBADOS) INC. (Barbados) (Barbados) 1% 99% DUNDEE PRECIOUS METALS COÖPERATIEF U.A. (Netherlands) DUNDEE PRECIOUS DENMARK ApS (Denmark)
DUNDEE PRECIOUS DUNDEE PRECIOUS DUNDEE PRECIOUS VATRIN INVESTMENTS B.V. (CHELOPECH) B.V. (KRUMOVGRAD) B.V. INVESTMENT LIMITED (Netherlands) (Netherlands) (Netherlands) (BVI)
NAMIBIA CUSTOM CHELOPECH BALKAN MINERAL DENO GOLD MINING SMELTERS (PTY) LTD. MINING EAD & MINING EAD COMPANY CJSC (Namibia) (Bulgaria) (Bulgaria) (Armenia)
TSUMEB CHELOPECH KRUMOVGRAD KAPAN SMELTER MINE
Dundee Precious Metals 7 Annual Information Form GENERAL DEVELOPMENT OF THE BUSINESS
Three Year History 2008 Highlights • DPM raised net proceeds of Cdn$77 million from an equity financing consisting of the sale of 35,556,000 Common Shares and 20,444,500 2015 Warrants. Each whole 2015 Warrant entitles the holder to purchase one Common Share at a price of Cdn$3.25 per share until November 20, 2015. • DPM received 5,117,021 common shares of Eldorado Gold Corporation (“Eldorado”) in exchange for its holdings in Frontier Pacific Mining Corporation (“Frontier”), as a result of Eldorado’s successful takeover bid of Frontier, which shares were subsequently sold for cash proceeds of Cdn$41 million. • Independent resource estimate prepared by Coffey Mining using an historical database as well as diamond drilling completed by DPM shows significant polymetallic resources at Deno Gold Shahumyan Mine in Armenia. • Deno Gold operations in Armenia were placed on temporary care and maintenance in the fourth quarter pending an improvement in metal prices. • DPM ceased all exploration and drilling activities on its Armenian and Serbian properties and at its Back River project in the fourth quarter and announced that it has entered into discussions surrounding strategic opportunities for the advancement of its Back River project. • MoEW requested the preparation of a report that assesses the compatibility of the Krumovgrad gold project within the scope and purpose of Natura 2000, the European network of protected sites, a prerequisite for the issuance of a decision on the EIA for the project. • DPM announced completion of an agreement to provide up to $7 million of long term debt to NCS, and extended Chelopech concentrate sales contract with NCS allowing the sale of up to 120,000 tonnes of concentrate from 2011 to 2013. 2009 Highlights • Deno Gold operations in Armenia recommenced in April 2009 after being placed on temporary care and maintenance in the fourth quarter of 2008. • DPM completed the sale of its Back River exploration project in Nunavut to Sabina in exchange for Cdn$7 million cash, 17 million Sabina common shares and 10 million Special Warrants, exercisable upon Sabina achieving certain exploration and production milestones. • BMM was issued a Commercial Discovery Certificate (the “Certificate”) for the Krumovgrad gold deposit. The Certificate follows the Geological Discovery Certificate for gold-bearing mineral resources within the Krumovgrad License, issued in 2001, and is a prerequisite towards obtaining a mining concession. • The Bulgarian Supreme Administrative Court (the “Court”) announced a decision to revoke the Chelopech EIA resolution issued by the MoEW in July 2008 and a return of the EIA administrative file to the MoEW for further review, which decision was appealed by the Company. 2010 Highlights • Chelopech continued to advance its mine and mill expansion project to approximately double its annual concentrate production capacity to 150,000 tonnes. The commissioning of the new paste fill plant was successfully completed in the third quarter of 2010 and the commissioning of the new SAG mill was completed in January 2011.
• Deno Gold completed a mine and mill expansion to increase its annual throughput to 600,000 from 400,000 tonnes of ore.
Dundee Precious Metals 8 Annual Information Form • A decision on the appeal of the November 2009 ruling to revoke the Chelopech 2008 EIA resolution confirmed the earlier decision of the Court finally revoking the EIA resolution. This decision did not impact the Chelopech mine and mill expansion project. • DPM raised gross proceeds of $64.8 million or (net proceeds of $62.0 million) through the sale and issuance of 20,000,000 Common Shares at a price of Cdn$3.30 per share.
• DPM completed the acquisition of NCS from WTI through the purchase of 100% of the shares of NCS. The total consideration paid to WTI for NCS was $33.0 million consisting of: (i) $18.0 million in cash and (ii) the issuance of 4,446,420 fully paid Common Shares.
• DPM completed its agreement with LDC to settle approximately $11.4 million of financial obligations owed by NCS to LDC, through a cash payment of $2.0 million and the issuance of 2,903,525 Common Shares.
• DPM and Chelopech finalized a $66.75 million long-term loan agreement with the EBRD and Unicredit Bank (“UCB”). The proceeds from this loan are to be used to assist in the financing of the Chelopech Mine/Mill Expansion and to refinance existing debt. • In compliance with its obligations under its Concession Contract, Chelopech delivered a $25 million insurance policy/performance bond to ensure the performance of Chelopech’s obligations for the planned or pre-term closure and rehabilitation of the Chelopech operations.
• DPM concluded its agreement with PJV and Rodeo (now Avala) wherein it received a 50.3% direct controlling interest in Avala, 36.7 million share purchase warrants exercisable at Cdn$0.50 per share and $1.6 million cash in exchange for Metali. DPM also received Special Rights to acquire 50,000,000 additional Avala common shares for no additional consideration, of which 25,000,000 are issuable upon a positive decision to proceed to a feasibility study on all or part of the projects and an additional 25,000,000 are issuable upon a positive decision to bring all or part of the projects into production.
• DPM entered into an option agreement with QML, in respect of DPM’s remaining Serbian properties, directly held by its Serbian subsidiary Molyco, (the “Option Agreement”). See “Sale of the Surdulica Molybdenum, Tulare Copper Gold and Karmanica Gold Projects” for further details.
Q1 2011 Highlights – As of March 25, 2011 • Under the terms of its loan agreement with the EBRD (the “Loan Agreement”) and UCB, DPM is required to provide metal price protection on 15% of Chelopech’s 2012, 2013 and 2014 projected payable copper production. To fulfill this obligation, in January 2011, the Company entered into monthly settled forward sales contracts to fix 2,868 tonnes of the year 2012 projected payable copper production at a fixed price of $9,224/tonne ($4.18/lb), 3,036 tonnes of the year 2013 projected payable copper production at a fixed price of $8,814/tonne ($4.00/lb) and 3,264 tonnes of the year 2014 projected payable copper production at a fixed price of $8,386/tonne ($3.80/lb). • In January 2011, the MoEW delivered a “positive grade” to both the EIA and the Natura 2000 Compatibility Assessment Report for the Krumovgrad gold project proposal, meaning that all information required under the EIA regulation is complete. See “Mineral Projects – Krumovgrad Gold Project, Krumovgrad, Bulgaria” for further information. • In February 2011, the CoM of the Republic of Bulgaria approved the granting of a 30 year concession to BMM to develop the Khan Krum Deposit in Krumovgrad. See “Mineral Projects – Krumovgrad Gold Project, Krumovgrad, Bulgaria” for further information. • Stephanie Anderson stepped down as Executive Vice President and Chief Financial Officer of the Company, effective February 28, 2011.
Dundee Precious Metals 9 Annual Information Form DESCRIPTION OF THE BUSINESS
General The Company is a Canadian-based, international mining company engaged in the acquisition, exploration, development, mining and processing of precious and base metals properties. DPM’s business objectives are to identify, acquire, finance, develop and operate low cost, long life mining properties. The Company is committed to create shareholder value through its disciplined but opportunistic business model. DPM has assembled a pipeline of mining projects at various stages of development. The Company currently has projects in: (1) the operating and redevelopment stage; (2) the feasibility and development stage; (3) the scoping and advanced exploration stage; and (4) the early exploration stage. DPM intends to maximize the potential of and realize value through the exploration, development and operation of its existing properties. Mining Operations Chelopech The Chelopech mine is an operating gold/copper mine and ore concentrating facility located in Chelopech, Bulgaria (the “Chelopech Mine”), which DPM has operated since late 2003. The Company owns the land upon which the facilities are constructed and operates under a concession agreement that was granted by the Republic of Bulgaria in 1999 for a period of 30 years. The concentrate produced contains a high concentration of arsenic.
Chelopech is presently expanding its mine and mill operations to approximately double its annual concentrate production capacity to 150,000 tonnes.
As at December 31, 2010, the Company had invested $81.2 million in the Project and the estimated cost to complete the Project was $69.2 million. The capital cost includes owner’s costs and contingency but excludes special projects associated with ongoing operations and sustaining capital.
The operation mined 1,088,431 tonnes of ore, produced 75,278 tonnes of concentrate and generated gross profit of $41.2 million in 2010. See “Mineral Projects – Chelopech Mine, Chelopech, Bulgaria” for further information. Deno Gold The Deno Gold operations are situated in the town of Kapan, approximately 320 kilometres south east of Yerevan, the capital city of the Republic of Armenia. Deno Gold’s underground mining operation is located on the Shahumyan concession. The complex also includes two primary crushing stations, a processing plant and various infrastructure facilities that were built to support the operation. The processing plant produces two concentrates, a copper concentrate with high gold and silver and a zinc concentrate, by stage flotation. Neither of the deposits contains material quantities of deleterious elements which would incur penalties in the treatment of concentrate. Deno Gold has agreed commercial terms for the sale of all its zinc and copper concentrates production for the year 2011.
In the fourth quarter of 2010, Deno Gold completed its planned mine and mill expansion to increase throughput from 400,000 to 600,000 tonnes of ore per year. The expansion included the installation of flotation cells and additional underground mining equipment. An intensive drilling program has been designed to determine the bulk mineable open pit potential of the Shahumyan deposit.
The operation mined 427,181 tonnes of ore, produced 6,396 tonnes of copper concentrate, 14,361 tonnes of zinc concentrate and generated gross profit of $13.6 million in 2010.
See “Mineral Projects – Deno Gold, Kapan, Armenia” for further information.
Dundee Precious Metals 10 Annual Information Form Smelter Operations On March 24, 2010, DPM completed the acquisition of NCS, a metals processing and smelting operation (the “Smelter”), from WTI through the purchase of 100% of the shares of NCS. The total consideration paid to WTI for NCS was $33.0 million consisting of: (i) $18.0 million in cash and (ii) the issuance of 4,446,420 fully paid Common Shares.
The Smelter was constructed in the early 1960’s and is one of only five commercial-scale smelters in Africa. It is linked by rail to the Atlantic port of Walvis Bay in Namibia. The facility consists of two primary smelting furnaces: (i) the reverberatory furnace; and (ii) the Ausmelt furnace. As part of the agreement to purchase NCS, DPM has been provided with an indemnification with respect to certain matters, such as any environmental and license breaches or breaches of law that may exist up to the date of completion of the acquisition of NCS, being March 24, 2010.
The installation of an oxygen plant to increase the efficiency of the Ausmelt furnace was completed in late 2009. The oxygen plant is expected to deliver 170 tonnes of oxygen per day and increase the capacity of the Smelter from 120,000 to 200,000 dry metric tonnes of concentrate per year by the first half of 2011, which is lower than the previous estimate of 240,000 dry metric tonnes by the first half of 2011. In order to avoid unnecessary pollution, NCS will use the reverberatory furnace to treat mainly the secondary materials as well as concentrates containing lower levels of arsenic. This will restrict the total throughput in the Smelter until a second oxygen plant is operational and the Ausmelt is used for all primary smelting. Both blister copper and As2O3 are produced from the concentrates processed. The Smelter is also one of only a few in the world which is able to treat complex concentrates.
NCS has embarked on a two-year program to improve the environmental performance of the Smelter. Key projects include:
Construction of a landfill facility for the safe disposal of baghouse dust and other waste from the smelting process and to deal with some existing waste stockpiles; Projects to reduce emissions from the “copper section” (the reverbatory furnace and convertors), including upgrading of the taphole fume extraction facility and other fugitive gas collection systems, improving gas handling and ducting installation, installing improved baghouse filtration facilities and dust handling equipment and configuring the process to better manage concentrate chemistry in this section of the plant (to divert more of the complex concentrates to the cleaner TSL furnace); Projects to reduce emissions from the top submerged lance smelting furnace, including installing an automated baghouse dust-removal system, installing new ducting and lime-dosing to neutralize sulphuric acid production and improving process conditions by using additional oxygen to allow the diversion of more complex concentrates to this furnace where controls are better and the process is better contained; and Construction of an enclosed storage area, bag-filling station and extraction system at the arsenic plant, all aimed at reducing the dispersal of dust and the refurbishment of the process equipment.
Spending on environmental and plant optimizations is expected to be approximately $35 million in 2011.
NCS recently installed an additional cooling tower to treat offgas from the reverbatory furnace and convertors. This, combined with additional baghouse capacity, has reduced dust emissions from the stacks serving these furnaces.
LDC has exclusive rights to purchase the Chelopech concentrate for toll processing through the Smelter and an exclusive arrangement to further supply concentrate feed for toll processing at the Smelter through to and including 2020. The As2O3 produced is sold to third party customers.
From April 1 to December 31, 2010, the Smelter processed 119,557 tonnes of concentrate, including 55,870 tonnes of concentrate from Chelopech.
Dundee Precious Metals 11 Annual Information Form Exploration Krumovgrad The Krumovgrad Gold Project has a proven and probable Mineral Reserve of approximately 4.86 million tonnes of ore grading 5.08 grams of gold per tonne (cut-off grade of 1.3 g/t gold) as disclosed in the Ada Tepe Technical Report, which was originally issued in August 2005. See “Defined Terms and Abbreviations”.
In 2009, a high level review was carried out on the project, which indicated that a more detailed review of mine planning, mine waste disposal, processing alternatives and project footprint and layout was required and that the Natura 2000 based law would have to be better integrated into project planning. It was also apparent that since 2005 a number of new laws and European NGO initiatives have introduced risks to the permitting and construction of the project that were not recognized in the original project documentation.
Detailed review work commenced in the second quarter of 2009 and an internal optimization study which consolidated a set of independent studies on various aspects of the Krumovgrad Gold Project was completed in the first quarter of 2010, including:
Based on the technical works and various economic analyses, a revised project configuration and a new permitting and project schedule were completed, which form the basis of a new DFS which is expected to be released in the second quarter of 2011. See “Mineral Projects – Krumovgrad Gold Project, Krumovgrad, Bulgaria” for further information. Serbian Properties On October 4, 2010, DPM entered into the Option Agreement with QML in respect of DPM’s remaining Serbian properties, namely its Surdulica molybdenum, Tulare copper/gold and other early stage projects located in Serbia directly held by its Serbian subsidiary, Molyco. Pursuant to the Option Agreement, QML is entitled, subject to the terms and conditions of the Option Agreement, to exercise its option to acquire 100% of DPM’s indirectly held interest in all of the issued and outstanding capital of Molyco upon: (i) QML having raised in one or more financings aggregate gross proceeds of Cdn$10 million (“Combined Financings”); (ii) QML having expended aggregate exploration expenditures of Cdn$3 million on the Serbian properties; and (iii) QML obtaining all requisite regulatory, shareholder, stock exchange or governmental authorizations and consents. The option is valid for one year from the date of the Agreement.
Upon exercise of the option under the Option Agreement, DPM will receive a number of units (“Vendor Units”) in the capital of QML, such that, upon completion, DPM will hold 47.5% of the issued and outstanding capital of QML, post-closing on a non-diluted basis (subject to adjustments under certain circumstances). Each Vendor Unit will be comprised of one QML common share and that number of warrants (but not less than half a warrant per Vendor Unit) as is equal to the number of warrants forming part of units sold in various tranches of the Combined Financings on a pro rata basis of each of the tranches of the Combined Financings. Each whole warrant will be exercisable for one common share of QML for a period of not less than two years and at an exercise price not greater than Cdn$0.42 per warrant.
Investment Portfolio Sabina As at December 31, 2010, the Company held 13% (market value Cdn$103.3 million) or 18,539,713 of the issued and outstanding common shares of Sabina, a Canadian precious metals exploration company with a portfolio of mineral exploration and pre-development properties in Nunavut, Canada. In addition, DPM held 5,000,000 Sabina Series A Special Warrants, which will be automatically exercised upon a decision to proceed to a feasibility study or proceed to production on the Back River project or upon the occurrence of certain other events and 5,000,000 Sabina Series B Special Warrants, which will be automatically exercised upon a positive production decision with respect to the project or upon the occurrence of certain other events. Each of the Sabina Special Warrants is exercisable for one common
Dundee Precious Metals 12 Annual Information Form share and one-half of one common share purchase warrant (“Warrant”) of Sabina, for a period of 35 years. Upon the exercise of the Special Warrants, each whole Warrant, if issued, will be exercisable until June 9, 2014, being five years from the date of closing, at the discretion of DPM, for one Sabina common share at a price of Cdn$1.07 each. The estimated fair value of the 10,000,000 Sabina Special Warrants as at December 31, 2010 was $58.7 million.
Avala As at December 31, 2010, DPM held 75,865,857 or 50.9% of the issued and outstanding common shares of Avala (market value Cdn$103.2 million), 34,290,179 common share purchase warrants entitling the Company to purchase the same number of common shares of Avala at Cdn$0.50 per share and Special Rights to acquire for no additional consideration (i) 25,000,000 Avala common shares upon a positive decision to proceed to a feasibility study on all or part of its Serbian projects and (ii) 25,000,000 Avala common shares upon a positive decision to bring all or part of its Serbian projects into production. As at December 31, 2010, the estimated fair values of the Avala share purchase warrants and Special Rights were $30.6 million and $18.8 million, respectively.
Pursuant to the certificates and indenture governing certain of the Avala warrants issued on July 30, 2010, Avala had the right to accelerate the expiry date of such warrants any time after October 25, 2010 if the closing price of its common shares is above Cdn$1.00 for 20 consecutive trading days. On December 13, 2010, having met this precondition, Avala issued notification of its decision to accelerate the expiry date of this portion of the share purchase warrants to January 14, 2011. In response, DPM exercised 2,428,500 full warrants to purchase the same number of Avala common shares at Cdn$0.50 per share. Avala also exercised its right to accelerate the expiry date on the remaining 34,290,179 common share purchase warrants to March 28, 2011 and, on March 22, 2011, DPM exercised 34,290,179 common share purchase warrants to purchase the same number of Avala common shares at Cdn$0.50 per share. Following the exercise of the warrants, DPM holds an aggregate of 110,156,036 common shares, which represents approximately 51% of Avala, on an undiluted basis, as of the date hereof.
Competitive Conditions The precious metal mineral exploration and mining business is a competitive business. The Company competes with numerous other companies and individuals in the search for and the acquisition of attractive precious metal mineral properties. The ability of the Company to expand its precious metal production in the future will depend not only on its ability to develop its present properties, but also on its ability to select and acquire suitable producing properties or prospects for precious metal development or mineral exploration.
Principal Products The Company’s principal product is a gold, copper, silver concentrate produced at the Chelopech Mine in Bulgaria. The concentrate produced at the Chelopech Mine has a high arsenic content (approximately 5.9%) which limits the number of potential buyers in the market and can result in disadvantageous sales terms. Normally, arsenic levels in copper concentrates are in the range of 0.3% to 1.2%. Arsenic, which is volatized during the smelting process and collected in the offgas ductwork as flue dusts, must be collected and disposed of. The cost of handling the arsenic is passed back to the supplier through escalating penalty charges. In December 2008, Chelopech contracted with NCS, a subsidiary of WTI, for the sale of all or substantially all of its concentrate production through the year 2013. In July 2009, this arrangement was extended from 2014 to, and including, the year 2020 giving Chelopech the right to sell up to 140,000 tonnes of concentrate per year to NCS. On March 24, 2010, DPM completed the acquisition of WTI’s Tsumeb Smelter assets and related business which secures processing of the Chelopech concentrate for the life of mine. During the financial years 2009 and 2010, the Chelopech Mine sold 75,542 and 73,061 tonnes of concentrate generating net revenue of $118.4 million and $113.8 million, respectively. 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. During the financial years 2009 and 2010, Deno Gold sold 10,633 and 18,096 tonnes of concentrate generating net revenue of $20.4
Dundee Precious Metals 13 Annual Information Form million and $46.5 million, respectively. This product was sold directly to third party concentrate traders and smelters. Corporate Governance Management and the Board recognize the value of good corporate governance and the need to adopt best practices. The Company’s corporate governance practices have evolved significantly since the Company’s conversion to an operating mining company in 2004 and with changing rules, guidelines and best practices. The Company is continuously improving its corporate governance practices to respond to changes in its business and changes in regulatory requirements. Full disclosure of DPM’s corporate governance practices is contained in the Company’s management information circular which has been filed on the Sedar website located at www.sedar.com. Additional information may also be accessed at the Company’s website located at www.dundeeprecious.com. Safety, Environment, Sustainability and Social Responsibility DPM continuously works toward improving compliance, across all of its operations, projects, or other assets, with its commitment to achieve best practice in mining, processing, environmental engineering and stewardship, health and safety programs and outcomes, permitting and legal compliance. This commitment applies throughout the life cycle of the operations and the minerals DPM mines and processes. DPM also works to ensure that sustainable returns are delivered to the stakeholder communities and countries that are invested in DPM and it is seen as a socially responsible contributor to the social and economic wellbeing of those communities.
DPM ensures that adequate resources are directed toward environmental management and stewardship, health and safety, sustainability, social license, and social responsibility in all business units. Every unit has adequately staffed departments responsible to senior management for these areas of the business. All in-country HSE and CSR teams report, on a monthly and quarterly basis, to the senior management of the Company who, in turn, report to the HSE committee of the Board. The committee meets, on at least a quarterly basis, to monitor management’s progress in the implementation of policy and provides support for the commitment made by the Board with respect to social and environmental responsibility and health and safety for employees and adjacent communities.
Chelopech 2010 Highlights
Chelopech was fully permitted for the construction and operation of the mine and mill expansion to 2 Mtpa and confirmation that all permits are in place was received from MoEW; Continuous improvement of waste management and recycling programs on site with contracts completed and facilities for storage and collection completed; Audits and reviews were completed on site using internal audit process and externally by the EBRD during due diligence for the project financing completed in 2010 and no significant issues were raised; Compliance checks and audits were carried out by the MoEW and Regional Environmental Inspectorate throughout the year and no notices of non-compliance were received; Reconstruction of the existing TMF, specifically stability buttress and seepage control systems, was completed and engineering for further upgrade phases also commenced; Infrastructure, community, and sustainable development grants to the Chelopech Municipality and neighbouring villages were in excess of BGN 1 million ($720,000) for the year; Engineering works were completed to improve noise impacts from an exhaust air shaft near the municipality boundary and success was confirmed by compliance testing; Engineering works and operating procedures completed to improve air emissions from secondary and tertiary crushing circuits were carried out and performance confirmed through monitoring. Best practice management systems continued to be developed; Chelopech safety, environment and community departments were fully staffed and all employees have the requisite qualifications;
Dundee Precious Metals 14 Annual Information Form An upgraded community liaison and grievance/follow-up process and documentation was implemented; Safety performance continued to exceed international benchmarks for health and safety and LTI frequency rate was in the top quartile compared with statistics available for operations in the developed world; and A comprehensive risk assessment was carried out on the mine/mill expansion project which included HSE risk.
Deno Gold 2010 Highlights
Improvements to the water management system at the Geghanush TMF were completed resulting in closing the water balance and recycle of process water; Land acquisition, including purchase and resettlement for future development of an open pit resource, was completed at Shahumyan Village. The process was fully compliant with Equator Principles and IFC performance standards relating to involuntary resettlement despite most of the transactions being commercial agreements based on a willing seller, willing buyer, rationale and lack of recourse to expropriation; Tree planting programs and cooperation were supported and implemented as a conservation/biodiversity offset for the reconstruction and operation of the Geghanush TMF. Significant progress was made on the closure and rehabilitation of the Artsvanik TMF; The Centralni license area was closed based on government license conservation requirements and handed back to the government; Improvements to systems and procedures and to permitting assurance and completion were made; An internally led safety audit was carried out in 2009 and a substantial action plan, which resulted from the audit, was completed and closed out during 2010; and The site environmental monitoring system was improved and more reliable records are available for the 2010 year.
Despite the progress being made in the HSE stewardship at Deno Gold there were nevertheless several issues and negative events during 2010 and early 2011. A fatality occurred in the underground mine in November 2010. The resulting formal investigation has not been officially completed however, the immediate cause was related to the failure of employees in following standard operating and safety procedure and the root cause assessment suggests that improvements to management supervision are required. The cause assessments are being followed up by the Company and Deno Gold. Throughout the year there were several relatively minor notices of non-compliance issued by Armenian regulatory authorities, all of which were resolved. There were also a number of criticisms of the operation from local and European NGO's relating primarily to the operation of the Geghanush TMF and related dust emissions and to the resettlement process described above. All of the concerns were responded to and investigation and review of records indicated that none were warranted and attempts have been made to improve the dialogue between Deno Gold and local NGO's as well as DPM and relevant European NGO's.
The Company recognizes that, although there has been significant progress toward achieving corporate goals and compliance with corporate HSE and CSR policy at Deno Gold and believes that risks to the business in these areas are being properly managed, there is still some progress to make. The local social and environmental baseline, which describes the context in which the facility operates, also falls short of the standards that can be found in other parts of the world and the HSE and CSR programs being adopted recognize and work within the constraints and needs imposed by this disparity.
NCS 2010 Highlights
Since the acquisition of NCS in March 2010, a comprehensive program of assessment, prioritization of needs, and community dialogue has been carried out covering all aspects of the HSE performance of the smelter and the CSR and community engagement programs of NCS. This has resulted in the
Dundee Precious Metals 15 Annual Information Form development of short and long range plans, some of which are still in development, and the preparation of various work packages and scopes and capital budgets designed to kick start the improvements that are required to move the smelter operation toward International good practice.
DPM has acknowledged that there are shortcomings with respect to compliance with international good practice at the smelter which have been inherited by previous operators and has committed to making significant progress toward meeting the goal of international good practice in HSE and CSR. The plans and timing thereof have been fully disclosed to the Tsumeb community where the smelter operates and to the Government of the Republic of Namibia.
The HSE monitoring function and process were strengthened and improved to allow for the collection of more reliable, quantitative and representative information showing the performance of the smelter and any serious weaknesses and risks were identified: o Ambient on site and indoor air monitoring equipment and processes were upgraded o Emissions monitoring equipment and processes are in the process of being upgraded o Ambient monitoring in the surrounding environment and community was strengthened Additional financial, staff and management resources were provided in occupational health, environment and community areas and a formal departmental structure was established to cover these areas of the business and provide them with greater visibility, and better integrate them into the core business of the smelter; Immediate steps were taken to improve the equipment available for the personal protection of employee health and safety to meet best international practices and standards. Policy and procedure regarding the use of personal protection equipment was strengthened and better compliance has become a management focus; Health and safety risk assessments were carried out using both internal and independent resources and programs to manage risks and implement the recommendations have been developed and prioritized, with the most urgent in the implementation phase by the end of 2010; During 2010, improvements to the off-gas management and emissions at the reverbatory and convertor furnaces were commenced. This included the installation of a second off-gas cooler to better control gas temperature and therefore the efficiency of particulate collection, the upgrading of existing dust collection facilities (baghouses) and the procurement of additional new and technically more advanced baghouse installations to supplement those already in place; NCS is seeking to leverage the value of the plant that recycles dust collected from furnace off-gas for the manufacture of As2O3 for sale into the pesticide industry and find new markets to minimize the volume of dust requiring secure disposal. The arsenic recycling plant operated at or near current capacity for much of 2010; A hazardous waste disposal facility is being constructed on site for the disposal of excess dust collected from the furnaces, and to address waste currently stored improperly on the site. The design and construction supervision of the facility has been carried out by a South African engineering consultancy to be fully compliant with all laws and best international practice for the management of hazardous waste and has been independently audited by an Australian engineering company, which has confirmed that the design meets all applicable standards; Scoping was carried out to develop the program of engineering improvements over the next five years and a staged program has been developed: o Completion of all permitting requirements under new Namibian law (scheduled for enactment 2010/11) meeting best practice EIA and stakeholder engagement processes by 2011; o Improved control over emissions of particulates and metals to meet good practice emissions and ambient air standards by 2012/13; and o Completion of full feasibility studies for sulphur capture by 2012 and better managing sulphur emissions by 2015/16; A large specialist engineering company with smelter experience has been retained to deliver a detailed assessment of the smelter and the work required to meet the 2012 goals, due the first quarter of 2011. The EPCM work required to meet the goals will be contracted to an independent EPCM contractor;
Dundee Precious Metals 16 Annual Information Form The program will include or preliminary work has started on, in summary; o the diversion of all primary complex concentrates to the more technologically advanced top submerged lance (“TSL”) furnace where off gas handling and controls are better (than in the reverbatory furnace) and associated materials handling changes; o Installation of a second oxygen plant to improve the efficiency of the TSL furnace and be used as the primary processing furnace; o The installation of improved gas handling equipment for the TSL furnace; o The installation of new best practice baghouse technology for filtration of the TSL furnace off-gas; o Improvements to the transfer of dust collected to the arsenic reprocessing facility to eliminate any human contact; and o Improvements to processing at the recycle plant, gas controls and product packing and management; Several community meetings have been held in Tsumeb to engage the local community and its leaders and several meetings with key ministries have been held for the same purpose; and A community trust has been established (the DPM NCS Tsumeb Community Trust), its key purposes being to fund or otherwise promote community health initiatives, education at all levels, small to medium enterprise development and youth development. The board of trustees includes two representatives of DPM and NCS but is primarily independent and comprised of respected community leaders. The trust was established with an initial contribution of NAD 1 million (~$150,000) and will be further funded over the coming years from smelter cash flow and corporate sources until a self sustaining funding model is developed.
Krumovgrad 2010 Highlights
The Krumovgrad project was delayed for several years between 2005 and 2010 due, in part, to community concerns relating to the project footprint, conservation issues, the use of cyanide for processing, and associated water management and water supply issues. During 2009, the Company conducted a review and scoping level revision of the project configuration and, in fact, many of its underlying approaches, as a response to these concerns and as a prelude to more positive re- engagement with the community.
The scoping level revision of project concepts included a significant reduction in the footprint (approximately 50%), elimination of cyanide leaching technology and use of flotation, at the expense of a reduction in gold recoveries from an estimated 94% to 85%, relocation of planned project facilities to avoid areas of conservation significance, and the use of thickened tailings and waste rock/tailings co- disposal using a technique involving a series of tailings cells within the waste rock facility.
During 2010, the proposed revisions to the project were tested, in detail, and a DFS on the new project was commissioned. A draft study was delivered to the Company in the first quarter of 2011 and the final study is due for release in the second quarter of 2011. Also during 2010, the permitting process for the 2005 project was halted and a new process started. New EIA and Biodiversity Act compatibility reports were prepared and are proceeding through the environmental and other permitting procedures according to Bulgarian and European Union law.
During 2010, it also became clear that there may be residual archaeological interest in the project site despite previous studies clearing parts of the site. BMM entered into a comprehensive agreement, extending over at least four years, with the Bulgarian Academy of Sciences National Archaeology Institute and Museum and the University of Munster to fully investigate the project area, including the rescue and removal of any site of interest by the end of 2012 (to be consistent with the project development schedule) and to provide a publicly accessible off-site display of any portion of the site, or artefact, so removed. This has, to date, been a highly successful agreement and the site will have been fully explored, and any item of real value found and rescued, prior to project implementation. A large team of archaeologists, under expert supervision and with access to high technology geophysics techniques, and the time to carry out hand excavation, is fully funded by BMM. The Company believes that archaeological risk to the project is being properly managed by this contract.
Dundee Precious Metals 17 Annual Information Form Although the DFS, archaeology, and EIA process are not complete and there are still permitting and schedule risks to the project, 2010 saw; Improved relationships and dialogue with the community and a clearer articulation of community needs and BMM response to those needs; The commencement of the permitting process and confirmation from the MoEW that the new project EIA meets regulatory requirements; Independent audit of the project EIA and associated documentation confirming that it meets international best practice; Engagement with schools and conservation groups to bring about real conservation benefits related to the project and its new footprint; More constructive engagement with NGO's; and Completion of comprehensive project and environmental risk assessment.
Despite delays in 2011 relating to the scheduling of the public hearing of the EIA and the requirement of cross border consultations with Greek authorities (the 2005 project was endorsed by Greek authorities as being acceptable), the Company believes that the significant environmental improvements to the project, responsiveness of BMM to community and conservation feedback, and the package of economic and social benefits to the community that has been developed, meet all of the criteria required for the project and BMM to meet best practice guidelines and that the primary risks to the project have been addressed.
Other 2010 Highlights
All HSE and CSR staff across the Company underwent formal externally led training in stakeholder mapping and engagement and conflict resolution; The program of constructive dialogue with responsible NGO’s, particularly in Europe, continued with positive results; DPM continued with its membership of the International Cyanide Management Institute and commitment to the Cyanide Code (the “Code”) seeing value in many elements of the Code despite moving away from cyanide projects in Bulgaria; DPM joined the Extractive Industries Transparency Initiative as an industry member; The internationally standardized Incident Cause Assessment Methodology (ICAM) was adopted as the corporate standard for incident and accident follow-up, reporting and action; and The internal environmental and health and safety audit and risk management function was further formalized and provided with improved role clarity at the management level.
See “Mineral Projects” for further information on the Company’s projects. See note 16 - “Reclamation and Other Long-Term Liabilities” to the Company’s consolidated financial statements as at December 31, 2010, filed on Sedar on February 23, 2011, for a discussion with respect to certain financial information on reclamation and other environmental obligations related to the Company’s operations. Employees As of December 31, 2010, the Company had over 2,400 employees through its overseas operations, the majority of whom are located in Eastern Europe and Eurasia, and in Canada,
MINERAL PROJECTS
The following properties of the Company have been deemed material by the Company.
Chelopech Mine, Chelopech, Bulgaria
References to the Mine/Mill Expansion are derived, for the most part, from, or in some cases are also direct extracts of, the Chelopech 2011 Report. The summary of Mineral Resources and Mineral Reserves reported below relies on information contained in the Chelopech 2011 Report. See “Defined Terms and Abbreviations”.
Dundee Precious Metals 18 Annual Information Form Property Description and Location The Project is situated adjacent to the Chelopech village, in the Sofia District of Bulgaria, 75km east of the capital Sofia. It is situated approximately 350km to the west by road and rail from the Black Sea ports of Bourgas and Varna. Chelopech is located at the foot of the Balkan Mountains, at an elevation of approximately 700m above sea level. The Project area is bounded to the north by the foothills of the Balkan Range, to the east by a government-owned road maintenance organization and residential housing and agricultural land to the west and south, respectively.
The Project is an operating underground gold-copper mine which, in recent years, has typically produced 60,000 ounces of gold and 14,000 tonnes of copper per annum contained in a high arsenic concentrate grading between 15% and 17% copper, 20 to 30g/t gold and approximately 5% arsenic. Due to the high arsenic content, all of the concentrate produced is transported to the Tsumeb Smelter in Namibia which is 100% owned by DPM and is one of only a few custom smelters in the world that has the ability to treat Chelopech concentrate.
The Project implementation is currently in the midst of ramping up to the planned 2Mtpa expansion of the mine and process facilities of the existing underground gold/copper mine. The mine upgrade consists of the development and construction of an underground crusher between the 195 and 165 levels adjacent to the 151 Block and a conveyor system to surface from the 165 level. The processing facility is planned to be upgraded to continue to produce copper and gold concentrate on site using flotation by increasing the comminution and flotation circuit capacities.
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 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. Royalties The originally agreed royalty is fixed rate of 1.5% of the contained metals mined and processed during the period. In July 2008, on the basis of being given approval to build and operate the MPF, DPM agreed to amend its Mining Concession Contract with the Bulgarian Government and to 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 was to be calculated on a sliding scale of 2% to 8% at a profitability ratio of 10% to 60%. This came into effect on July 31, 2008, replacing the 1.5% fixed rate royalty agreed upon at the signing of the concession contract in 1999. As the payment of the higher royalty was conditional upon the commencement of construction of the MPF, and following the Supreme Court’s decision (April 15, 2010) effectively preventing the installation of the MPF, the Company is, and continues to, pay the originally agreed rate of 1.5% of the contained metal values in the mined ore. Environmental Liabilities There are no additional liabilities to the property other than the existence of the current mining infrastructure (e.g. underground mine, process plant, flotation TMF, ancillary and administration facilities).
The amount of the financial guarantee for closure and rehabilitation of the site is determined as part of the Closure and Rehabilitation Plan, completed and coordinated with RIEW, MoEW and MoEET in April and May 2010. After project coordination, the Company has established financial security of its implementation as an insurance policy for $25 million and submitted it to the MoEET in November, 2010.
During 2010, the Company continued to maintain and care for the rehabilitated sites, which currently cover an area of over 10 hectares. These sites consist of caved zones and old waste rock stockpiles. The closure and rehabilitation of old waste rock stockpiles situated on municipal land and close to the Iztok mine ventilation shaft, a distance of 80 metres from the houses of the village of Chelopech, started in the autumn of 2009. The buffer zone using native species was developed on the west site of the TMF and covered approximately 5 hectares.
Dundee Precious Metals 19 Annual Information Form In 2010, the Company was awarded the National Social Responsibility award by the Bulgarian Mining and Geological Chamber.
Accessibility, Climate, Local Resources, Infrastructure and Physiography Access to the Chelopech Mine is via major sealed roads from Sofia. The principal rail and road links between Sofia and the country’s largest port, Bourgas, which is located on the Black Sea, pass through the village of Chelopech and the Chelopech Mine site. Chelopech lies at the base of a range of hills on gently undulating terrain. The area immediately surrounding the Chelopech Project comprises grassland. The Chelopech plant site is located at approximately 730m above sea level (“ASL”) whilst the ranges of hills which form a backdrop to the plant site rise to over 1000m ASL. The Project area has the climate of Subtropic Europe, featuring markedly higher winter and substantially lower summer precipitation. Winters are mild, but during intensive cold spells temperatures may fall to -13С. Summers are hot, reaching 36°C in warmer spells and exceeding 40°C in some locations. The average annual precipitation is 704mm. The bulk of this falls in autumn and winter, occasionally as snow in the coldest months. The highest rainfall occurs in December (96mm average) and the lowest in August (24mm). Mining operations are conducted all year round with excess availability of the TMF engineered as part of the construction process. Chelopech is well resourced, due to its proximity to major roads, power lines, communication facilities, water sources and the town of Pirdop. The Chelopech Mine obtains power from the Bulgarian power grid and is permitted to obtain its water requirements from nearby storage facilities. Power is supplied from the Bulgarian national transmission and distribution system at 110kV via substations at Stolnik and Zlatitza to the project substation (110/6kV) with two transformers (16 MVA each) located in the southeast area of the mine. The majority of the distribution system consists of above ground transmission lines. The Company currently has a permit to use its fresh water requirements from the local Kachulka dam (owned by the Chelopech Municipality), which are supplemented from water catchments and transport (pumping and pipework) facilities owned by the Company. Future additional requirements will be obtained from the Dushantzi dam for which usage permits were obtained in 2008. History Since the mine started in 1954, it has produced approximately 19.8 million tonnes of ore at just over 1.2% copper. The Chelopech Mine, then part of several state-owned enterprises, was fully operational between 1970 and 1990 producing bulk copper-gold and pyrite concentrates. Production as a state- owned company reached 100,000 tonnes per annum in 1971. It quadrupled in 1976 following an expansion program and the construction of a new concentrator, peaking at 512,000 tonnes per annum in 1988 before trailing off rapidly between 1990 and 1992. Prior to 1990, the nearby Aurubis (formerly MDK- Pirdop) copper smelter, located 7 Km east of Chelopech, accepted the sulphide-rich concentrates from Chelopech and blended them with cupriferous concentrates from the nearby Elatsite, Medet and Assarel mines. The relatively high arsenic content of the Chelopech copper concentrates led to the Bulgarian Government decreeing on April 1, 1990 that Chelopech concentrate could no longer be treated at the Aurubis smelter. In February 1992, the mine was placed on care and maintenance. In 1994, operations were restarted by Navan Bulgarian Mining BV, a Dutch registered subsidiary of Navan, with the re-treatment of approximately 100kt of stockpiled low-grade concentrate. Following a number of ownership changes over the next five years, in 1999, the CoM and Chelopech signed a concession agreement for the extraction of gold-copper ores from the Project, and the company name was changed to Navan Chelopech AD (Navan). Navan operated the Chelopech Project until late 2002, when it went into receivership. The operations continued under the direct control of an administrator appointed by Deutsche Bank AG of London. Mining
Dundee Precious Metals 20 Annual Information Form operations continued whilst DPM negotiated the acquisition of the Bulgarian assets from Navan, including the Project. The acquisition was completed on September 30, 2003. During the later period of production, the ore treated at Chelopech between 1994 to the end of 2002 is estimated to be in the order of 4.8Mt at an average grade of 1.4% Cu and 3.9g/t Au. Production for the period since the 2006 RSG resource estimate (January 2006 to December 2010, inclusive) was as follows:
January to December 2006: 952,753 tonnes at 1.41% Cu and 3.99g/t Au. January to December 2007: 906,070 tonnes at 1.34% Cu and 3.92g/t Au January to December 2008: 911,381 tonnes at 1.17% Cu and 4.08g/t Au January to December 2009: 957,043 tonnes at 1.39% Cu and 4.31g/t Au January to December 2010: 1,088,431 tonnes at 1.46% Cu and 3.86g/t Au
Geological Setting Regional Geology Bulgaria is located on the south east part of the Balkan Peninsula which lies within the Alpine geosynclinal belt. In the southern Balkans two branches of this belt can be distinguished, the Carpathian- Balkan branch to the north and the Dinaric-Hellenic branch to the south. Between these tectonic belts the country can be divided into four primary tectono-stratigraphic zones:
The Danube basin in the northern part of the country comprises non-folded Palaeozoic to Mesozoic sediments of the Moisian platform overlying a complex basement of Balkalian consolidation. Further south, in the Balkanides, tectonism and magmatism increase. Represented mainly by pre-Mesozoic basement and Cretaceous age magmatism and volcanism. The west part of Rhodope structural zone comprises crystalline basement rocks overlain by Cretaceous age island-arc volcanic sedimentary sequences. The east part of Rhodope structural zone comprises crystalline basic rocks overlain by Mesozoic to recent marine to terrestrial volcano-sedimentary cover and crossed by Tertiary magmatism.
The Late Cretaceous magmatic evolution in Bulgaria resulted in the formation of the Srednogorie volcano intrusive zone. The Chelopech deposit is located within the Panagyurishte metallogenic district in the central part of the Srednogorie zone. The Panagyurishte mineral district is defined by a NNW alignment of porphyry-copper (Elatsite, Assarel and Medet) and epithermal Cu-Au (Chelopech) deposits, which is oblique to the east-west orientation of the Srednogorie belt in Bulgaria (Chambefort, 2005). Alluvial (Topolnitza and Luda Yana) and vein-hosted (Svishti Plas) gold mineralization is also known in the area and has been previously exploited on a small scale. The geology of the Panagyurishte mining district comprises a basement of Precambrian granitoid gneisses intruded by Palaeozoic granites and overlain by Upper Cretaceous magmatic and sedimentary sequences. In some parts of the district, these rocks are overlain by upper Cretaceous flysch and by Palaeogene and Neogene molasse. The basement rocks form a series of uplifted horst-anticlinal structures between which a series of three north to east trending sub-parallel grabens contain the Cretaceous sequences. To the north and towards Chelopech, the Srednogorie massif forms the basement. Mineralization in the Panagyurishte district is intimately related to Cretaceous magmatic activity. In general terms, the cupriferous massive pyrite deposits are associated with Upper Cretaceous (Senonian) volcanics of andesitic and dacitic affinity whilst the porphyry deposits are generally associated with plugs and stocks of monzodioritic and quartz-syenodioritic intrusives. The epithermal deposits comprise lens or stock like bodies enclosed within the volcanics and are generally elongated along the principal structural grain. The porphyry copper deposits are located either
Dundee Precious Metals 21 Annual Information Form within volcano-sedimentary sequences in the grabens or in the horst blocks and are all proximally related to areas with intense development of sub-volcanic intrusive bodies and dykes. Chelopech Mine Geology The Chelopech deposit occurs below a sedimentary cover, which has preserved the underground mineralization from erosion. The Chelopech region consists of a metamorphic basement, and Upper Cretaceous volcanic and sedimentary successions. The metamorphic basement consists of amphibolite, gneiss and Precambrian sedimentary complex, while the Upper Cretaceous units represent a transgressive overlap of the basement commencing with a conglomerate and coarse sandstone coal bearing formation. Subvolcanic bodies intrude this formation and are believed to be related to the volcano-sedimentary rocks of the Chelopech formation that host the mineralization. The Chelopech formation has been deformed, eroded and covered by limestone-marls, flysch sedimentary sequences and a conglomerate. The basement in the vicinity of Chelopech is comprised of Precambrian granite gneisses, crystalline two- mica schists, quartzites and amphibolites. This basement is unconformably overlain by Permian terrigenous volcanics and in turn by a terrigenous and transgressive marginal marine sequence of Triassic, Jurassic and Cretaceous ages. The Cretaceous Chelopech Formation reaches thicknesses up to 2,000 metres (m) thick and hosts the mineralization. The stratigraphy of the mine area is dominated by Middle and Upper Cretaceous siliciclastics, volcanics and volcaniclastics, and flysch-type calcareous turbidites contained within an east to west trending syncline centred to the west of Chelopech village. The Chelopech formation can be subdivided into a lower (pre-mineralization) sequence of sediments and an upper (post-mineralization) volcanic sequence. The Lower Chelopech Formation (pre-mineralization) comprises a basal sequence of siltstones and calcareous argillites with subordinate terrigenous sandstones and angular breccio-conglomerates. Upwards these sediments become intercalated and eventually superseded by andesite agglomerates, andesites and andesitic lapilli and psammitic tuffs. The Upper Chelopech Formation (post-mineralization) of Coniacian-Santonian age (Lower Senonian) comprises a complex of andesitic and dacitic lavas and tuffs with siliciclastic, volcaniclastic and argillaceous sediments intruded by sub-volcanic bodies of porphyritic andesites. The Upper Chelopech Formation passes from mixed terrigenous-volcanogenous gritty sandstones with volcanogenic exhalative iron-manganese oxide horizons up and laterally into volcanogenic talus breccias and agglomeratic tuffs of andesitic affinity. The Chelopech deposit is located within the Chelopech volcanic centre, on the northern side of a northeasterly trending jog in the regional, east-west trending, Balkan Fault. The northern and northeastern part of the volcano has been removed by erosion, whilst the southern part has been thrust down by part of the Balkan Fault complex. The uppermost part of the Upper Cretaceous comprises flysch-type, thick bedded turbidites interbedded with polymictic coarse grits and sandstones with thin marls, sandy limestone and siltstones. Key features of the mineralization are summarized below:
the mineralization occurs within sulphide-rich zones of replacement silicification surrounded by haloes of silica-sericite alteration; the ore bodies, which formed as both complex branched bodies and discrete pipes, are grouped into two mining areas. The Central zone consists of five mineralized bodies (16, 17, 18, 19E, 19W and 8) whilst the Western zone comprises a further eight mineralized bodies (5, 25, 103, 145, 147, 149, 150 and 151). The mineralized zones vary from 150-300 metres in length, are 30-120 metres thick and can extend at least 350 metres down plunge; mineralized zones are structurally controlled; and there is good correlation between copper, gold and sulphur and a strong relationship between copper (and to some extent gold) mineralization and stockwork veining.
The Chelopech deposit is therefore, interpreted to represent a high sulphidation epithermal system which may be associated with a porphyry-style hydrothermal system at depth.
Dundee Precious Metals 22 Annual Information Form Exploration The Company is focused on the further exploration, delineation and exploitation of the Chelopech Mine; as such, infill drilling to define the continuity of the mineralized lodes is a continual process. As an example of this ongoing work program during 2005, the Company undertook a thorough review and ranking of drill intersections, and prospective near-mine areas, surrounding the known Chelopech orebodies. Data was derived from the historical database of more than 400,000 drilled metres. The review process identified and ranked a series of more than eight targets, which contain high grade copper and gold intersections, of which the highest ranking target was termed “Block 149”. The drill holes showed that the Block 149 target appeared to be hosted within a sub-vertical structure, with a true width of approximately 10 metres. The intersections were characterized by consistently high grade gold-assays, rather than isolated high grade outliers. A five year program to increase reserves around the existing ore bodies was introduced in 2007 and included the development of an updated structural and geological model, the use of DHEM surveys, clay mineral identification by analytical spectral procedures (ASD), combined with more standard multi- element analysis and underground mapping. Independent exploration drives on both sides of the mine have been developed with the dual purpose of drilling the Chelopech “Deeps” program and grade control. Additional new diamond rigs have been purchased. As a result, a number of additional targets have been defined and two new discoveries made (Blocks 145 and 147) in the fourth quarter of 2009. Block 145 was discovered by drilling underneath the Central Western Link targeting an unexplored silica zone and the down dip extents of a narrow copper/gold stockwork system mapped in the CWLink drive. Four holes were drilled into the silica zone of which two intersected a 15 – 20 metre (true width) wide normal stockwork system similar in mineralogy (enargite-tennantite-pyrite) and strike and dip orientation (strike NNW dipping steeply NE) as Blocks 151 and 103. Follow up drilling during 2010 is currently under review with Block 145 adding additional resources and reserves to the life of mine. It is anticipated that further drilling to the south east will be required in 2011 to close off mineralization.
Block 147 was discovered while drilling to the north of Block 149 targeting the continuation of Block 19. Drilling during 2010 has constrained the deposit to a narrow, vuggy quartz silica envelope (15-20 metres) hosting ore-bearing massive pyrite with minor sulphur salts (e.g. enargite & tennantite-luzonite). The mineralogy, geometry and grades intersected are similar to Block 149. The ore zone is 5-10 metres wide, has a strike length of 50 metres and a down-dip extent of 150 metres. The deposit remains open at depth and will be tested as mine development advances. Mineralized intervals show copper grades ranging from 0.1 – 3.91% and gold grades ranging from 2.35 – 32.89g/t.
Diamond drilling during 2010 also covered areas to the South West, North and Western Deeps. Through systematic geological review and ranking, Chelopech South West was identified as having the highest potential for delivering Block 151 style high-tonnage, medium grade reserves to the life of mine plan. In order to access this area a new exploration drive was developed off the 103 decline. The first phase of development was completed in October allowing drilling to commence in November. To date, drilling has not intersected economic mineralization however, the structure, lithology and alteration associated with mineralization is present. At the completion of an initial 9 hole program, on an 80 by 80 metre grid, a DHEM program will be conducted to identify any surrounding off hole anomalies. This program is estimated to be completed by the end of the second quarter of 2011.
Chelopech North drilling is targeting the along strike potential between Block 19 to the east and Blocks 149 and 147 to the west. Drilling commenced at the completion of the Block 147 drill out in December 2010. This region is accessible from the Central Western Link and has the potential to host high-grade, low tonnage, Block 149 style ore deposits. While, this program is being performed, advancement of the 149 ramp is underway in order to drill Targets 181 and 182. Plans are currently being made for a rig to commence drilling in April 2011.
On transferring the exploration focus from the Central to the Western “Deeps” program underneath Blocks 103, 150 and 151, a hole testing the hanging wall of Block 150 confirmed the presence of a multiple zone of high-grade gold and low-grade copper. This discovery (Block 152, formerly 150HW) is situated 10 metres into the hanging wall of Block 150, with down dip extents of over 50 metres (from 220mRL to 100mRL), strike lengths of 40 metres and widths of 15 metres. Drilling continues to determine the continuity and viability of this discovery. Metallurgical analysis is planned for the first quarter of 2011.
Dundee Precious Metals 23 Annual Information Form
Of the surrounding exploration license “Smolsko”, a surface exploration drilling program for a total of seven holes (PTDD021 – 27) for 2,973.3 metres of diamond core was completed in the fourth quarter of 2010, due north of Chelopech. This program was conducted in order to follow up the Chelopech North and Petrovden trend drilling results published in September 2008. Drilling on a 100 metre infill grid defined the presence of five separate narrow (3-10 metres) mineralized zones (brecciated and silicified volcanics hosting sulphides and +/-sulfosalts). The potential to convert these zones into economic reserves has been down-graded with further drilling deferred. The Company has applied for a one-year extension of this license on the basis that a Geological Find has been made. Following the review and registration of the Geological Find by the competent authorities, the Company expects to obtain the extension.
Drilling Since DPM’s acquisition of the mine, the underground resource definition drilling at Chelopech has been completed on a notional hole spacing of between 50m by 50m and 25 metres by 25 metres. Most surface holes are vertical or steeply inclined and average 600-700m in depth with some holes exceeding 1,000m. Underground drilling, originally horizontal, is now inclined in all orientations to achieve the best angle of intersection. Surface Diamond Core Drilling SGE carried out surface diamond drilling at the Chelopech copper-gold deposit from 1956. The surface holes were drilled at 76mm (approximately HQ) and core recovery was routinely measured during the drilling process. A historic recovery of 87% in the waste and 97% in the silicified material is quoted, however this cannot be checked. Coffey Mining understands that the drilling was completed using the appropriate Bulgarian/Russian ‘instrument’. DPM has completed some minor surface drilling within the resource area, relating to mine works (e.g. decline and portal) however, mineralization was not targeted or encountered and therefore these holes are not material to the resource. External to the immediate resource area, DPM has completed the first phase of surface drilling on a 200 metre by 200 metre grid in 2006/07 targeting a geophysical anomaly north of the mine, however, this is on the adjacent Smolsko exploration lease which is currently being transferred from BMM to Chelopech. Underground Drilling Chelopech Copper Processing Company (“CCPC”), Navan, Homestake and DPM have completed underground diamond drilling at the Chelopech deposit. The early underground diamond drilling (BQ size), completed by CCPC, was dominantly horizontal, and designed to locate the lateral boundaries of mineralization interpreted from the surface drilling. Since Navan’s involvement, modern diamond drills have been introduced with better capabilities, and drilling is now normally inclined and on section. The main objectives of underground drilling include resource evaluation drilling for multiple element analysis, geotechnical measurements and metallurgical evaluation. Currently, four underground drill rigs are operated by the Company at Chelopech Mine. These consist of two Boart Longyear LM75 and two Boart Longyear LM55 drilling rigs. All rigs use wire line feeders to drill BQ and NQ core. Since DPM’s acquisition, for both exploration and grade control, drilling has increased from 24,980 to 41,258 metres in 2010. For 2011, a total of 42,900 metres is planned to be drilled. Drilling Quality All drill core is logged by competent geological personnel. Logging has included lithological, geotechnical, and mineralogical parameters. Analytical results are also later added to the logging sheets. Although there have been a variety of geological personnel working on the Chelopech Project, the core has been logged in a systematic and relatively uniform method. Geotechnical measurements are systematically recorded and communicated to the geotechnical department for inclusion in mine planning. All core is stored in aluminium boxes in a custom core storage facility at the Chelopech mine.
Dundee Precious Metals 24 Annual Information Form Sampling and Analysis
Chelopech: Sampling and Analysis Summary
Sample Type Method Sample Sample Interval Metals Assayed Lab and Assay Recovery Method
Underground Lower half of 3-5 kilograms Faces sampled Copper, gold, SGS Chelopech Face Sampling active face represents 160 each silver, sulphur sampled with tonnes of ore development and arsenic Copper assayed panel chips on a round, by acid digestion 20 cm grid approximately with AAS finish every three metres Gold assayed by 25g fire assay Diamond Core NQ core is cut 92-98% core Maximum and Copper, gold, with AAS finish Sampling by diamond saw recovery standard silver, sulphur sample interval and arsenic BQ core is whole of 1.5 metre core sampled
Underground Face Sampling Development face samples are taken as horizontal panel chips or the composition of chips on a 20 centimetre grid over the bottom half of the face for each development advance. Each round is between 2.5 – 3 metres. The samples are usually split on the basis of different mineralization and geological characteristics. Each sample represents around 160 tonnes of ore. Sample tickets are entered into the bags with a numbering system which reconciles sample and assayed results in the database. The average weight of a face sample varies between 3-5 kilograms. The underground face sampling procedures and checks are considered appropriate with field duplicates, blanks and standards submitted for analysis as per the diamond core sampling protocols. Diamond Core Sampling All drill core is sampled in intervals up to a maximum of 3 metres, with 1.5 metre sample intervals being the most common length within mineralized zones. Two sizes of core are drilled at Chelopech, that being NQ and BQ for exploration and grade control drilling, respectively. NQ core is cut by diamond saw, with half core samples submitted for laboratory analysis and the residual half core retained in aluminium core trays while all BQ core samples are submitted for analysis as whole core. Samples are routinely assayed for Cu, Au, Ag, S and As. The majority of the core drilled since 2003 has been photographed. It should be noted that the dimensions of the mineralized zones far exceeds the standard sample length within the mineralized zones (1.5m). Sample tickets are entered into the bags with a numbering system, which reconciles sample and assayed results in the database. The weight of a diamond-drilled sample varies between 3kg and 7kg. Sample Recovery RSG has checked the recovery data from a selection of the original assay sheets for the diamond drilling and calculated an average recovery of 98.5% inside the modeled resource constraints and recovery of 92% in waste. The high core recovery results in the collection of high quality samples which are considered to be representative of the material being sampled.
Bulk Density Bulk density measurements have been routinely completed since the start of 2003 at the (ISO9002 rated) Eurotest facility in Sofia using the industry standard wax coating water immersion method. Prior to 2003, the bulk density was assigned based on a formula that uses sulphide and copper assays. The collection of bulk density data has recently been incorporated into DPM’s standard procedures which are applied to all diamond drilling and underground development.
Dundee Precious Metals 25 Annual Information Form Bulk density measurements are collected as 10cm billets every 3 metres along the length of the drill hole including both ore and waste while underground samples are collected every second development advancement. These measurements have been assigned to a bulk density table in the drillhole database. In 2009, onsite density analysis was introduced and made apart of the SGS managed onsite laboratory. The determination of bulk density for rock or core samples is by paraffin wax and water immersion.
Sample Preparation and Analytical The SGS Chelopech laboratory operates its own sample preparation facility using standard sample preparation equipment. From late 2004, the site laboratory was upgraded and significantly re-equipped, under the supervision of SGS in order to be SGS certified. SGS manages the site laboratory as an independent sample preparation and assay facility for a monthly management fee. An SGS qualified laboratory manager is on site at all times. A review for the purposes of obtaining ISO 9001 certification is currently taking place.
The sample preparation procedure is as follows:
The sample is dried for a period of 6 to 12 hours. The sample is crushed in a 4mm jaw crusher, followed by a roller crusher to 2mm. The sample is split in a Johnson splitter, retaining ⅛ or a 500g sample for pulverising and homogenization. The 500g sample is pulverized in Labtechnics LM2 “Mixermills” to 90% passing a -75 micron sieve size. Sizing analysis is routinely undertaken as part of the assay quality assurance procedures.
Routine grade assays are undertaken by the independently SGS-managed Chelopech laboratory. Analytical procedures with respect to mine face and core samples, mill feed and mill tails are as follows:
Copper: All samples from Chelopech have been analysed for copper by one of two methods. High grades are analysed using an iodometric method consisting of (mixed) acidic digestion followed by titration with sodium thiosulphate solution. Low-grade copper samples are analysed by means of acid digestion followed with grade determinations by atomic absorption spectrophotometry (AAS). Copper analysis at UltraTrace has been completed using a mixed acid digest followed by grade determinations using Inductively Coupled Plasma – Optical Emission Spectroscopy (ICP-OES) finish. Gold & Silver: Gold and silver assays completed at Chelopech are determined by means of the industry standard lead fire assay method. Gold analyses by UltraTrace were completed using a lead fire assay method with ICP-OES. A 40g charge was used. Silver analysis by UltraTrace is completed using a mixed acid digest followed by grade determination using ICP-OES finish. Arsenic: Multi acid (HCl/HNO3) digestion with AAS Finish. Sulfur: Sulphur assays completed at Chelopech were determined by means of combustion in a muffle furnace. Sulphur grades completed by UltraTrace used a mixed acid digest followed by grade determination using ICP-OES. High grade sulphur samples were analysed using a total combustion method. The laboratory is equipped with two ICP (Inductive Coupled Plasma) instruments for multi element analysis: o The ICP-OES is used generally to define the concentration of various elements found in the Chelopech ore, tail and concentrate. The Varian ICP–735ES can perform routine analysis on more than 50 elements simultaneously. All the above digestions and solutions can be analyzed on this instrument.
o The ICP-MS is used to analyze for low level trace elements found in soil and stream sediment samples. It is also used to analyze for environmental water samples to sub ppb levels. This instrument is mainly used for regional exploration samples, and water samples discharged from the Chelopech mine.
Dundee Precious Metals 26 Annual Information Form Analytical procedures with respect to mill concentrate are as follows:
Copper in ore and concentrate: Acid digestion with idiometric titration.
Copper in tails: Multi acid (HCl/HNO3) digestion with AAS finish. Gold: 15g fire assay with gravimetric finish (15g is used due to high sulphur and arsenic content). Silver: Multi acid digestion with AAS Finish.
Arsenic: Multi acid (HCl/HNO3) digestion with AAS Finish. Sulfur: Combustion with Eltra instrument. Quality Control Procedures The independent SGS-managed Chelopech laboratory quality control procedures include the following:
Every batch of samples is recorded in a laboratory job book, and profiled using the LIMS (CCLAS) computer scheduling system; Two international standards, one blank, repeats (~10%) and duplicates (~10%) are inserted randomly in every batch profiled; One in 20 samples is wet screened through a 75 micron sieve. 90% passing is expected. Job is re-pulverized if 40% of samples sieved in the batch failed (<90%); The laboratory participates in the SGS internal round robin, where four samples are analyzed for various elements, and results are compared with over 70 SGS laboratories worldwide; The laboratory participates in the Geostats international Round Robin Survey twice a year. Ten samples are analyzed for various elements and results compared with more than 100 laboratories; and As part of the quality control the laboratory sends, monthly, 104 samples to an accredited international laboratory (SGS Townsville) for QA/QC checks. Results are compiled and compared statistically, with a final report issued by SGS head office Australia. The Chelopech geology quality control procedures also include the following:
One in 20 samples is submitted as a duplicate with a different number assigned to it; An international standard with unknown (by the laboratory) metal concentrations is inserted after every 20th sample. Geostats Australia has manufactured and certified five Chelopech standards using two different types of Chelopech ores; One blank is inserted for every 40 samples; and In addition, umpire assay analyses of approximately 5% of the routine samples are performed by an internationally accredited laboratory – ALS Chemex, Vancouver, British Columbia, Canada (2004); ISO9001:2000 and ISO17025.
Dundee Precious Metals 27 Annual Information Form Mineral Reserve and Mineral Resource Estimates The Chelopech Mineral Resources, as of October 2010, are set out below.
Mineral Resources Gold Silver Copper Tonnes Grade Ounces Grade Ounces Grade Lbs (million) (g/t) (M) (g/t) (M) (%) (M) Measured 15.84 4.2 2.14 10.9 5.55 1.6 558.7 Indicated 12.70 4.0 1.63 7.2 2.94 1.1 307.9 Measured and Indicated 28.54 4.1 3.77 9.1 8.49 1.4 866.6 Inferred 8.10 2.9 0.76 10.3 2.68 0.9 160.7
(1) The rounding of tonnage and grade figures has resulted in some columns showing relatively minor discrepancies in sum totals. (2) All Mineral Resource Estimates have been determined and reported in accordance with NI 43-101 and the classification adopted by the CIM. (3) Cut-off Grade @ 3.2g/t Gold Equivalent is based on the following formula: (Au g/t + 2.5xCu%). The Mineral Resource has been depleted as of September 30, 2010. Resource estimates are based on various other assumptions and key parameters and are subject to risks as more fully described in the Chelopech 2011 Report; and (4) Chelopech, Resources: Qualified Persons and Reporting, See “Defined Terms and Abbreviations - Chelopech 2011 Report". The Chelopech Mineral Reserves, as of January 1, 2011, are set out below.
Mineral Reserves Gold Copper
Tonnes Grade Ounces Grade Lbs (million) (g/t) (M) (%) (M) Proven 14.59 3.66 1.72 1.37 439
Probable 6.26 4.37 0.88 1.04 144
Total Reserves 20.85 3.87 2.60 1.27 583
(1) The rounding of tonnage and grade figures has resulted in some columns showing relatively minor discrepancies in sum totals. (2) All Mineral Reserve Estimates have been determined and reported in accordance with NI 43-101 and the classifications adopted by the CIM Council in August 2000. (3) All Mineral Reserves are completely included within the quoted Mineral Resources. (4) NSR cut-off is +$10/t; the average sulphur content in mill feed is 14.0%; Mineral Reserves are depleted, and are based on metal prices of $900/oz gold, copper price of $2.50/lb and silver price of $17/oz; metallurgical recoveries are based on current and modeled algorithms for each block. The weighted average recoveries are 84.4% CuRec and 54.89% AuRec. Smelting and Transport costs are $185/t and $139/t, respectively, with smelter recoveries of 94% CuRec and 93% AuRec. Reserve estimates are based on various other assumptions and key parameters and are subject to risks as more fully described in the Chelopech 2011 Report; and (5) Chelopech, Reserves: Qualified Persons and Reporting, See “Defined Terms and Abbreviations, Chelopech 2011 Report". Mining Operations The operating facilities owned by the Company include an underground mine and a mineral processing facility which, in the years leading up to 2010, processed approximately 3,000 tonnes per day of ore in the original three stage crushing, grinding and flotation circuits. Other facilities include a fully operational and permitted tailings dam, two head frames and hoists, two ventilation shafts, a trackless decline from
Dundee Precious Metals 28 Annual Information Form surface, surface and underground workshops, and sufficient surface buildings and installations necessary to support current and future operations of the mine. The saleable product is a copper concentrate containing, on average, 16.5% copper and 30g/t gold, which is periodically hauled out in trucks to a rail loading station and dispatched to the Port of Bourgas for sea transportation to the Company’s Tsumeb smelter in Namibia. Chelopech contracted with NCS, a subsidiary of WTI, for the sale of all or substantially all of its concentrate production through the year 2020 giving Chelopech the right to sell up to 140,000 tonnes of concentrate per year to NCS. On March 24, 2010, DPM completed the acquisition of WTI’s Tsumeb smelter assets and related business. Since 2003, the mining method employed has progressively changed from sub level caving to long hole open stoping, and improvements in equipment availability, utilization and workforce skill training throughout have been steady and continue. The decline from surface was completed in 2007. This has increased mine operations flexibility by allowing personnel and heavy equipment access to the mine and allows the shaft to be dedicated to ore hoisting. In 2010, the mill processed 1,000,781 tonnes of ore at a cash cost per tonne of ore processed of $51.54, excluding royalties ($56.22, including royalties). In 2010, Chelopech produced 75,278 tonnes of concentrate containing 12,466 tonnes of copper and 65,512 troy ounces of gold. During the same year, Chelopech sold 73,061 tonnes of concentrate. During 2010, the Company continued with initiatives undertaken in 2008 and 2009 with respect to the redevelopment of the Chelopech Mine and the expansion to 2 mtpa approved by the DPM Board of Directors in 2009, including: Exceeded bench mark safety statistics for Lost Time Injury Frequency Rates; Internal and external environmental programs increased to include compliance covering air, emission and ambient air, water, soil, noise and blast vibration monitoring; Commissioned the paste plant in the third quarter of 2010, while decommissioning the previously operating hydraulic fill plant; Continued construction of the mill upgrade; the commissioning of the SAG mill was completed in early 2011; The work on the new mine underground ore handling system (underground crushing and conveying); Increased mine ventilation through raise bores program; Continued upgrading and modernization of mining equipment; and Continued meeting world bench mark for insurance risk as assessed by International Mining Industry Underwriters. Mine/Mill Expansion (the “Project”) Chelopech is presently expanding its mine and mill facilities to approximately double its annual concentrate production capacity to 150,000 tonnes, containing on average, from 2012 to 2021, 45.7 million pounds (20,735 tonnes) of copper and 128,850 ounces of gold. The Project comprises: (1) the expansion of mine production capacity to 2.0 million tonnes of ore per year, including the installation of an underground crushing and conveying system; (2) the installation of a new SAG mill; and (3) the modernization and upgrade of the existing concentrator. An updated life of mine (“LOM) plan, reflecting the expanded 2 million tonnes of ore per year mine rate, was approved by the MoEET and the MoEW. With the Chelopech operation reaching its estimated design rate of 2 Mtpa in mid-2012, the Project will produce, in concentrate, a total of 1.28 million ounces of gold, 2.19 million ounces of silver and 207,000 tonnes of copper metal for the years of 2012 through 2021. The plant is expected to treat approximately 2 Mtpa of ore during the peak production period from 2012 through to 2021.
Project Description
A new paste backfill plant on surface to facilitate maximum use of the available tailings for backfill placement underground in the mine, which was commissioned in the third quarter of 2010;
Dundee Precious Metals 29 Annual Information Form New ore handling system to replace the existing ore handling system (shaft and skip) which is limited to a maximum capacity of 1 mtpa of ore production. The 2 mtpa underground crushing and conveying system will take ore from an ore pass and tip system at the 195 level, crush, transport and discharge the ore onto a stockpile on the surface; An upgrade to the ventilation system (capacity increase of 110 cubic metres/second); A new 6,000 tonne live capacity stockpile and reclaim arrangement to ensure continuous feed from the mine to the SAG mill at the new 2 mtpa rate, resulting in the decommissioning of the existing secondary crushing facility; Upgraded rougher/scavenger flotation circuit comprising four new tank cells installed alongside the existing cells within the concentrator building; and A new “high-rate” concentrate thickener, prior to dewatering.
The planned mining operations incorporate a conventional longhole open stoping operation with paste fill. The mine is developed beneath the existing sublevel caving operations and will use a planned conveyor from the underground workings to surface for ore transport.
The ore treatment processes selected comprise conventional crushing of mined ore in a primary jaw crushing circuit, grinding in a SAG milling circuit, three stage flotation and concentrate dewatering. The, concentrate will continue to be shipped to the Company’s Tsumeb smelter in Namibia for the LOM.
Tailings from the concentrator will be thickened and directed to the mine backfill plant for disposal underground, with the balance discharged to the flotation TMF. The concentrator will operate 24 hours per day, seven days per week and is designed to process 250 tonnes/hour at an operating availability of 91.3%. Annual ore throughput capacity is two million tonnes. Design annual concentrate production capacity is up to 150,000 tonnes. Chelopech currently employs approximately 970 people on site engaged in the administration, mining, and processing operations. The Project is fully compliant with European safety and environmental directives and Best Available Techniques (“BAT”) requirements. The Project life will be a minimum of 10 years from commissioning of the new facilities. An aggressive exploration program has been designed to significantly delineate and increase the resources and reserve and extend the mine life. The timeframe for implementing the Project through to practical completion of the upgraded ore handling system commenced with planning from the beginning of 2009 through to December 2011. This schedule allows, permitting and approvals, engineering design, procurement of materials and equipment, construction of all new mine and mill facilities on site.
The capital cost to complete the Project is estimated at $69.2 million, which includes owner’s costs and contingency and excludes special projects associated with ongoing operations and sustaining capital.
Over the peak production period from 2012 to 2021, on-site cash operating costs are estimated to be an average of $29.93/tonne processed, excluding royalties, or $32.72/tonne, including royalties.
The base case assumptions include an exchange rate of $1.35/Euro, $900/ounce gold price, a copper price of $2.50/pound and $17/ounce price for silver. The Project produces an internal rate of return of 95.46% after tax, and an after tax net present value of $448.3 million at a discount rate of 7.5%.
At a gold price of $720/ounce, a reduction of 20% from the base case, the sensitivity analysis shows the equivalent internal rate of return will be 68.11% with a net present value of $314.3 million, after tax. Using a copper price of $2.08/pound, a price reduction of 20% from the base case ($2.50/pound), the sensitivity analysis shows the equivalent internal rate of return will be 73.48% with a net present value of $342.1 million, after tax.
Dundee Precious Metals 30 Annual Information Form With the purchase by DPM of the Tsumeb Smelter in Namibia in 2010, concentrate will continue to be shipped there for the LOM. An updated LOM plan, reflecting the expanded 2 Mtpa mine rate, was approved by the MoEET and the MoEW.
Mine/Mill Expansion Project: Status of Development Activities related to the Mine/Mill Expansion, primarily those of construction, steadily progressed throughout 2010. During the year, work related to the upgrade of the concentrator was completed. Major works were ongoing for the excavation of openings for the crusher and conveyor system, including one of the ore passes. The construction of the paste fill plant was completed in August 2010 and commissioning was completed in September 2010. The SAG mill and flotation circuit upgrade was completed by the end of the fourth quarter of 2010, commissioning/cut-over commenced on January 10, 2011 and is expected to be completed by the end of the first quarter of 2011. The new tailings thickener will be commissioned in 2011. Works related to the TMF completed in the first quarter of 2009 included upgrades of the seepage pump station at the base of the dam and the first phase of the buttressing of the dam wall. The second stage (buttress and wall lift to 620 meters) was commenced in early 2010 and the dam wall, having reached level 614, is expected to be completed in the first quarter of 2011. Work will continue in 2011 with replacement of the open part of the tailings flume with close HDPE pipes. These activities will significantly decrease the risk of tailings spillages. In 2010, the design of a new concentrate load-out facility commenced, with plans to be designed and commissioned in 2011. Permits The basis for issuance of the construction permits, required for the Mine/Mill Expansion Project, are the completion of the appropriate EIA procedure(s), preparation of a Detailed Development Plan, issuance of applicable Water Permits and the inclusion in the updated Life of Mine plan.
Project implementation comprises four main phases: (i) pre-construction; (ii) construction; (iii) pre- operations; and (iv) operations. The endorsements, approvals, permits and/or licenses required for each of the four phases of the Project are obtained on a regular basis. The Bulgarian system for permitting industrial and mining projects is complex and requires dealing with a large number of state and municipal authorities. A brief status of the permits obtained to date and the anticipated completion of the balance in order to meet the Projects construction schedule is listed below:
Life of Mine update– including the 2Mtpa production schedule; approved in November 2009. TMF Management Plan and TMF Permit Application; submitted March 31, 2010. Approval not yet received due to change in competent body authority (from the MoEW to the MoEET) – expected in the fourth quarter of 2011. TMF Upgrade-Construction Permit No. 2 / 26.01.2009. Construction Permit for new decline portal – obtained in April 2010. Mine Closure Plan – approved by MoEET on April 15, 2010 and by the MoEW on May 21, 2010. Reconstruction of “Sever” Shaft ventilation system - Construction Permit No. 20 / 16.10.2010. Construction Permit for the mill portion – completed. Process Commissioning of the mill section - completed in the first quarter of 2011; Operating Permit applied for and expected by April, 2011. Ore crushing and hoisting system upgrade, including surface portion of SAG mill feed system to the Process plant. Design submitted to the Municipality on March, 2 2011 - Construction permit expected by March/April 2011.
Chelopech was the first mining company in Bulgaria to submit a closure and rehabilitation plan in compliance with the legal regulations on providing financial guarantees for closure and rehabilitation of mine sites.
Dundee Precious Metals 31 Annual Information Form Krumovgrad Gold Project, Krumovgrad, Bulgaria
The following summary of the Krumovgrad Gold Project has been prepared, for the most part, from the Ada Tepe Technical Report and the Ada Tepe Resource Report and, in some cases, is direct extracts from these reports, copies of which has been filed on the Sedar website located at www.sedar.com. The Ada Tepe Technical Report relies on the Mineral Resource estimates contained in the Ada Tepe Resource Report. See “Defined Terms and Abbreviations”.
Property Description and Location BMM was awarded the Krumovgrad License area covering 130 square kilometres on June 12, 2000 in accordance with the Agreement of Prospecting and Exploration reached with the MoEET. In accordance with the Underground Resources Act (1999) time extensions to the Krumovgrad License area require reduction of area, consequently the License area now covers 100 square kilometres. The License area is located approximately 320 kilometres (by road) south-east of Sofia, in the Kardjali District, immediately south of Krumovgrad, within the south-east Rhodopes in Bulgaria. Within Bulgaria and according to the Underground Resources Act (1999), there are two ways in which an exploration license may be awarded; either through a competitive tender or by direct granting. Licenses are granted for an initial three year period and maximum exploration license size is 200 square kilometres; non-metallic and metallic license areas may overlap. According to the Agreement of Prospecting and Exploration reached with the MoEET, providing, a Geological Discovery (preliminary resource estimate) has been registered on a license within the initial three year period the Company is entitled to two further extensions of two years to register a Commercial Discovery (feasibility study), at which point a mining concession agreement is negotiated. The Underground Resources Act (1999) allows for the possibility of a final one year extension to the license area (Year VIII). The original Krumovgrad license was extended until June 2008. The Company was issued a Certificate in September 2009. It has applied for a mining license and is currently in discussion with the government regarding the nature and timing of the license approval (see “Risk Factors – Krumovgrad Gold Project”). Accessibility, Climate, Local Resources, Infrastructure and Physiography Access to the general area is excellent at all times of the year, by sealed roads to the regional centre of Krumovgrad. Access within the license area is good, with all-weather surface roads transecting the project area. Secondary roads are not surfaced but generally accessible with four-wheel drive vehicles year round. The seasonal rainfall distribution indicates that a Mediterranean climate is predominant with maximum rainfall in the winter and minimum rainfall in the summer and fall. Small villages are dispersed widely throughout the license area and are involved in subsistence farming, particularly the growing of tobacco on the poorly developed soils characteristic of the region. The other main source of land use within the licensed area is for state controlled forestry. The population of Bulgaria is largely Eastern Orthodox Christian (85%) with a Turkish Muslim minority predominantly residing in the south-east of the country, including the licensed area. The Ada Tepe deposit is located in an area of moderate, hilly topography abutting a major regional river system.
History BMM was awarded the Krumovgrad License area on June 12, 2000 in accordance with the Agreement of Prospecting and Exploration reached with the MoEET. The Ada Tepe prospect had been the subject of only very brief attention in previous State funded exploration. GeoEngineering has previously explored the area covered by the Krumovgrad License using finances provided by the Bulgarian State. G&G has also explored parts of the license area. GeoEngineering carried out an extensive program of geological mapping, trenching and drilling over the nearby Surnak prospect during the early-mid 1990s, together with a minor amount of trenching on the Skalak and Kuklitsa prospects. G&G included the entire license area in the south-east Rhodopes regional soil sampling program (average sample grid 250 metres by 50 metres) conducted during the early-mid 1990s.
Dundee Precious Metals 32 Annual Information Form G&G also performed magnetic and induced polarization surveys across the prospect. The results of this work showed the presence of a gold soil geochemical anomaly of significant intensity and extent over the prospect, and a variety of geophysical anomalies. Geological Setting Regional Geology The Krumovgrad License area is part of the Rhodope Metallogenic Zone, a volcanic arc of Tertiary age that extends approximately 800 kilometres from Serbia through southern Bulgaria and northern Greece to Turkey. Volcanism was related to collision of the Rhodope massif with a fragment of the African platform. At the end of the Eocene era and during the Oligocene era, the collision was followed by extension, formation of grabens and an intense volcanism was induced. Basement rocks of the area consist of Precambrian gneisses and metasediments together with lesser Paleozoic-Mezozoic metasediments. Tertiary (Paleocene-Eocene) conglomerates, sandstones, siltstones and limestones unconformably overlie the basement metamorphics. The basal portion of the sedimentary package is the primary host to mineralization within the Krumovgrad License area. Acid to Intermediate volcanism began in the Upper Eocene and progressed episodically until the Upper Oligocene. Several lead-zinc (gold-silver) epithermal vein deposits are related to volcanoes formed during this period, including Zvezdel and Madjarovo, which are situated 15 kilometres west and 25 kilometres north-east of Krumovgrad, respectively. More recent Neogene-Quaternary sedimentary cover occurs throughout the region. Prospect Geology Prospects in the Krumovgrad License area are hosted within a Lower Tertiary (Paleocene) terrestrial graben. They are predominantly hosted within the basal breccioconglomerate unit (Krumovgrad Group) which is composed of coarse basement blocks (up to metre-scale) within a variously clay-rich to sand-rich matrix. They were deposited during the fault-bounded basin development and associated rapid erosion. The sediment package through time progressed from breccioconglomerates, coarse sandstones, through to the siltstones and limestones. The limestone towards the top of the sequence has been dated as Upper Eocene (Priabonian) and represents the end of sedimentation and the initiation of volcanism. The majority of prospects within the license area are concentrated along the western margin of sediment- basement unconformity, with the contact gently dipping (10°-20°) towards the east north-east. The eastern margins of this asymmetric sub-basin suggest a much steeper contact (subvertical). All prospects currently identified to date are located on, or very close to, the gently dipping western basement/sediment contact and are generally associated with topographic highs. The contact zone in many prospects is defined by a tectonic breccia consisting of a fine-grained milled matrix with occasional subangular fragments of silicified breccia. This zone ranges from centimetre-scale (Ada Tepe), metre- scale (Kuklitsa) to nonexistent (Surnak). This tectonic zone may represent a detachment surface related to doming west-south-west of the sub-basin. Exploration BMM has conducted detailed exploration of the Ada Tepe prospect including the establishment of more accurate survey control over the license area, surveying of the surface topography, detailed surface trenching and channel sampling, diamond and reverse circulation drilling, rock chip sampling, bulk density measurements, and detailed geological mapping. The drilling forms a notional 25mN by 25mE grid over the entire deposit, and closer spaced drilling on a notional 12.5mN by 12.5mE grid has been completed over two rectangular sub-regions of the deposit. Deposit Types and Mineralization The Ada Tepe deposit is a high level epithermal gold-silver deposit, formed during the Neogene within the Southern Rhodope tectonic zone. Hydrothermal breccias, open-space fill textures and also the presence of sinter material, suggests proximity to the paleosurface and a low-sulphidation nature of mineralization. The gold and silver mineralization at Ada Tepe has been subdivided into two types, based on the mineralized zone geometry and style, as follows:
Dundee Precious Metals 33 Annual Information Form “Wall” mineralization: A shallow dipping (15 degrees north), tabular (nine metres average thickness) zone developed directly above the basement-sediment contact; and “Upper” mineralization: A series of east-west trending steeply dipping vein sets with ancillary vein sets in other orientations, occurring as complimentary structures. Texturally the high grades are related to open-space filling textures, which is common in bonanza-type epithermal gold deposits.
Drilling Drilling at Ada Tepe has been undertaken using both reverse circulation (“RC”) and diamond drilling (“DD”) techniques, using a variety of independent drilling contractors. The first and second drilling programs were carried out between 2000 and 2002. Approximately 145 holes had been completed as of August 2003 for the collection of 11,939 drill samples from 12,440 metres of drill advance. The third and most substantial drilling program was undertaken between September 2003 and June 2004. The program comprised 137 diamond holes (including 94 completely cored and 35 diamond tail resource holes, five ‘wild cat’ exploration holes and eight metallurgical holes) and 333 RC holes (including 298 complete resource holes and 35 pre-collar holes). This program resulted in a notional drilling density of 25mE by 25mN over the majority of the deposit, with most of the holes declined 60º towards the south and several scissor holes declined 60º to the north and northwest. In addition, RC infill drilling was completed to a notional 12.5m by 12.5m hole spacing in two selected areas in the south-western and central-western regions of the deposit to allow investigation of the close spaced variability of gold and silver assay grades. The fourth drilling program was undertaken between late October 2004 and mid November 2004. The program comprised 36 RC drill holes designed to selectively infill strongly mineralized zones within the southern third and to a lesser extent the northern flank of the deposit. Stringent precautions were taken during both RC and DD to ensure the highest quality sample was recovered. Sampling and Analysis
Krumovgrad: Sampling and Analysis Summary
Sample Type Method Sample Sample Interval Metals Assayed Lab and Assay Recovery Method
Channel Chiseled Approximately One metre Gold and Silver Majority of Sampling channel to three kilogram spacing analyses by approximate half per sample SGS labs in HQ core Romania, Australia and RC Drilling RC drill cuttings Approximately One metre Bulgaria riffle split per 70-80% per metre sample All gold analysis by fire assay Diamond NQ, HQ, & PQ 95% core One metre and AAS finish Drilling core cut by recovery diamond saw All silver analysis by aqua regia digest and AAS finish
Dundee Precious Metals 34 Annual Information Form Channel Sampling Prior to March 2002, a variety of sample intervals were used in surface channel sampling, primarily controlled by changes in geology. In April 2002, RSG initiated the use of a standard RSG channel sampling method. Some 425 surface channels have been excavated at Ada Tepe from which a total of 14,770 channel samples have been collected representing a total of 18,299.8m of sampling.
RC Drilling RC samples were routinely collected at one metre intervals and the cuttings split with a Jones riffle splitter. Field duplicates were taken via the splitter every 20 samples. The bags of cuttings were routinely weighed prior to taking the sub-sample via the Jones riffle splitter. Stringent quality control procedures have been used for all RC drilling completed at Ada Tepe to produce high quality samples. Sample weights were routinely measured on a metre by metre basis as part of the standard RSG RC drilling procedures during the 2002 exploration program. Statistical analysis of the RC sample weights indicated an average recovery of approximately 80%, based on a theoretical sample weight of 27.4 kilograms. Diamond Drilling To ensure a high sample quality stringent data collection quality control procedures have been applied. The diamond core was marked off at one metre intervals and sampled to produce half-cored (lengthways) using a diamond core saw. Field duplicates were produced from the same half-core following jaw crushing. Drill core recoveries were calculated by comparing the measured length of recovered core with the distance recorded on the core blocks between each drill run. Core recoveries were noted to be consistently in excess of 95%. In addition, the core was routinely oriented using a ‘spear’ after every 1.5 metre run during the 2002 DD program.
Bulk Density All bulk density measurements have been completed by an ISO 9002 rated laboratory, Evrotest Kontrol, in Sofia using an ISO 9002 approved method of wax sealed water immersion bulk density measurement. Bulk density measurements have been routinely collected from core billets at approximately 3 metre downhole intervals and trench grab samples collected at 5 metre intervals. A total of 5,764 bulk density measurements are available for the Ada Tepe deposit covering all of the major rock types and variations in oxidation and weathering at locations distributed throughout the deposit.
Sample Analysis Sample analysis has been carried out at the following two principal, independent, internationally accredited laboratories: (1) OMAC in Ireland; and (2) SGS of Perth (Welshpool), Western Australia, Gura Rosiei (near the Rosia Montana mine site), Romania and Chelopech (part of Chelopech Mine) Bulgaria (2002-2004). For the 2002 - 2004 program, internationally accredited external assay standards produced by Rocklabs of New Zealand were routinely inserted into the assay stream. In addition, umpire assay analyses of approximately 5% of the routine exploration samples from the second, third and fourth exploration programs were performed by two internationally accredited laboratories: (1) Genalysis Laboratory Services, Maddington, Western Australia, Australia (2002 – 2004); ISO9002 and ISO17025; and (2) ALS Chemex, Vancouver, British Columbia, Canada (2004); ISO9001:2000 and ISO17025. Samples from the 2000 and 2002 trench sampling and drilling were transported either to the OMAC or SGS Gura Rosiei facilities for both sample preparation and analysis. Initiation of the 2003 drilling and associated trench sampling included the establishment of an SGS sample preparation facility within a fully secured and enclosed core farm and RC sample storage facility with 24 hour security. With the exception of the first 600 samples from the 2003/04 drilling program (transported to the SGS Gura Rosiei facility for both sample preparation and analysis), all subsequent samples from the third and fourth drilling programs underwent sample preparation at the SGS facility in Krumovgrad and subsequent transport to the SGS Gura Rosiei (Romania), SGS Welshpool (Western Australia) or SGS Chelopech (Bulgaria) laboratories for assay analysis.
Dundee Precious Metals 35 Annual Information Form The following routine procedures have been used to prepare the trench, RC drilling and core samples for analysis:
Dry samples at 105ºC. Jaw crush core and trench samples to minus 6mm. Pulverize all samples in a LM-5 crusher to 95% passing 75µm. Complete the sieve analysis on one in 20 samples. Clean bowl and puck of the LM-5 with compressed air after each sample and with a barren flush after every 20th sample or, as required, to remove residue build-up. Complete barren flushes after BMM specified samples anticipated to contain high grade mineralization. A pulp library is maintained of all samples prepared by SGS Krumovgrad which are stored in a locked room in the BMM core shed. A 50 gram split was submitted for assay for gold by fire assay followed by an AAS finish and silver analyzed by multi-acid digest followed by an AAS finish. The precision and accuracy of the assay data was assessed by the use of field duplicates and laboratory standards. In addition, internationally accredited gold-silver standards were independently submitted into the assay stream by RSG at the rate of 5% of all samples representing approximately 575 data for the 2002 exploration program alone. Data Verification From June 2000 to March 2002, all exploration data collection at Ada Tepe was undertaken by Navan. From April 2002 to the March 2005, exploration at Ada Tepe was undertaken under the management of RSG in close consultation with field staff and management. A variety of grid systems apply over Bulgaria. The official grid system uses the Stereo 70 system. In May 2002, Australian surveying group Spectrum Surveys and Mapping Pty Ltd. (“SSM”) were contracted to undertake an audit of the survey control at Ada Tepe prior to further exploration being carried out. In May 2002, Mr. Steven Glavinas, a director of SSM, carried out an audit of the existing survey control at Ada Tepe. The survey was undertaken for the following purposes:
to investigate the grid system used (Bulgarian Government 1970 Grid) and to evaluate its suitability for the future of the mining and exploration program; to verify the existing government survey control; to audit the existing local exploration survey control and to ascertain its integrity; and to establish new high order survey control in future target areas. A general sample, high order survey was undertaken to establish the accuracy of the government trigonometric survey network covering the licenses of Krumovgrad and Perunika. A more detailed sample audit survey covered the Krumovgrad target areas at Ada Tepe and Surnak. Additional, accurate survey control was established at the future exploration areas of Ada Tepe South, Kuklitsa South, Skalak and Loudetina. Mineral Processing and Metallurgical Testing Prior to 2004, a series of preliminary metallurgical tests had been carried out to evaluate the potential gold-silver recoveries to be expected and the ore types present. The initial test work was carried out at the Camborne School of Mines in the United Kingdom and concentrated on developing basic flotation and cyanide leaching characteristics. The studies indicated that the Ada Tepe mineralization did not possess any adverse metallurgical characteristics and high gold recoveries could be expected. Additional testing of pulp samples from the diamond drill program in 2000 comprised 24 hour bottle rolls leach tests were undertaken by a major exploration group as part of an initial review of the Ada Tepe deposit. This test work indicated that high gold recoveries could be expected in both oxidized and primary mineralization.
Dundee Precious Metals 36 Annual Information Form As part of the preparation of the DFS, dated as of June 2005, a comprehensive metallurgical test program was undertaken under the direction of the DFS engineer. The program has developed all the metallurgical and engineering parameters required to complete the detailed design of the process facility. The results obtained to date have confirmed the original indications that high recoveries of gold will be achieved from each of the ore types present with conventional cyanide leaching processes. These have been used as the basis for the process plant design incorporated in the DFS. Mineral Reserve and Mineral Resource Estimates The following Mineral Reserve and Mineral Resource estimates are based on the Ada Tepe Resource Report and the Ada Tepe Technical Report, both of which were completed in 2005 and reflect the original Krumovgrad project plan. See “Defined Terms and Abbreviations”. A new EIA was filed with the MoEW on October 29, 2010, incorporating the revised project plan, and an updated DFS and NI 43-101 technical report in support thereof are expected to be released in the second quarter of 2011. See “Krumovgrad – Revised Project Plan” below for further information.
Based on the Ada Tepe Resource Report and the Ada Tepe Technical Report, the Krumovgrad Gold Project has a proven and probable Mineral Reserve of approximately 4.86 million tonnes of ore grading 5.08 grams of gold per tonne (cut-off grade of 1.3 g/t gold), as of November 2004.
Based on the Ada Tepe Resource Report and the Ada Tepe Technical Report, the Mineral Resources, as of August 5, 2005, are set out in the following two tables. Table 1 summarizes the resource estimate, at a 1g/t block cut off, based on ordinary kriging of the Wall Zone and Overburden material, and multiple indicator kriging (“MIK”) of the Upper Zone, using a block size of 12.5mE by 12.5mN by 5mRL. Table 2 summarizes the resource estimate, at a 1g/t Au cut off grade, using ordinary kriging of the Wall Zone and Overburden material (12.5mE by 12.5mN by 5mRL block size), but with the Upper Zone estimate using the MIK estimate and a selective mining unit (“SMU”) emulation, based on a notional block size of 6.5mE by 5mN by 2.5mRL. The Table 2 resource model was used as the data source for mining studies which resulted in a Proven and Probable Mineral Reserve, as of November 2004, of approximately 4.86mt of ore grading 5.08g/t gold, using a gold cut off grade of 1.3g/t.
The Krumovgrad Mineral Resources, as of August 5, 2005, are set out in Table 1 below:
Table 1 Gold Silver
Resources Tonnes Grade Ounces Grade Ounces
1.0g/t Gold Cut-Off (million) (g/t) (‘000) (g/t) (‘000)
Measured 2.65 5.9 500 3 259 Indicated 2.57 4.1 335 2 181 Measured & Indicated 5.22 5.0 835 3 440 Inferred 0.21 1.6 11 1 8
(1) The rounding of tonnage and grade figures has resulted in some columns showing relatively minor discrepancies in sum totals. (2) All Mineral Resource Estimates have been determined and reported in accordance with NI 43-101 and the classification adopted by the CIM Council in August 2000. (3) A lower cut-off grade of 1.0g/t Gold has been used to define the Krumovgrad Mineral Resource. (4) The Mineral Resource estimate is based on various other assumptions and key parameters and is subject to risks as more fully described in the Ada Tepe Resource Report. (5) The Ada Tepe Technical Report, prepared in accordance with NI 43-101, was filed on SEDAR on March 21, 2005. See “Defined Terms and Abbreviations”.
Dundee Precious Metals 37 Annual Information Form The Krumovgrad Mineral Resources, using a whole block estimate and a 12.5mN by 12.5mE by 5m RL block size, as of August 5, 2005, are set out in Table 2 below:
Table 2 Gold Silver
Resources Tonnes Grade Ounces Grade Ounces
1.0g/t Gold Cut-Off (million) (g/t) (‘000) (g/t) (‘000)
Measured 2.89 5.4 501 3 263
Indicated 3.18 3.2 331 2 189
Measured & Indicated 6.07 4.3 832 2 452
Inferred 0.21 1.6 10 1 8
(1) The rounding of tonnage and grade figures has resulted in some columns showing relatively minor discrepancies in sum totals. (2) All Mineral Resource Estimates have been determined and reported in accordance with NI 43-101 and the classification adopted by the CIM Council in August 2000. (3) A lower cut-off grade of 1.0g/t Gold has been used to define the Krumovgrad Mineral Resource. (4) The Mineral Resource estimate is based on various other assumptions and key parameters and is subject to risks as more fully described in the Ada Tepe Resource Report. (5) The mineral resource estimate is based on a 12.5mE x 12.5mN x 5m RL block size and multiple indicator kriging of the Upper Zone and ordinary kriging of the Wall Zone and the Overburden. (6) The Ada Tepe Technical Report, prepared in accordance with NI 43-101, was filed on SEDAR on March 21, 2005. See “Defined Terms and Abbreviations”.
2005 Project Plan The Company commissioned Ausenco to prepare a DFS to demonstrate the technical and commercial viability of putting the Ada Tepe deposit into production. The DFS was completed in June 2005 and defined the complete project facilities, including the mine, process plant, tailings impoundment, water and all associated infrastructure facilities necessary. For more detailed disclosure, please refer to the Ada Tepe Technical Report, which relies on the Mineral Resource estimates contained in the Ada Tepe Resource Report. See “Defined Terms and Abbreviations” and “Mineral Reserve and Mineral Resource Estimates” above. Krumovgrad Project: Status of Development In December 2008, the Company received a request from the MoEW for the preparation and submission of a report that will assess the compatibility of the Krumovgrad Gold Project within the scope and purpose of Natura 2000 (the “Report”). This Report is a prerequisite for the issuance of a decision on the Krumovgrad EIA and, as these two procedures are aligned, the MoEW should issue a single final resolution on both matters. A Natura compatibility assessment was completed and, with several modifications to the project footprint being agreed, culminated in a positive assessment being presented. In September 2009, the MoEW issued to BMM its Certificate for the Krumovgrad Gold Project. The Certificate is the final requirement for conversion of the property to a mining concession, the application for which had been filed with the MoEET.
On June 4, 2010, the MoEET notified BMM that it is in the process of obtaining the necessary approvals enabling the Ministry to open the concession procedure, and requested the Company to update the various analyses included in its original concession application filed on June 2, 2007. As part of this process, the Ministry of Culture confirmed its consent, granted in December 2007, for opening the concession proceedings subject to an archaeological clearance of the site.
On August 9, 2010, upon a recommendation by the Ministry of Culture, BMM entered into a frame agreement with the Institute of Archaeology and Museum at the Bulgarian Academy of Sciences (“IAM- BAS”). According to the agreement, BMM will fund the implementation of a two-stage project wherein the first stage includes rescue fieldwork with a view to clear the area required for the implementation of the
Dundee Precious Metals 38 Annual Information Form Krumovgrad Gold Project and the second stage includes distribution of the results acquired during the first stage through scientific publications, museum exhibitions and outdoor museum accessible to the public. It is currently expected that the first stage of the project will be completed by the end of 2012 and the second stage by the end of 2014. The archaeological works are already underway. The agreement provides for the implementation of these works, together with the Krumovgrad Gold Project subject to the completion of the works and the release of the site.
After entering into the above arrangement for the archaeological works and the completion of various statutory required analyses, on October 7, 2010, BMM filed updated documentation with the MoEET for obtaining a mining concession for the Krumovgrad Gold Project. On February 9, 2011, it was announced that the CoM of the Republic of Bulgaria had approved the granting of a 30 year concession to BMM to develop the Khan Krum Deposit in Krumovgrad. The CoM’s resolution was published in the State Gazette of the Republic of Bulgaria on February 18, 2011 and was subject to appeal within 14 days. On March 22, 2011, the Company received notification of the filing of two appeals with a hearing date set for April 27, 2011. The appeals have been filed by: i) the Municipality of Krumovgrad; and (ii) a group of three environmental NGOs, jointly. Both appeals relate to the Certificate that was issued to BMM with respect to the Khan Krum deposit which was the grounds for the granting of the mining concession. The appellants argue that the Certificate was issued without a positive EIA decision for the deposit, that the pending EIA covers only Ada Tepe and not the satellites of the deposit (while the concession relates to Ada Tepe and five other sections, collectively the Khan Krum deposit) and that the CoM Resolution explicitly states the concession is not effective until a positive EIA decision is issued for the Ada Tepe section. The Company believes these arguments to be groundless as BMM started the process in 2005 before the law required an EIA as a condition for obtaining a Certificate. This requirement was introduced into legislation in 2008 and contained an explicit transitional provision which provided that procedures initiated prior to the amendment of the Act should be completed under the old regulations. The exercise of the concession rights for any part of the deposit is subject to a positive EIA resolution being issued by the MoEW.
Krumovgrad – Revised Project Plan
In 2009, a high level review was carried out on the project, which indicated that a more detailed review of mine planning, mine waste disposal, processing alternatives and project footprint and layout was required and that the Natura 2000 based law would have to be better integrated into project planning. It was also apparent that since 2005 a number of new laws and European NGO initiatives have introduced risks to the permitting and construction of the project that were not recognized in the original project documentation. Specifically, the detailed review focussed on the following:
generating a new mine plan and materials quantity schedule (ore and waste) based on new metal prices and new assumptions regarding economic conditions and costs; reviewing data on flotation alternatives for use in gold recovery and carrying out new test work designed specifically to generate new feasibility level information regarding alternatives and their feasibility; feasibility level re-engineering of tailings and waste rock disposal alternatives designed to minimize the footprint of waste facilities; Reconsideration of project water balance to address community concerns and minimize water storage requirements; Reconfiguring the project layout to minimize the land acquisition and resettlement process and with respect to land inside or adjacent to the project footprint; Ensuring that the new aspects of Bulgarian biodiversity law could be recognized by the projects layout; and Procedural and permitting alternatives to create the lowest risk and most expeditious approach to permitting and route to production. Detailed review work commenced in the second quarter of 2009 and an internal optimization study which consolidated a set of independent studies on various aspects of the Krumovgrad Gold Project was completed in the first quarter of 2010, including:
Dundee Precious Metals 39 Annual Information Form (i) Metallurgical and process studies carried out on samples provided by DPM that reflect the sample compositing strategy used for the 2005 DFS which indicate that metallurgical recoveries of 85% or better can be achieved via conventional flotation technology for gold. Economic analysis indicates that this recovery, although lower than the 93% to 94% that can be achieved by the use of cyanide technology, will significantly reduce the permitting risks and result in sufficient cost and schedule benefits to be attractive;
(ii) Other studies completed by Golder Associates Ltd. indicate that a high density tailings system is feasible at Krumovgrad and that an integrated tailings and mine waste facility can be constructed immediately adjacent to the proposed open pit. This would result in the elimination of the conventional tailings facility envisaged in the original project and bring about a significant reduction in the project footprint and land acquisition requirements, both of which were adversely impacting the permitting of the project.
Based on the technical works and various economic analyses, a revised project configuration and a new permitting and project schedule were completed, which form the basis of a new DFS which is expected to be released in the second quarter of 2011. Consultations on the Terms of Reference (“TR”) for the EIA with all stakeholders were carried out. The TRs were sent to the MoEW together with a list of all statements received and the Company’s position on them. In a letter dated October 11, 2010, the MoEW advised the Company that the TRs were acceptable and BMM can proceed with the preparation and submission of the EIA Report. In addition, the MoEW notified the Company that the Republic of Greece expressed a willingness to participate in the EIA procedure, as allowed under trans-boundary law, and the EIA Report was sent to appropriate parties within the Government of Greece for review. The process for review and assessment of the report in Greece is underway and the Company and its representatives are in dialogue with Greek regulatory authorities.
The EIA report with all the statutory required attachments was submitted to the MoEW on October 29, 2010 and on January 4, 2011, the MoEW issued a positive assessment of the quality of the EIA Report. Following this response from the MoEW and, as directed by the competent authorities, the EIA was sent to the Municipality of Krumovgrad and the villages of Zvanarka, Dazdovnik and Ovchari on the basis that these populations could potentially be affected by the project. DPM has commenced the public dissemination of the EIA documentation which will culminate with organized public hearings. The Krumovgrad Municipality is reviewing the document and has indicated that, on completion of the review, a public hearing date will be set. The EIA decision to be issued by the MoEW is expected 45 days after the last public hearing.
See “Risk Factors – Krumovgrad Gold Project” for a discussion on the risks related to the Krumovgrad Gold Project. Deno Gold, Kapan, Armenia The following summary is based, for the most part, on site data and the Deno Gold Resource Report and, in some cases, includes direct extracts from the Deno Gold Resource Report, a copy of which has been filed on the Sedar website located at www.sedar.com. The Shahumyan deposit is the subject of the Deno Gold Resource Report. See “Defined Terms and Abbreviations”. Property Description and Location The Deno Gold mining area is located in the south eastern corner of Armenia, 320 kilometres south of the capital city of Yerevan and forms part of the Tethyan tectonic belt. It is situated within the south eastern Syunik Region close to the Azerbaijan border. The Kapan plant site is located 1.5 kilometres to the east of the town of Kapan with the main mineralized zones occurring to the north of the town. The exploration license covers 350 km2 and excludes existing populated areas, mine concessions and related infrastructure and extends from the town of Kapan along a northwest trending valley and covers an area of Jurassic-age intermediate volcanics that have the potential to host significant bodies of epithermal-porphyry mineralization similar to those currently defined within the project.
Dundee Precious Metals 40 Annual Information Form Deno Gold is owned by DPM through its 100% interest in Vatrin, a private entity. On December 20, 2010, DPM purchased the remaining five percent interest in Vartin, to increase its equity interest to 100%, for net cash consideration of $1.5 million and the elimination of all associated third party indebtedness. Royalties
Under Armenian legislation, royalties are payable quarterly at a rate of 0.1% for each 0.8% exceeding 25% of the profitability index based on the following formula: P = (R – C) / R where P = rate of return; R = gross accounting value of the sales of mined metal minerals in the reporting period; and C = operational expenses made for the purposes of the minerals mining in the reporting period. Deno Gold commenced paying royalties in the second quarter of 2010, when it reached profitability. Environmental Liabilities Provision is made under the terms of the license agreement between Deno Gold and the Government of the RA for environmental protection that includes air, water, ground and subsurface environments. Deno Gold currently has no liability for mining of the previous Centralni open pit mine, which was closed prior to the original Deno acquisition by Vatrin in 2004. For the period between 2004 – 2007, Vatrin operated the underground Centralni Mine. A conservation plan was developed and approved for the orderly closure of the Centralni Mine underground prior to handover to the Ministry, which was completed and, as a result, the waiving certificate agreed to on March 26, 2009, became effective on January 24, 2011. As part of the conservation plan, the Centralni facilities, such as the office, shops, compressor house, and other related facilities, have been assessed and exchanged for other community property associated with the ongoing Shahumyan operations. Deno Gold deposits the tailings from the Shahumyan mine in the Geghanush TMF. The new facility reactivates an older Soviet era facility decommissioned but not reclaimed. The new facility was upgraded to appropriate standards in 2008, which eliminated many of the environmental concerns of the community. Associated with the re-commissioning of the Geghanush TMF, lands for expansion of the facility were secured from the Armenian Forestry. As part of the land acquisition, Deno Gold has committed to the reforesting of some five hectares of land. This land, along with an additional 11 hectares from exploration activities, has been reforested with tree saplings and will be monitored for the next four to five years by an independent contractor, Armenian Forest, and Deno Gold to ensure tree growth and survival. The Geghanush facility is regarded as a temporary facility and although perceived as a short term solution, the facility will be used for several years at current production rates. A design concept has also been prepared for a long-term alternative to accommodate planned production increases, the engineering for which will be advanced once the future production schedule is better understood. In March 2008, Deno Gold ceased tailings depositing in the Artsvanic TMF (commissioned in 2005). The Artsvanic TMF is part of a significantly larger TMF owned and operated by Zangezour Copper Molybdenum Combinate’s Kadjaran Mine, a large regional mining company. A portion of the facility was leased and deposition of tails by Deno Gold continued until its closure in April 2008 (tails deposition ceased in March 2008) and commissioning of the existing facility, Geghanush, which is currently in use. The Artsvanic facility is currently being reclaimed under an approved closure plan developed in conjunction with the tails land owner, Kadjaran, and is expected to be returned to the owners in 2011 after which Kadjaran will assume all responsibility for the facility. The closure plan for the old TMF has been approved and is scheduled to be completed in late 2011. Accessibility, Climate, Local Resources, Infrastructure and Physiography The town of Kapan, which is adjacent to the mining operation, has approximately 40,000 inhabitants. In addition, there are numerous villages in the Kapan area which can be accessed by asphalted road. The region represents a typical mountainous area located at the end of Arachadzor mountain range, which is the south-eastern branch of the Bargushatk mountain range and is characterized by split relief with relief up to 3,200 metres and overall altitude of 700 metres to 3,000m (MSL).
Historically, the economics of the region have been dominated by mining. The main developments are the Kadjaran copper-molybdenum deposits and the Kapan copper-zinc mines. Agriculture, farming, gardening and cattle breeding are significant contributors to the economy of the region.
Dundee Precious Metals 41 Annual Information Form The climate of the region is continental with warm to hot summers, which are often dry and short, and mild winters with some minor snow. Electricity for the Kapan region is provided via connection with the United Energy of Transcaucasia system, which is supplied from numerous hydro-electric power stations in the region. The Kapan town and a number of other inhabited localities are also connected to the natural gas and potable water is reticulated. History Ownership and Production DPM acquired 80% of Vatrin in August 2006, increased its ownership to 95% in 2007 and in 2010 purchased the remaining 5% to hold 100%. The ownership and production history of the Centralni Mine is summarized as follows:
Soviet era production (state owned) commenced in 1953 and continued until 1991. Approximately 27.8Mt of ore were produced at 1.23% copper. Production from January 2005 onwards was 137Kt of ore at 0.68% copper from underground, until the mine was put on care and maintenance during August 2008 due to economic factors. RA sponsored mining between 1992 and 2003 produced approximately 2,165kt of ore from underground at 0.81% copper and 329kt from the open cut at 0.44% copper (between 2000 and 2003). The privatized mine continued production until bankruptcy on June 21, 2004, producing approximately 815Kt of ore from underground at 0.54% copper and 54Kt from open cut at 0.29% copper. The bankrupted State Centralni Mine was purchased by Vatrin (which owns 100% of Deno Gold) in June 2004, who continued mine production until the contracts were formally taken over by Deno Gold on January 1, 2005. Approximate pre Deno Gold mine production was 35Kt of ore mined from underground at 0.54% copper and 23Kt mined from open cut at 0.29% copper. All Centralni open pit production halted in August 2004. Deno Gold commenced as the operator of the Centralni contracts on January 1, 2005.
The ownership and production history of the Shahumyan deposit is summarized as follows:
Exploitation of copper and polymetallic ore is dated to approximately 1843 and continued through 1905 when a French controlled company commenced operations until approximately the early 1950’s. Mine workings were conducted on four veins at the Shahumyan deposit between 1933 and 1942. 230,000 tonnes at unknown head grades were mined, and total French production is unknown. The Shahumyan polymetallic vein array was first discovered in the early part of the 20th century and was briefly exploited on a small scale during World War II. Detailed exploration of the Shahumyan deposit commenced in 1976 and to date at least 285,000 metres of diamond drilling and over 35,500 metres of underground access development from adits on the 780 metre, 820 metre and 860 metre levels and by two vertical shafts (not in use) have been completed. Below the 700 level short exploration drives have been completed at the 605 metre and 505 metre levels. The bulk of the historical surface and underground exploration drilling was conducted to the 550 metre mine level which is approximately 370 metres below the ground surface. In 2008, three new declines were started to open up the deposit below the 780 level and provided access for mechanized equipment. For the period November 2008 to March 2009 the underground mining operation was placed on care and maintenance, in response to the economic slowdown and the significant decrease in metal prices. DPM restarted its operations at the Kapan facilities on April 1, 2009 and milling shortly thereafter.
Dundee Precious Metals 42 Annual Information Form The table below sets out the ore processed and capital investments for the last three years:
2008 2009 2010
Ore Processed (tonnes) 269,033 218,235 428,865
Capital Expenditures (US$) 26 million 6 million 20 million
Concession Agreement Deno Gold operates the Shahumyan mine and Centralni mine under a 25 year license agreement, in effect since 1995. Initially, under the license agreement, Deno Gold was given the right to develop and mine the Shahumyan and Centralni mine concessions until 2010 and 2017, respectively. However on January 15, 2009, an agreement reached between Deno Gold and RA’s Ministry of Energy and Natural Resources provided as follows: (i) in accordance with the requirements of RA Law on Concessions, Deno Gold’s Shahumyan mine license will be extended for an additional 12 years to 2032 and the license agreement will be extended to the full extent of the mining license, (ii) the annual mine production schedule, as defined by the license agreement, will be reduced to 300,000 tonnes (subject to automatic adjustment in the event of unusual economic hardship including exceptionally low metal prices), and (iii) the Centralni license will be terminated and all contractual responsibility of Deno Gold, in its entirety, with respect to such license will be waived with the exception of certain very limited reclamation/re-cultivation works and the preparation and implementation of a mine underground closure and conservation plan, all in compliance with RA legislation. The waiving certificate agreed to on March 26, 2009, became effective on January 24, 2011. Geological Setting The Kapan mine is situated in the eastern part of Zangezour mining region, and in respect to its geological structure and metallogeny, is one of the most geologically complicated areas within the bounds of Small Caucasus. The Kapan mine area covers an area of Jurassic-age intermediate volcanics that have the potential to host significant bodies of epithermal-porphyry mineralization similar to those currently defined within the Kapan mining project. These mainly Middle Jurassic volcanogenic and sedimentary formations have a stratigraphic thickness of approximately 1,000 metres. The Upper Jurassic and Lower Cretaceous volcanic and sedimentary formations are localized on the north-eastern and northern limbs of the Kapan Anticline and have a total thickness of 2,500 metres. Middle Jurassic and Upper Jurassic-Lower Cretaceous formations are cross-cut by Palaeogene age extrusive and sub volcanic dikes of diabase, andesite and dacite composition. In addition, Quaternary basalts occur locally within the bounds of the mining camp. Typically for Kapan, mineralization is hosted in veins and veinlets which often present as closely spaced anastamosing vein structures, displaying a broadly east-west strike and steep (70-85˚) dip to the north or south. The strike length of the mineralized bodies varies from several tens to several hundreds of metres, and average vein width is 0.7 – 1.5 metres. The down dip extent of the veining varies from 100 to 200 metres, and rarely extends beyond 300 metres down dip. The mineralization at Shahumyan occurs in altered dacite, andesite and basaltic host rocks. The main ore minerals are chalcopyrite, sphalerite and minor galena, along with gold and silver. Mineralization styles include massive sulphide veining, stock work and network veining and disseminated styles. Exploration In addition to the collation of all relevant historical data into a database, Deno Gold has completed the following campaigns of exploration:
geophysical airborne VTEM survey (Geotech Ltd. of Canada);
Dundee Precious Metals 43 Annual Information Form acquisition of Quickbird, Shuttle Radar Terrain and Aster land use satellite imagery; stream sediment sampling/BLEG; soil sampling; specialized structural geology mapping (Jigsaw Geoscience of Australia); and exploration and resource diamond and RC drilling.
Preliminary results and interpretations of the various exploration techniques include: conductive targets for ground follow up identified; coherent stratigraphy identified; deformation history confirmed; identification of high angle faults as major mineralizing fluid conduits; and geochemical stream and soil targets identified for further follow up.
Within the exploration license area, a thorough program of first pass exploration has been completed, including helicopter based geophysics, soil and stream sediment sampling and geological mapping initially focusing on the near mine environment and then extending into peripheral areas and concentrating on areas that have previously been identified as zones of hydrothermal alteration. A significant amount of soil and stream sample results are pending from the 2008 exploration campaign and 2009 field program. Samples have been sent to SGS Chelopech and SGS Kapan with assay results pending. Once the assay results have been received and assessed a target ranking exercise will take place. The results of all past exploration activity (over 40 years of information) on the Kapan exploration license have been entered into a database such that they can be evaluated in conjunction with more recently obtained exploration data. On September 4, 2008, the Company announced that the results from the initial program of diamond drilling in the “Vein 5” area in the north western part of the Shahumyan Mine at Kapan, Armenia, continue to confirm the potential for bulk mineable polymetallic open pit mineralization. Block model generation on historic and new drill data coupled with resource simulations indicate that the potential pit could be significant. Mineralization The mineralogy of the Kapan mining camp is distinguished by its constant pyrite-chalcopyrite association. In some areas chalcosine, bornite, spalerite, galena, tenatite, telluride and others are present. The mineralogy of the pyrite-polymetallic mineralization also shows constant associations of pyrite + chalcopyrite + sphalerite. Galena, telluride and native gold are also present. In the western area of the mining camp, proximal to the Dzorastan River, molybdenum mineralization is found in hydrothermally altered volcanic rocks. Copper-pyrite and pyrite-polymetallic mineralization is hosted by Mid-Jurassic volcanics. The host rocks have been subjected to intense tectonic deformation and metasomatic alteration. Mineralization is generally proximal to large structures, especially at the intersections of large scale faults. The Mets-Magarin, Khalaj, Khotanan, Bashkend, Central and Western- Shahumyan fractures have all been identified as fluid pathways for mineralization. Historically, (Shmidt, 1985) copper-pyrite and pyrite-polymetallic mineralization was associated with periods of Mid-Jurassic volcanism. The spatial-temporal boundary of mineralization is associated with the development of late differentiated silicate enriched volcanism. The Kapan mining camp was previously interpreted as a volcanic hosted massive sulphide type (VHMS type mineralization) with mineralization developed directly under the paleosurface of a sea basin. Three levels of stratigraphic mineralization were defined however this deposit model has been disproven by later work. Historic Drilling Significant historic drilling has been conducted at the Shahumyan Mining Concession. The drilling data base consists of surface and underground diamond resource definition drilling and underground channel sampling. The resource definition drilling was conducted on nominal 50 metre x 50 metre spacing. In 2006, as part of DPM’s due diligence, this drilling data was compiled into a drilling database, and validated by site personnel. This data, together with DPM drilling data, was then used by DPM personnel as well as RSG/Coffey Mining to calculate an inferred resource for the Shahumyan deposit.
Dundee Precious Metals 44 Annual Information Form DPM Drilling In 2007, DPM and Major Drilling Group International, Inc. (“MDI”), of Canada entered into an agreement for MDI to supply equipment and provide operational staff to complete a drilling program at the Shahumyan deposit. Late in 2007, MDI initiated drilling which continued until the suspension of drilling activities in late 2008, due to the global financial crisis. Prior to drilling activity cessation, the mineral resource definition drilling was completed for the first area of interest, known as the Shahumyan Vein 5 area, on a hole spacing of between 40 metre x 40 metre and 20 metre x 20 metre. Additional resource drilling at 80 metre x 80 metre spacing and assessment drilling at 160 metre x 160 metre was completed during the active drilling campaign.
All drilling has been completed using DPM owned drill rigs with operational staff contractually supplied by MDI. The summary of drill metres per method completed in 2008 are tabulated below.
Drilling and Sampling Statistics Average Total Number of Company Method Number Length Metres Assays Diamond Drilling 196 246.7 47,505 46,293 Deno Gold RC Drilling 58 98.8 5,733 4,770 Total 254 345.5 53,238 51,063
Comprehensive quality control procedures have been implemented for Deno Gold data collection only. An exhaustive independent review of the QAQC data has been completed by Coffey Mining and based on these reviews, Coffey Mining believes the Deno Gold analytical data to be accurate with precision consistent with other similar polymetallic deposits. In December 2010, diamond drilling recommenced with two drill rigs resuming the 160 metre X 160 metre grid across the deposit footprint. One further diamond and an RC rig will be phased in during the first quarter of 2011. Drilling is being conducted by Russian expatriates with the objective to train Armenian staff to operate the drill rigs independently by the end of 2011. All drilling is being conducted to the DPM standards. Sample Method and Analysis
Deno Gold Project: Sampling and Analysis Summary
Sample Type Method Sample Sample Interval Metals Assayed Lab and Assay Recovery Method
Diamond Drill PQ, HQ, and NQ 96% core Standard sample Gold, silver, SGS laboratories Core core (triple tube) recovery interval of 1 copper, and zinc in Welshpool cut by diamond (excludes metre, with a (Australia), Tianjin saw overburden), maximum of up (China) and with an to 3 metres Chelopech average (Bulgaria) sample weight of 3.5kg Gold by fire assay with ICP-OES finish. RC Drilling RC drill cuttings >90% per One metre riffle split per sample with Low grade Silver, metre an average Zinc, and Copper: weight of 30kg Aqua Regia digest per sample) with ICP-OES finish Ore grade Silver, Zinc, and Copper: four acid digest with AAS finish.
Dundee Precious Metals 45 Annual Information Form Diamond Drilling Deno Gold carried out surface DD at the Kapan deposit from July 2007 to October 2008. After the surface holes were collared, drilling with PQ and HQ continued from the base of transported clay material (approximately 10m - 30m vertical thickness) to the end of hole. Most diamond drilling at Kapan is either HQ triple tube or PQ triple tube. Due to poor ground conditions, only a relatively small amount of drilling was completed with conventional NQ and HQ. Orientation of the core was initially performed by the spear method and then by the digital Ace Core Orientation tool in conjunction with the spear method. Core recovery was routinely measured during the drilling process and an average recovery of 96% is recorded. Core was placed in plastic core trays and washed with detergent at the rig site. Deno Gold staff collected the core daily and transported it to the secure core yard area. A total of 196 diamond drill holes have been completed for 47,505 metres. Since the restart of drilling in December 2010 until mid-February 2011, 7,731 metres of DD has been completed on the 160metre X 160 metre grid. Diamond Drill Core Sampling All drill core is sampled in intervals up to a maximum of 3 metres but with 1.0 metres sample intervals most common within mineralized zones. After transport to the secure core facility, all core is marked up symmetrically for diamond saw cutting. Core is cut symmetrically with care being taken to retain the oriented core line. Core is routinely cut from hole top to bottom and offset and on the right hand side of the orientation line with one half of the core sample submitted for laboratory analysis and the residual half core sample, containing the orientation line, retained in the plastic core trays. Samples are routinely assayed for copper, gold, silver, zinc and lead. The majority of the core drilled has been photographed both wet and dry by a semi-automated digital system. Sample tickets were entered into the bags with a numbering system, which reconciles sample and assayed results in the database. The weight of a diamond-drilled sample generally varies between two kilograms and seven kilograms with an average weight of approximately 3.5 kilograms. RC Drilling RC drilling at Kapan has been done on a 20mE x 20mN grid for resource definition purposes. To facilitate drilling to the base of the transported clay layer, water was initially injected into the hole. During this drilling process, the cyclone was manually cleaned every six metre rod. After the contact, which was generally very sharp, drilling continued dry. Rigs were fitted with dust extractors and an automatic cyclone system comprised of vibrating components coupled with air jets. A total of 58 RC drill holes have been completed for a total of 5,734 metres. RC Drilling Sampling RC samples were collected every one metre from the cyclone via an air operated sampling system. Samples were deposited directly to the top of the riffle splitter to obtain approximately two kilograms of sample chips. The cyclone has an automated air and vibration based cleaning system. In addition, the procedure of pulling back the rods and blowing out with compressed air was followed every metre. The splitter was cleaned with compressed air and a hammer after every sample and the cyclone was inspected after every six metre rod. The total sample plus reject weight is recorded every meter in addition to the ~two kilograms collected sample weight. Pre-numbered sample tickets were placed in every sample bag which was then placed in a polythene bag. When the bag was full, it was sealed, initialled and dated by the geologist. These samples were then routinely transferred to a trailer located in the drillers’ camp adjacent to the drilling area. The trailer was located in a secure fenced area and was taken to the laboratory/core yard secure area every two days. Approximately 10% of RC samples were sampled by spear (tube sampler) due to damp samples or clay samples unsuitable for the riffle splitter. In this case, the sample was laid out and speared a number of times by a poly-pipe spear until approximately two kilograms sample weight was collected.
Dundee Precious Metals 46 Annual Information Form RC and Diamond Drilling Sample Recovery Coffey Mining, as part of their site visit of the Kapan operation, checked the recovery data from the diamond drill database and calculated an average recovery of 96% overall. In addition, the total weight of all one metre RC samples has been recorded in the database and an average weight of approximately 30 kilograms has been calculated. The high core recovery and sample quality collected were considered representative of the material being sampled. RC and Diamond Drilling Quality Coffey Mining reviewed the RC and DD operations and confirmed that, at the time of the visit, core handling procedures and RC drilling and sampling procedures were to industry standards. Core was stored in plastic boxes in a custom core storage facility near to the Kapan deposit.
Bulk Density A total of 12,683 bulk density determinations have been collected for the Kapan deposit by Deno Gold Technical staff. The readings were taken over a lithologic range and weathered profiles. The procedure used is detailed below and works on the Archimedes Principle. A custom set of “Bulk Density” scales with a weighing hook located underneath was utilized for the measurements: • 10 centimetres billet of clean dry core (dried in an oven for 4 hours at 60oC) is weighed; • Core is immersed in paraffin wax then reweighed to establish weight of the wax; and • Core is then suspended and weighed in water to determine the volume. The Bulk Density is then calculated as Bulk Density core = [Mass core] / [(Mass air – Mass water) – (Mass wax / 0.9)]. Sample Preparation and Analytical Preparation of samples has been carried out at an SGS managed laboratory at Kapan. Assaying of samples has been carried out at three independent laboratories: • SGS Welshpool (Australia); • SGS Tianjin (China); and • SGS Chelopech (Bulgaria). The sample preparation applied by SGS Kapan for the Kapan drilling is summarized below: • Entire sample was dried for at least 15 hours at 110ºC before being disaggregated and jaw crushed to 2 millimetres; • Sample was riffle split to 2 kilograms for pulverization; • Sample was pulverized to a nominal 95% passing -75 micron using an LM5 pulverizer; and • Three pulp samples were taken for analysis, umpire analysis and pulp storage. The analytical procedure for the various methods followed by all three SGS labs was identical. Gold assays completed at all three laboratories were determined by means of the industry standard lead fire assay method. Gold analyses were completed using a lead fire assay method with ICP-OES. Either a 25g or 50g charge was used. Low grade silver, zinc and copper analysis was carried out by Aqua Regia digest followed by determination by either ICP-OES (Tianjin and Welshpool) or AAS (Chelopech). Ore grade analysis was carried out by four acid digest followed by AAS. Data Verification Deno Gold quality control and assurance procedures from project inception included: • Insertion of five Geostats certified standards comprising material shipped from site to Australia for certification (5% of samples); • Insertion of certified blank material (5% of samples); • RC field duplicates taken (5% of samples, second split from riffle splitter);
Dundee Precious Metals 47 Annual Information Form • Diamond core field duplicates completed by a second split at the 3 millimetre jaw crushing stage (5% of samples, completed by laboratory); • Submission of selected umpire samples to Genalysis Perth (5%) and ALS Toronto (5%); and • Review of the Deno Gold and the internal laboratory QC data on a batch by batch basis. The following quality control procedures were adopted by the three SGS laboratories which are part of the global group of SGS laboratories with ISO/IEC 17025 accreditation: • Cross referencing of sample identifiers (sample tags) during sample sorting and preparation with sample sheets and client submission sheet; • Compressed air gun used to clean crushing and milling equipment between samples; • Barren quartz ‘wash’ applied to the milling/pulverizing equipment at the rate of 1:10; • Quartz washes assayed to determine the level of cross contamination; • Sieve tests are carried out on pulps at the rate of 1:50 to ensure adequate size reduction; • Assaying of certified standards at the rate of one per batch of 20; • A minimum of 5% (1:20) of the submitted samples in each batch were subject to repeat analysis; • Blank samples were inserted at the rate of approximately 1:30; • Industry recognized certified standards are disguised and inserted at a rate of 1:30; and • Assaying of internal standards data. Mineral Resource Estimate The Mineral Resources reported in the Deno Gold Resource Report are based on the historical resource data collected prior to Deno Gold’s involvement, plus an additional 77 diamond drill holes comprising 12,832.55 metres of drilling completed by DPM.
Shahumyan Deposit – September 2008 Inferred Mineral Resource – Ordinary Kriging Estimate 10mE x 10mN x 10mRL Block Size – 5m Capped Input Composite Data
Cutoff Tonnage Gold Equiv. Copper Gold Silver Zinc (AuEq - g/t) (Mt) (g/t) (%) (g/t) (g/t) (%)
0.50 335.8 1.19 0.11 0.48 8.39 0.41 0.75 226.5 1.47 0.13 0.61 10.32 0.49 1.00 147.1 1.80 0.15 0.79 12.62 0.57 1.25 98.3 2.14 0.17 0.99 14.99 0.65 1.50 69.8 2.45 0.18 1.19 17.00 0.72 1.75 49.2 2.80 0.19 1.43 19.14 0.78 2.00 36.3 3.13 0.19 1.68 20.87 0.83
Note: AuEq US$ price assumptions: Cu $5,511.6/t ($2.50/lb), Au $850/oz, Ag $16/oz and Zn $2,204.6/t ($1.00/lb).
(1) See “Defined Terms and Abbreviations, Deno Gold Resource Report”, dated March 2009, prepared by Coffey Mining, in accordance with NI 43-101. Grade estimation studies have been completed and an Inferred Mineral Resource has been reported for the Shahumyan deposit based on the drill hole database summarized below. The reported mineral resource excludes all channel samples as this data cannot be easily validated and materially impacts the quantum of the resource estimate. The channel data have been used to generate the mineralization constraints and to define the variogram models prior to the removal for the final grade estimation. The additional close spaced channel data was considered appropriate to use to improve the local definition of both the mineralization constraint and also improve the definition of the near origin variogram model behaviour.
Dundee Precious Metals 48 Annual Information Form Mineral Resource Estimate Drill Hole and Channel Database
Type Holes Metres % of Total
Metre-Eater (ME) 133 6,301.00 2.0 Historic Diamond Drill hole (DH) 1,563 290,817.05 93.8 DPM Diamond Drill hole (DDH) 77 12,832.55 4.1
The grade estimate was generated based on a 10mE x 10mN x 10mRL (2,650 tonnes) block size, which represents a moderate level of mining selectivity. Grade estimates of gold, silver, copper and zinc were completed using the Ordinary Kriging interpolation method. Three interpolation passes were made to estimate each variable, with the sample search parameters relaxed for each successive interpolation pass to estimate blocks not filled in previous passes. The sample search relaxation included expanded sample search radii and fewer minimum samples required for valid grade estimates. The grade estimates are based on 5 metres down-the-hole composites that have been coded with the interpreted mineralization boundaries. The 5 metre composites used in the grade estimate have had high grade caps applied prior to grade estimation. The high grade caps applied to grade estimation were 7% copper, 25g/t gold, 20% zinc, and 300g/t silver. In addition, a high grade distance restriction was applied to grade estimation to limit possible extrapolation of high grade data into lower grade regions. Grades above 3.5% copper, 10g/t gold, 10% zinc, and 120g/t silver were restricted to blocks with 50 metres x 50 metres x 20 metres (in the sample search plane) of the block centroid. The grade estimate was classified in accordance with the current CIM guidelines as an Inferred Mineral Resource. The classified portion of the grade estimate was determined based on a combination of percentage mineralization zone (=>50% zone) and distance from drilling data (<=100 metres). As stated above, the channel data was excluded from the grade estimation data set. In early 2011, preparations began for a new resource estimate to determine the Mineral Resource for further, detailed open pit scoping studies. Additional drilling assay data, structural interpretations and void models shall be incorporated into this exercise to further improve the confidence of the Shahumyan resource estimation. A draft of the new resource estimation is expected to be available early in the second quarter of 2011 for in-house studies and review. In December 2010, infill drilling resumed in the southern section of the property. Drilling has been designed to determine the bulk mineable open pit potential of the Shahumyan Deposit. SGS Laboratory Management Services has been retained to manage the Kapan laboratory to provide assay results for the duration of the drilling program. Operations
Health, Safety & Environment Since acquiring Deno Gold, 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. Focus on improved safety reporting, recording and the implementation of Root Cause Analysis incident Investigation and follow up procedures continues. As a result, a clearer picture is emerging of safety performance and weaknesses to be addressed. Specific measures including training, procedure reviews and generation, implementation and tighter controls, particularly in the underground operations, have been targeted as the highest priority items with international benchmarks of Lost Time Injury Frequency Rate (“LTIFR”), progressively decreasing from a value of 1.07 in December 2009 to 0.10 in December 2010*. (*2010 LTIFR was based on 200,000 work hours on a rolling 12 month average). This achievement was realized following a steady but consistent effort to raise the work practices towards Global Best Practice. Ratings from external Risk Audits similarly recognize the increased Risk Reduction strategies adopted thereby reducing the overall insurance Risk Rating to a value lower than the global average.
Dundee Precious Metals 49 Annual Information Form This is an ongoing process and, although immediate risks to employee and community safety continue to be mitigated, management expects that having established a Safety Standard further improvements will be incremental, occurring over a period of time. Production The Shahumyan underground mine is a polymetallic deposit from which separate copper and zinc sulphide concentrates, containing gold and silver by-products, are produced. Lead mineralization is also present but is not economic at this time. The complex consists of the underground Shahumyan mine, with both rail and mechanized diesel transport systems, two primary crushing stations and ore stockpiles, a processing plant and various infrastructure facilities that were built to support the operation. A crushing and flotation plant has been developed at Shahumyan using typical Soviet era construction and layouts. After primary and secondary crushing, through either of the polymetallic or Centralni crusher units (crusher product size of 30-50mm), material is transported to a storage area by conveyor to supply the concentrator. The Shahumyan ore is then fed by conveyor to a rod-mill, followed by a ball mill and a small re-grind mill, as necessary. The primary cyclone overflow feeds the flotation circuit consisting of conventional Russian Denver style flotation cells to differentially float a gold rich copper concentrate and a zinc concentrate with lesser gold and silver concentrations. There are three main thickeners, each 24 metres in diameter, one for each type of concentrate produced and a backup system used during repair and maintenance. A small eight meter in diameter thickener serving the uncommissioned lead concentrate circuit will be used to process mine water for use as makeup water in the mill circuit along with reclaim water piped from the Geghanush TMF to the mill. Thickened concentrates are then dewatered using vacuum filters producing a copper (with significant gold and silver) concentrate and a separate high grade zinc (containing smaller quantities of gold and silver) concentrate.
The annual ore processed has increased from 318,259 tonnes in 2006 to 428,865 in 2010. Improvements in Operations Operating performance of concentrate production has improved by implementing changes in the flotation reagents being used, training of mill personnel to better utilize the existing mill facility, and minor internal changes to the flotation system of the plant. As a result:
Copper recovery has increased to 90% into the copper concentrate, with the overall concentrate grade increasing to 20% copper; Zinc recovery has increased to 94%, with the concentrate grade increasing to 60% zinc; Gold recovery increases to 74% into the copper concentrate. Overall gold recovery is approximately 90%, with between 12% and 16% reporting to the zinc concentrate. Overall silver recoveries have improved to 90%, with 72% reporting to the copper concentrate and 18% reporting to the zinc concentrate.
Infrastructure improvements have been made in 2010 to expand and modernize supporting infrastructure, such as: Installation of an additional 35KV transformer to generate a 50% redundancy in the main substation; Renovation and replacement of older Soviet style substations; and Establishing an underground mobile telephone system which interfaces with the surface satellite communication network.
A number of relationships have been developed with local and international NGOs 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 RA on a number of fronts, including infrastructure and related needs assessment, business development and incubation.
Dundee Precious Metals 50 Annual Information Form Project Development Mine Expansion 2008 In 2008, after a significant improvement in the concentrate production and the need to reduce costs, plans were developed to expand and upgrade the existing underground operation to deeper elevations. Initially work began on a series of declines in the north and south Shahumyan Mine area in order to sustain future production at existing mill feed rates.
Mining continues to incorporate a long hole mining method, however the introduction of remote mucking capability has eliminated the need for costly tram and vein access drives. Tighter level development requires a nominal long hole length of 11 metres reducing the dilution encountered by older mining practices. New remote mucking equipment arrived during the second and third quarters of 2010 and with improved efficiency observed a 40% increase in the long hole drilling. In the south Shahumyan area, where the vein history was best known, the expansion involves driving a spiral decline down from the 780 metre level to the 700 metre level. To date, this decline has been advanced to the 700 elevation. Currently, the 700 level is in the process of being dewatered. North and south development crosscuts intersecting the various vein systems are active on the 760 metre, 748 metre, 735 metre and 720 metre levels and a number of vein drives have been completed and are under stope development at the current time. In the north, three lower priority declines have been under development, each targeting different vein systems. Decline 2 has been developed down to the 760 elevation, with decline 2a developed to the 770 level and decline 4 developed to the 740 level. A crosscut at 767 and 754 has intersected a number of veins in the north decline. Development is actively being pursued to provide greater mining flexibility, additional stope capacity and the ability to improve control over metal component mill feed grades.
Mine and Mill Expansion 2010 In October 2010, Deno Gold completed its planned mine and mill expansion to increase throughput from 400,000 to 600,000 tonnes of ore per year. The expansion included the installation of flotation cells and additional underground mining equipment.
Increase of mine capacity – new production equipment was delivered and commissioned in the fourth quarter of 2010. Currently the mine is ramping up the production capacity to the targeted one; and
Increase in the process plant capacity – the existing mill was upgraded to achieve the planned throughput capacity. This includes primary flotation upgrades with modular installation to minimize downtime to the mill during construction. This part of the expansion was commissioned in the third quarter of 2010 and included mainly installation of copper rougher and cleaner cells and zinc cleaner cells.
RISK FACTORS
The operations of the Company are speculative due to the high-risk nature of its business which is the acquisition, financing, exploration, development and operation of mining properties. The risk factors described below are not the only ones facing the Company. Additional risks currently not known to the Company or that the Company considers immaterial may also impair the business operations of the Company. These risk factors could materially affect the Company’s future operating results and could cause actual events to differ materially from those described in Forward-Looking Statements relating to the Company. In such cases, the Company’s business, financial condition and operating results could be materially affected. In such case, the trading price of the Common Shares would likely decline and the holders of Common Shares could lose all or part of their investment.
Dundee Precious Metals 51 Annual Information Form Current Global Financial Condition Since the second half of 2008, financial conditions globally have been subject to increased volatility and numerous financial institutions have either filed for bankruptcy or have been rescued by governmental authorities. In addition, a considerable level of uncertainty has arisen as a result of excessive government debt levels, most notably in certain Western countries. These factors may impact the ability of the Company to obtain loans, equity financing and other credit facilities in the future and, if obtained, on terms favourable to the Company. Although there have been certain signs of economic recovery, these increased levels of volatility and market turmoil may continue and, as a result, the Company’s operations, financial condition, results of operations and share price could be adversely impacted. Financing The Company’s ability to continue its operations in the normal course of business is dependent upon its ability to achieve and sustain profitable operations. The Company is also dependent on continued support from shareholders and creditors. Nevertheless, there can be no assurance that the Company’s initiatives will be successful. The mining, processing, development and exploration of the Company’s properties may require substantial additional financing. Failure to obtain sufficient financing may result in delay or indefinite postponement of development on any or all of the Company’s properties or even a loss of property interest. There can be no assurance that additional capital or other types of financing will be available, if needed, or that, if available, the terms of such financing will be favourable to the Company. Metal Prices The Company sells its products at prices that are effectively determined through trading on major commodity exchanges, in particular the London Metal Exchange and London Bullion Market. The prices of gold, copper, zinc and silver are major factors influencing the Company’s business, results of operations, financial condition, cash flow from operations, exploration, mining and development activities and trading price for its common shares and common share purchase warrants.
Gold, copper, zinc and silver prices may fluctuate widely and are affected by numerous factors beyond the Company’s control, including the sale or purchase of gold and silver by various central banks and financial institutions, interest rates, exchange rates, inflation or deflation, fluctuation in the value of the U.S. dollar and foreign currencies, global and regional supply and demand and the political and economic conditions of major gold, silver, zinc and copper-producing countries throughout the world. Depending on the price of gold, silver, zinc and copper, cash flow from mining and processing operations may not be sufficient and the Company could be forced to discontinue production and may lose its interest in, or may be forced to sell, some of its properties.
The Company is exposed to credit risk in the event of non-performance by counterparties in connection with its derivative contracts. This risk is mitigated by dealing only with financially sound counterparties and, accordingly, a loss for non-performance is not anticipated.
Commodity Hedging Gold, copper, zinc and silver prices may fluctuate widely and are affected by numerous factors beyond the Company’s control. Depending on market conditions, the Company may enter into copper, zinc and/or gold derivative contracts. In the twelve months of 2010, the Company entered into certain cash settled derivative transactions with respect to 998 tonnes of payable copper and 435 tonnes of payable zinc in concentrate sold on a provisional pricing. As at December 31, 2010, DPM had one outstanding contract to swap its February 2011 copper exposure on 166 tonnes of payable copper at a fixed price of $8,945 per tonne ($4.06 per pound). In the twelve months of 2009, the Company entered into certain cash-settled derivative transactions with respect to 9,700 tonnes of payable copper in concentrate sold by Chelopech and 370 tonnes of payable copper in concentrate sold by Deno Gold on a provisional pricing basis. The derivative contracts were entered into to mitigate substantially all of the copper and zinc price exposures and associated earnings volatility as a result of the time lag between the receipt of provisional sales revenue associated with the contractual sale of concentrates and the specified final pricing period. The Company is exposed to credit risk in the event of non-performance by counterparties in connection with its derivative contracts. This risk is mitigated by dealing only with financially sound counterparties and, accordingly, a loss for non-performance is not anticipated.
Dundee Precious Metals 52 Annual Information Form Foreign Exchange By virtue of its international operations, the Company incurs costs and expenses in a number of foreign currencies. The revenue received by the Company is denominated in U.S. dollars since the prices of the metals that it produces are generally referenced in U.S. dollars, while the majority of the Company’s operating and capital expenditures are in Euro, Armenian dram and ZAR. Fluctuations in exchange rates between the U.S. dollar and the Euro, the U.S. dollar and the Armenian dram and the U.S. dollar and the ZAR give rise to foreign exchange exposures, either favourable or unfavourable, which could have a material impact on the Company’s results of operations and financial condition. Counterparty Risk Under the terms of the Company’s concentrate sales contracts, the purchaser makes a provisional payment of 85% of the provisional value of each lot at the time title, but not risk, of the concentrate transfers, with a further advance payment of 5% following presentation of sales documents to the purchaser. A final adjusting payment, reflecting the actual metal prices for the specified quotational period, is made when final weights and assays are agreed upon. All contractual commitments are subject to force majeure clauses which, if implemented, could have a significant impact on revenue. Approximately 76% of the Company’s aggregate projected sales of concentrates in 2011 are to LDC. There can be no assurance that the Company will not experience a loss for non-performance by any counterparty with whom it has a commercial relationship.
While the Company does not currently expect a non-performance by LDC of its obligations to DPM under contracts, there is no complete assurance that DPM will not experience a failure by LDC to perform its obligations. Non-performance by LDC under the Chelopech copper concentrate sales contract or under its obligation to deliver concentrates to NCS for toll smelting may have negative effects on the financial condition of DPM.
Environmental Risks and Hazards
All phases of the Company’s operations and business are subject to environmental regulations in the various jurisdictions in which they do or may operate. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of various wastes. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. There is no assurance that future changes in environmental regulations, if any, will not adversely affect the Company’s operations and business. Environmental hazards may exist on the properties in which the Company holds interests which are unknown to the Company at present and which have been caused by previous or existing owners or operators of the properties.
Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed and may include corrective measures requiring capital expenditures, installation of additional equipment or remedial actions. Parties engaged in mining and processing operations or in the exploration or development of mineral properties may be required to compensate those suffering loss or damage by reason of the mining and processing activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.
Amendments to current laws, regulations and permits governing operations and activities of mining and exploration companies, or more stringent implementation thereof, could have a material adverse impact on the Company and cause increases in exploration expenses, capital expenditures or production costs or reduction in levels of production at producing properties or require abandonment or delays in development of new mining properties.
NCS has embarked on a two-year program to improve its environmental performance and reduce adverse effects of the Smelter on the environment. Key projects include: i) construction of a landfill facility for the safe disposal of baghouse dust and other waste from the smelting process and to deal with some existing waste stockpiles; (ii) projects to reduce emissions from the “copper section” (the reverbatory
Dundee Precious Metals 53 Annual Information Form furnace and convertors), including, upgrading the taphole fume extraction facility and other fugitive gas collection systems, and improving gas handling and ducting installation; (iii) projects to reduce emissions from the top submerged lance smelting furnace, e.g. installing an automated baghouse dust-removal system, installing new ducting, and lime-dosing to neutralize sulphuric acid production; and (iv) construction of an enclosed storage area, bag-filling station and extraction system at the arsenic plant, all aimed at reducing the dispersal of dust. Spending on environmental and plant optimizations is expected to be approximately $35 million in 2011. Failure to complete this capital program could adversely affect the Company’s operations, financial condition and results of operations.
DPM recognized a liability for its asset retirement obligations (“ARO”) when a legal obligation is identified. The liability is measured at fair value using a present value technique and is based on estimated future costs, existing laws, current technology and conditions. As at December 31, 2010, the undiscounted future cost for AROs before inflation was estimated to be $49.9 million. The carrying value of the ARO liability was $30.3 million and $19.0 million at December 31, 2010 and 2009, respectively. Changes in the underlying assumptions used to estimate the AROs as well as changes to environmental laws and regulations could cause material changes in the expected cost and the fair value of the AROs and these changes could have a material impact on the Company’s results of operations and financial condition.
Chelopech was the first mining company in Bulgaria to submit a closure and rehabilitation plan in compliance with legal regulations on providing financial guarantees for closure and rehabilitation of mine site. The total value of the closure and rehabilitation of mine site is estimated at 40.5 million Bulgarian leva (approximately $28 million). The Company has submitted to the MoEET a surety bond underwritten by a leading European insurance group covering the estimated cost of closure and rehabilitation of the mine, the industrial site and the tailings management facility.
Operations Mining operations and related processing and infrastructure facilities are subject to risks normally encountered in the mining and metals industry. Such risks include, without limitation, environmental hazards, industrial accidents, labour disputes, changes in laws, technical difficulties or failures, equipment failure, failure of retaining dams around tailings disposal areas which may result in environmental pollution and consequent liability, unusual and unexpected geologic formations, seismic activity, rock bursts, cave-ins, flooding and other conditions involved in the drilling and removal of material. Such risks could result in damage to, or destruction of, mines and other processing facilities, damage to life or property, environmental damage, delays in mining and processing, losses and possible legal liability. Any prolonged downtime or shutdowns at the Company’s mining and processing facilities could materially affect the Company’s financial condition and results of operations. Success of the Company’s operations also depends on adequate public infrastructure. Reliable roads, bridges, power sources and water supplies are important determinants which affect capital and operating costs. Natural events, such as seismic events and severe climatic conditions, as well as sabotage, government or other interference in the maintenance or provision of such infrastructure could adversely affect the Company’s operations, financial condition and results of operations.
Production, Operating and Shipping Costs Many unforeseen factors, both related and unrelated to the Company’s plans for future production and total cash costs of production, such as the raw cost of inputs, cost of fuel, energy, supplies, labour and equipment, availability of concentrates to be processed at the Smelter, regulatory factors, foreign exchange fluctuations, adverse climatic conditions, natural phenomena and industrial accidents, can impact the accuracy of these projections. As such, no assurance can be given that production and production cost estimates will be achieved. Failure to achieve production or total cash cost estimates could have an adverse impact on the Company’s future cash flows, earnings and financial condition.
The Company contracts for the shipment of its concentrates to its customers on varying terms and conditions, all subject to the prevailing rates, availability and general circumstances surrounding this market. Adverse changes to the shipping markets and/or the shipping contracts’ associated terms and conditions could have a material adverse impact on the Company’s results of operations and financial condition.
Dundee Precious Metals 54 Annual Information Form Uncertainty in the Estimation of Mineral Resources and Reserves The figures for Mineral Resources and Mineral Reserves disclosed by the Company in this AIF are estimates only and no assurance can be given that the anticipated tonnages and grades will be achieved or that the indicated level of recovery will be realized. There are numerous uncertainties inherent in estimating Mineral Resources, including many factors beyond the Company’s control. Such estimation is a subjective process and the accuracy of any resource estimate is a function of the quantity and quality of available data and of the assumptions made and judgments used in engineering and geological interpretation. Short-term operating factors, such as the need for orderly development of the ore bodies or the processing of new or different ore grades, may cause the mining operation to be unprofitable in any particular accounting period. In addition, there can be no assurance that gold, silver, zinc or copper recoveries in small scale laboratory tests will be duplicated in larger scale tests under on-site conditions or during production. Fluctuations in gold, copper, zinc and silver prices, results of drilling, metallurgical testing and production and the evaluation of mine plans subsequent to the date of any estimate may require revision of such estimates. The volume and grade of Mineral Reserves mined and processed and recovery rates may not be the same as currently anticipated. Any material reductions in estimates of Mineral Resources could have a material adverse effect on the Company’s results of operations and financial condition. Uncertainty Relating to Inferred Mineral Resources Inferred Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. Due to the uncertainty which may attach to Inferred Mineral Resources, there is no assurance that Inferred Mineral Resources will be upgraded to Proven and Probable Mineral Reserves as a result of continued exploration. Need for Mineral Reserves Because mines have limited lives based on Proven and Probable Mineral Reserves, the Company must continually develop, replace and expand its Mineral Reserves as its mines produce gold, silver, zinc and copper. The Company’s ability to maintain or increase its annual production of gold, silver, zinc and copper will be dependent in significant part on its ability to bring new mines into production and to expand Mineral Reserves at existing mines. Exploration Exploration is highly speculative in nature and exploration projects involve many risks that even a combination of careful evaluation, experience and knowledge utilized by the Company may not eliminate. Once a site with gold or other precious metal mineralization is discovered, it may take several years from the initial phases of drilling until production is possible. Substantial expenditures are normally required to locate and establish Mineral Reserves and to construct mining and processing facilities. While the discovery of an ore body may result in substantial rewards, few properties that are explored are ultimately developed into producing mines. Development Projects The Company’s ability to sustain or increase present levels of production is dependent, in part, on the successful development of new ore bodies and/or expansion of existing mining operations. The commercial viability of development projects is based on many factors, including: the particular attributes of the deposit, such as size, grade and proximity to infrastructure; metal prices, which are highly cyclical; government regulations; capital and operating costs of such projects; and foreign currency exchange rates. Development projects are also subject to the successful completion of feasibility studies, issuance of necessary governmental permits, subsequent appeals of such permits, including favourable EIA decisions, and the acquisition of satisfactory surface or other land rights. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in the Company not receiving an adequate return on invested capital.
Dundee Precious Metals 55 Annual Information Form Foreign Country and Political The majority of the Company’s operations and business are carried out outside of Canada, primarily in Eastern Europe, Eurasia and Southern Africa, and as such, the Company’s operations are exposed to various levels of political risks and uncertainties. These risks and uncertainties vary from country to country and include, but are not limited to, terrorism; corruption; crime; hostage taking or detainment of personnel; military repression; extreme fluctuations in currency exchange rates; high rates of inflation; labour unrest; the risks of war or civil unrest; expropriation and nationalization; renegotiation or nullification of existing concessions, licenses, permits and contracts; absence of reliable rule of law, regulatory and judiciary processes; illegal mining; changes in taxation policies; restrictions on foreign exchange and repatriation; changing political conditions; currency controls; and governmental regulations that favour or require the awarding of contracts to local contractors or require foreign contractors to employ citizens of, or purchase supplies from, a particular jurisdiction. Any changes in mining or investment policies or shifts in political attitude in the countries in which DPM currently does or may conduct its business and operations may adversely affect the Company’s operations and financial condition. In addition, authorities and court systems in the countries in which DPM currently does or may conduct its business and operations have been shown to be unpredictable. Challenges to foreign companies’ asset ownership, operations and regulatory compliance may be brought by government authorities for reasons that cannot be predicted and on bases that may not be motivated by substantive law. It is also not unusual, in the context of dispute resolution, for parties in these jurisdictions to use the uncertainty of the legal environment as leverage in business negotiations. Failure to comply with applicable laws, regulations and local practices relating to mineral right applications and tenure could result in loss, reduction or expropriation of entitlements. See “Legal Proceedings”. Krumovgrad Gold Project On September 8, 2009, the MoEW issued a Commercial Discovery Certificate (the “Certificate”) for the Krumovgrad gold deposit. The Certificate is the final requirement for conversion of the property to a mining concession, the application for which has been filed with the MoEET by BMM. The EIA report with all the statutory required attachments was submitted to the MoEW on October 29, 2010. In January 2011, the MoEW delivered a “positive grade” to both the EIA and the Report for the Krumovgrad Gold Project, meaning that all information required under the EIA regulation is complete. Based on this positive assessment of the quality of the submissions, and in compliance with the requirements under the Bulgarian environmental legislation, DPM has commenced the public dissemination of the EIA documentation which will culminate with organized public hearings with the municipality of Krumovgrad and other potentially affected municipalities or villages.
On February 9, 2011, it was announced that the CoM of the Republic of Bulgaria had approved the granting of a 30 year concession to BMM to develop the Khan Krum Deposit in Krumovgrad. The CoM’s resolution is subject to publication in the State Gazette of the Republic of Bulgaria and can be appealed within 14 days of the date of this publication. The resolution was published in the State Gazette on February 18, 2011 and, on March 22, 2011, the Company received notification of the filing of two appeals with a hearing date set for April 27, 2011. Exercise of the concession rights by the Company is also subject to a positive EIA resolution being issued by the Bulgarian MoEW. See “Mineral Project – Krumovgrad Project: Status of Development” for further information. As of December 31, 2010, the net book value of the Krumovgrad Gold Project was $46.9 million.
Despite the latest achievements and progress related to the Krumovgrad Gold Project discussed earlier, there is still some risk and uncertainty around obtaining the required permits to advance the project. The risks relate to community concerns, archaeological clearance of the site, NGOs action and delays to the permitting process. The Company has completed a thorough review of the project and is moving toward “de-risking” the project as much as is possible. However, in the event that residual risks remain and permits are not obtained and legal avenues are exhausted, an impairment of the project carrying value
Dundee Precious Metals 56 Annual Information Form may be required. Management continues to take steps to advance its permits and remains committed to the future development of the project.
Insurance and Uninsured Risks The Company’s business is subject to a number of other risks and hazards, including severe climatic conditions, industrial accidents, labour disputes, unusual or unexpected geological conditions, ground or slope failures, cave-ins, changes in the regulatory environment and other natural events such as earthquakes. Such occurrences could result in damage to mineral properties or processing facilities, personal injury or death, environmental damage to the Company’s properties or the properties of others, delays in mining and processing, monetary losses and possible legal liability.
Although the Company maintains various types of insurance to protect against certain risks with scope of coverage and amounts as it considers appropriate, its insurance will not cover all the potential risks associated with a mining company’s operations. The Company may also be unable to obtain and/or to maintain insurance to cover these risks at economically feasible premiums. Moreover, insurance against risks such as environmental pollution or other hazards as a result of exploration and production may not be available to the Company or to other companies in the mining industry, on acceptable terms. The Company might also become subject to liability for pollution or other hazards which may not be insured against or which the Company may elect not to insure against because of premium costs or other reasons. Losses from such events may cause the Company to incur significant costs that could have a material adverse effect upon its financial performance and results of operations.
Diversification The business activities of issuers in the resource industry (“Resource Issuers”) are speculative and may be adversely affected by factors outside the control of those issuers. Resource Issuers may not hold or discover commercial quantities of precious metals or minerals and their profitability may be affected by adverse fluctuations in commodity prices, demand for commodities, general economic conditions and cycles, unanticipated depletion of reserves or resources, native land claims, liability for environmental damage, competition, imposition of tariffs, duties or other taxes and government regulations, as applicable. Because the Company has and may continue to invest primarily in securities issued by Resource Issuers engaged in the mining industry or related resource businesses (including junior issuers), the value of the Company’s investment portfolio of securities may be more volatile than portfolios with a more diversified investment focus. Also, the value of the Company’s investment portfolio of securities may fluctuate with underlying market prices for commodities produced by those sectors of the economy. Marketability of Investments The value of the Company’s investment portfolio of securities will vary in accordance with the value of the securities acquired by the Company. In some cases, the value of securities owned by the Company may be affected by such factors as investor demand, resale restrictions, general market trends or regulatory restrictions. Fluctuations in the market values of such securities may occur for a number of reasons beyond the control of the Company, and there is no assurance that an adequate market will exist for securities acquired by the Company. Sabina Special Warrants As at December 31, 2010, the Company held 5,000,000 Sabina Series A Special Warrants, which will be automatically exercised upon a decision to proceed to a feasibility study or proceed to production on the Back River project or upon the occurrence of certain other events and 5,000,000 Sabina Series B Special Warrants, which will be automatically exercised upon a positive production decision with respect to the project or upon the occurrence of certain other events. Each of the Sabina Special Warrants is exercisable for one common share and one-half of one Warrant of Sabina. Each whole Warrant, if issued, will be exercisable for five years from the date of closing (June 9, 2009), at the discretion of DPM, for one Sabina common share at a price of Cdn$1.07 each.
As detailed in note 9 of the DPM consolidated financial statements for the year ended December 31, 2010, the estimated fair value of the 10,000,000 Sabina Special Warrants as at December 31, 2010 was $58.7 million. The fair value of the Sabina Special Warrants was determined using valuation models that
Dundee Precious Metals 57 Annual Information Form require the use of assumptions, including future stock price volatility and probability of exercise. If Sabina does not proceed to a feasibility study and/or a mine decision before June 9, 2014, the warrant component of the Special Warrants will expire worthless. As such, there can be no assurance that DPM will be able to exercise the warrant component of the Sabina Special Warrants. The Company’s results of operations and financial condition may be materially impacted if DPM was not able to exercise the warrants before June 9, 2014.
Government Laws and Regulations The activities of the Company are subject to various laws governing prospecting, development, production, taxes, labour standards and occupational health, mine safety, toxic substances, land use, water use, land claims of local people, archaeological discovery and other matters. Although the Company currently carries out its operations and business in accordance with all applicable laws, rules and regulations, no assurance can be given that new laws, rules and regulations will not be enacted or that existing laws, rules and regulations will not be changed or be applied in a manner which could limit or curtail production or development. Amendments to current laws and regulations governing operations and activities of mining, milling and processing or more stringent implementation thereof could cause costs and delays that would have a substantial adverse impact on the Company.
The Company’s current and future operations and development activities are subject to receiving and maintaining permits from appropriate governmental authorities. Although the Company currently has the required permits for its current operations, there is no assurance that delays will not occur in connection with obtaining all necessary renewals of such permits for the existing operations or additional permits for planned future changes to operations. Prior to any redevelopment of any of its properties, the Company must receive new permits from appropriate governmental authorities.
Labour Relations While the Company has good relations with both its unionized and non-unionized employees, there can be no assurance that it will be able to maintain positive relationships with its employees or that new collective agreements will be entered into without work interruptions. In addition, relations between the Company and its employees may be impacted by regulatory or governmental changes introduced by the relevant authorities in whose jurisdictions the Company carries on business. Adverse changes in such legislations or in the relationship between the Company and its employees may have a material adverse impact on the Company’s business, results of operations and financial condition. A two-year collective agreement with the Company’s unionized employees at Chelopech is in force from July 1, 2009 to June 30, 2011. U.S. Investors The Company believes that it is not currently a passive foreign investment company (“PFIC”) for U.S. Federal income tax purposes and it does not anticipate becoming a PFIC in the foreseeable future. However, the PFIC rules are complex, and, as a Canadian company publicly listed on the TSX, the Company does not operate its business in a manner specifically intended to avoid being classified as a PFIC. Accordingly, there can be no assurance that the Company will not be considered a PFIC for any taxable year. The Company also does not expect to provide any shareholder with information that will enable a U.S. shareholder to make a qualified electing fund election in respect of the Company. To the extent that the Company is a PFIC in respect of any taxable year, its status as such would have adverse tax consequences for taxable U.S. investors. U.S. investors should consult their own tax advisors regarding the PFIC rules and the potential adverse U.S. Federal income tax consequences to which they may be subject in respect of an investment in the Company’s Common Shares. Future Plans As part of its strategy, the Company will continue existing efforts to dispose of non-strategic assets and initiate new efforts to acquire new mineral projects. A number of risks and uncertainties are associated with these transactions and DPM may not realize the benefits anticipated. The acquisition and the development of new projects are subject to political, regulatory, design, construction, labour, operating, technical, and technological risks, as well as uncertainties relating to capital and other costs, and financing risks. The failure to develop one or more of these initiatives successfully could have an adverse effect on DPM’s financial position and results of operations.
Dundee Precious Metals 58 Annual Information Form Integration of NCS The success of the acquisition of NCS and related business and assets will depend in large part on the success of management of the Company in integrating the operations of NCS within the DPM organization. The failure of the Company to achieve such integration could result in the failure of the Company to realize any of the anticipated benefits of the acquisition of NCS and could impair the results of operations, profitability and financial results of the Company. In addition, the integration of NCS within the DPM organization may also result in unanticipated operational problems, expenses, liabilities and diversion of management’s attention. Land Title Although the title to the properties owned by the Company were reviewed by or on behalf of the Company, no formal title opinions were delivered to the Company and, consequently, no assurances can be given that there are no title defects affecting such properties. Title insurance generally is not available, and the Company’s ability to ensure that it has obtained a secure claim to individual mineral properties or mining concessions may be severely constrained. The Company has not conducted surveys of the claims in which it holds direct or indirect interests and, therefore, the precise area and location of such claims may be in doubt. Accordingly, the Company’s mineral properties may be subject to prior unregistered liens, agreements, transfers or claims, and title may be affected by, among other things, undetected defects. In addition, the Company may be unable to operate its properties as permitted or to enforce its rights with respect to its properties. Competition The mining industry is competitive in all of its phases. The Company faces strong competition from other mining companies in connection with the acquisition of properties producing, or capable of producing, precious and base metals. Many of these companies have greater financial resources, operational experience and technical capabilities than the Company. As a result of this competition, the Company may be unable to maintain or acquire attractive mining properties on terms it considers acceptable or at all. Consequently, the Company’s revenues, operations and financial condition could be materially adversely affected. Market Price of Common Shares The Common Shares are listed on the TSX. Securities of mining companies have experienced substantial volatility in the past, often based on factors unrelated to the financial performance or prospects of the companies involved. These factors include macroeconomic developments in North America and globally and market perceptions of the attractiveness of particular industries. The Company’s share price is also likely to be significantly affected by short-term changes in gold, silver, zinc or copper prices or by its financial condition or results of operations as reflected in its quarterly earnings reports. As a result of any of these factors, the market price of the Common Shares at any given point in time may not accurately reflect the Company’s long-term value. Securities class action litigation often has been brought against companies following periods of volatility in the market price of their securities. The Company may in the future be the target of similar litigation. Securities litigation could result in substantial costs and damages and divert management’s attention and resources. Foreign Subsidiaries The Company conducts its operations through foreign subsidiaries and substantially all of its assets are held in such entities. Accordingly, any limitation on the transfer of cash or other assets between the parent company and such entities, or among such entities, could restrict the Company’s ability to fund its operations efficiently. Any such limitations, or the perception that such limitations may exist now or in the future, could have an adverse impact on the Company’s valuation and stock price.
Dundee Precious Metals 59 Annual Information Form Key Executives The Company is dependent on the services of key executives, including its President and Chief Executive Officer and a small number of highly skilled and experienced executives and personnel. The loss of these persons or the Company’s inability to attract and retain additional highly skilled employees may adversely affect its business and future operations. Conflicts of Interest Certain of the directors and officers of the Company also serve as directors and/or officers of other companies involved in natural resource exploration and development or investment in natural resource companies and consequently there exists the possibility for such directors and officers to be in a position of conflict. Any decision made by any of such directors and officers involving the Company will be made in accordance with their duties and obligations to deal fairly and in good faith with a view to the best interests of the Company and its shareholders. In addition, each of the directors is required to declare and refrain from voting on any matter in which such directors may have a conflict of interest in accordance with the procedures set forth in the CBCA and other applicable laws.
DIVIDEND POLICY
No dividends have been paid by the Company since 1992. The Company anticipates that it will retain all future earnings and other cash resources for the future operation and development of its business. Payment of any future dividends will be at the discretion of the Company’s Board after taking into account many factors, including the Company’s operating results, financial condition and current and anticipated cash needs. See “Description of Share Capital – Common Shares”.
DESCRIPTION OF SHARE CAPITAL
The authorized capital of the Company consists of an unlimited number of Common Shares and an unlimited number of Preference Shares. As of the date hereof, there were 125,114,318 Common Shares issued and outstanding on a non-diluted basis, and no Preference Shares issued and outstanding. Common Shares Holders of Common Shares are entitled to receive: (a) notice of and attend any meeting of the shareholders of the Company except class meetings of other classes of shares and are entitled to one vote for each share held; and (b) dividends at the discretion of the Board. Additionally, subject to the rights of holders of any shares ranking prior to the Common Shares, the holders of the Common Shares shall be entitled to receive the remaining property of the Company upon liquidation, dissolution or the winding-up of the Company. Preference Shares The directors of the Company may at any time and from time to time issue Preference Shares in one or more series, having such rights, restrictions, conditions and limitations attaching thereto as shall be determined by resolution of the Board and prescribed by the Articles. In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, or other distribution of the assets of the Company among its Shareholders for the purpose of winding-up its affairs, the Preference Shares of each series shall: (a) be entitled to preference over the Common Shares and over any other shares in the capital stock of the Company ranking junior to the Preference Shares with respect to the payment of dividends and the distribution of assets of the Company; and (b) rank on a parity with the Preference Shares of every other series with respect to priority in payment of dividends and in the distribution of assets. The rights, privileges, restrictions and conditions attaching to the Preference Shares as a class may be repealed, altered, modified, amended or amplified with the approval of the holders of 66 2/3% of the votes cast at a meeting of the holders of Preference Shares. Any consent or approval given by the holders of Preference Shares shall be deemed to have been sufficiently given if it is given in writing by the holders of all of the outstanding Preference Shares or by a
Dundee Precious Metals 60 Annual Information Form resolution passed at a meeting of holders of Preference Shares called in accordance with the Articles and carried by the affirmative vote of not less than 66 2/3% of the votes cast at such meeting, in addition to any other consent or approval required by law. On every poll taken at every such meeting every holder of Preference Shares shall be entitled to one vote in respect of each Preference Share held. The holders of Preference Shares are not entitled to vote separately as a class or series upon a proposal to: (a) increase or decrease any maximum number of authorized Preference Shares, or increase any maximum number of authorized shares or any class of shares having rights or privileges equal or superior to the Preference Shares; or (b) effect an exchange, reclassification or cancellation of all or part of the Preference Shares.
MARKET FOR SECURITIES
The outstanding Common Shares and Warrants are listed and posted for trading on the TSX under the stock symbols “DPM”, “DPM.WT” and “DPM.WT.A”, respectively. Trading Price and Volume The monthly trading history for the year ended December 31, 2010, based on the closing price of the Common Shares on the TSX, was as follows:
Total Volume Traded Month 2010 High (Cdn$) Low (Cdn$) Per Month January 3.89 3.20 3,305,968 February 3.55 3.17 11,448,357 March 3.32 2.95 8,878,098 April 4.15 3.17 5,729,366 May 4.52 3.63 14,258,448 June 5.16 3.90 6,311,662 July 4.56 3.95 1,945,651 August 4.88 4.20 3,645,399 September 6.74 4.67 7,963,804 October 6.58 5.46 10,671,691 November 9.67 5.94 14,620,862 December 10.26 9.01 21,232,195
The monthly trading history for the year ended December 31, 2010, based on the closing price of the 2012 Warrants on the TSX, was as follows:
Total Volume Traded Month 2010 High (Cdn$) Low (Cdn$) Per Month January .18 .12 57,000 February .25 .17 17,500 March .22 .11 8,300 April .14 .11 15,700 May .14 .14 9,200 June .15 .08 211,000 July1 - - - August .14 .10 30,500 September .25 .14 91,700 October .33 .24 64,404 November .80 .34 84,700
Dundee Precious Metals 61 Annual Information Form Total Volume Traded Month 2010 High (Cdn$) Low (Cdn$) Per Month December 1.90 1.01 122,301
(1) No trading of the 2012 warrants took place in July 2010.
There were 2,760,000 2012 Warrants outstanding as of the date hereof. Each 2012 Warrant is exercisable into one Common Share at an exercise price of Cdn$15.00 per share until 5:00 p.m. Toronto time on June 29, 2012. The monthly trading history for the year ended December 31, 2010, based on the closing price of the 2015 Warrants on the TSX, was as follows:
Total Volume Traded Month 2010 High (Cdn$) Low (Cdn$) Per Month January 1.59 1.20 338,301 February 1.45 1.23 535,130 March 1.33 1.05 490,742 April 1.82 1.16 2,281,759 May 2.10 1.31 615,364 June 2.65 1.69 981,014 July 2.14 1.73 149,100 August 2.37 1.85 591,234 September 3.85 2.30 450,524 October 3.99 3.15 322,275 November 6.57 3.55 3,270,035 December 7.13 6.00 585,599
There were 20,439,500 2015 Warrants outstanding as of the date hereof. Each 2015 Warrant is exercisable into one Common Share at an exercise price of Cdn$3.25 per share until 5:00 p.m. Toronto time on November 20, 2015.
DIRECTORS AND OFFICERS
The following table sets forth the name, province/state and country of residence, position held with the Company and principal occupation of each of the directors and executive officers of the Company as of the date hereof. Directors of the Company hold office until the next annual meeting of shareholders or until their successors are elected or appointed.
Name, Province/State and Country of Became Residence Office Principal Occupation Director/Officer
DIRECTORS (including Directors who are Officers)
Derek H.L. Buntain (4) Director President, The Dundee Merchant Bank, a private 1993 Cayman Islands, B.W.I. bank and trust company.
R. Peter Gillin (2)(5) Director Corporate Director 2009 Ontario, Canada
Jonathan C. Director, President President and Chief Executive Officer of the 1993 Goodman (5) and Chief Executive Company since 1995. Ontario, Canada Officer
Dundee Precious Metals 62 Annual Information Form Name, Province/State and Country of Became Residence Office Principal Occupation Director/Officer
Ned Goodman (5) Director Mr. Goodman is a director, President and Chief 1983 Ontario and Québec, Executive Officer of Dundee Corporation, and Canada Ned Goodman Investment Counsel Limited (formerly Ravensden Asset Management Inc.), its wholly owned subsidiary. Dundee Corporation is an independently owned asset management company dedicated to wealth management, real estate and resources.
Murray John (4) Director President and Chief Executive Officer of Dundee 2005 Ontario, Canada Resources Limited, an investment company.
Jeremy Kinsman (2)(3) Director Corporate Director 2007 British Columbia, Canada
(1)(4) Garth A.C. MacRae Director, Chairman Corporate Director 1988 Ontario, Canada until June 5, 2002
Peter B. Nixon (2)(3) Director Corporate Director 2002 Ontario, Canada
Ronald Singer (1)(3)(5) Director Corporate Director 1998 Québec, Canada
William G. Wilson (2) Director, Chairman Corporate Director 1983 British Columbia, since June 5, 2002 Canada
Donald Young (1)(3) Director Corporate Director 2010 British Columbia, Canada
NON-DIRECTOR OFFICERS
Adrian Goldstone Executive Vice Officer of the Company 2006 Sofia, Bulgaria President, Sustainable Business Development
Richard Allen Howes Executive Vice Officer of the Company 2010 Sofia, Bulgaria President and Chief Operating Officer
Lori Beak Senior Vice Officer of the Company 2001 Ontario, Canada President, Investor & Regulatory Affairs, and Corporate Secretary
Paul Proulx Senior Vice Officer of the Company 2006 Ontario, Canada President, Corporate Services
Patrick Lim (6) Interim Chief Officer of the Company 2008 Ontario, Canada Financial Officer
Dundee Precious Metals 63 Annual Information Form Name, Province/State and Country of Became Residence Office Principal Occupation Director/Officer Jeremy Cooper Vice President, Officer of the Company 2010 Guildford, U.K. Commercial Affairs
Iliya Garkov Vice President, General Manager, Deno Gold 2011 Sofia, Bulgaria Mining
Simon Meik Vice President, Officer of the Company 2011 Sofia, Bulgaria Processing
(1) Member of the Audit Committee. (2) Member of the Compensation Committee. (3) Member of the Corporate Governance and Nominating Committee. (4) Member of the Health, Safety and Environment Committee. (5) Member of the Hedging Committee (6) Mr. Lim has been employed by the Company since 2008 as Corporate Controller and in November 2010 was appointed Director, Finance and Global Controller. Following the resignation of Stephanie Anderson as Chief Financial Officer on February 28, 2011, Mr. Lim was appointed Interim Chief Financial Officer until the search for a suitable replacement has been concluded.
As of the date hereof, the directors and executive officers of the Company, as a group, held 829,426 Common Shares, representing less than 1% of the outstanding Common Shares. Mr. Ned Goodman has an approximate 82.3% voting interest in Dundee Corporation, which holds a 23% interest in DPM. Five Year Employment History During the last five years, all of the directors and executive officers have held their present principal occupations or other executive offices with the same company or a predecessor or affiliate thereof, except for: - Mr. Gillin who, prior to December 2008, was Chairman and Chief Executive Officer of Tahera Diamond Corporation (“Tahera”), a diamond mining and exploration company; - Mr. Goldstone who, prior to May 2006, was Managing Director of Kingett Mitchell Ltd., a diversified resources and environmental consulting company based in New Zealand; - Mr. Howes who, prior to March 30, 2009, was Area Mine Manager of the Frood/Stobie and Garson Mines for Vale Inco, a mining company; - Mr. Kinsman who, from 2002 to 2006, was Ambassador to the European Union in Brussels; and - Mr. Lim who, prior to July 2008, was Vice President, Corporate Controller at MDS Inc., a global health science company, prior to which he held various senior management roles with MDS Inc.
Cease Trade Orders, Bankruptcies, Penalties or Sanctions No director or executive officer of DPM or a shareholder holding a sufficient number of securities to affect materially the control of DPM: 1. is, or within the ten years prior to the date hereof has been, a director, chief executive officer or chief financial officer of any company (including DPM) that: (a) while that person was acting in that capacity, was the subject of a cease trade or similar order or an order that denied the relevant company access to any exemption under securities legislation (collectively, an “Order”), for a period of more than 30 consecutive days; or (b) was subject to an Order that was issued, after the director or executive officer ceased to be a director or executive officer, in the company being the subject of such Order, that
Dundee Precious Metals 64 Annual Information Form resulted from an event that occurred while that person was acting as director or executive officer of that company; 2. has, within the 10 years before the date hereof, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the proposed director; 3. is, as at the date hereof, or has been within 10 years before the date hereof, a director or executive officer of any company that, while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or 4. has been subject to: (a) any penalties or sanctions imposed by a court relating to Canadian securities legislation or by a Canadian securities regulatory authority or has entered into a settlement agreement with a Canadian securities regulatory authority; or (b) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable security holder in deciding whether to vote for a proposed director; other than Mr. Jonathan Goodman, President and Chief Executive Officer of the Company, who was a director and Peter Gillin who was Chairman and Chief Executive Officer of Tahera, a company that filed for protection under the Companies’ Creditors Arrangement Act with the Ontario Superior Court of Justice on January 16, 2008. No director or executive officer of the Company or a shareholder holding a sufficient number of securities of the Company to affect materially the control of the Company has, within the ten years prior to the date hereof, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the director, officer or shareholder. No director or executive officer of the Company or a shareholder holding a sufficient number of securities of the Company to affect materially the control of the Company has been subject to (i) any penalties or sanctions imposed by a court relating to securities legislation or by a securities regulatory authority or has entered into a settlement agreement with a securities regulatory authority; or (ii) any other penalties or sanctions imposed by a court or regulatory body that would likely be considered important to a reasonable investor in making an investment decision. The directors and officers of the Company are aware of the existence of laws governing accountability of directors and officers for corporate opportunity and requiring disclosures by directors of conflicts of interest and the Company will rely upon such laws in respect of any directors’ and officers’ conflicts of interest or in respect of any breaches of duty by any of its directors or officers. All such conflicts will be disclosed by such directors or officers in accordance with the CBCA and they will govern themselves in respect thereof to the best of their ability in accordance with the obligations imposed upon them by law.
LEGAL PROCEEDINGS
The disclosure with respect to legal proceedings in the Company’s Management Discussion and Analysis and financial statements for the year ended December 31, 2010, which have been filed and are available at the Sedar website, is hereby incorporated by reference.
Dundee Precious Metals 65 Annual Information Form INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
The only material transactions entered into since January 1, 2008 that have affected or are expected to materially affect the Company or any of the affiliates of the Company involving an officer or director of the Company, a holder of more than 10% of the Common Shares (a “Principal Shareholder”) or any associate or affiliate of any such persons or companies are as follows: 1. In November 2008, a syndicate of underwriters co-led by DSC and GMP participated in an equity financing raising aggregate gross proceeds of Cdn$81.6 million through the sale of units, comprised of one Common Share and one-half of a Common Share Purchase Warrant of the Company. The Company paid the syndicate a commission of approximately Cdn$4.1 million, of which DSC earned approximately Cdn$1.7 million; and 2. In March 2010, a syndicate of underwriters led by GMP and including Cormark Securities Inc., DSC, BMO Nesbitt Burns Inc. and Union Securities Ltd. participated in a bought deal equity offering raising aggregate gross proceeds of Cdn$66 million for the Company through the sale of Common Shares. The Company paid the syndicate a commission of approximately Cdn$2.5 million, of which DSC earned approximately Cdn$625,000.
AUDIT COMMITTEE DISCLOSURE Audit Committee Mandate The responsibilities and duties of the Audit Committee are set out in the Audit Committee’s mandate, the full text of which is attached as Appendix “A” hereto. Composition of the Audit Committee As at December 31, 2010, the Audit Committee was composed of three members, being Ronald Singer as Chairman, Garth A.C. MacRae and Donald Young, all of whom are independent and financially literate for the purposes of understanding the accounting principles used by the Company in the preparation of its financial statements in accordance with National Instrument 52-110, Audit Committees. The Audit Committee met seven times during the year ended December 31, 2010. Relevant Education and Experience of Audit Committee Members Mr. Singer holds a Chartered Accountant designation, is a Fellow of the Quebec Order of Chartered Accountants and was a senior partner with the firm of Hyde Houghton, Chartered Accountants, until his retirement. His practice focused on corporate clients, both private and public, with an emphasis on the purchase and sale of businesses and corporate reorganizations. Mr. Singer is also Chairman of the Board of Governors of Dynamic Mutual Funds.
Mr. MacRae holds a Chartered Accountant designation and was Vice Chairman of Dundee Corporation, formerly Dundee Bancorp Inc., an asset management company dedicated to private wealth management, real estate and resources, from 1991 to his retirement in 2004. Mr. MacRae also served as interim President and Chief Executive Officer of Breakwater Resources Ltd., a base metal mining company, from December 2004 to July 2005. During his 30 year career, Mr. MacRae has acted in a senior financial capacity for Hudson Bay Mining, Brinco Limited and Denison Mines Limited, all of which are metals, minerals, precious metals and/or oil and gas producers.
Mr. Young holds a Chartered Accountant designation and was a senior audit partner with the accounting firm of KPMG LLP until his retirement. He has provided financial and planning advice to businesses. Previously, Mr. Young worked for Placer Development Ltd. (now Barrick Gold Corporation). He is a Fellow and past president of the Institute of Chartered Accountants of British Columbia. Policy Regarding Pre-approval of Non-Audit Services In accordance with its mandate, the Audit Committee has established policies and procedures for the pre- approval of allowable non-audit services provided by the independent auditors that safeguard the independence of the independent auditors. The Audit Committee has identified the services which the independent auditors are permitted to provide and those which are prohibited. The policy provides for the
Dundee Precious Metals 66 Annual Information Form Chief Financial Officer (“CFO”) to consent to those permitted services for which quotes of less than Cdn$25,000 have been received, with a copy being provided to the Chair of the Audit Committee. Any quote for services in excess of Cdn$25,000 or any quote for services not clearly defined as “permitted services” are to be reviewed and pre-approved by the Chair of the Audit Committee. In addition, the aggregate quarterly quotations for services consented to by the CFO may not exceed Cdn$75,000 and the CFO shall provide to the Audit Committee, on a quarterly basis, a schedule of all services consented to and all services paid for during the quarter. The Audit Committee will then review the independent status of the auditors in light of the services provided to the Company and its Subsidiaries during the quarter and request confirmation of continued auditor independence from the independent auditor of the Company. Audit Fees The following table presents the fees billed to the Company from its external auditors, PricewaterhouseCoopers LLP (“PwC”), by category, for the years ended December 31, 2010 and December 31, 2009:
(in thousands) Category of Fees December 31, 2010 December 31, 2009 Audit fees (1) $ 501 $ 399 Audit-related fees (2) 264 11 Tax fees (3) 126 81 All other fees 6 7 Total $ 897 $ 498
(1) Audit fees include the PWC audit of the year-end financial statements for consolidated Dundee Precious Metals Inc. and certain subsidiaries and the corresponding interim review of these financial statements; beginning in 2010, the audit and interim reviews of Deno Gold were performed by PWC; (2) In 2010, the audit-related fees include services for the equity financing prospectus, the reorganization of Serbian entities, and IFRS; (3) Tax fees include services for routine tax support and in 2010, the Namibian tax structure.
The Company’s auditor is PwC, independent chartered accountants, who have audited the Company’s consolidated financial statements since June 2002 and expressed their opinion on the Company’s consolidated financial statements. PwC has advised the Company that they are independent in accordance with the rules of professional conduct of the Institute of Chartered Accountants of Ontario.
TRANSFER AGENT AND REGISTRAR
Computershare Investor Services Inc. is the transfer agent and registrar of the Common Shares at its principal offices in Calgary, Montreal, Toronto and Vancouver.
MATERIAL CONTRACTS
Other than those referred to below, there is no contract that is material to the Company that was entered into during the Company’s year ended December 31, 2010, or prior thereto but which is still in effect, other than a contract entered into in the ordinary course of business: 1. Purchase agreement dated February 24, 2010 between the Company, Weatherly (Namibian Custom Smelter) Limited, Dundee Precious Investments B.V., Ongopolo Mining Limited, Namibia Custom Smelters (Pty) Limited and Weatherly International Plc., relating to the acquisition of the Tsumeb Smelter, which was filed on Sedar on March 4, 2010. See “General Development of the Business - 2010 Highlights”; 2. An underwriting agreement, which was filed on Sedar on February 26, 2010. See “Interest of Management and Others in Material Transactions”;
Dundee Precious Metals 67 Annual Information Form 3. A loan agreement with the EBRD and related documents, all of which were filed on Sedar on January 10, 2011. See “General Development of the Business - 2010 Highlights” for further information: i. Amended and Restated EBRD loan agreement between CME and the EBRD, dated December 3, 2010; ii. Deed of Guarantee and Indemnity, Subordination and Share Retention between DPM, Dundee Precious (Chelopech) B.V., CME, the EBRD and UCB, dated December 3, 2010; iii. Common Terms Agreement among CME and UCB and the EBRD, dated December 3, 2010; and iv. Loan Agreement between CME and UCB dated December 3, 2010.
INTERESTS OF EXPERTS
Each of the QPs responsible for preparing technical reports referred to herein or compiling and reviewing technical information disclosed in this AIF, including Craig Barker, Director, Exploration and Resource/Reserve Estimation of DPM, and Dr. Julian Barnes, formerly Executive Vice President of DPM, is a QP as defined in NI 43-101. Refer to the technical reports described in “Defined Terms and Abbreviations” for the names of, and further information on, the QPs. To the best knowledge of the Company, none of the QPs referred to herein has any interest in any securities of the Company or its associates or affiliates, nor do they expect to receive or acquire any such interests other than Mr. Barker, whose interest in securities of the Corporation represents less than 1% of the Company’s outstanding securities.
ADDITIONAL INFORMATION
Additional information with respect to the Company, including directors’ and officers’ remuneration and indebtedness, principal holders of the Company’s securities and securities authorized for issuance under equity compensation plans, as applicable, is contained in the Company’s management information circular for its most recently completed year end. Additional financial information is provided in the Company’s annual audited consolidated financial statements and notes thereto and management’s discussion and analysis for the year ended December 31, 2010 which may be accessed via the Sedar website located at www.sedar.com or the Company’s website located at www.dundeeprecious.com. For additional copies of this AIF, please contact: The Secretary, Dundee Precious Metals Inc., Dundee Place, 1 Adelaide Street East, Ste. 500, Toronto, Ontario, M5C 2V9, or by telephone at (416) 365-5191, by fax at (416) 365-9080 or email at [email protected].
Dundee Precious Metals 68 Annual Information Form GLOSSARY OF TERMS
The following is a glossary of terms that appear in this AIF:
Assay A chemical test of rock samples to determine the metal content.
Atomic Absorption An analytical method for determining concentrations of elements. Spectrophotometry (“AAS”)
AusIMM The Australian Institute of Mining and Metallurgy.
Backfill Waste material used to fill and support the void created by mining an ore body.
Bottle roll An analytical technique in which a sample of pulverized rock is mixed with water and excess cyanide in a sealed container and is then agitated in order to replicate typical conditions within a cyanide based processing facility.
BQ A diamond drill core size, 36.5 mm in diameter.
Comminution A process in which solid materials are reduced in size by crushing, grinding and other technics.
Core A tube of rock produced by diamond drilling.
Cut-off Grade The grade used in grade tonnage reporting wherein only blocks which return a value above the particular cut-off grade are reported.
Decline A passageway from surface or underground connecting one or more levels in a mine or underground development, providing adequate traction for heavy, self-propelled equipment.
Definitive feasibility study A comprehensive study of a deposit in which all geological, engineering, (”DFS”) operating, economic and other relevant factors are considered in sufficient detail that it could reasonably serve as the basis for a final decision by a financial institution to finance the development of the deposit for mineral production.
Diamond drill A type of rotary drill in which the cutting is done by abrasion rather than percussion. The cutting bit is set with diamonds and is attached to the end of long hollow rods through which water is pumped to the cutting face. The drill cuts a core of rock which is recovered in long cylindrical sections, an inch or more in diameter.
Dip The angle which a geological structure forms with a horizontal surface, measured perpendicular to the strike of the structure.
Doré Unrefined gold and silver in bullion form.
EPCM Engineering, procurement and construction management.
Epithermal A term applied to deposits formed at shallow depths from ascending solutions of moderate temperatures.
EqAu Gold equivalent.
Dundee Precious Metals 69 Annual Information Form Grade The weight or percent of metals in each tonne of ore. g/t; g Au/t Grams per metric tonne; grams of gold per metric tonne.
HQ A diamond drill core size, 63.5 mm in diameter.
Indicated Mineral That part of a Mineral Resource for which quantity, grade or quality, Resource densities, shape and physical characteristics, can be estimated with a level of confidence sufficient to allow the appropriate application of technical and economic parameters, to support mine planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough for geological and grade continuity to be reasonably assumed.
Inferred Mineral That part of a Mineral Resource for which quantity and grade or quality can Resource be estimated on the basis of geological evidence and limited sampling and reasonably assumed, but not verified, geological and grade continuity. The estimate is based on limited information and sampling gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.
Measured Mineral That part of a Mineral Resource for which quantity, grade or quality, Resource densities, shape, physical characteristics are so well established that they can be estimated with confidence sufficient to allow the appropriate application of technical and economic parameters, to support production planning and evaluation of the economic viability of the deposit. The estimate is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that are spaced closely enough to confirm both geological and grade continuity.
Metallurgy The science of extracting metals from ores by mechanical and chemical processes and preparing them for use.
Mill A plant where ore is crushed and ground to expose metals or minerals of economic value, which then undergo physical and/or chemical treatment to extract the valuable metals or minerals.
Mineral Reserve The economically mineable part of a Measured or Indicated Mineral Resource demonstrated by at least a Preliminary Feasibility Study.
Mineral Resource A concentration or occurrence of natural, solid, inorganic or fossilized organic material in or on the Earth’s crust in such form and quantity and of such a grade or quality that it has reasonable prospects for economic extraction. The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge. Mineral Resources are sub-divided, in order of decreasing geological confidence, into Measured, Indicated and Inferred Resources.
Mineralization, A mineralized body which has been intersected by sufficient closely spaced mineralized material, drill holes and/or sampling to support sufficient tonnage and average grade of mineralized deposit or metal(s) to warrant further exploration-development work. A deposit does not deposit qualify as a commercially mineable ore body until a final and comprehensive economic, technical, and legal feasibility study based upon the test results is concluded and supports Proven/Probable Mineral Reserves.
Dundee Precious Metals 70 Annual Information Form Mineral Symbols Au – gold; Ag – silver; Cu – copper; Mo – molybdenum; Pb – lead; Re – rhenium; Zn – zinc.
Mtpa; tpa Million tonnes per year; tonnes per year.
NPV Net present value.
NQ A diamond drill core size, 47.6 mm in diameter.
Ordinary kriging A grade estimation technique using geostatistical methods, which uses the actual analytical data.
Ore A metal or mineral or a combination of these of sufficient value as to quality and quantity to enable it to be legally mined at a profit.
Ounces/oz Troy ounces, equivalent to 31.10348 grams.
Oz/ton Troy ounces per short ton.
Ppm Parts per million.
PQ A diamond drill core size, 85 mm in diameter.
Preliminary Feasibility A study that includes adequate information on mining, processing, Study (“PFS”) metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified.
Probable Mineral The economically mineable part of an Indicated, and in some circumstances Reserve a Measured, Mineral Resource demonstrated by at least a Preliminary Feasibility Study. The study must include adequate information on mining, processing, metallurgical, economic, and other relevant factors that demonstrate, at the time of reporting, that economic extraction can be justified.
Proven Mineral Reserve The economically mineable part of a Measured Mineral Resource demonstrated by at least a Preliminary Feasibility Study.
Pyrite A mineral consisting of sulphur and iron.
QAQC Quality Assurance and Quality Control data.
Refractory Ore that resists the action of chemical reagents in the normal treatment processes and which may require pressure leaching or other means to effect the full recovery of the valuable minerals.
Royalty A proportion of the cash flow which is paid to the government or other party with an interest in a mine.
Semi-autogenous A process that uses the tumbling action of the material being ground, in grinding (“SAG”) combination with some additional material, such as steel balls, introduced to improve the grinding.
Stope An underground excavation formed by the extraction of ore.
Strike Horizontal direction or trend of a geological structure.
Sulphide Ore Ore containing a significant quantity of sulphide minerals.
Dundee Precious Metals 71 Annual Information Form Tailings The material that remains after all metals or minerals of economic interest have been removed from the ore during milling.
Ton Short ton (2,000 pounds).
Tonne Metric tonne (1,000 kilograms/2,204.6 pounds).
Trench sampling A sampling technique in which a shallow linear excavation is made in the ground surface which is then methodically sampled, generally along one wall.
Dundee Precious Metals 72 Annual Information Form APPENDIX “A”
Amended: July 29, 2010 Adopted: November 5, 2004
MANDATE OF THE AUDIT COMMITTEE
Purpose
To assist the board of directors (the “Board”) in fulfilling its oversight responsibilities for:
(a) the integrity, quality and transparency of the Company’s financial statements; (b) the Company’s internal control over financial reporting; (c) the Company’s compliance with legal and regulatory requirements which relate to financial reporting; (d) the performance of the internal audit function over financial reporting; (e) the appointment (subject to shareholder ratification) of the Company’s external auditor with the responsibility for its compensation, independence and qualifications as well as oversight of all the external auditor’s audit and allowable non-audit work; and (f) such other duties as assigned to it from time to time by the Board.
The function of the audit committee (the “Committee”) is oversight. The members of the Committee are not full-time employees of the Company. The Company’s management is responsible for the preparation of the Company’s financial statements in accordance with applicable accounting standards and applicable laws and regulations. The Company’s external auditor is responsible for the audit and review, as applicable, of the Company’s financial statements in accordance with applicable auditing standards and laws and regulations.
In carrying out its oversight role, the Committee and the Board recognize that the Company’s management is responsible for:
(a) implementing and maintaining suitable internal controls and disclosure controls; (b) the preparation, presentation and integrity of the Company’s financial statements; and (c) the appropriateness of the accounting principles and reporting policies that are used by the Company.
The Committee
The Committee shall consist of at least three members of the Board. The Board will appoint the Committee members and the Committee Chair.
The Board will ensure that the Chair of the Committee and its members are independent and financially literate. Both independence and financial literacy are defined in National Instrument 52-110 (“NI 52-110”).
Procedures, Powers and Duties
In carrying out its oversight role, duties and responsibilities, the Committee believes that its policies and procedures should remain flexible, within appropriate regulatory and GAAP guidelines, in order to best react to changing events, conditions and circumstances.
The Committee will meet at least four times a year, with authority to convene additional meetings, as circumstances require. The Committee will invite members of management, auditors or others to attend meetings and provide pertinent information, as necessary. The Committee will hold private meetings with auditors and Company executives. Meeting agendas will be prepared and provided in advance to members, along with appropriate briefing materials.
No business shall be transacted by the Committee except at a meeting where a majority of the members are present, either in person or by teleconference or video conference.
Dundee Precious Metals 73 Annual Information Form The Committee may:
(a) engage outside legal, audit or other counsel at the Company’s expense, without the prior approval of the directors of the Company; (b) review any corporate counsel’s reports of evidence of a material violation of security laws or breaches of fiduciary duty; (c) seek any information it requires from employees – all of whom are directed to cooperate with the Committee’s request – or external party; and (d) meet with Company officers, external auditors or outside counsel, as necessary.
The Committee’s business will be recorded in minutes of the Committee meetings, which shall be submitted to the Board.
Responsibilities
The Committee will carry out the following responsibilities:
Financial Statements
Review and discuss with management and the external auditors the quarterly and annual financial statements and disclosures made under Management’s Discussion and Analysis of Financial Condition and Results of Operations, and, if appropriate, recommend to the Board the approval prior to release or inclusion in any reports to shareholders and/or Securities Commissions. Such discussion shall include:
(a) the independent auditor’s judgment about the quality, not just the acceptability, of accounting principles applied by the Company; (b) the reasonableness of the significant judgments; (c) the clarity and completeness of the financial statement disclosure; (d) any accounting adjustments that were noted or proposed by the external auditor but were passed (as immaterial or otherwise); and (e) any communication between the audit team and the national office relating to accounting or auditing issues encountered during the audit.
Review disclosures related to any insider and affiliated party transactions.
Internal Controls
Review with management, the internal auditor, and the external auditor the adequacy and effectiveness of the Company’s systems of internal control and accounting and financial disclosure, including policies, procedures and systems to assess, monitor and manage the Company’s assets, liabilities, revenues and expenses. In addition, the Committee will review and discuss the appropriateness and timeliness of the disposition of any recommendations for improvements in internal control over financial reporting and procedures.
Obtain and review reports of the external auditor and reports of the internal auditor on significant findings and recommendations on the Company’s internal controls, together with management’s responses.
Discuss with the internal auditor, policies regarding financial risk assessment and financial risk management. While it is the responsibility of management to assess and manage the Company’s exposure to financial risk, the Committee will discuss and review guidelines and policies that govern the process. The discussion may include the Company’s financial risk exposures and the steps management has taken to monitor and control such exposures.
External Auditor
Receive reports directly from the external auditor.
Dundee Precious Metals 74 Annual Information Form Discuss with representatives of the external auditor the plans for their audit, including the adequacy of staff. The Committee will have separate discussions with the independent auditors, without management present, on:
(a) the results of their audit and quarterly reviews; (b) any difficulties encountered in the course of their work, including restrictions on the scope of activities or access to information; (c) management’s response to audit issues; and (d) any disagreements with management.
Establish and implement policies and procedures for pre-approval of allowable services provided by the independent auditor that safeguard the independence of the independent auditor and which may include the delegation of pre-approval authority for non-audit services to the Chair of the Committee provided that a full report is presented to the Committee at its next scheduled meeting.
Recommend the appointment, compensation and termination of the external auditor to the Board. The appointment and termination of the external auditor are the exclusive responsibility of the shareholders of the Company.
Provide oversight of the quarterly review and audit work of the external auditor as well as oversee the resolution of any disagreements between management and the independent auditor.
Ensure that at all times there are direct communication channels between the Committee and the external auditor of the Company to discuss and review specific issues, as appropriate.
Meet separately, on a regular basis, with management and the independent auditor to discuss any issues or concerns warranting Committee attention. As part of this process, the Committee shall provide sufficient opportunity for the independent auditor to meet privately with the Committee.
At least annually, obtain and review a report by the independent auditor describing:
(a) the firm’s internal quality control procedures; (b) sanctions made by any government or professional authorities, respecting independent audits carried out by the independent auditor, and any steps taken to deal with any such issues; and (c) all relationships between the independent auditor and the Company in order to assess external auditor independence and receive a letter each year from the external auditor confirming its continued independence.
Allow the external auditor of the Company to attend and be heard at any meeting of the Committee.
Review and approve the Company’s hiring policies regarding partners, employees and former partners and employees of the external auditor as more fully described in NI 52-110.
Internal Audit
Approve Internal Audit’s charter, authority and organizational reporting lines.
Approve the annual audit plan for the internal audit department. Such a plan will normally include a budget, staffing information, projects to be audited indicating time and other resources, if any, assigned, basis of selecting projects for audit and outside contractors, if any, to be used.
Approve Internal Audit’s performance and longer term audit plans, budgets and staffing.
In advance, approve the hiring, promotion, termination, bonuses and other special compensation awards as well as changes proposed by management in base compensation for the internal auditor.
Dundee Precious Metals 75 Annual Information Form Ensure that at all times there are direct communication channels between the Committee and the internal auditor of the Company to discuss and review specific issues, as appropriate. Meet periodically with the internal auditor without the presence of management and the external auditor.
Whistleblower
Review procedures established with respect to employees and third parties for:
(a) the receipt, retention and treatment of complaints received by the Company regarding accounting, internal accounting controls or auditing matters; (b) confidential, anonymous submissions of concerns regarding questionable accounting or auditing matters; and (c) dealing with the reporting, handling and taking of remedial action with respect to alleged illegal or unethical behaviour, as provided in the Company’s Code of Business Conduct and Ethics.
Compliance
Review disclosures made by the Company’s principal executive officer and principal financial officer regarding compliance with their certification obligations as required by the regulators.
Review the Company’s principal executive officer and principal financial officer’s quarterly and annual assessment of the design of the Company’s disclosure controls and procedures and internal control over financial reporting.
Review the findings of any examination by regulatory agencies, and any auditor observations.
Receive reports, if any, from management and corporate legal counsel of evidence of material violation of securities laws or breaches of fiduciary duty.
Reporting Responsibilities
Regularly report to the Board on Committee activities, issues and related recommendations.
Report annually to the shareholders, describing the Committee’s composition, responsibilities and how they are discharged, and any other information required by legislation.
Review and discuss with management earnings press releases, as well as financial information and earnings guidance. Such discussions may, in the discretion of the Committee, be done generally (i.e. by discussing the types of information to be disclosed and the type of presentation to be made) and need not be in advance of each earnings release or each instance in which the Company gives earnings guidance.
Other Responsibilities
Perform any other related activities as requested by the Board.
Review and assess the adequacy of the Committee mandate annually, requesting Board approval for proposed changes.
Institute and oversee special investigations, as needed.
Dundee Precious Metals 76 Annual Information Form