Pioneering innovation in mining can bring big rewards, being able to gain a competitive advantage to make operations more efficient is something everyone in the mining industry is striving for. Dundee Precious Metals (TSX:DPM) is leading the way in looking at how technology can rejuvenate and modernise a mine. In doing so the company doubled production at its flagship Bulgarian Chelopech gold mine purely by developing process efficiencies. The company is now on the journey to consolidate its position in Eastern Europe and capitalise on its first-mover advantage both in technology and geologically.
Dundee has a long history in the mining industry however not always on the operational side. For the first 20 years Dundee operated as an investment fund managing financing in the gold and precious metals space, hence the name. It wasn’t until 2003 and the acquisition of assets in Eastern Europe that Dundee became Dundee Precious Metals (“DPM”) the mining firm it’s known as today. RGN caught up with DPM president & CEO Rick Howes to discuss the company’s journey, its innovative approach to mining and what the future holds.
“The assets [acquired in 2003] are located in Bulgaria. One is an operating mine called Chelopech and the other is a development asset in the form of the Krumovgrad gold project. The company decided to close the [investment] fund and basically convert to an operating company, it has been operating as a gold mining company since 2003,” says Howes.
Howes has overseen tremendous growth at DPM in terms of how far it has come since its entry into the mining industry. Having acquired an operating mine in Chelopech, which produces copper and gold in central Bulgaria, the company focused on revitalising operations there and building a platform for further growth.
“There was a strategy to quadruple its production and cut its costs in half, which we did over the course of the last 10 years. That became the flagship asset and it helped fund further expansion,” says Howes.
Following the move into Bulgaria, DPM acquired an underground polymetallic (mainly gold) mine in Armenia, the Kapan mine. They completed some work there in terms of drilling and looked at the economics of the project, in a time when gold and metal prices were declining, and ultimately decided that ‘there wasn’t enough upside for the project to warrant attention’.
DPM sold Kapan to Polymetal International in April 2016 in a deal worth around US$25 million.
In 2010, DPM bought a smelter in Namibia. It was a strategic decision designed to facilitate processing of the complex Chelopech mine copper concentrate.
“There was a speciality smelter in Namibia which was designed to treat that type of material. We bought it in 2010 and over the course of the next five years we modernised and upgraded that facility to become a globally unique speciality complex smelter.”
Howes has vast experience in the mining industry and has headed up large projects in previous roles. He spent 30 years working for major Canadian institutional mining companies including Teck Cominco, now known as Teck. Howes then spent 15 years at Falconbridge which later became Glencore, before working at Inco for eight years which then became Vale.
“My forte was managing large operations in the order of 2,000-3,000 people with fairly large scale production. I was mostly in the base metal side of the business for those 30 years and progressed up the organisations.”
With mostly Canadian experience, Howes joined DPM in 2009 and began his international journey. He oversaw the expansion at Chelopech as general manager and became chief operating officer in 2011, before assuming the CEO position in 2013.
DPM has demonstrated a consistent strategy of growing the business to deliver value to the shareholders since the Bulgarian acquisitions. Howes attributes this growth to having the competitive edge derived from DPM’s operational excellence.
“We have very strong mining expertise, processing expertise, even commercial expertise in the industry mainly because we’re an integrated company from mine right through to smelter.”
DPM has expertise throughout the value chain and that enables it to operate and produce above average for a company of its size in terms of capabilities.
Competitive strength is what allowed DPM to acquire the failing and uneconomic Chelopech mine and turn it around. DPM bought the mine from a company that had lost money and went bankrupt – DPM worked tirelessly to get the mine performing well.
“We saw the potential of Chelopech and had a strategy to execute that potential and we ultimately delivered more than we expected to. We saw that as a strength and we have grown from there to build that strength into a ‘systems approach’ to our operating excellence execution abilities.”
Howes is focused on delivering value from the gold mining business and seeing the company grow into an intermediate sized producer. He is concentrating on organic growth to generate returns and value looking at exploration to increase production capacity.
“Our focus has been organic; we have a strong exploration team and we have a number of assets in the pipeline upon which we can build. The first, of course, is to construct the Krumovgrad project in Bulgaria which is shovel-ready. Then in Serbia we have a number of assets that are the pipeline behind the organic growth.”
The third strand of DPM’s operational excellence is applying innovation to its assets. The Chelopech mine is DPM’s first ‘digital mine’. Howes says the company is pushing the boundaries in the mining industry around innovation.
The initial doubling in production came from a conventional strategic growth programme, with technical innovation at Chelopech resulted in the second a doubling of efficiency with the same fleet.
Howes says DPM has undertaken an aggressive programme of growing the production and throughput at Chelopech, quadrupling production numbers since it acquired the asset. In 2015 Chelopech produced 169,275 ounces of gold and 39.8 million pounds of copper at a cash cost of $36.46 per tonne of ore processed.
While quadrupling the production at the mine was a key objective Howes says the programme was also focused on reducing costs and ensuring the mine creates substantial margins and remains economic overall.
In terms of reaching that target of quadrupling Chelopech’s production, the early work was concentrated on changing the mining method to improve the operational process efficiencies. The original mine was a caving operation which was unsuitable for the type of ore bodies at Chelopech. DPM identified that by changing the mining method, it could improve its recovery rates and ultimately the return for investors.
“We went about it with a totally different mining method which was more selective – it’s called ‘blasthole open stoping’ and it recovers essentially 100% of the material and reduced the dilution from 30-40% to 6% which brought grades up.
“We brought it from an uneconomic proposition to one that was quite profitable. That was our first doubling from 2006-2008.”
The second phase of expansion involved expanding the mill rate from one million tonnes per year (mtpy) to 2mtpy.
“We had to come up with new ways to increase the rate of mining from the ore body and we did a lot of work to evaluate the new technologies. We had to put in a new materials-handling system to move the ore from underground to surface to double the rate of production.”
However, Howes recognised at that stage that managing the mine, with its increased production levels, was going to become far more complex. He says they needed to implement a ‘systems management’ approach to maintain the production efficiently. This is where the innovation came in.
“We developed our own Wi-Fi capability underground leveraging into the next generation mines in terms of big data, digital and using the information to manage the operation for efficiency,” says Howes.
“We were able to create a digitally connected mine. We called the initiative ‘taking the lid off the mine’ and we were able to do that through the joint development of technology with Cisco.
“The real power of the technology was to have real-time knowledge of the operation in terms of our plans, schedules and execution.”
Howes says the improvement in efficiency that the technology brought in led to a reduction in the cost of production from $60 per tonne to around $34.
DPM’s second Bulgarian interest is the development mine at Krumovgrad. The gold-silver mine has cost $164 million in capital to date and has taken a winding road in terms of permitting. DPM announced receipt of the final construction permit in August. With the final preparatory activities expected to be completed in Q3 2016 and the aforementioned sale of Kapan, Dundee is well positioned to commence the construction phase at Krumovgrad.
“After 12 years of continuous investment in Bulgaria at the Chelopech mine and Krumovgrad project, we are pleased and excited to announce that we have received the permit to construct the Krumovgrad mine, a high value return project for all stakeholders. The receipt of this permit is a testament to the commitment of the project team to listen to the concerns of the local community and design a project capable of gaining the support of the community and other key stakeholders,” says Howes. “We are on track to break ground on this project, as scheduled, and commence production in the second half of 2018.”
However, the Krumovgrad mine hasn’t been a straightforward ride. DPM had to customise the mine plan after listening to a variety of stakeholders.
There were concerns over the use of cyanide in the wet tailings disposal, so the company took a different approach.
“We took the project off the table and presented a new approach in 2011 and went to dry-stack type tailings, reduced the footprint of the project and resubmitted it for environmental approval. The community was appreciative of the fact that we listened to their concerns. We don’t see ourselves as the ‘big Canadian miner’ coming into a small country and exploiting the resources. We see ourselves as guests in the country and respectful of the cultures and we try to listen as much as possible.”
Going forward at Krumovgrad, Howes expects the construction to take around two years and is targeting production for late 2018. He is aiming to hit overall production of 270,000 ounces of gold per year by 2020.
Alongside the primary focus on the Bulgarian mines, DPM is also concentrating on the smelting operation in Namibia, looking to increase throughput and modernisation and continue with the exploration programme underway in Serbia.
DPM is the largest and most-established explorer in Serbia having entered the country in 2004/2005. Having been the first active foreign explorer in Serbia prior to the global financial crisis, DPM decided to spin its exploration team out to two new companies, Avala Resources (CVE:AVZ) and Dunav (CVE:DNV) and retain a 50% stake in each. The companies were successful in finding discoveries in Serbia and DPM then decided it was in their interest to take back full ownership of Avala – with a 2.4 million ounce resource.
DPM’s overarching aim to become a mid-tier producer is based on reaching 500,000 ounces per annum production. Howes has set out a timeline to reach that goal which consists of getting the Krumovgrad mine through construction and capitalising on the strength of the smelting operation.
“The key deliverable in terms of our gold production growth strategy is around the construction schedule we have at Krumovgrad. We have financing plans in place so it’s just a matter of executing the production plan. We have a unique smelter that doesn’t have to blend material down to a level sufficient to be processed. The expansion opportunity is there for us and we have been working on that for a number of years. We are at the feasibility stage and it’ll be a milestone to complete that feasibility in Q4 2016.”