Dragon Mining Limited Quarterly Activities Report
For the Quarter ended 30 June 2016
Quarter Overview
-
A Group C1 Cash Cost of US$907/oz was achieved at the Vammala Production Centre ("Vammala") during the quarter. This was higher against the C1 Cash Cost achieved in previous quarters and was principally due to an increase in lower grade ore tonnes from the Jokisivu mine and a decrease in higher grade ore tonnes from the Orivesi mine, combined with lower tonnages processed overall.
-
1 Lost Time Injury ("LTI") occurred during the quarter at the Svartliden Production Centre ("Svartliden") increasing the Group's 12 month rolling LTI frequency rate, per million work hours to 14.9 (Q1 2016: 12.19).
-
Gold production of 8,073 ounces, includes 1,607 ounces produced from external concentrate sources at Svartliden.
-
To ensure environmental compliance at Svartliden the processing of external concentrate will cease during Q3, 2016. The decision has been made due to the high leachable copper content of some external concentrates. Svartliden will continue to process 100% of concentrate from Jokisivu and an increased amount of concentrate from Orivesi.
-
The Fäboliden Test Mining Environmental Permit was submitted during the quarter to the County Administration Board.
-
Continued metallurgical test work shows improved recoveries at Fäboliden. The second phase of bench scale
at the end of the quarter (details of cash movement are provided on page 8).
-
6.75 million Shares in Aurion Resources Limited were sold during the quarter with the Company receiving A$644,819.
Quarter at a Glance
|
Gold Production
|
8,073 ounces
|
|
C1 Cash Cost US/oz(1)
|
US$907
|
|
Safety Performance
|
1 LTI
|
|
Available Cash(2)
(Quarter end)
|
A$10.3m
|
-
For the Vammala Production Centre, the Group uses the C1 Cash Cost definition as set out by Mackenzie Wood.
-
Available Cash = Cash at bank plus trade receivables less accounts payable.
Dragon Mining Quarterly Gold Production
and C1 Cash Cost
metallurgical test work was successfully completed during the quarter. Representative material from Fäboliden returned gold recoveries of 83%, higher than that obtained in earlier test work programs. Gravity regrind tests resulted in a 3% increase in recovery to 86%.
-
Strategic value of the Svartliden operation preserved with the reduced volume of concentrate being processed, a strategic decision has been made to keep the Svartliden plant operating at below breakeven to ensure continuity of operational staff and operational readiness for the
Ounces
20,000
10,000
0
USD/Oz
3,000
2,000
1,000
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
0
Ounces Produced (Oz, LHS) C1 Cash Cost (USD/Oz, RHS)
development of Fäboliden.
-
The process to sell part of the Fäboliden land and timber assets was finalised during the quarter with the Company to receive approximately A$2.0 million. The areas sold are located well away from the Fäboliden Gold Deposit and its strike extensions.
-
The Orivesi Environmental Permit appeal progressed with the Company submitting its responses to the Regional State Administrative Office.
-
The cash generated by operations over the quarter was positive at A$1.5m. Available cash (bank accounts plus trade receivables less accounts payable) decreased by A$4.8m million during the quarter. Available cash totalled A$10.3m
200,000
150,000
100,000
50,000
0
Ore Mined vs Ore Milled
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
Ore Mined (t) Ore Milled (t)
Page | 1
Operations Review
The Group's gold production for the second quarter of 2016 was 8,073 ounces at a C1 Cash Cost of US$907/oz. Gold production was reduced due to an increase in lower grade ore tonnes from the Jokisivu mine to compensate for the decrease in higher grade ore tonnes from the Orivesi mine, as a result of difficult mining conditions, combined with lower tonnages processed overall.
Metallurgical test work has identified a significant quantity of high grade tailings from historical Orivesi production that could potentially be reprocessed at Vammala. Subsequent to quarter end, the Company has commenced a historic data compilation exercise and study to estimate the Mineral Resource and determine if reprocessing the tailings would be economically
viable. This work continues. No additional permitting is required.
Vammala completed a major shutdown ahead of schedule which included the demolition and rebuild of the course ore bin completed without incident.
The processing of internal and external concentrate at Svartliden continued during the quarter. Despite lower tonnes and grades from external concentrate sources, Svartliden produced 1,607 additional ounces (Q1: 2,332 ounces). To ensure that the discharge limits with regard to copper would not be breached, the Company has decided to cease the processing of external concentrates due to the high leachable copper content. The processing of all external concentrates at Svartliden will cease during Q3, 2016.
Vammala Production Centre, Southern Finland
|
Quarter
|
Ore Mined (t)
|
Ore Milled (t)
|
Head Grade (g/t)
|
Recovery (%)
|
Plant Utilisation (%)
|
Total Gold Production (Ounces)
|
C1
Cash Cost1 USD/oz sold
|
|
Sep 2015
|
55,540
|
75,304
|
4.9
|
85.9
|
94.9
|
210,146
|
1701
|
|
Dec 2015
|
80,582
|
72,226
|
4.7
|
88.2
|
86.5
|
29,632
|
1688
|
|
Mar 2016
|
97,301
|
73,903
|
3.9
|
87.6
|
92.7
|
8,019
|
702
|
|
Jun 2016
|
79,416
|
73,005
|
3.0
|
87.0
|
87.1
|
6,466
|
907
|
1The Vammala Production Centre C1 Cash Cost definition is as set out by Mackenzie Wood.
2Total gold production includes a positive quarterly true up to reconcile the provisional ounces sold to Boliden against the final gold outturn from Boliden.
Safety
During the period, no LTI's occurred at the Finnish operations. Vammala, Jokisivu and Orivesi have all recorded continuous LTI free days of 162, 193 and 574 respectively.
Active use of the underground seismic monitoring system at Orivesi commenced successfully during the quarter. The system records continuously micro seismic events caused by rock stresses. The largest recorded has been a 0.4 Magnitude event. No visual damage was observed underground.
A total of eighteen reportable incidents were noted during the quarter; nine at Orivesi, seven at Vammala and two at Jokisivu.
Positive safety initiatives during the quarter included:
-
The identification and assessment of risks related to unusual work in connection with the maintenance shutdown, were performed prior to commencement; and
-
An update of the Company's Crisis Management Protocols was completed and a Crisis Management Team was created.
Production
Gold production for the quarter at Vammala was 6,466 ounces. Mill feed at Vammala comprised 23,900 tonnes from Orivesi at 5.1 g/t gold and 49,105 tonnes from the Jokisivu at 2.4 g/t gold. The Jokisivu ore head grade was significantly impacted by the lower than expected grades mined from the 340 stope.
Orivesi Gold Mine
Total ore mined from Orivesi was 17,373 tonnes coming from one producing stope at Sarvisuo and two sill pillars at Kutema. Underground mining conditions remained challenging and ore extraction rates were again low, as a consequence of two sill pillars collapsing before all the remaining ore was extracted.
The Kutema decline advanced 170 metres by the end of the quarter to the 1,180m level and development works advanced a total of 502 metres during the quarter.
Jokisivu Gold Mine
Total ore mined from Jokisivu was 62,040 tonnes, a new production record. Production from Jokisivu has ramped up to compensate for the lower production from Orivesi, such that Jokisivu has mined YTD 126,752 tonnes of ore at 2.5 g/t gold vs 65,764 tonnes of ore at 3.5 g/t gold (Jan
- Jun 2015).
Three stopes at Kujankallio were mined out with mining conditions stable and development works advanced a total of 530 metres during the quarter.
Vammala Plant
Ore milled totalled 73,005 tonnes and gold recovery averaged 87.0%. The utilisation of the plant was 87.1%.
A 46 year old metal ore silo was replaced during the four day planned shutdown period.
Environment
Vammala Plant
The Vaasa Administrative Court's ("Court") decision pertaining to the appeals received against the Company's Vammala Environmental
Permit application ("Permit") was issued on 2 May 2016. The Court ruled for the Permit to be returned to the Regional State Administrative Office ("AVI") for a new determination. The Court was unable to make a decision and requested further information on the discharge water management proposal before the Permit can be issued. The Vammala Plant can continue to operate under the previous permit until the new permit is issued.
The Court decision included recommended improvements as guidelines for the Company to implement in order to receive the new Permit. The planning for the implementation of the Courts recommendations commenced immediately.
The Company has agreed to submit, to the Centre for Economic Development, Transport and the Environment ("ELY Centre"), a proposal containing its improvement actions with timings around improvement implementation and additional information on the Kaapelinkulma ore and tailings. The proposal will be submitted in July 2016.
Orivesi Gold Mine
Monthly discharge water analyses sampled during the quarter show that the mine continues to comply with its Environmental Permit conditions.
On 8 December 2015, the AVI rejected the Environmental Permit application that had been submitted in 2010. On 7 January 2016, the Company submitted an appeal against the AVI decision. The AVI decision has also been appealed by the ELY Centre. The mine can continue to operate under the existing permit until the appeals process is finalised.
In continuation of the Company's work on the appeal, on 15 May 2016 the Court asked for the Company to provide its responses to a statement and opinions received during the appeals process. The contents of the statement and opinions vary, however a slight majority consider that the Permit should be granted, at least for a fixed period. The Company submitted its responses on 13 May 2016.
Actions to improve water management continued during spring. More ditches were excavated to the eastern side of the mine site in order to prevent run-off waters from flowing towards Lake
Kutemajärvi. Most importantly, the equipment for automatically adjusting the discharge water's pH levels was installed in April and fully operational in May.
A visiting party of Supervisors and three head of units from ELY paid a visit to the site during May. The purpose of the visit was for ELY to get to know the area and discuss the mine's future plans. The visitors were pleased with improvement work related to water management in the area.
Jokisivu Gold Mine
Monthly water analysis sampled during spring shows the mine to be operating in compliance with its permit conditions and best practices.
On 13 June 2016, the Company received an Environmental Permit to crush 100,000 tonnes per annum of waste rock, either for its own use or to be sold externally.
The Company is participating in a project called SUSMIN - tools for sustainable gold mining in the EU, being managed by Geological Survey of Finland. As a part of the project, a water treatment pilot was run at Jokisivu in May. The three year project will end this year with the results of the pilot to be available during the autumn.
Kaapelinkulma Gold Project
The final meeting regarding the ordering of Mining Concession was organised on 20 April in Valkeakoski. The 30 day appeals period ended on 20 May and did not result in any appeals. The Mining Concession is now fully valid.
The Environmental Permit with reviewed permit conditions was issued in October 2015 and is effective until further notice. The major permits are now being received for mining to commence.
Svartliden Production Centre, Sweden
|
Quarter
|
External Con Milled (t)
|
Head Grade (g/t)
|
Recovery (%)
|
External Gold Production (Ounces)
|
1Quarterly
Profit/(Loss
) AUD $,000
|
|
Sep 2015
|
1,417
|
93.3
|
95.4
|
4,056
|
-
|
|
Dec 2015
|
1,042
|
109.0
|
95.0
|
3,211
|
-
|
|
Mar 2016
|
831
|
96.1
|
92.5
|
2,332
|
(1,502)
|
|
Jun 2016
|
521
|
105.1
|
92.9
|
1,607
|
388
|
1A strategic decision has been made to keep the Svartliden plant operating at below breakeven to ensure continuity of operational staff and operational readiness for the development of Fäboliden. As a result, the Company does not consider the C1 Cash Cost an appropriate measure for Svartliden choosing instead to report the quantum of the strategic profit/(loss) incurred. June 2016 includes the A$2.0 million proceeds from the sale of the Fäboliden land and timer.
Safety
Svartliden had one LTI during the quarter and is currently 90 days LTI free.
Production
During the quarter, production at Svartliden consisted primarily of internal concentrates following the Company's decision to cease processing external concentrates due to the high leachable copper content of the concentrate.
Svartliden will continue to process internal concentrates from Vammala.
In late May, Svartliden experienced a sudden increase in copper levels in the Clear Water Pond and had to take measures to avoid breaching the permitted copper level in the effluent water. Since mid-June, and as a result of those measures, no external concentrates have been processed at Svartliden.