Dragon Mining Limited Quarterly Activities Report
For the Quarter ended 30 September 2016
Quarter Overview
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Improved safety performance was achieved with a Lost Time Injury ("LTI") free quarter. This included the completion of a major shut down for maintenance at Vammala. As a consequence of the fewer hours worked during the Nordic summer period, the Group's 12 month rolling LTI frequency rate, per million work hours increased slightly to 15.7 (Q2 2016: 14.9).
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A Group C1 Cash Cost of US$791/oz was achieved at the Vammala Production Centre ("Vammala") during the quarter. This was lower than the C1 Cash Cost achieved in the previous quarter and was the result of a 13% increase in milled tonnes and better than expected grades mined from the 65 stope at Jokisivu.
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Gold production of 7,892 ounces included 2,287 ounces produced from Orivesi ore and 5,605 ounces produced from Jokisivu ore during the quarter. The production was effected by the reduced operating hours over the Nordic summer holidays and a major shutdown at Vammala.
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To ensure environmental compliance at Svartliden, the processing of external concentrate ceased during the quarter. The decision was made due to the high leachable copper content of some external concentrates. Svartliden has continued to process 100% of the concentrate from Jokisivu and an increased amount of concentrate from Orivesi.
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The Orivesi Environmental Permit appeal has progressed with the Company having submitted its responses to the Regional State Administrative Office.
quarter of FY2016, with production to start as a function of production of the existing mines.
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Work on the Svartliden Rehabilitation Plan has continued with the Environmental Court approving an extension for its submission to April 2017.
The cash generated by operations over the quarter was positive at A$0.1 million. Available cash (bank accounts plus trade receivables less accounts payable) increased by A$0.2 million during the quarter. Available cash totalled A$10.5 million at the end of the quarter (details of cash movement are provided on page 8).
Quarter at a Glance
|
Gold Production
|
7,892 ounces
|
|
C1 Cash Cost US/oz(1)
|
US$791
|
|
Safety Performance
|
Nil
|
|
Available Cash(2)
(Quarter end)
|
A$10.5m
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Dragon Mining Quarterly Gold Production
and C1 Cash Cost
The Fäboliden Test Mining Permit Application is being processed by the County Administration Board ("CAB"). The CAB advised the Company that it had an internal consultation deadline in early October 2016 and that they will respond, outlining any supplementary information that is required, in early November 2016. The Company continues to progress work on the full scale Environmental Permit Application.
A Draft Local Master Plan which excludes mining has been proposed by the Municipality of Kuusamo ("Municipality"). The Company's legal advice is that the Municipality does not have the legal right to exclude mining as the Company holds valid
Ounces
20,000
15,000
10,000
5,000
0
USD/Oz
3,000
2,000
1,000
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
0
Ounces Produced (Oz, LHS) C1 Cash Cost (USD/Oz, RHS)
Mining Concessions in the area granted by a federal agency. The Company's legal advice also indicates that in preparing the draft plan, the Municipality did not follow due process as they did not include the Company as holders of these Mining Concessions and as a significant land owner in the area. The Company has strong reservations on the proposed Plan and will vigorously oppose the Plan through the Finnish Courts, if and when it is published.
At the Kaapelinkulma Gold Project, study work, pit optimisation and permitting have been completed for the Company's new and third gold mine in the southern Finland region. Grade control drilling will commence in the fourth
Ore Mined vs Ore Milled
200,000
150,000
100,000
50,000
2Q14
3Q14
4Q14
1Q15
2Q15
3Q15
4Q15
1Q16
2Q16
3Q16
0
Ore Mined (t) Ore Milled (t)
Page | 1
Operations Review
The Group's gold production for the third quarter of 2016 was 7,892 ounces at a C1 Cash Cost of US$791/oz. In spite of a major shutdown at Vammala and reduced hours at the Company's mines over the Nordic summer holidays, gold production increased from the previous quarter with an increase in tonnes milled from the Jokisivu mine to compensate for the decreased tonnes milled from the Orivesi mine.
Svartliden processed only internal concentrates from Vammala following the Company's previously announced decision to cease processing external concentrates due to the high
leachable copper content found in the external concentrates. Most of the Jokisivu and Orivesi flotation concentrate was able to be processed at Svartliden with only a small portion delivered to the Boliden Harjavalta Smelter.
Vammala completed a major shutdown during a maintenance break on schedule which included a conveyor belt change in the crushing circuit, ore feeders, grinding mill inspection and linings patching, flotation cell cleaning, piping work, installation of the new tailings pipe, broken valves replacement, V-belt inspection and replacements.
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
|
|
Dec 2015
|
80,582
|
72,226
|
4.7
|
88.2
|
86.5
|
9,632
|
688
|
|
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
|
|
Sep 2016
|
65,468
|
82,482
|
3.4
|
86.3
|
94.5
|
7,892
|
791
|
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 255, 285, and 666 respectively.
A total of sixteen reportable incidents were noted during the quarter; seven at Orivesi, five at Vammala and four at Jokisivu.
Positive safety initiatives during the quarter included:
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Information relating to accidents and incidents that have occurred at both Finnish and Swedish mines were discussed at both sites.
The optimisation of the underground seismic monitoring system has continued at Orivesi. A specialist consultant, with over 30 years' experience working in deep South-African gold mines, visited Orivesi for a week in August 2016. The consultant undertook a rock engineering audit for Orivesi that provided measures to combat the effects of seismicity and provided further recommendations to the Company.
Production
Gold production for the quarter at Vammala was 7,892 ounces. Mill feed at Vammala comprised 21,357 tonnes from Orivesi at 4.1 g/t gold and 61,126 tonnes from Jokisivu at 3.2 g/t gold. In July, a new mill feed record of 28,890 tonnes was set in addition to setting a new mill feed record for the quarter with 82,482 tonnes.
The Jokisivu ore head grade was significantly impacted by the better than expected grades mined from the 65 stope, which was a pillar between the open pit and underground.
Orivesi Gold Mine
Total ore mined from Orivesi was 14,150 tonnes coming from one producing stope at Sarvisuo and two sill pillars at Kutema. Underground mining conditions remained challenging
The Kutema decline, which advanced 67 metres, was completed to the 1200m level by the end of September 2016. Development works advanced a total of 398 metres during the quarter.
Jokisivu Gold Mine
Total ore mined from Jokisivu was 51,318 tonnes. As advised in previous quarters, production from Jokisivu has been ramped up to compensate for the lower production from Orivesi. YTD mining at Jokisivu has produced 178,081 tonnes of ore at 2.7 g/t gold vs 104,639 tonnes of ore at 3.7 g/t gold (for the same period Jan - Sep 2015).
Three stopes at Kujankallio were mined out with mining conditions stable and development works advancing a total of 530 metres during the quarter.
Vammala Plant
Ore milled totalled 82,482 tonnes and gold recovery averaged 86.3%. The utilisation of the plant was 94.5%.
During the quarter, the raising of the tailings storage facility ("TSF") was completed along with a change of the conveyor belt in the crushing circuit, the cleaning of the flotation cells, the installation of the new tailings pipe, and the replacement of broken valves during a four day maintenance break.
Environment
Vammala Plant
It was reported in June 2016, that the Company had agreed with the Centre for Economic Development, Transport and the Environment ("ELY Centre"), that it would submit a proposal containing its improvement actions relating to water management around the site. In addition, the Company agreed to provide additional
information on the Kaapelinkulma ore and tailings. The purpose of the proposal is to further Company's application to process Kaapelinkulma ore and to continue processing at a rate of 300,000 tons per annum.
The proposal was submitted on 30 August 2016 and the ELY Centre responded on 22 September 2016. The ELY Center considers both activities as acceptable, on the basis that environmental impacts do not increase. The company is confident it can meet these requirements
The environmental inspection by the authorities from the ELY Centre and the Sastamala municipality was carried out on 7 September 2016. The Company was found to be operating in accordance with its Environmental Permit.
The control of dusting the TSF has been proactively managed with spraying of water and lime.
According to monitoring results sampled in August and September 2016, discharge amounts to the lower watercourse have decreased significantly. Improved seepage water collection and the effect of adding lime around the TSF are visible in almost neutral pH with less metal concentrations of water in the ditch Kovero-oja.
Orivesi Gold Mine
Actions to improve water management continued during the period. The equipment for automatically adjusting the discharge water pH level was in full operation since May 2016. Monthly discharge water analyses sampled during the quarter show that the mine continues to comply with its Environmental Permit conditions.
The annual inspection by the environmental authorities from the ELY Centre, and both the Orivesi and Tampere municipalities was carried out on 28 September 2016. As a result of the visit the company will look to increase the protective equipment around the fuel storage area.
Jokisivu Gold Mine
The Environmental Permit for crushing waste rock was issued on 13 June 2016. The 30 days' appeals period expired on 13 July 2016 with no appeals received. The Environmental Permit is now effective. This will allow the Company to
crush, use and sell the selected waste rock as aggregate
Monthly water analyses sampled throughout the quarter show that the mine is operating according to its permit conditions.
Svartliden Production Centre, Sweden
|
Quarter
|
External Con Milled (t)
|
Head Grade (g/t)
|
Recovery (%)
|
External Gold Production (Ounces)
|
1Quarterly
Profit/(Loss
) AUD $,000
|
|
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
|
|
Sep 2016
|
-
|
-
|
-
|
-
|
(2,002)
|
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.
Safety
No LTI's occurred during the quarter and Svartliden is currently 182 days LTI free.
Production
During the quarter, Svartliden processed only internal concentrates from Vammala following the Company's previous decision to cease processing external concentrates due to the high leachable copper content found in the external concentrates.
As reported in previous quarters, Svartliden had experienced a sudden increase in copper levels in the Clear Water Pond ("CWP"). The discharge of any water from the CWP was suspended and measures were immediately taken to avoid breaching the permitted copper level in the discharge water. As a result copper levels have fallen significantly and it has been possible to recommence discharging water from the CWP from late July onwards.
Most of the Jokisivu and Orivesi flotation concentrates were processed at Svartliden during
the quarter with only a small portion delivered to the Boliden Harjavalta Smelter.
Continued design work for improving the efficiency of the cyanide destruction circuit has been completed scheduled for installation in the December 2016 quarter. The cyanide destruction circuit rebuild will give the operation the potential to increase concentrate throughput and produce a lower grade of dissolved copper complexes in the tailings.
Environment
Work to update the Svartliden Rehabilitation Plan continued during the quarter. The Environmental Court approved the extended submission of the Rehabilitation Plan to 10 April 2017, allowing the Company to include aspects of the operation with Fäboliden ores. In addition, moraine used as possible waste rock coverage was sampled and tested. The low permeability of the samples makes moraine suitable as a covering material.
All discharge limits have been met during the period. The copper levels in the CWP have decreased from 7µg/l to 3µg/l which is well below the upper limit of 15µg/l and the reporting level