Dynacor Gold Mines (TSX:DNG) Corporate Interview


Dynacor Gold Mines
Head of IR: Dale Nejmeldeen



WSR:  Good day from Wallstreet this is Juan Costello with The Wall Street Analyst, joining us today is Dale Nejmeldeen the head of IR for Dynacor Gold Mines.  The company trades on the Toronto Stock Exchange, their ticker symbol is DNG and over the counter ticker symbol DNGDF. Thanks for joining us today there Dale.

Dale Nejmeldeen:  Well thank you Juan it’s a pleasure to be able to share Dynacor’s story with you and update you from the last interview we had a few months ago.

WSR:  Yes, certainly, good to have you guys on, and so starting off give us a brief history and overview of the company for some of our listeners that may be new to the story.

Dale Nejmeldeen:  Well you know Dynacor is a unique company in the gold industry it’s been coined as one of the lowest risk business models in the gold mining industry today, it comes complete with two separate divisions or a non-dilutive gold company, which is a few and far between in today’s market especially in the junior resource sector.  The company consists of two components we have an exploration division, which of course provides the blue sky reward through our drilling program and we have the cash flow machine from our ore processing division, and you know this ore processing division is growing the company organically as I said were non-dilutive and the ore processing is one of the lowest risk businesses in the gold game today because what we do is we purchase ore from the small scale and artisanal mining community in the country of Peru.  We have been doing this for years we are considered specialists in ore processing. We are the foremost ore processing company in that country today, we poured our first gold bar in Peru in 1998 and over the years we’ve cultivated the relationship, built the trust with the small scale in Artisanal mining community, and let me tell you this is very, very important in any country especially Peru. You just come into a country like Peru pluck your sign on the ground and say here we are, we are open for business let’s start producing your ore it doesn’t work that way, there’s a lot of tricks, there’s a lot of game that can be played in your processing division and Dynacor fortunately has gone through all of the growing pains, so today we are on the way to growing this ore processing division to much greater levels and we are rounding the corner for providing significant growth in not only terms of production and cash flow, but profit to our share holders.

WSR:  Excellent and so can you talk about the recent disseminated gold mineralization discovery in Tumipampa.

Dale Nejmeldeen:  This is exciting one, you know Dynacor purchased our, we have asserts all over Peru okay. We have, as I said we are experts in this country where specialists we understand this country very well, we know where the gold is there is, an ore processor.  There is not a lot of guess work I mean we deal with the small scale mining community, the small scale mining community of course they ship their ore to our plant before we purchase any of the ore all of our miners must be legally registered with the government and with this, provides the company a very good sense of where are the gold is in this country and as I said we have assets all over Peru, but our flagship property is Tumipampa and Tumipampa is a property located in the south central part of Peru, we purchased this property in early well actually in 2000 and we purchased Tumipampa back in the day for a high grade gold and silver potential. We have evidence all over Tumipampa that it was mined previously by the Spanish three four hundred years ago.  There’s tunnels, there is old mine camps tailings all over our property, so back in the day when we purchased it in 2000 we started the drills campaign and we started as I said we are looking for the high grade and we found some very interesting results very good grade that in today’s gold market are considered quiet economical, but we all remember back in the early 2000’s the price of gold was not really conducive to turning any kind of underground mine operation into a viable operating economic project. So we put this project as a underground high grade gold discovery on hold waiting for higher gold prices and in the interim we were hearing about other discoveries taking place in around Tony Pampa in the ensuing years and these discoveries consisted of lower grade gold, copper- gold type scorns and porphyries in around the area and there is also north of Tumipampa.  The famous Syriana deposit owned by Barrick and this deposit started out at nine million ounces of gold well which still happens to be the disseminated gold and is hosted on a quart side rock that’s exactly what we found on our latest sets of results we just came out of the market I believe about what a week and half ago. I think we released the news that we are not only do we have the high grade gold in our Ion or Tony Pampa properties through our north cross-cut we also have now disseminated gold in a quad side rock.  So we are very enthusiastic and excited about this because it’s looking like Dyancor’s Tumipampa project and let me tell you this is also a very, very important to understand Tumipampa is in the south central part of Peru, but is surrounded by six senior mining companies in the area.  There is over eight billion dollars of infrastructure development taking place in or around our property.  There is no more land available around Tumipampa we on our land-lock situation.  So, we are kind of in the way and don’t kid yourself the big guys are looking at our future results and what’s going on over there. So it’s turning out that Tumipampa is looking at its going to turn out to be not just a mine, but could be a world class mining district consisting of three different types of gold mineralization and a polymetallic discovery on our scarn discovery. So, we have three different mineralized areas on Tumipampa right now.  It’s very exciting because you know something Juan, we never had the luxury, Dynacor never had the luxury in the last couple of years of being able to really share with the market what’s going on in Tony Pampa as far as our drilling because we were going through the lengthy permitting process waiting for our drill permit.  Well, we finally received that permit in late 2012 in December so of course we started up our program right away in January and here we are today now the first set of results are starting to come out and it’s looking very, very positive and I haven’t even began to talk about our high grade discovery.

WSR:  Right, well yeah, you recently also increased the gold production guidance for the year since we last spoke.

Dale Nejmeldeen:  Oh that’s another thing and this goes back to our other division.  Okay, remember we have the two divisions, we have the exploration division we have the ore processing division. The ore processing division has been growing consistently you can go back, you can look at the company’s corporate presentation, it’s on our website you can look at I believe its slide number seven or eight, it shows a pretty good production profile from when we started this business in 98 and you will see we are consistently growing our production and not only are we growing our production, we are exceeding our guidance year after year after year, so a company like this like Dynacor you will find is a company that believes in under-promising and over-delivering and that’s not just talk we are actually doing this because you can go back to the last three years and look at the beginning of the year and look at the companies guidance and then look at the last end result for the year end in terms of production and it’s no different this year.  In January of this year the company announced that it would do, it was projecting 66 thousand ounces of gold production from its ore processing division.  About a month ago we came out with an announcement that we are going to increase our guidance from 66 thousand to 71 thousand ounces of gold and this is just on our original ore processing plant Wonka plant that we have been working at for many, many years, so yes we are expected to do 71 thousand its going very, very well.  We had a very good quarter in the first quarter, our second quarter was another strong quarter, and the third quarter in all indications of sounding like it’s going to continue and a very good quarter going forward.  So, yes we are quite confident of locating our 71 thousand ounces.

WSR:  Well good and so what are some of the other factors you feel makes Dynacor unique from some of the other players in the sector unable to capitalize on some of the trends that we talked about.

Dale Nejmeldeen:  You know what’s unique about us Juan, is okay you have to think about our business model.  Okay, we are in hearing how long now that the junior resource market is over-saturated, it’s come to like the party is over type of thing as far as the business model is concerned.  The junior resource business model is what I mean it’s been the same years after year, after year.  You have no other choice of raising cash for your company than going to the market.  So that means you need to issue shares, you need to dilute your original shareholders and pray that you find a discovery on your drill program. Well, Dyancor doesn’t work like that–it is very simple.  With Dynacor we are building this company up, it is a real company, we have real cash in the bank we have real cash flow, and we don’t dilute our shareholders. There is no private placement the last private placement financing that this company did was back in 2010 and today the company sits with only 36.3 million shares outstanding, so that’s a very distinct advantage in the junior resource market.  Let me tell you and give you another advantage though in terms of not just the junior resource market, but also even the mining market here we are sitting with gold prices hovering around the 12, 13, 14 hundred dollar range and we know in all in cash cost for a pure producer is around 12 hundred to 13 even to 14 hundred dollars an ounce, so these pure producers are finding it very difficult to turn a profit and you can look very easily at second quarter results of the mining industry, it wasn’t very nice.  We went through one of the worst gold quarters in the last few years in the gold market and yet Dynacor with its lower risk business model still generated a profit so that’s another advantage, with or without a gold bull market Dynacor will continue to generate profits.

WSR:  Excellent, and so we were lucky enough to interview Jean Martineau 4 months ago and so can you talk a little bit about the companies leadership there and strength of the management.

Dale Nejmeldeen:  You know I will tell you, Jean Martineau he is and our team we have a very good teams of solid team, it’s been together for years in that indicative of the leadership I mean you look at our general manager who heads our ore processing division Jorge Luis Cardana he is from Peru, he has been with this company for more than 10 years, I mean Alonzo Sanchez is our chief geologist, he is our economic geologist by the way not just a geologist, he comes from Bona Venterra one of the more profitable companies in the mining market today in Peru he worked for Bona Venterra for 10 years.  He now works for Dyancor and he came over around 2006, 2007. The turnover in this company is very good.  I have been with the company now myself for over four years I work very closely with the president and CEO Jean Martineau as well as the vice-president and CFO Leonard Teoli and you know our CFO came over about two years ago he has a lot of experience in the mining and exploration field he was the former CFO of a Dias Bras 2003 to 2008.  He came over two years ago like his name is Leonard Teoli he has been very very good for the company Jean Martineau has been with the company since day one as a director he took over in management in terms of president and CEO in 2007 and if you go back and you look in our charts in our production from 2007 on, you will see there is a clear path to world in production.  So Jean been instrumental and he is on the ground in Peru monthly.  He speaks the language fluently, everybody knows Jean Martineau in Peru, it’s a very very good situation. He had a lot to do with cultivating the strong relationships with our small-scale mining network today. So our team is solid and we are quite excited about what’s coming in the future that’s for sure.

WSR:  Excellent and what are some of those goals and milestones that you and the team are hoping to accomplish over the course of the next year.

Dale Nejmeldeen:  The next year, I would say the milestones that we were looking to accomplish well first of all I mean we were confident, we are going to hit our production guidance, our recent production guidance of 71 thousand ounces. We are confident that we are going to have another solid earnings season for 2013.  I mean you know Juan, right now this company is running a 25 cents earnings per share, we did 22 cents earnings per share in 2012 our cash flow per shares running around 30 cents I mean for 29 cents cash flow per share so we are expecting that our earnings per share and cash flow per share are just going to continue to grow because of our business model I mean as I said before the gold price can stay at these levels and if it rises and continues you know if it changes course like some are saying, its kind of bottoming here and stabilizing at these levels and we could be looking at higher gold prices in the future that’s only going to benefit our business model that much more, but the advantage with our business model is we have been able to retain a very stable profit margin irrespective of a gold price.  In the last three years you look at our results you will see that the company has been able to average 15 to 17 percent gross profit margin.  So we are looking to continue to grow our earnings, continue to grow our cash flow, and we are opening the door to significant growth for this company.  Significant growth and that’s going to come by way of our new mill because you know, when you spoke to Jean back about three four months ago I am sure in the interview we were speaking about the new mill and the significance behind the new mill.  We are going through the permitting process on the new mill just like we went through the permitting processes for our exploration division last year we are going through it right now for our processing and let me tell you there is a bottle neck situation going on in Peru right now with the energy in mines ministry office and this is no secret, I mean they come out themselves and made announcements that they are certainly cognizant of the problem and they need to rectify it as soon as possible.  We’re in line like everybody else, there is a lot of demand for that country coming from China and often times we don’t often hear about these things because these companies are privately owned from China.  They do not show up on North American stock exchanges, but they are in the same line as all of the other companies looking for permit.  China today is now Peru’s number one trading partners.  There isn’t another country in the world that invests more money in Peru today than China, so it’s a mineral rich country and with our permits in place, with our ore processing plant, we have a new plant, its located right on the highway.  The main highway in Peru it’s at sea level, it will give us access to a larger haulage highways trucking; Right now we are taking in a maximum of ten tons deliveries with a new plant we will be able to take in 30, 35 ton trucks no problem.  We will convert our power from diesel-generated power, which is what we are using now and were paying 25 cents 26 cents per kilowatt-hour.  We will be converting to the national power grid at the new plant and that’s going to drop our power cost about 70 percent down to about 6 cents per kilowatt hour so that’s going to make the big difference for Dynacor’s profit margin going forward plus we have now the exploration division and the exploration division is something as I said before we didn’t have the luxury of speaking too much about, well now it’s in full steam, we have a drill program going on as we speak, we are drilling the high grade Mounto Dorado discovery and this discovery we were very very excited about we started a cross cut campaign in January we came out with our first set of results channel smaples collected from the assays. The channel samples collected from the office and featured remarkable high-grade gold discovery and this is only what I think about a month ago we came out with these results over wide intercepts.  This is open it depth then open it width and the results that we came out with were remarkable 36.5 gram per ton of gold, which is equivalent to 1.2 ounces over 4.9 meters that’s 16 feet on the roof of the cross cut.  We also found on the roof up to a 111.5 grams per ton of gold or 3.6 ounces over 0.8 meters that’s almost 2.6 feet and then on the north and south wall we found 15.5 grams over 7.4 meters south wall with similar 14.3 grams over 7.4 meters.  So you know with grades as significant as what we discovered recently of Mounto Dorado in vein structure to base indicating a straight length of about 500 meters. Our current drill program that’s testing the depth that support doing right now we are testing the depth we are most likely become an attention grabber in the days and weeks ahead because other high grade gold deposit in the world today are few and far between there are 439 gold deposits in the world today with over 1 million ounces of gold and with that 439 gold deposits there are only 11 gold deposits 11 high grade gold deposit out of the 439 with over 15 grams per ton of gold.  So I just finished mentioning to you what we discovered in our cross cut campaign and let me point out these are channel samples, these are not just drill core samples, these are channels samples in our cross cut in our tunnel, which is a going on as we speak so we are drilling now we expect to be coming to the market with more drill results from our high grade we’re fanning out our drill program.  We are testing for depth and will be coming to the market with the company’s first official 43-101 resource calculation so that’s another goal for the company and we expect to hit this sometime in early I think probably the second quarter of 2014. Dynacor will be announcing its first 43-101 resource calculation and as I said I mean you can do the math yourself you know you take a look at the numbers, it could be very quiet significant in terms of not only the grade, but also the number of ounces.  You know for example some of these deposits that theses high grade gold deposit that have been selling in the past one that comes to mind is the Chera Negro deposit in Argentina this is a gold deposit that started out about 2.5 I mean it’s around 2, 2.5 million ounces of gold and they found high grade gold in that property sold for that was around a billion and half dollars no pardon that was around 3.5 billion dollars from Gold Corp. So these properties are in high demand, high grade gold is what it’s all about today especially in these gold prices and we think we have something similar to this and we only have 36.3 million shares outstanding.

WSR:  Well excellent, and so once again joining us today is Dale Nejmeldeen the Head of IR for Dynacor Gold Mines Incorporated, which trade on the Toronto stock exchange, ticker symbol DNG as well as over-the-counter and ticker symbol DNGDF, currently trading at 1.45 a share and before we conclude here Dale to briefly recap some of your key points why do you believe investors should consider the company as a good investment opportunity today.

Dale Nejmeldeen:  You know Juan, it’s obvious I mean we give you a road map is towards the value ahead in the future with this company.  I mean we are not diluting our shares we are at 36.3 million shares outstanding.  Our cash flow per share is continuing to grow our earnings per share is continuing to grow.  We are knocking on the door in the future of looking at dividends I mean just do the math I mean you can look at this company right now we are doing 71 thousand ounces we are expected to do 71 thousand ounces of gold this year.  We have been able to generate a profit margin of between 200 let’s say average 250 dollars an ounce with today’s gold price so you can see where we’re going, cash flow per share earnings per share, and the company is not only growing cash flow on earnings, but our cash position is solid.  Our cash position is consistently growing.  We are now sitting with cash we’re probably close to I am sure we are over 11 million dollars in cash we have an earnings per share a 25 cents earnings per share today and then also on top of this we have the potential to showcase a world class high grade gold deposit in a mining friendly jurisdiction with over 8 billion dollars of infrastructure development via six miners which are surrounding six senior miners, which are surrounding our property.  So we are I mean a non-dilutive gold company and considered one of the lowest-risk games in the gold mining business today.

WSR:  Well, we certainly look forward to continuing to track the company’s growth and report on your upcoming progress and we’d like to thank you for taking the time to join us today Dale and update our investor audience on Dynacor gold mines it’s always good to have you guys on.

Dale Nejmeldeen:  You know, what Juan it was such a pleasure to speak with you, thank you very much for having me on.

WSR:  Great.

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