DPM halts Loma Larga gold-copper project drilling amid protests

[Redator]

Drilling at DPM Metals’ (TSX, ASX: DPM) Loma Larga project in Ecuador has been put on hold following widespread protests, the Canadian miner said as it released a new study that showed higher capital costs and smaller potential returns.

A 23,000-metre drilling program, which had previously been expected to start in the second half, has been “paused,” DPM said late Tuesday without providing a timeframe. The company said it will “continue to engage with stakeholders to address their concerns, and work with the government to understand its expectations for resuming DPM’s planned activities.”

Ecuador’s President Daniel Noboa last month requested further information on Loma Larga, handing responsibility for the project’s approval or rejection to authorities in the southern province of Azuay. The move followed a request from provincial leaders that Environment Minister María Luisa Cruz revoke the environmental permit granted in June to DPM. In mid-September, area residents marched through Cuenca, the provincial capital, to demonstrate against the project, which they say will threaten the region’s water supply.

“Permitting appears to be resurfacing as a potential challenge,” CIBC Capital Markets mining analyst Cosmos Chiu said in a note.

Loma Larga “has been designed in line with the highest environmental and water management standards,” DPM CEO David Rae said in Tuesday’s statement.

Toronto-based DPM “is confident that its environmental management plan and the robust environmental protection measures in place for the Loma Larga project are in full compliance with those standards,” the company also said, adding that it’s committed to working transparently with stakeholders to demonstrate the social and economic benefits of the project.

DPM’s updated feasibility study for Loma Larga raises initial capital costs by 87% to $593 million, while the post-tax net present value (NPV) increases 7.5% to $488 million compared with the initial document, which was released in 2020. The after-tax internal rate of return (IRR) now stands at 18.1%, down from 28.3% previously.

Estimated capital costs are “well within DPM’s funding capacity,” the company said. They include the development of the underground mine, the construction of a 1.2-million-tonne-per-year processing plant, a water treatment plant, a diesel power plant and electrical infrastructure upgrades.

DPM, previously known as Dundee Precious Metals, inherited Loma Larga in 2021 when it acquired Vancouver-based miner INV Metals. It officially changed its name on Sept. 12.

The update lowers mine life by one year to 11 years, as well as average annual production by about 15% to 173,000 gold-equivalent ounces. The payback period rises to 3.4 years from 2.4 years.

The refreshed study “reflects an optimized project layout, inflationary pressures and (an) additional power plant to supplement Ecuador’s power grid and contingencies,” National Bank Financial mining analyst Don DeMarco said Wednesday in a note.

The increase in initial costs “should not come as a surprise, given industry-wide inflation that has materialized during this period,” Chiu added. The estimated IRR “supports the economic merits of the project.”

DPM envisions total output of 1.9 million payable gold equivalent oz. at an average all-in sustaining cost of $873 per oz. of gold sold. Construction and commissioning would take two years.

Key assumptions include a 5% discount rate and estimated metal prices of $1,900 per oz. gold, $27.50 per oz. silver and $4 per lb. copper.

The updated feasibility study is based on reserves of 12.6 million tonnes grading 4.7 grams gold per tonne, 28.6 grams silver and 0.29% copper for contained metal of 1.9 million oz. of gold, 11.6 million oz. of silver and 80 million lb. of copper.

Resources could potentially be increased. The deposit remains open in numerous directions, with multiple high sulphidation and low sulphidation epithermal and porphyry targets identified within the 80-sq.-km land package, DPM said.

Shares of DPM rose 1.1% to C$31.18 late Wednesday morning in Toronto, boosting the company’s market value to about C$6.9 billion. The stock has traded between C$12.30 and C$32.06 in the past year.