FREE

DNG: Signs Purchase Agreement to Acquire Plant in Ecuador

What you need to know:
• DNG announced that it has signed a share purchase agreement to acquire 100% of the 1,500tpd permitted processing plant in Ecuador.
• The total consideration for the plant is $25M (including $9.75M for the acquisition and $15.25M in capex). The asset will produce 75Koz of gold, or $10M in OCF using our assumptions, representing 2.5x OCF.
• This acquisition is a key first step in DNG’s growth plan to achieve 500Koz by 2030 (representing a 32% CAGR).

This morning, Dynacor Group (DNG:TSX, DNGDF:OTC) announced that it has signed a share purchase agreement to acquire Arkham Metals SAS (Ecuador) from Pelorus Minerals Limited (a wholly owned subsidiary of Arkham Metals Limited Australia). As previously announced, DNG will pay $9.75M for 100% of the shares of the 1,500tpd fully permitted processing plant, marking the first key step in DNG’s growth plans. The Company has guided that the acquisition cost as well as all upgrades and site preparation will total $25M, which will be funded almost entirely by the C$31.6M raise which closed last fall (allowing DNG to accelerate its growth plans by ~1 year). We remind readers that DNG has bold plans to ramp production to 500Koz through expansion into new countries. We are maintaining our BUY rating and C$7.50/share target price on Dynacor.

The acquisition marks DNG’s first major step in achieving its 2030 growth targets. Plant upgrades and commissioning is expected to be completed by Q1/26 with production beginning in Q2/26 and ramping to the initial throughput rate of 300tpd. For context, even at 300tpd (significantly less than the permitted 1,500tpd), annual production is expected to reach 75Koz representing 63% growth to the 119Koz estimated production in 2025. Cashflows from this plant are also expected in 2026. Management will immediately commence building its ore purchasing network and continue developing its already strong relationship with the Ecuadorian Government.

Transaction Highlights
• The transaction allows DNG to continue moving forward with its plans to become a multi-asset producer, specifically strengthening its presence in Latin America. The asset leverages DNG’s unique knowhow and multi-decade experience of operating a carbon-in-leach plant in Peru.
• The plant is permitted for 1,500tpd compared to the initial planned rate of 300tpd. The purchase includes the plant, mining fleet, and a relatively new tailings dam.
• The plant is fully permitted and funded through to production and will reach annual production of 75Koz (300tpd) following its initial ramp up. We estimate that DNG will produce 119Koz in 2025, thus, Svetlana can represent up to 63% growth within the next two years.
• Total consideration is $9.75M in cash and closing is expected on July 14th. DNG also plans to invest additional capital to upgrade the plant and bring it into production, making the total investment $25M. Assuming $2,800/oz gold, the asset should be able to produce $210M in revenue and $10M+ in OCF, representing 2.5x OCF paid vs. DNG at 4.5x 2025E CF.