Dynacor Gold Mines Inc.
Management Discussion and Analysis
“MDA”
For the year ended
December 31, 2012
Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
Message from the President
In 2012, Dynacor Gold Inc. operated its gold ore processing business at full capacity and produced its
best ever results over and above the previous record year in 2011. Gold sales reached US$ 105 million
and gold production 61,274 ounces. These sales generated a profit of US$ 7.7 million (US$ 0.22 per
share) which represent an increase of 128% over 2011, allowing the company to pay all of its exploration
costs, corporate expenses and working capital investment.
Dynacor’s business model is proving to be very robust even in this difficult operating environment for the
vast majority of junior exploration companies. The model in fact is fueling Dynacor’s organic self-financed
growth without undue dilution of its shareholders.
Exploration
After a significant unexpected delay due to the process of permit delivery by the Peruvian authorities,
Dynacor’s US$ 2.8 million dollar exploration campaign on its flagship Tumipampa property finally got
underway in December 2012. Currently, the company has two drill rigs on site and has begun excavating
a 300-meter long cross-cut perpendicular to and through the Manto Dorado structure to gain an
underground access to the gold mineralization in order to do metallurgical tests as well as to drill a series
of underground drill holes to define the potential resources of this zone.
New Opportunity
The Peruvian government has been implementing a new policy that is cracking down on illegal gold ore
processing both at the artisanal and semi-industrial levels. Dynacor Gold is one of the very few fully
permitted and legal gold processing companies in Peru and is as such particularly well positioned in the
market to benefit from this window of opportunity.
In 2012, the company’s new gold ore processing plant that is to be built in 2013 in Chala in southern Peru
received the official approval of its Environmental Impact Study as well as the necessary water permit and
has diligently obtained the community’s support for this new plant that is expected to substantially
contribute to the local economy. The company has purchased a large tract of land on which the new plant
will be constructed with an initial capacity of 300 tonnes per day (36% higher than the current capacity).
The plant has been designed to be readily upgraded to 600 tpd. Construction is expected to last 8 months
and will begin as soon as the final construction permit has been obtained. The plant site is very close to a
major highway and can be readily connected to the national electric grid and allows year round access to
the plant for heavy duty trucks and trailers. Over the next few years, the Company will expand its
operations and grow thanks to the increase in its operational cash flow.
In 2013, Dynacor will have an exceptionally active year both in the exploration and gold production areas
and this also promises to be an exciting year for our shareholders as we move forward with our plans.
Finally, I wish to thank all our employees for their hard work and all of the Company’s shareholders for
their active and continued support during the past few years.
(s) Jean Martineau, President and CEO
-2-
Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
Management Discussion and Analysis
Introduction
This Management Discussion and Analysis (MD&A) for Dynacor Gold Mines Inc. (“Dynacor” or the
“Company”) is intended to help the reader understand strategy, operations and financial performance of
the Company and comments the major activities of the Company which occurred during the year ended
December 31, 2012 as well as the subsequent period up to March 27, 2013.
The Company’s consolidated financial statements have been prepared using accounting policies
consistent with International Financial Reporting Standards (“IFRS”). This management discussion and
analysis must be read in conjunction with Dynacor’s audited consolidated financial statements for the
year ended December 31, 2012, including the accompanying notes. These financial statements have
been filed electronically on the System for Electronic Document Analysis and Retrieval (SEDAR) at
www.sedar.com. All amounts are in United States dollars which is the Company’s functional currency,
unless otherwise indicated. This MD&A has been prepared by management.
The Company’s management is responsible for the preparation of the consolidated financial statements
as well as other information contained in this report.
The Board of Directors has the responsibility to ensure that management assumes its responsibilities with
regards to the preparation of the Company’s consolidated financial statements. To assist management,
the Board of Directors has created an Audit Committee. The Audit Committee meets with members of the
management team to discuss the operating results and the financial situation of the Company. It then
makes its recommendations and submits the consolidated financial statements to the Board of Directors
for their examination and approval. Following the recommendation of the Audit Committee, the Board of
Directors have approved the audited consolidated financial statements on March 27, 2013.
For all purposes below, the “Company” refers to Dynacor and its wholly-owned subsidiaries Minera
Dynacor del Peru SAC (until December 20, 2012), Compania Casaden SAC, Compania Tumipampa
SAC, Minera Veta Dorada SAC and Miguel Angel Dorada SAC (formerly Compania de Gestion Dynacor
SAC). The information provided herein, effective as of March 27, 2013, is based on assumptions related
to future events and results, which may vary. Further information on the Company and its operations has
been filed electronically on SEDAR in Canada at www.sedar.com.
Listing
Dynacor is a publicly traded company listed on the Toronto Stock Exchange (TSX) under the symbol
“DNG”.
-3-
Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
Our business and strategy
Dynacor’s activities consist in the exploration of its mining properties located in Peru, with a potential for
the commercial extraction of gold and other precious metals, and the production of gold and silver from
the processing of purchased ore. The Company purchases its ore from several local producers and then
processes it at its wholly owned Acari milling facility to produce gold which is sold internationally at market
prices. The Company also owns rights on properties which are at the exploration stage and does not
have any properties in commercial production.
The Company’s strategy is to maximize shareholder value by effectively managing its existing assets as
well as pursuing organic and strategic growth opportunities. With its purchased ore processing activities,
Dynacor succeeded in implementing and growing a solid source of cash flow which enables the Company
to fund the exploration and develop the potential of its exploration and evaluation assets and to weather
difficult market conditions by not necessarily requiring the Company to rely on the equity markets to raise
capital. During 2012, the Company produced over 61,000 ounces of gold from its 220 tons per day (tpd)
ore processing capacity and recorded annual historic sales of $105.0 million (M).
The Company plans to further increase its production in 2013 by building upon reception of its
construction permit, a new 300 tpd processing facility in Chala, Peru in 2013 which will replace its actual
plant.
2012 HIGHLIGHTS

Sales of $105.0 M compared to $74.6M in 2011 a 40.8% increase over 2011;

Net income of $7.7M in 2012 ($0.22 per share) compared to $3.4M ($0.10 per share) in 2011;

Adjusted EBITDA of $13.9M compared to $7.0M in 2011 a 98.6% increase over 2011;

Operating income of $12.5M compared to $6.4M in 2011 a 95.3% increase over 2011;

Cash flow from operating activities before change in working capital items of $9.2M
($0.26 per share) (1) in 2012 compared to $4.5M ($0.13 per share) (1) a 105% increase over 2011;

72,633 DMT (dry metric tonne) processed (64,041DMT in 2011) a 13.4% increase over 2011;

Record annual production of 61,274 ounces of gold produced (46,026 ounces in 2011) a 33.1%
increase over 2011;

Gross operating margin per ounce (2) of gold sold of $298 compared to $244 in 2011;

Start of exploration program at Tumipampa in December 2012;
(1)
Cash-flow per share is a non-GAAP financial performance measure with no standard definition under IFRS. It is
therefore possible that this measure could not be comparable with a similar measure of another company. See the ‘NonIFRS Measures’ section of this MDA. The Company uses this non-GAAP measure which can also be helpful to investors
as it provides a result which can be compared with the Company market share price.
(2)
Cash gross operating margin per ounce is calculated by subtracting the average cash cost of sale from the average
selling price and is a non-GAAP financial performance measure with no standard definition under IFRS. It is therefore
possible that this measure could not be comparable with a similar measure of another company. The Company uses this
non-GAAP measure which can also be helpful to investors as it provides a result on a production unit basis.
-4-
Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
1- FINANCIAL HIGHLIGHTS
For years ended
December 31,
2012
2011
(in $'000)
Sales
Cost of sales
Gross operating margin
General and administrative expenses
Operating income
Net income and comprehensive Income
Adjusted Net income and Comprehensive Income
Adjusted EBITDA(2)
104,994
87,148
17,846
3,495
12,542
7,716
7,487
13,891
74,568
63,542
11,026
3,321
6,451
3,382
3,078
7,034
Net Cash flow from operating activities before
change in working capital items
Cash flow from operating activities
9,229
3,929
4,496
574
Earnings per share
Basic
Diluted
$0.22
$0.21
$0.10
$0.09
(1)
For the year ended
December 31,
2012
2011
(in $'000)
Reconciliation of Net Income and comprehensive
income to Adjusted net income (1)
Net comprehensive income
Revaluation of warrants
Adjusted net comprehensive income
7,716
(229)
7,487
3,382
(304)
3,078
Net comprehensive income
7,716
3,382
Income taxes
Financial expenses
Depreciation
Impairment of exploration and
evaluation assets
Revaluation of warrants
Adjusted EBITDA
4,708
332
1,320
2,746
448
762
44
(229)
13,891
(304)
7,034
Reconciliation of Net income and comprehensive
income to Adjusted EBITDA (2)
(1)
Adjusted net income: is a non-GAAP financial performance measure with no standard definition under IFRS. It is therefore
possible that this measure could not be comparable with a similar measure of another company. See the ‘Non-GAAP Measures’
section of this MDA. The Company uses this non-GAAP measure which can also be helpful to investors as it provides the results
without considering the non-cash effect generated by the change in value of the warrants which can vary from a period to another
due to its nature.
Adjusted EBITDA: “Adjusted Earnings before interest, taxes, depreciation and amortization, revaluation of warrants and
impairment” is a non-GAAP financial performance measure with no standard definition under IFRS. It is therefore possible that this
measure could not be comparable with a similar measure of another company. The Company uses this non-GAAP measure as an
indicator of the cash generated by the operations and allows investor to compare the profitability of the company with others by
canceling effects of different assets bases, effects due to different tax structures as well as the effects of different capital structures.
See the ‘Non-GAAP Measures’ section of this MDA.
(2)
-5-
Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
Balance sheet items
As at
December 31,
2012
As at
December 31,
2011
3,310
30,123
6,988
871
22,264
2,137
20,240
3,824
2,234
14,182
35,970,167
CAD $1.29
35,670,167
CAD $0.75
(in $'000)
Cash
Total assets
Current liabilities
Non-current liabilities
Shareholders' equity
Outstanding common shares
Share price at closing
-6-
Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
2-KEY ECONOMIC TRENDS
Gold Market
Gold price
Year 2012 marked the 10th consecutive year in which gold price has increased. During 2012, international
gold price increased by 9% from $1,574 per ounce to $1,657 per ounce at year end. However during
2012, gold price had ups and downs movement which saw price reached level of $1,781 in February and
then low of $1,540 and high of $ 1,792 later on before ending the year on a slide down to $ 1,657;
During 2013, with improved economic news coming from the USA, gold price continued its descent down
to $1,564 in late February. But as it was in 2012, market reaction on gold appears to be a week to week
issue. As price was getting down, bargain hunters surged and gold price rallied sharply in mid-March up
to $1,594. At the date of this report, the gold price was approximately $ 1,605.
Exchange Rate
The quarter-end and quarterly average exchange rates for 2012 and 2011 were as follows:
December 31 (closing rate)
September 30 (closing rate)
June 30 (closing rate)
March 31 (closing rate)
Q-4 (average rate)
Q-3 (average rate)
Q-2 (average rate)
Q-1 (average rate)
$US/$CA
2012
0.9949
1.0171
1.0202
0.9975
0.9914
1.0046
1.0101
1.0008
2011
1.0170
1.0482
0.9667
0.9696
0.9775
1.0391
0.9697
0.9856
The Company has not entered into any hedging contracts.
-7-
$US/soles
2012
2.549
2.585
2.597
2.612
2.670
2.675
2.666
2.633
2011
2.696
2.773
2.749
2.802
2.712
2.741
2.784
2.779
Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
3-OVERALL PERFORMANCE
During the year ended December 31, 2012, the Company increased its net shareholder equity by 57%
from $14.2 M in 2011 to $22.3 M in 2012. This increase results from the internal growth generated by the
ore processing activities which delivered in 2012 its best results ever. During the fourth quarter of 2011
the Company had increased its ore processing capacity at its wholly owned Acary milling plant by 22.2%
up to 220 tpd. This gave way to this record producing year since this was the capacity level at which the
mill produced during all of 2012.
In 2012, gold production was 61,274 ounces, a 33.1% increase from last year 46,026 ounces produced
and is the Company historical high. This represents Dynacor’s third consecutive year exceeding 30%
production growth.
Total gold and silver sales in 2012 amounted to $105.0 M compared to $74.6 M in 2011 an increase of
41% which was explained by greater volume produced and higher gold grades of ore processed.
On the other hand, the Company’s exploration program on Tumipampa did not advance as planned,
since it was delayed due to the waiting of the exploration permit which permit was obtained only in
December 2012, at which time the Company initiated it’s twofold exploration program which continues
into 2013.
The positive cash flow generated from its gold ore processing activity has permitted the Company to
continue strengthen its financial situation.
At December 31, 2012 the Company working capital amounted to $13.3M compared to $7.9M in 2011 an
increase of 68.8%.
After being affected by the stock market meltdown in Q2-2012, the Company’s stock price rebounded
during the third and fourth quarter as it gained 187% from CA $0.45 at the start of Q3-2012 to CA $1.29
at the end of the year.
Average Selling Price ( GOLD ) per OUNCE
Last Fifteen months
1,800
USD per ounce
1,700
1,600
1,500
1,400
1,300
1,200
1,100
-8-
Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
4-CONSOLIDATED RESULTS AND GOLD ORE PROCESSING OPERATIONS
Production, Sales and Gross Operating Margin
Gold production and sales for the years are summarized as follows:
For the years ended
December 31,
2012
2011
61,274
46,026
Gold Production (ounces)
Gold sales (ounces)
59,910
45,258
($ ‘000)
100,267
4,727
104,994
($ ‘000)
71,524
3,044
74,568
Cash cost of gold sales (3)
Cash cost of silver sales (3)
Total cash cost of sales (3)
82,736
3,221
85,857
61,080
1,756
62,836
Gross operating margin before undernoted:
Depreciation
Gross operating margin
19,137
(1,291)
17,846
11,732
(706)
11,026
Sales of gold
Sales of silver
Total sales
Cash gross operating margin per
ounce Au sold
2012
$ /ounce
1,674
1,381
293
Average selling price
Average cash cost of sales (4)
Cash gross operating margin (5)
2011
$ /ounce
1,580
1,349
231
(3)
Cash cost of sales is the cost of sales excluding depreciation and is a non-GAAP financial performance measure with no standard
definition under IFRS. It is therefore possible that this measure could not be comparable with a similar measure of another
company. See the ‘non-GAAP Measures’ section of this MDA.
(4)
Average cash cost of sales is calculated by dividing the cost of sales excluding depreciation by the sales volume in ounces and is
a non-GAAP financial performance measure with no standard definition under IFRS. It is therefore possible that this measure could
not be comparable with a similar measure of another company. See the ‘non-GAAP Measures’ section of this MDA.
(5)
Cash gross operating margin per ounce is calculated by subtracting the average cash cost of sale from the average selling price
and is a non-GAAP financial performance measure with no standard definition under IFRS. It is therefore possible that this measure
could not be comparable with a similar measure of another company. See the ‘non-GAAP Measures’ section of this MDA.
Those non-GAAP Measures are used by management as an indicator of the gross amount of cash which could be generated from
the production of one unit (ounce) of gold. Investors or potential investors often refer to us in terms of cash cost for measurement
unit.
-9-
Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
During the year the Company processed 72,633 dry metric tonnes (DMT) of ore compared to 64,041
DMT in 2011 a 13.4% increase which resulted in increased production and sales volume.
Based on a 336 days operating schedule, this 2012 production represents a daily average throughput of
216 tpd compared to 191 tpd in 2011.
Total sales for the year amounted to $105.0M compared to $74.6M in 2011 an increase of $30.4M and
41% over 2011. This increase is explained by larger volume of gold produced combined with increased
gold price.
Gold production was up 33% with 61,274 ounces in 2012 compared to 46,026 ounces in 2011 and
59,910 ounces of gold were sold compared to 45,258 ounces in 2011 an increase of 32% over 2011.
Average gold selling price per ounce was also higher at $1,674 in 2012 compared to $1,580 in 2011.
The average gold grade for 2012 was 0.90 oz/DMT compared to 0.77 oz/DMT in 2011 an increase of
16.7% which explains increase in ounces of gold produced and gross margin per ounce.
The Company purchases its ore from different sources and many suppliers and consequently cannot
completely control the grades of the ore it is purchasing. To mitigate the risk, the Company uses a
minimum cut-off purchase grade to ensure that the plant runs at its full rated capacity and operational
profitability.
The entire gold production comes from the processing of ore purchased from Peruvian local producers.
All of the Company’s sales are with one customer based on the market price in effect at the moment of
delivery, however economic dependence does not exist as the Company can sell its gold on numerous
markets throughout the world.
The gold cash operating gross margin per ounce was at $293 in 2012 compared to $231 in 2011 a
26.8% increase compared to 2011 mainly due to increase ore grades process and increase average gold
price during the year combined with higher sales volume.
- 10 -
Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
Ore processing production
Year 2012
Year 2011
Variance in
%
72,633
64,041
13.4%
Average daily processing volume (in DMT)
216
191
13.1%
Ore grade (in oz /DMT)
0.90
0.78
14.9%
Ounces produced (Au)
61,274
46,026
33.1%
Ounces sold (Au)
59,910
45,258
32.4%
Ounces sold (Ag)
157,862
89,878
75.6%
Ounces sold (Au equivalent)
62,734
47,185
33.0%
Sales (million $)
105.0
74.6
40.8%
Gross operating margin ( millions $)
17.8
11.0
61.8%
Gross operating margin (in %)
16.95%
14.75%
15.0%
Gross operating margin per oz gold sold ($)
Gross operating margin per equivalent oz gold
sold ($)
297.88
243.61
22.3%
284.46
233.67
21.7%
Q4-2012
Q4-2011
Variance in
%
Tonnes processed (in DMT)
19,360
19,059
1.6%
Average daily processing volume (in DMT)
217.5
214.9
1.2%
Ore grade ( in oz /DMT)
1.03
0.75
37.5%
Ounces produced (Au)
18,603
13,157
41.4%
Ounces sold (Au)
17,559
12,525
40.2%
Ounces sold (Ag)
43,038
23,125
86.1%
Ounces sold (Au equivalent)
18,338
12,949
41.6%
Sales (million $)
31.4
21.7
44.4%
Gross operating margin ( millions $)
5.5
2.6
111.7%
Gross operating margin (in %)
17.4%
12.0%
46.6%
Gross operating margin per oz gold sold ($)
Gross operating margin per equivalent oz gold
sold ($)
312.20
206.79
51.0%
298.94
200.02
49.5%
statistics summary
Tons processed (in DMT)
Ore processing production
statistics summary
Operating Activities
During 2012, the Company recorded a net income of $7.7M ($0.22 per share) compared to $3.4M and
$0.10 per share in 2011.
The increase in net income is due the increase in the gross operating margin of $6.8M (61.8%) ($17.8M
in 2012 compared to $11.0M in 2011) explained by increased gold production and sales volume. Other
variations of net income are described below.
The 2011 net income includes a gain of $0.2M ($0.3 M in 2011) on the revaluation and extinction of the
outstanding warrants which were classified as financial liabilities and are carried at fair value following the
transition to IFRS in 2011.
- 11 -
Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
The variance in the net income between years 2012 and 2011 is explained in the table below;
Increase in gross operating margin
Increase in general and administration expenses
Decrease in gain on revaluation of warrants
Increase in selling expenses
Decrease in financial expenses
Increase in income tax expenses
Increase in gain on translation of foreign exchange
Increase in loss on disposal of subsidiary
Total
2012 vs 2011
In million $
6.8
(0.2)
(0.1)
(0.5)
0.1
(2.0)
0.3
(0.1)
4.3
During the year, general and administrative expenses amounted to $3.5M compared to $3.3M in 2011.
Selling expenses are directly related to sales level which therefore explains the increase of $0.5M over
2011. Financial expenses were reduced by $0.1M due to lower interest rate carried on the outstanding
debentures.
During the year, United States dollar lost 5% value against to the Peruvian Nuevo sol and gain 2% in
value against to the Canadian dollars which resulted in a foreign exchange gain of $0.1M (loss of $0.2M
in 2011).
The increase in income tax expenses is due to the greater profitability of the Peruvian ore processing
operations.
The Company also incurred a loss of $0.1M on the disposal of an inactive subsidiary in Peru.
5-CASH FLOW AND LIQUIDITY
Operating Activities
Increased processing capacity, higher average gold grades and increased average gold selling price and
increased gold price combined to generate $9.2M ($4.5M in 2011) in cash flow from operations before
changes in working capital items, an increase of $4.7M (105% ) compared to 2011. Total cash generated
from operating activities amounted to $3.9M compared to $0.6M in 2011. Changes in working capital
items included increased costs invested in the year-end inventory of ore, finished goods and gold in
process ($11.1M compared to $5.4M in 2011), greater trade and accounts receivable and payables at
year-end and increased tax payables.
Investing Activities
During the year the Company invested $1.6M ($1.2M in 2011) in the acquisition of property, plant and
equipment mainly to increase tailing ponds capacity and for the acquisition of small equipment for the
plant and laboratory.
Additions to exploration and evaluation assets amounted to $0.8M in 2012 ($0.9 M in 2011) and were
mostly comprised of capitalized salaries for the preparation of drilling platforms, costs related to road
construction at Tumipampa and start of drilling activities in December 2012.
Financing activities
During 2012, the Company did not complete any share issue financing (nil in 2011). The Company paid
its quarterly interest and in December 2012 it paid a premium of $0.1M (CAD$0.1M) to the holder of the
CAD$1.2M payable debenture in accordance with the terms of the loan agreement.
During the year, 300,000 stock options were exercised for gross proceeds of $0.1M (835,500 options for
gross proceeds of $0.3M in 2011)
- 12 -
Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
Liquidity
As at December 31, 2012, the Company’s working capital amounted to $13.3M including $3.3M in cash
($7.9M, including $2.1M in cash at December 31, 2011).
As at December 31, 2012, the Company had no financial commitment besides those disclosed in the
section Long Term Liabilities and Contractual Obligations and has no restrictions in transferring funds
from Peruvian subsidiaries to the parent Company.
6-STATEMENT OF FINANCIAL POSITION
Assets
At December 31, 2012, total assets amounted to $30.1M ($20.2M as at December 31, 2011). Property,
plant and equipment amounted to $3.7M ($3.4M as at December 31, 2011) and are mainly comprised of
the milling plant, plant equipment including tailing pond and vehicles. Exploration and evaluation assets
amounted to $5.9M ($5.1M as at December 31, 2011) and are mainly comprised of capitalized
exploration work performed on the Tumipampa property.
Long-Term Liabilities and Contractual Commitments
Payment due by period (in 000’ $)
Contractual commitments
Capital leases
Long-term debt
Exploration commitments
Asset retirement obligations for the
processing plant
Within 6
months
2013
108
1,274
493
Beyond 6
months
2013
73
493
2013 to
2015
46
-
Beyond
2015
-
Total
227
1,274
986
127
2,002
127
693
549
595
63
63
866
3,353
During 2012 and 2011, the Company met all its obligations regarding capital leases and long-term debt.
The Company’s operations are governed by regulations regarding the protection of the environment.
Subject to these regulations, the Company must implement progressive measures for rehabilitation work
as part of its operations. Consequently the Company recorded asset retirement obligations for the ore
processing plant in the amount of $0.8M as at December 31, 2012 ($0.9M as at December 31, 2011).
This estimate is subject to change following modifications to laws and regulations or as new information
becomes available.
Shareholders’ Equity
During the year 2012 there was no additional share financings. During the year 290,000 stock options
were granted at an average price $0.61 (805,000 at an average price of $1.05 in 2011) and 300,000
options were exercised (835,500 in 2011).
- 13 -
Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
Disposal of an investment in a subsidiary and contingencies
In December 2012, the Company disposed of 100% of the shares of its former subsidiary Minera Dynacor
del Peru SAC “Minera” in favor of a non-related third party private Company for an amount of one dollar
and recorded a loss on disposal of $0.1M. At the date of disposal Minera net asset was comprised of the
Acari Pallarniayocc 1 property which had a net book value of nil and net current assets: $0.1M. There
were no cash and cash equivalents included in the net current assets.
Minera was facing claims from the Peruvian tax authorities for the fiscal years 2003 to April 2009, in the
amount of to $44.3M (115.2M Nuevo soles) including $10.2M (26.6M Nuevo soles) for income and sales
taxes and $34.1M (88.6M Nuevo soles) in interest and penalties which had been vigorously contested in
front of the Peruvian judicial court over the last two years. There was no change in the status of this claim
at the date of the disposal.
All the assets and the liabilities including the contingent liabilities pertaining to the above tax claims were
transferred to the buyer. The Company has no responsibility or obligations whatsoever with respect to its
former subsidiary.
Capital Resources and Capital Management
The Company generates cash flow from its ore processing activities. This positive cash flow is re-invested
in the commercial operations and exploration activities. The Company has access to the capital market
and may need from time to time to turn to the financial market in order to fund any exploration program,
capital requirement and project or investment opportunities. As at December 31, 2012, the Company has
sufficient resources to meet its commitments for the upcoming year, however management is always
looking at financing or investment opportunities which could benefit to the growth of the Company.
The Company objectives remain unchanged from 2011.
The Company’s capital structure consists of common shares, warrants and stock options. The Company
manages its capital structure and makes changes pursuant to economic conditions and conditions
related to its assets. The Company has the ability to raise capital when it is necessary to meet its
requirements therefore it does not have a specific target debt to capital ratio. The Company also
possesses the ability to raise debt to maintain a balance between debt and shareholders’ equity.
The Company is not subject to any externally imposed capital requirements.
The Company’s objectives in managing capital are the following;
i. to preserve the capacity to continue its operations in order to maximize the return to its
shareholders and maintain an optimal capital structure in order to increase the shareholders’
equity in the long term.
ii.
to ensure the Company has sufficient capital to meet its short-term needs and ensure the
development of its projects and mining activities.
iii.
to satisfy the external requirements with regards to capital needed to respect any lending
agreements.
iv.
to maintain an optimal capital structure in order to minimize the cost of debt financing.
Off-Balance Sheet Transactions
The Company did not enter into any off-balance sheet transactions during 2012 and 2011.
- 14 -
Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
7-QUARTERLY REVIEW
(Unaudited in accordance with IFRS, US$)
2012
Financials (in $'000)
Sales
Cost of sales
Depreciation
General and
administrative expenses
Net earnings (loss)
Acquisition of property,
plant and equipment
Development and
deferred exploration costs
Per share ($)
2011
Q4
31,430
25,948
299
Q3
29,341
23,752
493
Q2
20,579
17,537
271
Q1
23,644
19,911
257
Q4
21,767
19,177
284
Q3
20,015
17,042
231
Q2
18,128
14,888
176
Q1
14,658
12,435
71
1,093
2,018
739
2,784
916
1,182
747
1,732
915
396
682
1,750
986
2,566
737
(1,330)
436
243
536
374
229
133
387
495
534
48
128
125
250
111
240
254
Basic
0.06
0.08
0.03
0.05
0.01
0.05
0.07
(0.04)
Diluted
0.06
0.07
0.03
0.05
0.01
0.05
0.07
(0.04)
Earnings (loss) per share
Fourth quarter results
During the quarter ended December 31, 2012, the Company recorded net income of $2.0M
($0.06 per share) (net earnings of $0.4M ($0.01 per share in 2011); During the quarter, a total of 19,360
DMT of ore was processed producing 18,603 ounces of gold compared to 19,059 DMT processed and
13,157 ounces in 2011. Total sales during the period amounted to $31.4M compared to $21.8 in 2011 a
44% increase.
The gross operating margin for the quarter amounted to $5.5 M (17.5%) compared to $2.6 M (12.0%) in
Q4-2011. This result is due to the increase grades of ore processed during the period and increase
production and price of gold.
General and administrative expenses amounted to $1.1M compared to $0.9M in 2011, mainly due to
increased salaries and professional fees, Lima (Peru) office charged back and $0.1M of share profit
sharing allocated to administrative expenses in Q4. Financial expenses were reduced by $0.1M due to
lower interest rate on the outstanding debentures. Selling expenses amounted to $0.6M compared to
$0.4M an increase attributable to increase sales.
During the quarter the Company also recorded a loss on disposal of subsidiary of $0.1 M.
8-INFORMATION ON OUTSTANDING SHARES
Data Concerning Outstanding Shares (at March 27, 2013)
Number
36,174,167
2,348,500
Common shares
Options
- 15 -
Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
9-TRANSACTIONS WITH RELATED PARTIES
In the normal course of operations and at fair value, being the amount of consideration determined
and agreed to by the related parties, for the years ended December 31, 2012 and 2011:

A firm, of which a director of the Company is a partner, charged professional fees amounting
to $47,984 which was recorded as professional fees ($125,761 in 2011, which was recorded
as debt deferred transaction costs ($9,833) and professional fees ($115,928)).

A director and/or a company controlled by a director charged fees of $29,317 for document
preparation and translation services, recorded as promotion and corporate development
expenses ($29,334 in 2011).
10-MINING EXPLORATION PROPERTIES
Tumipampa
The Tumipampa property is located 500 km from Lima, Peru, in the Circa district, Province of Abancay,
department of Apurimac. The Company now has 4,862 hectares bordering concessions actively explored
by other international mining companies such as Bear Creek and Southern Peru.
The northern part of Tumipampa property straddles the limestones of the host Ferrobamba deposit
‘Tintaya’ skarn-type (copper-gold), which is recognized as a major world deposit of this type with more
than 139 million tons at 1.23% Cu and 0.23g/t Au. The Tintaya mine is located 197 km northeast of the
Tumipampa property. Moreover, the major deposits recently unearthed in Los Chancas (355 million tons
at 0.62% Cu, 0.05%Mo and 0.039g/t Au) (Southern Peru), Las Bambas (1.13 billion tons of 0.77% Cu,
0.05 – 0.068 g/t Au and 0.01% Mo) (Xstrata) and Constancia (Norsemont) are located on either side and
near the Tumipampa property. All these major deposits are part of a belt of porphyry type deposits Cu-Au
Skarn-related batholiths Andahuaylas-Yauri, an intrusive that is 300 km long and 150 km wide.
During the last few years, interest in the exploration of the entire region and specifically in the immediate
area surrounding the Company’s Tumipampa property, has stepped up dramatically. Several large mining
companies have staked claims close to the Company’s Tumipampa property including BHP Billiton,
Buenaventura and two Chinese companies Golden Ideal Gold Mining and Super Strong Mining (refer to
press release of March 5, 2012). Furthermore, INGEMMET (Geology, Mine and Metallurgy Institute of
Peru) has acquired, for exploration purposes, all the remaining available claims in the area totalling
588,500 ha. INGEMMET has, at a national level, identified four (4) sectors which it considers to be the
most promising mining areas in Peru; Tumipampa is located within two (2) of these sectors.
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Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
Notably in the last few months, Southern Copper Corporation similarly increased the size of their Los
Chancas claim by staking land eastward to within 2 km of Tumipampa’s border. Dynacor’s new land
holdings now close the gap between the two companies’ assets. Currently all of the land around
Tumipampa is claimed by major mining companies such as Southern Copper Corporation, BHP Biliton,
Buenaventura, Golden Ideal Gold Mining (China), Super Strong Mining (China), and Bear Creek Mining.
During 2011 in accordance with Peruvian mining laws, the Company signed an agreement with one of the
local community of the Tumipampa project which enables the Company to perform the 2012 planned
exploration program.
Tumipampa 2012, Exploration program update
The Company had planned to begin its 2012 exploration and drilling campaign at the end of April. Based
on previous exploration permit applications, the Company had expected to receive approval from the
Ministry of Mines in less than two months after submitting the required documentation. This
documentation included all the necessary studies and paperwork as well as a newly signed social
development agreement with the Pachaconas community of Tumipampa and was submitted in February
2012.
The Company finally received its exploration permit in December 2012 and initiated its twofold exploration
campaign including a drilling program on the skarn zone 4 targets and the start of a cross cut into the gold
veins part of the property, which continues into 2013.
This program is financed internally with existing cash and cashflow derived from its operations.
Eighteen (18) drilling holes in the skarn and in the gold veins to the south of the skarn adding up to a total
of 8,000 meters are planned and a cross-cut through the Manto Dorado will be excavated. The primary
focus of the 2012-2013 exploration campaign is the southern part of the property as summarized below:
- 17 -
Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012

Drilling of zone 4 of the skarn deposit: Zone 4 revealed the strongest magnetic anomaly
and induced polarization (IP) levels (chargeability and resistivity) of the four skarn zones
surveyed last summer. Drilling has begin and twelve (12) holes are planned adding up to a
total of 5,600 meters.

Excavation of a cross-cut adit and drifts: In order to further the definition of the known
geological resources of the 500m x 380m section of the Manto Dorado structure to NI 43-101
compliant resources, the Company will drive a 300-meter long adit into the mountainside
through the Manto Dorado and towards the Rosa vein (which in 2008 was intersected by a
drill hole – 6.3 g/t Au over 2.8 meters).

Drilling of the Manto Dorado and Rosa vein : Four (4) drill holes will target the Manto
Dorado structure and two (2) holes will target the Rosa vein, adding up to a total of 2,400
meters. Drilling of these two targets will commence later in 2013.

Continue geological mapping and geochemical sampling: Detailed mapping and
geochemical soil and rock sampling will be conducted in the southern part of Tumipampa.
This surface exploration campaign is designed to help define the extent of surface
mineralization and alteration of the newly discovered mineralized zone just west of the Manto
Dorado. This zone was identified during last summer’s gephysical survey.
All the historical exploration data and results from previous exploration campaigns on Tumipampa have
been summarized in the November 2011 published NI 43-101 compliant technical report that is available
on www.sedar.ca .
Alonso Sanchez, , P. Eng. and Chief Geologist of the Company, is Dynacor’s "Qualified Person". He is
geologist affiliated to the American Institute of Professional Geologists (AIPG). He collaborates through
his regular visits on site, for all matters related to sampling procedures, technical information and the
supervision of ongoing development work. Thus, he can confirm the precision and accuracy of the data
and the mining as well as geological knowledge of the Tumipampa property as required by National
Instrument 43-101 and its annexes.
Other properties
Casaden
The Casaden property is located in the district of Magdalena, 890 km north east of Lima, inside the
Chicama-Yanacocha (Newmont) corridor. In this region large mining companies such as Newmont,
Barrick, Gold Fields, Xstrata, Teck and Buenavantura have successful commercial mining properties.
Casaden consists of five concessions and covers an area of 1,900 hectares (ha). Like its neighbours, the
Casaden property is composed of disseminated epithermal gold deposits. Currently, the Company has no
agreement with the local community in order to conduct any exploration program.
No exploration program is planned on this property for 2013.
Anta
Dynacor’s Anta 1 property is located in the district of San Pedro, 72 km west of Nazca, within the Western
Andean Cordillera in the Province of Lucanas, Department of Ayacucho. The Anta 1 property includes
three concessions that cover an area of 1,800 ha and is a copper/silver exploration prospect.
The Company considers that the Anta property is a promising exploration property that may be host to a
significant silver deposit and that it merits further exploration in the future.
No exploration program is planned on this property for 2013.
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Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
11- FOLLOW-UP OF 2012 AND 2013 OUTLOOK
Ore processing
The Company’s objectives for 2012 were established and published as follows:


Operate its processing plant at its full capacity of 220 tpd during most of 2012 representing a
total plant throughput of approximately 75,000 tons of ore;
Using a grade of 0.71 ounce per DMT and an average price of $1,650 per ounce for 2012 , this
throughput would produce over 49,000 ounces of gold and sales of gold and silver of
approximately $85 M;
Due to increase ore grades processed mainly in the second half of 2012, the overall actual results of the
processing activities in 2012 exceeded the year guidance as follows;


Total of 61,274 ounces of gold produced ;
Sales of $105.0 M representing 123% of the yearly estimated forecasts for 2012;
2013 OUTLOOK
Price of gold
As discussed earlier, price of gold has been following a bumpy road recently. The Company has prepared
its 2013 forecasts based on a price of $1,600 per ounce Au. Since early March 2013, gold price has been
under $1600 per ounce. In 2011, gold price had followed the same trend, however it had recovered nicely
to finally average over $1,650 per ounce for the year. Gold price has always served as a safe heaven and
even with better economic news coming from the USA, the fundamentals surrounding gold are still strong
with continued increase of middle class population in countries such China and India. The Company feels
that gold price will remain strong during the upcoming year.
At the date of this report gold price stands at approximately $1,605 per ounce.
Ore processing operation
Dynacor's focus is to continue using the cash flow generated by its ore processing business to build longterm value for its shareholders. In 2013, the Company expects to process 75,000 and produce 66,000
ounces of gold.
New mill in Chala
The situation regarding the construction of the new 300 tpd mill is unchanged since our last financial
report. The Company expected to obtain its construction permit before the end of 2012 and at date of this
report has still not received it. Regular follow-up has been made with the local authorities. Construction of
the new mill, which should be funded through a combination of debt and working capital, will begin upon
reception of the necessary permit and will last eight months. The Company now anticipate starting
production at its new facilities in 2014.
Exploration
To complete the twofold exploration program on the Tumipampa exploration property as described in
section 10 summarized as follows.


In zone 4, in the skarn, a drilling program of 5,600 meters - 12 holes to be drilled;
A first 300 meter long cross cut through the Manto Dorado toward Rosa Vein to be excavated in
order to prepare an underground drilling program of 2,400 meters with the objective to obtain a
compliant NI 43-101 Resource estimation in 2013; The total budget for the program was
established at $2.8M.
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Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
12-RISKS AND UNCERTAINTIES
Risk Factors
The Company operates in the mining industry which is subject to numerous significant risks that can
influence the profitability of a company. There may exist other risks that are not indicated below which
may currently exist or can materialize in the future regarding the Company’s operations.
FINANCIAL RISKS
Metal Price Volatility
Factors beyond the control of the Corporation may affect the marketability of any ore or minerals
discovered at and extracted from the Corporation's properties. Resource prices have fluctuated widely,
particularly in recent years, and are affected by numerous factors beyond the Corporation's control
including international economic and political trends, inflation, currency exchange fluctuations, interest
rates, global or regional consumption patterns, speculative activities and increased production due to new
and improved extraction and production methods. The effect of these factors cannot accurately be
predicted.
Gold prices historically have fluctuated widely and are influenced by a number of factors beyond the
control or influence of the Corporation. Some factors that affect the price of gold include: industrial and
jewellery demand; central bank lending or purchases or sales of gold bullion; forward or short sales of
gold by producers and speculators; future level of gold productions; and rapid short-term changes in
supply and demand due to speculative or hedging activities by producers, individuals or funds. Gold
prices are also affected by macroeconomic factors including: confidence in the global monetary system;
expectations of the future rate of inflation; the availability and attractiveness of alternative investment
vehicles; the general level of interests rates; the strength of, and confidence in the U.S. dollar, the
currency in which the price of gold is generally quoted, and other major currencies; global and regional
political or economic events; and costs of production of other gold producing companies whose costs are
denominated in currencies other than the U.S. dollar. All of the above factors can, through their
interaction, affect the price of gold by increasing or decreasing the demand for or supply of gold.
Foreign Exchange Rate Fluctuations
The Corporation's activities and offices are currently located in Canada and Peru. Gold is sold in
international markets at prices denominated in U.S. dollars. The functional currency of the Company is
the United States dollar. However, some of the costs associated with the Corporation's activities in
Canada and Peru may be denominated in currencies not directly related to the price of the U.S. dollar.
Any appreciation of these currencies vis-à-vis the U.S. dollar could increase the Corporation's cost of
doing business in these countries. In addition, the U.S. dollar is subject to fluctuation in value vis-à-vis the
Canadian Dollar. The Corporation does not utilize hedging programs to any degree to mitigate the effect
of currency fluctuations.
Access to Capital Markets
To fund its growth, the Corporation could be dependent on securing the necessary capital through loans
or permanent capital. The availability of this capital is subject to general economic conditions and lender
and investor interest in the Corporation’s projects. To ensure the availability of capital, the Corporation
maintains an investor relations program in order to inform all shareholders and potential investors of the
Corporation’s developments.
Future Financing
The success of exploration programs and other transactions related to concessions could have a
significant impact on the need for capital. If Dynacor decides to develop one of its properties, it must
ensure that it has access to the required capital. The Corporation could finance its need of capital by
using working capital, by arranging partnerships with other companies, through equity financing, by taking
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Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
on long-term debt or any combination thereof. However, nothing guarantees that the Corporation will
succeed in getting the necessary financing with reasonable terms.
OPERATIONAL RISKS
Mining Industry and Mining Projects
Exploration and development projects have no operating history upon which to base estimates of future
operating costs and capital requirements. Mining projects frequently require a number of years and
significant expenditures during the mine development phase before production is possible. Development
projects are subject to the completion of successful feasibility studies, obtention of necessary
governmental permits and securing necessary financing. The economic feasibility of such development
projects is based on many factors such as estimation of reserves, metallurgical recoveries, future metal
prices, and capital and operating costs of such projects. Exploration and development of mineral deposits
thus involve significant financial risks which even a combination of careful evaluation, experience and
knowledge may not eliminate. While the discovery of an ore body may result in substantial rewards, few
properties which are explored are ultimately developed into producing mines. In fact, a mine must
generate sufficient revenues to offset operating and development costs such as the costs required to
establish reserves by drilling, to develop metallurgical processes, to construct facilities and to extract and
process metals from the ore. Once in production, it is impossible to determine whether current exploration
and development programs at any given mine will result in the replacement of current reserves with new
reserves.
The Corporation is subject to risks and hazards inherent to the mining industry, including fluctuations in
metal prices, costs of constructing and operating a mine as well as processing and refining facilities in a
specific environment, availability of economic sources of energy and adequacy of water supply, adequate
access to the site, unanticipated transportation costs, delays and repair costs resulting from equipment
failure, changes in the regulatory environment (including regulations relating to prices, royalties, duties,
taxes, restrictions on production, quotas on exportation of minerals, as well as the costs of protection of
the environment and agricultural lands), and industrial accidents and labor actions or unrest. The
occurrence of any of these factors could materially and adversely affect the development of a project and
as a result materially and adversely affect the Corporation’s business, financial condition, results of
operations and cash flow. The Corporation is also subject, through its activities, to risks normally
encountered in mining operations. Blasting, drilling, mining and processing of ore comprise risks and
hazards such as environmental hazards, including discharge of pollutants or hazardous chemicals,
unanticipated grade and tonnage of ore to be mined and processed, unusual or unexpected adverse
geological or geotechnical formation, or unusual or unexpected adverse operating conditions, slope
failure, rock bursts, cave-ins, failure of pit walls or dams, fire, and natural phenomena and "acts of God"
such as inclement weather conditions, floods, earthquakes and other hazards. These occurrences could
result in damage to, or destruction of, mineral properties or production facilities, personal injury or death,
environmental damage, delays in mining, monetary losses and possible legal liability. The Corporation
may incur liability as a result of pollution and other casualties, and may not be able to insure fully or at all
against such risks, due to political reasons, unavailability of coverage in the market place or other
reasons, or may decide not to insure against such risks as a result of high premiums or for other reasons.
This can result in delayed production, increase in production costs or liability. Paying compensation for
obligations resulting from such liability may be very costly and could have an adverse effect on the
Corporation’s financial position.
Licences and permits
Further, even if the Company does complete exploration activities, it may not be able to obtain the
necessary licenses or permits to conduct mining operations on the properties, and thus would realize no
benefit from its exploration activities on the properties.
- 21 -
Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
Political Risk and Country Risk
The principal mineral property interests of the Corporation are located in Peru. The Corporation believes
that government of Peru supports the development of its natural resources by foreign companies.
However, there is no assurance that future political and economical conditions in Peru will not result in the
government adopting different policies regarding foreign ownership of mineral resources, taxation,
exchanges rates, environmental protection, labour relations, and the repatriation of funds. The possibility
that a future government may adopt substantially different policies, which might extend to the
expropriation of assets, cannot be ruled out. The Corporation's current and future mineral exploration and
mining activities could be impacted by widespread civil unrest and rebellion, Country risk refers to the risk
of investing in a country, dependent on changes in the business environment that may adversely affect
operating profits or the value of assets in a specific country. For example, financial factors such as
currency controls, devaluation or regulatory changes, or stability factors such as mass riots, civil war and
other potential events contribute to companies' operational risks.
Title Risks
Although title to its properties has been reviewed by or on behalf of the Corporation, no assurances can
be given that there are no title defects affecting the properties. Title insurance generally is not available
for mining claims in Peru, and the Corporation's ability to ensure that it has obtained secure claim to
individual mineral properties may be severely constrained. The Corporation has not conducted surveys of
all the claims in which it holds direct or indirect interests; therefore, the precise area and location of such
claims may be in doubt. Accordingly, the properties may be subject to prior unregistered liens,
agreements, transfers or claims, and title may be affected by, among other things, undetected defects. In
addition, the Corporation may be unable to conduct work on the properties as permitted or to enforce its
rights with respect to its properties.
Risks Related to Statutory and Regulatory Compliance
The current and future operations of the Corporation, from exploration through development activities and
commercial production, are and will be governed by applicable laws and regulations governing mineral
claims acquisition, prospecting, development, mining, production, exports, taxes, labour standards,
occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety
and other matters. Companies engaged in exploration activities and in the development and operation of
mines and related facilities generally experience increased costs and delays in production and other
schedules as a result of the need to comply with applicable laws, regulations and permits. The
Corporation has received all necessary permits for the exploration work it is presently conducting;
however, there can be no assurance that all permits which the Corporation may require for future
exploration, construction of mining facilities and conduct of mining operations, if any, will be obtainable on
reasonable terms or on a timely basis, or that such laws and regulations would not have an adverse effect
on any project which the Corporation may undertake.
Failure to comply with applicable laws, regulations and permits may result in enforcement actions there
under, including the forfeiture of claims, orders issued by regulatory or judicial authorities requiring
operations to case or be curtailed, and may include corrective measures requiring capital expenditures,
installation of additional equipment or costly remedial actions. The Corporation may be required to
compensate those suffering loss or damage by reason of its mineral exploration activities and may have
civil or criminal fines or penalties imposed for violations of such laws, regulations and permits. The
Corporation is not currently covered by any form of environmental liability insurance. See "Insurance
Risk" below.
Existing and possible future laws, regulations and permits governing operations and activities of
exploration companies, or more stringent implementation thereof, could have a material adverse impact
on the Corporation and cause increases in capital expenditures or require abandonment or delays in
exploration.
- 22 -
Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
Competition
The Corporation is in competition with other mining companies for the acquisition of interests in precious
and base metal mining properties. In the pursuit of such acquisition opportunities, the Corporation
competes with several Canadian and foreign companies that may have substantially greater financial and
other resources. Although the Corporation has acquired many such assets in the past, there can be no
assurance that its acquisition efforts will succeed in the future.
Risks Associated with Joint Venture Agreement
The Corporation's interests in various of its properties may, in certain circumstances, pursuant to option
agreements currently in place, become subject to the risks normally associated with the conduct of joint
ventures. In the event that any of the Corporation's properties become subject to a joint venture, the
existence or occurrence of one or more of the following circumstances and events could have a material
adverse impact on the Corporation's profitability or the viability of its interests held through joint ventures,
which could have a material adverse impact on the Corporation's business prospects, results of
operations and financial condition: (i) disagreements with joint venture partners on how to conduct
exploration; (ii) inability of joint venture partners to meet their obligations to the joint venture or third
parties; and (iii) disputes or litigation between joint venture partners regarding budgets, development
activities, reporting requirements and other joint venture matters.
Supply and Quality of Feedstock
The Corporation’s operations involve the purchase of mineral ore from local producers which is then
converted in the custom milling production plant. The revenues of the Corporation will depend on the
availability of the mineral ore being supplied by the local producers. To mitigate this risk, the Corporation
has over 100 suppliers of mineral ore.
As the Corporation does not mine its own ore, it does not have entire control over the ore grade supplied
from its suppliers. Therefore this situation can have an impact over the volume of gold produced and gold
sales. The Corporation mitigates this risk by working with a minimum cut-off purchase grade to ensure
plant capacity fulfilment and profitability.
Third Party Reliance
The Corporation's rights to acquire an interest in certain resource properties may have been granted by
third parties who themselves hold only a lease, an option, or an application for rights pending before the
Peruvian Ministry of Energy and Mines to acquire such properties. If such person fails to fulfill their
obligations, the Corporation could lose its interests in the property and may have no meaningful recourse,
as it does not have any direct contractual arrangements with the underlying property holders. Where the
Corporation's interests in resource properties are managed or operated by third parties, the Corporation's
interests may be adversely affected in the vent such third parties mismanage the operations being carried
out on such properties.
Dependence on Management
The success of the operations and activities of the Corporation is dependent to a significant extent on the
efforts and abilities of its management team. See "Directors and Officers" for details of the Corporation's
current management. Investors must be willing to rely to a significant extent on their discretion and
judgment. The Corporation does not maintain key employee insurance on any of its employees. The
Corporation depends on key personnel and cannot provide assurance that it will be able to retain such
personnel. Failure to retain such key personnel could have a material adverse effect on the Corporation's
business and financial condition.
Conflict of Interests
The Corporation's directors and officers may serve as directors or officers of other resource companies or
have significant shareholdings in other resource companies and, to the extent that such other companies
may participate in ventures in which the Corporation may participate, the directors of the Corporation may
- 23 -
Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
have a conflict of interest in negotiating and concluding terms respecting the extent of such participation.
In the event that such a conflict of interest arises at a meeting of the Corporation's directors, a director
who has such a conflict will disclose its interests and abstain from voting for or against the approval of
such participation or such terms. From time to time, several companies may participate in the acquisition,
exploration and development of natural resource properties thereby allowing for their participation in
larger programs, permitting involvement in a greater number of programs and reducing financial exposure
in respect of any one program. It may also occur that a particular company will assign all or a portion of its
interest in a particular program to another of these companies due to the financial position of the
company making the assignment. The directors of the Corporation are required to act honestly, in good
faith and in the best interests of the Corporation. In determining whether or not the Corporation will
participate in a particular program and the interest therein to be acquired by it, the directors will primarily
consider the degree of risk to which the Corporation may be exposed and its financial position at that
time.
Insurance Risk
The mining industry is subject to significant risks that could result in damage to or destruction of property
and facilities, personal injury or death, environmental damage and pollution, delays in production,
expropriation of assets and loss of title to mining claims. No assurance can be given that insurance to
cover the risks to which the Corporation's activities are subject will be available at all or at commercially
reasonable premiums. The Corporation currently maintains insurance within ranges of coverage that it
believes to be consistent with industry practice for companies of a similar stage of development. The
Corporation carries liability insurance with respect to its mineral exploration operations, but it not currently
covered by any form of environmental liability insurance, since insurance against environmental risks
(including liability for pollution) or other hazards resulting from exploration and development activities is
prohibitively expensive. The payment of any such liabilities would reduce the funds available to the
Corporation. If the Corporation is unable to fully fund the costs of remedying an environmental problem, it
might be required to suspend operations or enter into costly interim compliance measures pending
completion of a permanent remedy.
Litigation
All industries, including the mining industry, are subject to legal claims, with and without merit. The
Corporation may, in the future, be involved in various legal proceedings. While the Corporation believes it
is unlikely that the final outcome of these legal proceedings will have a material adverse effect on the
financial position or results of operations, defense costs will be incurred, even with respect to claims that
have no merit. Due to the inherent uncertainty of the litigation process, there can be no assurance that
the resolution of any particular legal proceeding will not have a material adverse effect on the
Corporation's future cash flow, results of operations or financial condition.
Effecting Service of Process on the Corporation's Directors
Since certain of the Corporation's directors live outside of Canada, it may not be possible to effect service
of process on them and since all or a substantial portion of their assets are located outside Canada, there
may be difficulties in enforcing judgments against them obtained in Canadian courts. Similarly, essentially
all of the Corporation's assets are located outside Canada and there may be difficulties in enforcing
judgments obtained in Canadian courts.
Share Price Volatility
In recent years, the securities markets in Canada have experienced a high level of price and volume
volatility, and the market price of securities of many companies, particularly those considered
development stage companies, including the Corporation, have experienced wide fluctuations in price
which have not necessarily been related to the operating performance, underlying asset values or
prospects of such companies. There can be no assurance that continual fluctuations in price will not
occur.
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Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
Increased Costs and Compliance Risks of Being a Public Corporation
Legal, accounting and other expenses associated with public company reporting requirements have
increased significantly in the past few years. The Corporation anticipates that costs may continue to
increase with recently adopted or proposed corporate governance related requirements.
The Corporation also expects these new rules and regulations may make it more difficult and more
expensive for it to obtain director and officer liability insurance, and it may be required to accept reduced
policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a
result, it may be more difficult for the Corporation to attract and retain qualified individuals to serve on its
board of directors or as executive officers.
13-CRITICAL ACCOUNTING ESTIMATES
The preparation of consolidated financial statements (refer to note 5 of the Company’s 2012 year end
audited financial statements) requires the Company’s management to make judgements, estimates and
assumptions reported amounts of assets and liabilities, and revenues and expenses. The estimates and
assumptions are based on historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of making the judgments about
carrying values of assets and liabilities that are not readily apparent from other sources. Actual results
may be substantially different.
The critical accounting estimates are those that require assumptions on matters that are substantially
uncertain at the time of the estimate, that should the assumptions be modified, it would have a material
impact on the reported earnings or the financial position of the Company. A description of the Company’s
main accounting policies can be found in the Company’s audited consolidated financial statements filed
electronically on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com.
Impairment of property plant and equipment and exploration and evaluation assets
Determining if there are any facts and circumstances’ indicating impairment loss or reversal of impairment
losses is a subjective process involving judgement and a number of estimates and interpretations in many
cases.
When an indication of impairment loss or a reversal of an impairment loss exists, the recoverable amount
of the individual asset or cash-generating units must be estimated.
Asset retirement obligations
The Company assesses its asset retirement obligation at each reporting date. Significant estimates and
assumptions are made in determining the asset retirement obligation as there are numerous factors that
will affect the ultimate amount payable. These factors include estimates of the extent and costs of
rehabilitation activities, technological changes, regulatory changes, cost increases as compared to the
inflation rates, and changes in discount rates. These uncertainties may result in future actual expenditure
differing from the amounts currently provided. The provision at reporting date represents management’s
best estimate of the present value of the future rehabilitation costs required.
Share-based compensation expense
The estimation of share-based compensation expense requires the selection of an appropriate valuation
model and consideration as to the inputs necessary for the valuation model chosen. The Company has
made estimates as to the volatility of its own shares, the probable life of options, the time of exercise of
those options and expected extinguishments. The model used by the Company is the Black-Scholes
valuation model.
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Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
Income taxes
The Company is subject to taxes from different tax country jurisdictions. It maintains allowances for
uncertain tax positions that, in its opinion, appropriately reflect the risks related to the tax positions subject
to discussions, audits, differences of opinion and appeals with the tax authorities or that are otherwise
uncertain. These allowances are determined using best estimates of the amount payable based on a
qualitative assessment of all relevant information. These allowances are reassessed at the end of each
financial reporting period to determine if the amount is sufficient. However, audits by the tax authorities
could subsequently result in an additional liability. Upon the definite resolution of a tax issue resulting in a
tax amount that differs from the initially recognized tax expense, the difference is recognized in the tax
expense of the period of definitive settlement.
14-ACCOUNTING POLICIES AND MODIFICATIONS
Changes in Accounting Policies
There were no changes in accounting policies during the year.
At the date of authorisation of these financial statements, the International Accounting Standards Board
(IASB) issued the following standards which are relevant but not yet effective and have not yet been
adopted by the Company: IFRS 9, Financial instruments, IFRS 10, Consolidated Financial Statements,
IFRS 12, Disclosure of Interests in Other Entities, and IFRS 13, Fair Value Measurement. Each of the
new standards is effective for annual periods beginning on or after January 1, 2013 with early adoption
permitted. The Company did not early adopt any of the new requirements. The following is a brief
summary of the new standards that are expected to be relevant to the Company's financial statements.
Certain other new standards and interpretations have been issued but are not expected to have a
material impact on the Company's financial statements.
IFRS 9 - Financial instruments - classification and measurement
IFRS 9, Financial Instruments, was issued in November 2009. It addresses classification and
measurement of financial assets and replaces the multiple category and measurement models in IAS 39,
Financial Instruments – Recognition and Measurement, for debt instruments with a new mixed
measurement model with only two categories: amortized cost and fair value through profit or loss. IFRS 9
also replaces the models for measuring equity instruments and such instruments are either recognized at
fair value through profit or loss or at fair value through other comprehensive income. Where such equity
instruments are measured at fair value through other comprehensive income, dividends, to the extent not
clearly representing a return of investment, are recognized in profit or loss; however, other gains and
losses (including impairments) associated with such instruments remain in accumulated comprehensive
income indefinitely.
IFRS 9 - Financial instruments - classification and measurement (cont’d)
Requirements for financial liabilities were added in October 2010 and they largely carried forward existing
requirements in IAS 39, except that fair value changes due to credit risk for liabilities designated at fair
value through profit and loss would generally be recorded in other comprehensive income.
Further chapters dealing with impairment methodology and hedge accounting are still being developed.
IFRS 9 required to be applied for accounting periods beginning on or after January 1, 2015, with earlier
adoption permitted. The company has not yet assessed the impact of the standard. However the
Company does not expect to implement these changes until its application period.
IFRS 10 – Consolidated Financial Statements
IFRS 10 requires an entity to consolidate an investee when it is exposed, or has rights, to variable returns
from its involvement with the investee and has the ability to affect those returns through its power over the
investee. Under existing IFRS, consolidation is required when an entity has the power to govern the
financial and operating policies of an entity so as to obtain benefits from its activities. IFRS 10 replaces
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Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
SIC-12 Consolidation—Special Purpose Entities and parts of IAS 27 Consolidated and Separate
Financial Statements.
Considering that the Company is not currently involved with any investee, unless there is any changes in
the Company’s operations, this new standard will not have an effect on The Company consolidated
financial statements.
IFRS 11 – Joint Arrangements
The new standard replaces IAS 31 “Interests in joint ventures” and provides guidance on how to account
for interests in joint controlled entities. The new standard is effective for annual periods beginning on or
after January 1, 2013. Earlier application is permitted. The pronouncement is not expected to have a
material impact on the Company’s consolidated financial statements.
IFRS 12 – Disclosure of Interests in Other Entities
IFRS 12 establishes disclosure requirements for interests in other entities, such as subsidiaries, joint
arrangements, associates, special purpose vehicles and off balance sheet vehicles. The standard carries
forward existing disclosures and also introduces significant additional disclosure requirements that
address the nature of, and risks associated with, an entity’s interests in other entities.
Considering that the Company does not currently own any interest in other than subsidiaries, unless there
are any changes in the Company’s operations, this new standard will not have an important effect on the
Company’s consolidated financial statements.
IFRS 13 - Fair Value Measurement
IFRS 13 is a comprehensive standard for fair value measurement and disclosure requirements for use
across all IFRS standards. The new standard clarifies that fair value is the price that would be received to
sell an asset, or paid to transfer a liability in an orderly transaction between market participants, at the
measurement date. It also establishes disclosures about fair value measurement. Under existing IFRS,
guidance on measuring and disclosing fair value is dispersed among the specific standards requiring fair
value measurements and in many cases does not reflect a clear measurement basis or consistent
disclosures.
This new standard is effective for period beginning January 1, 2013 and after. As at December 31, 2012
the Company did not carry any assets or liabilities measures at fair value.
15-NON-GAAP MEASURES
Throughout this document, the Company has provided measures prepared according to IFRS as well as
some non-GAAP financial performance measures. Because the non-GAAP performance measures do
not have any standardized definition prescribed by IFRS, they may not be comparable to similar
measures presented by other companies. The Company provides these non-GAAP financial performance
measures as they may be used by some investors to evaluate our financial performance. Accordingly,
they are intended to provide additional information and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with IFRS. These non-IFRS financial
performance measures were reconciled to reported IFRS measures within the document. (Refer to
section 4 for description and conciliation of those non-GAAP measures.
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Management Discussion and Analysis
Dynacor Gold Mines Inc.
December 31, 2012
16-DISCLOSURE CONTROLS AND INTERNAL CONTROLS OVER FINANCIAL REPORTING (ICFR)
The Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) of the Company are
responsible for establishing and maintaining the Company’s disclosure controls and procedures,
including adherence to the Disclosure Policy adopted by the Company. The Disclosure Policy requires all
staff to keep senior management fully apprised of all material information affecting the Company so that
they may evaluate and discuss this information and determine the appropriateness and timing for public
release. The CEO and CFO evaluated the effectiveness of the Company’s disclosure controls and
procedures as required by Multilateral Instrument 52-109 issued by the Canadian Securities
Administrators. They concluded that as of December 31, 2012 the Company’s design and operation of its
disclosure controls and procedures were effective in providing reasonable assurance that material
information regarding this report, and the consolidated financial statements and other disclosures was
made known to them on a timely basis.
Management has developed a system for internal controls over financial reporting (ICFR) in order to
provide reasonable assurance with regards to the reliability of the financial information published and the
preparation of the financial statements in accordance with IFRS. The Chief Executive Officer and the
Chief Financial Officer evaluated the design of the ICFR as at December 31, 2012. Pursuant to their
evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the internal controls
over financial reporting (ICFR) are effective. In addition, the Chief Executive Officer and the Chief
Financial Officer of the Company are responsible for developing internal controls over financial reporting
or the supervision their development.
17-CAUTION REGARDING FORWARD LOOKING STATEMENTS
Statements contained in this document that are not historical facts are regarded as forward-looking
statements. These statements may involve risk, uncertainties and other factors that could cause actual
results to differ materially from those expressed or implied by such forward-looking statements. Many
factors could cause such differences, including: volatility in market metal prices; changes in foreign
currency exchange rates and interest rates; unexpected variations in geological conditions of a property
of erroneous geological data; environmental risks including increased regulatory constraints; unexpected
adverse mining conditions; adverse political conditions, and changes in government regulations and
policies. Although the Company believes that the assumptions inherent in the forward-looking statements
are reasonable, undue reliance should not be placed on these statements, which only apply as of the
date of this document. The Company has not committed to maintaining this forward-looking information
unless so required by law.
(s) Jean Martineau
Jean Martineau
President and Chief Executive Officer
(s) Leonard Teoli CPA, CA
Leonard Teoli
Vice-President and Chief Financial Officer
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