Two years after being forced to shelve it,
In the heyday of 1996, Orvana added the Bolivian project to a growing exploration portfolio at a cost of $43 million in cash and shares. The junior sank another $21 million into the deposit over the next three years before running out of cash and reducing Don Mario’s carrying value to a mere $12 million.
Left with few alternatives, in 2001, Orvana began discussions with privately owned Compania Minera del Sur (Comsur), only to conclude a deal in mid-January.
“Originally, our hopes were that Orvana could develop this property for its own account,” explains Christopher Mitchell, Orvana’s corporate secretary. “But after May 1999, when the British government said the Bank of England would start selling gold, and gold began its long slide to US$252 per ounce, it became obvious that we couldn’t.”
Comsur is Bolivia’s largest mining company and also runs lead and zinc operations in Argentina. The company counts the International Finance Corporation and Commonwealth Development Corporation among its financial backers — two sources unavailable to Orvana alone.
Says Mitchell: “We talked to a number of mining companies and came to the conclusion that Comsur could do it quicker and at a lower capital cost than anyone else we could think of.”
According to the deal, Comsur has provided US$14 million in project loans and agreed to finance any cost overruns in return for majority control of Orvana. For its part, Orvana has committed the US$4 million it raised by issuing more than 52.9 million treasury shares to Comsur, or one share more than the number of shares outstanding before the deal was closed.
As part of the agreement, Orvana will buy US$8 million worth of surplus mining equipment from Comsur’s nearby Puquio Norte mine, where reserves were recently depleted. The remaining US$6 million will cover infrastructure and mine development costs, plus any additional purchases.
Any equipment acquired through the debt facility serves as collateral to the loans. The loans carry interest at the London Interbank Offer Rate plus an unspecified premium.
Situated on the Brazilian Shield, Don Mario represents the first discovery of its kind in this part of Bolivia. A private company takes credit for the find, and Billiton, now
The deposit comprises two unique mineralized horizons enclosed by crystal schists that are intruded by a granitic pluton. The targeted Lower unit is a 1.5-to-1.8-metre-thick shoot that extends from surface to 700 metres downplunge and varies from 100 to 150 metres downdip.
Except for mild oxidation near-surface, the Lower unit represents a low-sulphide system characterized by fine free gold, rendering it amenable to conventional milling and carbon-in-leach processing techniques. Chalcopyrite and bismuthinite are the main sulphide minerals.
Recovery rates are expected to exceed 90%.
In 1999, engineering firm MRDI updated an earlier feasibility study on the Lower zone to reflect various gold prices and the employment of contract miners. A conceptual mine plan called for a 2-phase approach, starting with an open pit and ending with an underground operation.
Domestic workers
Capital costs were pegged at US$32.6 million and operating costs at US$66.94 per tonne of ore milled, assuming a 10% discount rate. However, Comsur is expected to beat both projections by using the Poquio Norte facilities and employing a domestic workforce.
“Comsur thinks it can produce gold at less than US$100 an ounce, but I’m not at liberty to talk about rates of return,” Mitchell tells The Northern Miner. “As a rough guide, we had thought we could get the cash costs down to about US$145, before royalties.”
MRDI estimates that at a gold price of US$270 per oz., Don Mario’s net present value (NPV) would be US$2.53 million and its internal rate of return (IRR), 13.5%. The NPV climbs to US$10.76 million and to US$18.98 million for each US$30 rise in the price of gold, while the IRR jumps to 24.8% and 35.8%, respectively.
Mitchell notes that Comsur had planned to go directly underground at Don Mario but that it may follow MRDI’s recommendations, as Poquio Norte’s reserves have already been exhausted.
“My guess is that Comsur may look at that time descrepency and decide to start with the open pit, because they can get that into production much quicker,” he says.
According to the MRDI report, the pit can be dug at a stripping ratio of 10-to-1 to extract 245,000 tonnes of surface reserves, which average 10.19 grams gold and 6.13 grams silver per tonne. The addition of 21,000 tonnes of underground development material extends surface production to a full year at the proposed daily mining rate of 750 tonnes.
Underground mining adds another two years to the mine’s life, based on reserves of 602,000 tonnes averaging 17.74 grams gold and 4.63 grams silver. The higher gold tenors found at depth will partially offset the higher operating costs associated with the underground phase.
Long-hole stoping
Shrinkage and long-hole stoping are still considered the most suitable underground mining methods. About 514 metres of existing underground workings, including 306 metres of ramping to and across the 264-metre level, will contribute to stope development.
Comsur must achieve commercial production within 18 months at a rate of not less than 600 tonnes per day, though Mitchell believes the first dore bar will be poured in a year. A tailings dam and water reservoir are now under construction. The Puquoio Norte mill and surplus equipment to be relocated in April, when the dry season begins.
As for exploration, Mitchell says there are plenty of promising showings to follow-up on the 500-sq.-km property. Moreover, mineralization in the Lower zone remains open downplunge, and the Upper unit hosts a sizable oxide resource.
Orvana now has just under 107 million shares outstanding, of which a little more than half is owned by Comsur and 15.4% by RBC Global Investment Fund. The shares have traded between 6 and 45 over the past 52 weeks and are currently trading in the 35 range.
Gonzalo Sanchez de Lozada has been appointed chairman of the board, which has expanded to include five members. Jaime Urjel has been named president and chief executive officer. Each holds a similar position at Comsur.
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