Vancouver – Carpathian Gold (CPN-T) has been forced to abruptly halt construction at its Riacho dos Machados gold project on environmental grounds barely a month after the Brazilian government approved the project.
The company reports that COPAM, one of the Brazilian environmental authorities with jurisdiction in Minas Gerais state, has put a condition on the recently-granted ad referendum license to install that effectively stops the company from going ahead with construction until COPAM completes further technical reviews.
Carpathian states that the development is “unusual” and “unexpected” but it does not mean the license has been revoked. The company is now working with government authorities to figure out a revised timeline for construction to start again.
The company announced it had received the key ad referendum license on Sept. 16, which allowed it to start construction. At the time the license was issued, the company stated it would expedite construction on the US$160-million project with an aim to start production in late 2012 or early 2013, with a mining fleet ordered and crushers and ball mill already acquired.
Once in production, the 7,000-tonne-per-day open pit project is supposed to produce 93,400 oz. gold per year for 8 years thanks to reserves of 20.9 million proven and probable tonnes grading 1.24 grams gold per tonne. The project has an after-tax net present value of US$205 million based on US$1,450 per oz. gold and a 5% discount rate, an internal rate of return of 31.6% and a payback period of 2.7 years.
Carpathian’s shares were halted before the news was released at 50¢, and did not resume trading on the day. The company has 428 million shares outstanding.
The unexpected news comes not long after the company topped up its coffers in anticipation of the construction. Only days before, the company arranged a $40-million bought deal financing, planning to sell 80 million shares at 50¢ each. The company released revised terms at the same time it announced the construction delay, with plans now to offer 100 million subscription receipts at 40¢ each for the same proceeds. Money raised will now be held in escrow, with the main condition for theproceeds to be released being ratification of the ad referendum license to install by COPAM on substantially the same conditions as the current one.
Earlier in October the company moved ahead with a US$75-million to US$97-million loan facility to finance construction and development of its RDM project in Brazil. At the time the company reported that the size and structure of the facilities will be “determined in the context of the market prior to documentation and closing of the facility.”
And in mid-August the company secured a $20-million investment from Barrick Gold (ABX-T, ABX-N), which bought 38.4 million shares at 52¢ for a roughly 9% interest at the time. But while Barrick gains exposure to Carpathian’s Brazil project, it appears to be more interested in Carpathian’s Rovina Valley project in Romania, which has a significantly bigger gold resource.
As of a 2008 estimate, the Rovina project hosts measured and indicated resources of 193.1 million tonnes grading 0.49 grams gold and 0.18% copper for 3.07 million contained oz. gold and 759 million lbs. copper. The company is looking to update the estimate early next year after completing the current drill program, in time for the maiden prefeasibility study.
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