Carpathian Gold (CPN-T) has been forced to 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 licence that 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Carpathian states that the development is “unusual” and “unexpected,” but it does not mean the licence has been revoked. The company is now working with government authorities to figure out a revised timeline for construction to resume.
The company announced it had received the key ad referendum licence on Sept. 16, which allowed it to start construction. At the time the licence 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 a ball mill and crushers already acquired.
The 7,000-tonne-per-day open-pit project is anticipated to produce 93,400 oz. gold per year for eight 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.
At presstime Carpathian’s stock traded for 42¢ per share within a 52-week price range of 38¢-77¢.
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 with plans to sell 80 million shares at 50¢ each. The company released revised terms at the same time it announced the construction delay, with plans to offer 100 million subscription receipts at 40¢ each for matching proceeds. Money raised will be held in escrow, with its release depending on ratification of the ad referendum licence 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 Riacho dos Machados project in Brazil. 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.”
The company secured a $20-million investment from Barrick Gold (ABX-T, ABX-N), in mid-August, which bought 38.4 million shares at 52¢ for a 9% interest. 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 gram 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 drill program in time for the maiden prefeasibility study.
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