Gold Hawk suspends operations at Coricancha mine

Unexplainable ground movement around the dry tailings storage area of Gold Hawk Resources‘ (CGK-V) Coricancha silver-lead-zinc mine in Peru has forced the company to shut down crushing and milling operations indefinitely.

Consultants are onsite conducting a geotechnical audit to figure out how much more ground movement the company can expect.

Gold Hawk, which denied an interview request, did not say how long the shut down would last in its announcement. Jennings Capital analyst Ron Coll estimates that it could be several months before Gold Hawk will be able to reopen the 600-tonne-per-day operation.

“Once you involve consultants to look at something and to get the report back, it’s not going to be something that happens in a few days,” Coll says.

He says that even though the ground may have only moved centimetres it’s something that must be thoroughly investigated.

Gold Hawk believes that unusually heavy rainfall during the rainy season is to blame, as well as regional seismic activity and leakage from a water channel that passes through the property.

Coll says that seeing little cracks on the surface is a typical tip-off to such a problem. “It means some pieces of tailings have separated from others so you start to see these one-centimetre cracks (it’s) a sign of movement somewhere.”

The audit began in April to evaluate the response of the tailings handling facility to full-scale production, which began last October.

The evidence of ground movement prompted the company to halt operations on Friday, May 9, to find out exactly what was going on.

“While we are uncertain as to the extent of the movement we are committed to ensuring that we mitigate risk,” Gold Hawk president Kevin Drover said in a prepared statement.

For the time being, Gold Hawk is stockpiling ore, which will be processed when operations start up again.

The company was planning to use the current tailings area for only two more months. Gold Hawk is in the process of permitting a long-term tailings storage area about 20 km away, but that won’t be ready until sometime in 2009. In the meantime, Gold Hawk was planning to use another temporary storage area a few hundred metres from the current tailings site.

Both are located on a slight incline which makes a potential collapse dangerous for passersby. Coll suggests that Gold Hawk may have to consider finding an entirely new temporary tailings site.

“It’s so close the existing facility that it might have some of the same characteristics (as the current one),” Coll says.

The current site was supposed to be the answer to an environmental problem before Gold Hawk bought the project in 2006. The local government and previous owner transported the tailings there from the original site, located near a community and along a river.

“They thought it was an environmental problem and now they’ve got a ground movement problem. It’s not very funny but that’s how things have evolved,” Coll says.

Gold Hawk shares fell 27%, or 10, to 27 each on a trading volume of 527,000 shares.