The battle for control of the mine began late in 1999 when Kaskol, a tea importer and aircraft parts manufacturer, bought the bankrupt mine’s mill buildings from creditors for US$12 million. At the time, those assets were under a lease with a purchase option to Serebro Dukat, owned 70-30 by Pan American and
“Dukat has been an extraordinarily frustrating and difficult situation for us,” says Pan American Chairman Ross Beaty. “We had all of our financing arranged and all of our permits in place. We simply had to complete the one last aspect of purchasing the mill that we needed, and, to our surprise, we were ambushed at the auction for the mill.”
As a result, Serebro Dukat has suspended all operations at the site.
Kaskol says it had intended to develop the deposit. According to the company’s president, Sergei Nedoroslev: “Our main goal is to prepare the facility for production and begin to develop the enormous potential of this great mine.”
Kaskol has since attempted to render Serebo Dukat’s mining licence invalid by alleging certain infractions. However, a 5-person commission, sent from Moscow, unanimously upheld Serebro’s right to the mine site.
Beaty says there are several supporters both inside and outside Russia who are helping to put pressure on Kaskol to negotiate a solution.
One alternative is to build a new mill, which would require new permitting, re-engineering and a delay of 6-8 months.
“This is entirely possible,” said Beaty. “The rate of return is acceptable, the capital costs will be maybe US$20 million or US$25 million more than what we currently have budgeted to spend, which is about US$75 million.”
Still, Pan American would prefer to stick to its original mining plan and not incur any unneccesary expenses. Serebro Dukat has already spent US$30 million at the past-producing mine, including US$5 million for the mining lease.
Another alternative for Pan American would be to challenge the auction yet again, though it has already gone through one court proceeding that resulted in the auction being upheld.
“We don’t really want to litigate in Russian courts, yet it is something we are proceeding with on a couple of fronts,” said Beaty.
Pan American is also asserting its lease agreement for the mill, which had a purchase right written into the deal. “We think the best solution is negotiation,” said Beaty. “We are absolutely determined not to spend any significant funds in Russia without clarity of the situation.” He went on to say that if Pan American does not reach a negotiated solution with Kaskol and decides not to proceed with construction of a new mill, the company will walk away from the project.
At last report, Dukat had reserves of 10.6 million tonnes grading 755 grams silver and 1.5 grams gold per tonne. Pan American estimates yearly production will weigh in at 15.8 million oz. silver and 30,500 oz. gold.
In other news, Pan American has acquired a 71.8% stake in the Huaron silver mine, 300 km northeast of Lima, Peru.
The mine is in the Magadan region of northeastern Russia.
The Huaron mine entered production in 1912 and cranked out more than 220 million oz. silver before operations were halted in April 1998. According to Pan American, the acquisition could almost double its Peruvian silver production to nearly 7 million oz. by 2001.
The mineral resource at Huaron stands at 13 million tonnes grading 239 grams silver per tonne, 4% zinc, 2.2% lead and 0.5% copper. Pan American plans to use the existing infrastructure to return the mine to production, by year-end, at an annual rate of 600,000 tonnes. The total capital cost of refurbishing the mine is estimted to be $10.1 million, to be funded from existing cash. The silver producer expects the project to crank out 4.3 million oz. silver and 18,000 tonnes zinc per year at a cash cost of US$3.24 per oz. silver and a production cost of US$3.60 per oz.
The Vancouver-based company can earn its interest by issuing 1.8 million shares to the Peruvian company that holds 100% of the base metal vein deposit. The vendor will also receive a 2.16% net smelter royalty after the first 4.3 million tonnes of ore are produced. An unnamed representative of the vendor will also receive 700,000 ten-year stock options at a $4 exercise price.
On the financial side, Pan American tabled a 1999 loss of US$5 million (or 20 per share) on revenue of US$26.9 million, compared with a loss of US$6 million (24 per share) on revenue of US$30.2 million in the previous year. The company attributes the decline in revenue to lower realized prices for all metals except zinc. As of Jan. 1, 2000, Pan American had US$16.7 million in working capital and no debt.
At the company’s wholly owned Puiruvilca mine, in Peru, production during the first eight months of 1999 was 10% less than expected, owing to a lightning strike that disabled a regional power transformer. Despite this, mill production increased by 5%, compared with 1998, to 562,584 tonnes, which resulted in silver production of 3.3 million oz. at a cash cost of US$3.55 per oz. By comparision, in 1998. 3.1 million oz. were produced at a cash cost of US$3.78 per oz. Production costs for 1999 were pegged US$4.39 per oz., compared with US$4.56 per oz. in the previous year. Production in 2000 has been forecast at 3.4 million oz. silver and 26,000 tonnes zinc.
Meanwhile, at the Colorada project, in Mexico, Pan American has completed nearly 6,000 metres of underground tunneling and 5,000 metres of drilling. The drilling is said to have expanded the resource, and an independent reserve audit is expected in late March.
Be the first to comment on "Pan American, authorities put pressure on Kaskol"