The government of the Dominican Republic has awarded
Despite expectations of numerous bidders, Placer and Australia’s MIM Holdings were the only contenders for the 25-year-term mining concession situated in the central part of the Caribbean nation. Placer spokesperson Brenda Radies says the tender was a screening process allowing the government to select one party that must still conclude a final agreement. “The bid wins the right to negotiate terms.”
To get the ball rolling, Placer will soon submit its letter of intent to develop the project to the National Congress for approval. The company will then have six months to complete a full assessment of the project before a definitive contract is signed.
Pueblo Viejo lies 110 km north of Santo Domingo at an altitude of around 300 metres. The existing sulphide resource contains 34.6 million oz. gold and 204 million oz. silver in 544 million tonnes grading 1.98 grams gold and 11.7 grams silver per tonne, plus 0.55% zinc, based on a 1-gram cutoff. At a higher 3-gram cutoff, the resource stands at 70 million tonnes of 4.18 grams gold, 25.1 grams silver and 0.91% zinc, equal to 9.4 million oz. and 56.3 million oz. silver.
Pueblo Viejo was placed into production in 1975 by Rosario Resources, then a subsidiary of Amax. Oxide ore from the open-pit mine was processed in a cyanidation mill. The government nationalized the mine in 1979 and continued operations until 1993. By this point, oxide and transitional ore reserves were nearly depleted. Limited mining continued until 1999, by which time Pueblo Viejo had produced (since 1975) an impressive 5 million oz. gold and 22 million oz. silver.
Several attempts were made to re-privatize the mine in the 1990s, but these came to naught because of the nation’s complex socio-political environment. The situation changed when Hipolito Mejia was elected president in May of 2002. A state agency, UCM, was created to revitalize the mining sector, starting with the privatization of Pueblo Viejo.
The call for tenders was made earlier this spring. While several majors had expressed interest in the project, only Placer and MIM Holdings registered for the tender by making a non-reimbursable payment of US$20,000 by the July 2 deadline.
“We had expected other companies to participate,” UCM technical sub-director Marco Perez told Business News America. “But we understand the market at present is limited in terms of gold prices and other factors.”
Placer Dome is reported to have proposed a US$336-million mine that would treat sulphide ores using a combination of traditional technology and bioleaching. Annual production is expected to average 403,000 oz. gold and 2.2 million oz. silver (in the form of dor), plus 90 million lbs. zinc, over a mine life of 33 years. Start-up is scheduled three years after final agreements are signed.
MIM, on the other hand, had proposed to invest US$630 million to achieve annual production of 630,000 oz. gold, 3.7 million oz. silver and 110 million lbs. zinc. The mine life would be 14 years, with production starting five years after the signing of a formal contract.
The competing bids were evaluated by a committee comprised of UCM representatives, the general director of mining and other government officials, and the Central Bank. Placer’s bid won the day because of its longer mine life and shorter start-up period. It is not yet known what Placer will pay for the rights to develop Pueblo Viejo, or what its interest will be.
Las Cristinas
In a separate deal, Placer agreed to sell its 70% interest in the dormant Las Cristinas gold-copper project to Vancouver-based
Placer’s local partner, the quasi-state-owned Corporacion Venezolana de Guayana (CVG), has made no secret that it wants Las Cristinas to move forward, with or without Placer. The gold company shelved construction in the summer of 1999, citing low gold prices, and had subsequently taken a US$116-million writedown.
Gold prices haven’t improved since then, leaving Placer few options other than to shop Las Cristinas to potentially interested parties before its deadline expired. Radies says CVG was aware that Placer was looking for a partner. “Frankly, there haven’t been many expressions of interest. At today’s gold price, everything is a tough go. A large-scale [mine] isn’t feasible, so it had to be somebody looking to do something on a smaller scale.”
Las Cristinas is an open-pit project in Bolivar state. It hosts a reserve of 323 million tonnes grading 1.1 grams gold per tonne. An updated feasibility study, unveiled in the fall of 1998, recommended annual production averaging 470,000 oz. gold and 16,000 tonnes copper over a 20-year mine life, at a milling rate of 48,000 tonnes per day. Production during the first 10 years was expected to average 530,000 oz.
Cash costs were projected at US$155 per oz., after copper credits, while total costs were estimated at US$240 per oz. The capital cost of US$575 million included the construction of a power transmission line.
Under the proposed deal with Vannessa, Placer will retain an interest in the gold and copper revenues, and retain a back-in right to the project. Should that back-in right be exercised, Vannessa’s interest reverts to a royalty on gold revenues and a net smelter return (NSR) royalty on copper revenues.
Placer’s back-in right is contingent upon the project sustaining a large-scale operation, requiring a significantly higher gold price.
Vannessa will focus on a smaller 100,000-oz.-per-year operation based on the mining of higher-grade, near-surface saprolite and laterite. The company plans to upgrade its existing mill near Las Cristinas to 7,500 tonnes per day.
Vannessa acquired its 167 sq. km of ground in the Kilometre 88 district from Vengold more than two years ago. The price — $50,000 and 250,000 shares — was a bargain, at least relative to the astronomical prices Vengold paid for the same ground in the late 1980s, during the height of a speculative gold rush sparked by Placer’s work at Las Cristinas.
Vannessa also holds the 2.4-million-oz. Cerro Crucitas gold deposit in Costa Rica, as well as various diamond and gold projects scattered through Central and South America. The company has about $6 million in cash and 48 million shares outstanding.
Placer’s deal with Vannessa drew a response from
Crystallex’s efforts to have its “rights” recognized were dealt a major blow in June of 1998, when the Supreme Court of Venezuela issued a “final and non-appealable” ruling stating that it had no such rights, nor any standing to pursue the matter further. Despite the setback, Crystallex recently unveiled plans to develop Las Cristinas in three stages, starting at a rate of 250,000 oz. annually, reaching 550,000 oz. in the final stage and continuing through 2028.
Luca Riccio, Crystallex’s vice-president of exploration, was also on Vannessa’s board, though he resigned after Vannessa announced its deal with Placer.
In the past year, Crystallex increased its presence in Venezuela by acquiring the assets of Bolivar Goldfields, including the Tomi gold mine and the Revemin mill. The company subsequently acquired El Callao Gold and its Lo Increible gold project. Mining operations at La Victoria, the largest of six deposits at Lo Increible, began in the second quarter.
The company’s other main asset is the San Gregorio gold mine in Uruguay. Last year, Crystallex produced 95,499 oz. gold. Production is forecast to reach 120,000 oz. in 2001.
For the first three months of 2001, production was 25,88
2 oz., a 44% increase over the same period a year ago. Cash costs came in at US$246 per oz. The company earned $420,000 (1 per share) on revenue of $14.9 million, compared with $1.2 million (2 per share) in earnings on revenue of $7.9 million.
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