Surprise bid for Dukat

Vancouver — Plans by Pan American Silver (PAA-T) to start up the Dukat mine in far eastern Russia by mid-2000 have been derailed by another bidder for the Dukat mill building.

At an auction held by agents for the creditors of the bankrupt Dukat mine, a Moscow-based company outbid Pan American’s Russian subsidiary, Serebro Dukat, for a package of fixed site assets that included the mill building.

The Moscow company bid US$12 million for the assets, which also included a few items of mill equipment and some support buildings. Serebro Dukat (in which Pan American has a 70% interest and Magadan-based Geometall Plus, 30%) had bid US$8.3 million for the same package.

The Magadan regional government, which had supported Serebro Dukat’s bid, is checking the successful bidder’s eligibility for the auction and its US$500,000 bid deposit. Rosalie Moore, Pan American’s vice-president of corporate relations, says the regional authorities were “absolutely appalled” by the turn of events. If the bid was legitimate, the Moscow company will have to provide the balance of the US$12 million by the end of December.

Pan American completed the first phase of its planned construction at the Dukat mine in October, finishing the tailings dam and liner, the heating plant, and a mine services building. It also demolished part of the mill and renovated the warehouse and office building. Its work on site was covered by a 3-month renewable lease, which the Moscow company might assume from Dukat’s creditors.

So far, the company has spent US$30 million in its effort to return Dukat to production, including the US$5 million it paid for the mining licence. Another US$75 million is budgeted to finish the project.

Pan American states that full-scale construction of the Dukat mine will continue once a successful resolution of the assets auction has been reached and the company receives the final bank licences.

Russia’s central bank recently approved loans from the World Bank’s funding arm, International Finance Corp., and from the Canadian government’s Export Development Corp. The loans total US$60 million, with a US$6-million contingency loan in case of project overruns. The IFC also took a US$9-million private placement in Pan American.

The project has already met most of Russia’s regulatory conditions, including a 4-year permit to export concentrate.

Dukat has reserves of 10.6 million tonnes grading 755 grams silver and 1.5 grams gold per tonne. Pan American envisages annual production of concentrates containing 15.8 million oz. silver and 30,500 oz. gold.