TVX learns ABCs of Greek law

Greece’s highest administrative court, the Conseil d’Etat, has stripped TVX Gold (TVX-T) of its right to develop the Olympias project as was envisaged in a 2000 feasibility study.

Olympias, with reserves of 11.5 million tonnes running 9 grams gold and 138 grams silver per tonne, plus 6.1% zinc and 4.6% lead, first went into production in 1976. Its original owner, Hellenic Chemical Products, went bankrupt, whereupon the mine was siezed for debt by the National Bank of Greece.

In 1995, TVX acquired the assets in an international bidding contest and then set about determing the viability of converting the old mine into a modern refractory gold operation. Since then, it has spent more than US$200 million doing just that.

According to the study, the new Olympias mine would produce, in the first five years, 235,000 oz. gold, 2 million oz. silver, 19,700 tonnes zinc and 18,200 tonnes lead. Production over the next 14 years would average 153,000 oz. gold, 2.4 million oz. silver, 31,300 tonnes lead and 25,000 tonnes zinc.

Cash costs were estimated at US$50 per oz. (net of byproduct credits) for the first five years, rising to an average US$72 per oz. thereafter.

Capital costs were projected at US$258 million, with most of that earmarked for a refurbishing of the existing mill and the installation of a bio-oxidation and pressure-leaching circuit. The investment promised to yield an internal rate of return of 16.7% and translate into a net present value of US$199 million.

However, in 2001, a local group put a wrench in TVX’s plans when it contested the government’s authority with the Conseil d’Etat. Recently, the court ruled in favour of the group, nullifying the company’s permit to kill the project.

TVX President Sean Harvey says the company will review the annulment with government officials and may seek legal remedies. In any case, the company has chosen to write down Olympias’ carrying value by US$200 million and record the charge in the fourth quarter of 2001.

TVX will also take a small charge against Skouries, though the court’s decision affects neither that project nor the Stratoni operations. The company had planned to develop Skouries after Olympias but now remains hopeful of attracting a partner once metal markets improve.

Situated 20 km southwest of Olympias, Skouries hosts 130 million tonnes grading 0.9 gram gold per tonne and 0.6% copper. The estimate is based on a gold price of US$300 per oz. and a copper price of US80 per lb.

A 1999 feasibility study concluded that the deposit could support a 16,000-tonne-per-day operation over 20 years. Production in the first five years is forecast at 200,000 oz. gold and 32,500 tonnes copper.

Cash costs were pegged at US$22 per oz. (net of copper credits), and capital costs were estimated at US$240 million.

Meanwhile, controversy has gripped the Stratoni operation, as a local group wants the court to annul the company’s permit for that mine. With the government’s approval, mining of the Mavres Petres deposit recently resumed.

TVX received the permit after a team of six professors from the National Technical University of Athens found its proposed mining method both safe and appropriate, including drilling underneath the village of Stratoniki. The permit does include a set of conditions, including a limitation on the amount of explosives used.

During the first nine months of 2001, Stratoni pumped out 1.5 million oz. silver, 19,600 tonnes lead and 21,300 tonnes zinc. Of that, 505,000 oz. silver, 6,400 tonnes lead and 7,200 tonnes zinc were produced from 92,000 tonnes of ore mined in the third quarter.

TVX does not expect the court to come to a decision anytime soon. Hence, mining continues.

Elsewhere, TVX has decided to reduce the carrying value of the La Coipa gold-silver mine in Chile and the New Britannia gold mine in Manitoba. TVX has a 25% stake in each and is operator at New Britannia.

The La Coipa writedown reflects the inclusion of lower long-term metal prices, whereas a reduction in reserves is behind the New Britannia charge.

In all, TVX is recording between US$230 and US$240 million in writedowns during the fourth quarter, net of minority interests and income taxes. This will undoubtedly push earnings deep into the red, given that it only earned US$79,000 (on revenue of US$119.3 million) in the first nine months of 2001.

In other news, TVX plans to consolidate its shares on a 1-for-10 basis in hopes of keeping its U.S. shares trading above a buck, which is the lower limit allowed by the New York Stock Exchange. The consolidation should also facilitate its inclusion in the newly proposed Standard & Poor’s/Toronto Stock Exchange composite index.

Shareholders will vote on the consolidation at the company’s 2002 annual meeting.

TVX has more than 357.2 million shares issued and outstanding. The company’s largest shareholder, with more than 20% of outstanding shares, is backing the consolidation.

Last summer, TVX converted its US$250-million gold-linked notes into 321.5 million shares, inflating its float to 357.2 million. However, the deal eliminated U$9 million in interest payments.