Defiance exits Honduras

Proposed changes in Honduran mining regulations have prompted Defiance Mining (DM-T) to drop its option on the Zopilote gold property, 35 km east of Sula.

Defiance says the planned changes would significantly increase the cost of business, and make it more difficult to permit and develop new mines. The company has already terminated its exploration efforts in the country, and does not expect to continue with operations beyond its reclamation of the Vueltas mine.

Defiance has informed Doublestar Resources (DSR-V) that it will not proceed with the joint venture, and will surrender its claim to the property.

Earlier this year, Defiance agreed to take a 60% stake, and assume operatorship, of Zopilote by completing a feasibility study by Feb. 1, 2005. The deal also required Defiance to chip in its adsorption, desorption, and recovery (ADR) plant from Vueltas, following that operation’s closure.

Doublestar reports that historical resources at Zopilote total 10.5 million tonnes grading 1.3 grams gold per tonne. The estimate does not conform to National Instrument 43-101 standards.

During the first six months of 2004, Defiance lost US$87,000 (or nil per share), compared with a year-ago loss of US$4.1 million (US17 per share). The decrease is attributed to lower operating costs and amortization on mining properties owing to the cessation of mining activities at Vueltas earlier in the year. Revenue between the two periods fell 18% to US$6.1 million as the company sold 30% fewer oz. of gold.

During the half, Vueltas generated $1.9 million in cash, 51% better than a year earlier; the cash went to repay debt of the same amount. Leaching of residual material on the heaps returned 14,926 oz. of gold by the end of July. Defiance expects to recover a minor amount of gold during the balance of the year by rinsing the heaps. Reclamation is underway.

At the end of June, Defiance had US$4.5 million in cash; consolidated working of $5.3 million; and no long-term debt or other liabilities.

Meanwhile, Defiance shareholders are slated to vote on a proposed merger with Rio Narcea Gold Mines (RNG-T) on Aug. 30. Under that plan Rio Narcea would acquire all of Defiance’s shares at a rate of one Rio share for every 5.25 shares of Defiance. At least two-thirds of Defiance shareholders must okay the deal.