Tuesday 27th September 2016

Resource Clips


Righting Past Wrongs

Colossus Does Well by Doing Good in Brazil

By Ted Niles

By the time 60 Minutes aired its story about Brazil’s Serra Pelada gold mine in 1985, it had gone, in Ann Wilkinson’s words, “completely Wild West.” The site of the largest gold rush in Latin American history, hordes of mud-encrusted garimpeiros produced over two million ounces of gold from the remote Amazonian pit. The largest gold nugget found reportedly weighed 15 pounds. But, the VP of Investor Relations for Colossus Minerals TSX:CSI says, “This gold rush ended like many, badly.” The Brazilian army had taken over operations shortly after the deposit’s discovery, and CVRD—the state mining arm, since privatized and now known as Vale SA—discovered early on that in addition to Serra Pelada’s bonanza gold grades, it was also rich in platinum and palladium. It tried to reserve this information to itself.

“Once the hard-to-keep secret got out,” Wilkinson relates, “that CVRD wasn’t paying the artisanals for the platinum and the palladium in the deposit—that it was, in effect, stealing from them—all hell broke loose. The garimpeiros refused to get out of the pit; proper setbacks were not being maintained; lawlessness ensued; people were dying. It had to stop, and the Brazilian government, through CVRD, simply stopped dewatering the pit.”

Colossus Does Well by Doing Good in Brazil

Save for the odd attempt to access Serra Pelada’s world-beating gold and PGM grades using scuba gear, the deposit remained largely inaccessible. The government made some effort at restitution by awarding Coomigasp—a cooperative of garimpeiros—a portion of the Serra Pelada land package, with Vale retaining the underlying title. There were conditions, however. “What they basically said was this cannot, under any circumstance, be mined the way it was before,” Wilkinson reports. “To have 18,000 people digging a big hole in the Amazon, you must come up with a development plan and an environmental impact assessment. Accordingly, it became apparent to Coomigasp that this was not something within their ability to do.” So Serra Pelada’s wealth became trapped. In its determination to right past wrongs, the government upheld the garimpeiros’ right to the property, but the garimpeiros did not have the means to mine it.

Enter Colossus Minerals. When the mine came up for tender in 2007, the company formed a partnership with Coomigasp—acquiring 75% of the property, with the cooperative retaining 25%. In addition to the original 100-hectare exploration license, the partnership bought in 2010 a further 774 hectares of contiguous property from Vale.

Why wasn’t Serra Pelada acquired by a larger mining concern? Wilkinson replies, “We can only surmise that a lot of the majors [who] passed viewed the de-risking of the project as challenging if not impossible. They would have considered the risks working with Coomigasp to be too great to overcome. But we’ve done that. They would have identified in the early stages that the permitting risk was too high. But we’ve overcome that. All of our permits are in place, and that’s in no small measure due to the wonderful relationship we have with Coomigasp.”

Other gold mines and gold projects globally are, I’m sure, very envious of the drill intercepts that we get. This is really and truly a unique land package —Ann Wilkinson

With construction underway and an $86-million financing completed last November, Colossus is a short step from its production target of the first half of 2013. An initial reserve estimate, however, is only expected shortly beforehand, in 1Q 2013. Wilkinson explains the tight timeline, “The challenge with Serra Pelada is that you have very high grades in very confined spaces. If you’ve got a very large-tonnage, low-grade deposit, you can reasonably predict that the grade will continue between 25- to 100-metre spaced holes. When you get much higher grades, the confidence declines because you need tighter drill spacing. If you try and model grades that vary between 15 grams per tonne and 4.7 kilos, your confidence and your statistical model rapidly breaks down. So we expect to have a reserve immediately ahead of mining. This is no different than some very high-grade deposits where the mines are in operation for a considerable number of years and never have much more than one- to three-years’ mine life outlined, because you have to drill tight enough to have the confidence to call something a reserve.”

Meanwhile the company has been releasing decidedly impressive results, with December 15 assays including

  • 44.4 g/t gold over 6.61 metres
  • 15.45 g/t gold, 4.54 g/t platinum and 7.04 g/t palladium over 74.4 metres
  • 9.5 g/t gold over 15 metres
  • 6.37 g/t gold, 20.62 g/t platinum and 19.17 g/t palladium over 7.2 metres
  • 29.64 g/t gold, 5.19 g/t platinum and 7.31 g/t palladium over 2.1 metres

September 7 assays include

  • 31.17 g/t gold, 3.02 g/t platinum and 6.78 g/t palladium over 74.4 metres
  • 57.28 g/t gold, 6.58 g/t platinum and 7.66 g/t palladium over 11.7 metres

Wilkinson quips, “How many gold-platinum-palladium deposits do you know of that run grades that look like this over the widths that are being intercepted?” A 35,000-metre surface and underground drill program for 2012 is underway.

While Serra Pelada is located in Brazil’s otherwise infrastructurally-challenged north, Wilkinson notes that Para State’s Carajas region is the exception to the rule. Vale’s nearby Carajas Mine—the world’s largest iron-ore mine—being the reason. “We’re blessed with having a very large and very influential neighbour who has invested billions of dollars in this region over the last number of years and is continuing to do so. It’s an ideal zip code to be in if you’re going to be developing a mine.”

Wilkinson concludes, “Other gold mines and gold projects globally are, I’m sure, very envious of the drill intercepts that we get. This is really and truly a unique land package. I think it’s fairly easy to calculate, based on speculation and guesstimates, that we’re considerably undervalued. It’s nice to be able to say in relative terms that we’ve been holding up better than our competitors, but I’m not sure that I like relative comparisons. The market is being kinder to us than they are to others, but there’s a good argument that our stock should be trading higher regardless of the external market environment.”

At press time, Colossus had 105.4 million shares trading at $7.18 for a market cap of $756.7 million. The company also recently acquired the Cutia property, located approximately 13 kilometres southeast of Serra Pelada.


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