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“I’m not exactly sure what to think,” he confesses. “As recently as May 28, the Mines Ministry acknowledged that our concessions were valid and that the people that lived in the community wanted the project to move forward. A little more than a month later, you had another arm of government, the Labour Ministry, signing an agreement to release the hostages and asking for our concessions to be cancelled. It seems that Bolivia has a divided government, and it is unclear to us why they’ve taken action as drastic as stating their intent to remove our ownership.”
Three weeks after the pronouncement of President Morales, SAC has received no formal notice of expropriation. Johnson says, “Our understanding is that there is some kind of draft decree that is being worked on. Perhaps because there’s been a lot of negative response, this hasn’t yet been approved. We’ve been attempting to engage various levels of government in an alternative pathway towards negotiation and dialogue.
“Our position has always been that was needed was some kind of third-party independent mediator between the indigenous communities to try and bring them all together. This makes more sense than cancelling our license. This is a private project that’s never had government involvement. It was discovered and advanced by us, and it’s a fairly complex orebody.”
Johnson explains that it is by no means certain that the Bolivian government could exploit Malku Khota properly should they seize it. “It is low grade and would require openpit mining and specialized processing technology, which is not really something the government mining company is familiar with. Optimal development requires a proprietary leach process that can recover precious metals and the indium, gallium and base metals, which is something we’ve been working on for four years with researchers from [the University of British Columbia], and we’ve taken that process to patent.”
South America is no stranger to expropriation. Johnson comments, “There are a few companies in Venezuela that lost the only asset they had, and often they didn’t have any money. When they were nationalized, the market pretty much took those companies to zero value.”
After the events of early July, SAC‘s share price fell from over $1 to under 40 cents. Although the loss of Malku Khota would be a crushing blow, it would not be the end of the company. “In our case,” Johnson explains “we’ve got a second asset in Chile, [Escalones], and it’s a 4-billion pound copper resource with 600,000 ounces of gold. We are well financed and have over $30 million in the treasury. On this point, if you look at a company like Gold Reserve Inc TSXV:GRZ, which had a similarly sized gold asset in nationalized in Venezuela, they traded down to around 50 cents. But as they moved through the various hearings on jurisdiction their market cap has actually come back to about $225 million, even though their only asset is their international arbitration case.”
It seems that Bolivia has a divided government, and it is unclear to us why they’ve taken action as drastic as stating their intent to remove our ownership —Greg Johnson
Johnson, of course, doesn’t want it to come to that. “Sumitomo’s San Cristóbal Mine, the third-largest silver mine and sixth-largest zinc mine in the world, was the model for us: 100% privately owned, a large-scale openpit operation. What’s happened to us seems to suggest that some elements of the Bolivian government desire a much-higher degree of State control even over private assets. Other elements, we understand, are opposed to this and have been trying to move towards a more progressive model, one that recognizes the need for foreign private investment.”
Johnson points out that SAC has spent $33 million over the years on developing Malku Khota, and much of this money has benefitted Bolivia. “This is an area that’s relatively undeveloped, so there aren’t a lot of businesses there. So most of our work with the local people has been direct employment: in the drilling work, building roads, with workers in the camp and training for environmental and geotechnical work. It’s been pretty significant in terms of the overall investment locally.
“Our idea in our support agreements was to work with the indigenous people to develop business capacity, job training and educational opportunities. And as the project advanced from stage to stage, we’d see the level of local involvement in business supporting the project increase over time. In developing projects in Alaska and British Columbia I’ve seen that where you find one mine in a region you’ll probably find others. So if you bring in local people as the workforce, they later become management, and then ultimately they own their own businesses. Then they can build a sustainable model for mining development in the entire region.
“An example would be environmental services. This might start out as a joint venture where all the environmental projects done in that region are done with that company. Then you require that contractors use local labour, and as they become more skilled they’re promoted to drillers and foremen. We’ve seen that over a period of three to five years you get to the point of completely locally owned businesses.”
Johnson concludes, “We think that SAC is very much the right company to develop Malku Khota. We are a socially inclusive and socially responsible company committed to expanding the economy of Bolivia and improving the lives of its indigenous people. Our people have demonstrated this with our work with First Nations in Canada and native corporations in Alaska.”
It is rumoured that President Morales may announce his Malku Khota decision on August 6, Bolivian Independence Day.
At press time, South American Silver had 114.8 million shares trading at $0.39 for a market cap of $44.8 million.
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