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Week in review

October 5th, 2012

A mining and exploration retrospect for September 29 to October 5, 2012

by Greg Klein

So much for the environmental review

Monday’s news from British Columbia indicates another level of uncertainty has hit the province’s mining sector. Two B.C. cabinet ministers refused an environmental assessment certificate for Pacific Booker Minerals TSXV:BKM, even though the company passed a provincial environmental review. As a result, the half-billion-dollar Morrison copper-gold-molybdenum proposal has been put on hold.

A new development at the provincial level, it does have similarities to a federal decision to reject Taseko Mines’ TSX:TKO Prosperity gold-copper mine proposal for B.C. A November 2010 report from the Canadian Environmental Assessment Authority convinced the federal government to reject the $800-million proposal. The three-member CEAA panel found few significant adverse environmental effects but emphasized significant adverse effects on established native rights, potential rights, potential title, tradition and culture.

Mining and exploration week in review

Now B.C. has taken a comparable approach, although the supposedly “environmental” arguments come from politicians, not the people who conducted the environmental review. In fact the provincial review repeatedly stated that, with successful implementation of mitigation measures and conditions, the Morrison mine is “not likely to have significant adverse effects.”

Nevertheless Derek Sturko, who’s both executive director of B.C.’s Environmental Assessment Office and an associate deputy minister of the environment, seemed to reject his own department’s 270-page report. He suggested instead that the government take a “risk/benefit approach.” Sturko also emphasized strong native opposition and a “moderate to strong prima facie case for aboriginal title.” On that basis, two cabinet ministers representing mining and the environment nixed the proposal.

The decision might be related to the pre-election BC Liberal government’s prevaricating but currently negative stance towards the proposed Northern Gateway pipeline. But the province’s decision, like the federal decision regarding Taseko, also raises the question of whether native rights are handled according to the principle of law or appeasement.

Taseko submitted a revised $1.1-billion New Prosperity proposal to the feds on September 20. On Tuesday Business in Vancouver cited analysts, for some reason speaking anonymously, who said Taseko’s $300-million revision remains viable despite a drop in copper prices. But “with a large question mark as to whether the federal government will approve the project on a second go-round, they’re currently ascribing no value to the project in their target stock prices for the company,” BIV reported.

On Tuesday Pacific Booker Director Erik Tornquist told ResourceClips his company is reviewing its options.

Confiscation without compensation

If miners haven’t given up on B.C., it might be a case of the devil they know. Wednesday’s announcement that the Bolivian government would not provide compensation for nationalizing the Malku Khota Project followed months of uncertainty for South American Silver TSX:SAC. Since 2007, the company had spent over $16 million building a resource of 158 million ounces silver and 1,184 tonnes indium with lead, zinc and copper credits.

The company claimed the support of 43 out of 46 land-owning indigenous groups. SAC blamed illegal artisanal miners and activists from outside the region for intense opposition from the three dissident communities.

But last May, the company said, Mining Minister Mario Virreira signed an agreement with the 43 supportive groups stating that the government will not reverse the mining concession and that the company should continue exploration.

Protests turned violent in June, with one death and several injuries. Later that month seven people were taken hostage, including three drill contractors, two SAC employees, a government prosecutor and a police officer. The final three hostages were released unharmed after 11 days, when the government decreed that it would nationalize Malku Khota.

Reuters quoted a confident-sounding Vice-President Alvaro Garcia saying, “If we have to invest $500 million or $700 million or even $1 billion for a large-scale project at Malku Khota, which benefits Bolivia, the state is prepared and has the capacity to do that.”

At the time he added that government might pay compensation of $2 million or $3 million. Then came Wednesday’s decree. In an Agence France-Presse dispatch printed in the Globe and Mail, Virreira stated, “The nation has no financial obligation to South American Silver.”

By press time South American hadn’t responded. In an August 2 statement Greg Johnson, then the company’s president/CEO, said the company is prepared to go to international arbitration.

But, as Financial Times correspondent Andres Schipani pointed out, “Getting fair compensation, or any for that matter, from Bolivia has proved tricky since 2007. A year after [President Evo] Morales took office, the Andean country pulled out of the World Bank body that conducts arbitration between businesses and governments …”

Schipani noted other troubled nationalizations in Bolivia, including the Colquiri tin mine taken from Glencore in June. The government rationalized the move by saying it could then end disputes between independent and unionized miners. But the conflict flared up again with more violent clashes which shut down operations. On September 14 Reuters quoted Hector Cordova, president of the state-owned mining company, who said, “We’re losing more than $250,000 per day through lost production and this has been going on for two weeks. That means an accumulated loss of almost $4 million.”

Last Sunday the government said it solved the dispute by dividing the mine’s richest vein between the rival groups.

Friends and foes in the Kyrgyz Republic

On Friday three Kyrgyzstan MPs faced criminal charges while political unrest focused on Centerra Gold’s TSX:CG Kumtor Gold Mine. Prosecutors say the three attempted to overthrow the government by leading a mob that stormed the parliament building on Wednesday, Reuters reported. The incident grew out of a protest demanding that Kumtor be nationalized.

Violence has turfed previous Kyrgyzstan governments in 2005 and 2010. Last June a motion to nationalize Kumtor failed to pass parliament but MPs did pass a motion to consider increasing the country’s 33% stake in the Centerra subsidiary that owns the mine, as well as redefining the concession and boosting taxes.

But reassuring news came on Monday when Kyrgyzstan’s new president Zhantoro Satybaldiyev declared, “Kumtor will not be nationalized.” He told Reuters, “Problems will be resolved. I asked [the Kumtor venture] to keep up its output.” He added, “The way they extract gold, it’s really a state-of-the-art job. To be honest, I am jealous of their skills.”

The news agency pointed out, however, that the government had cancelled a televised auction of mining licences on August 28 after protesters stormed the TV studio.

Kumtor produced 583,156 gold ounces in 2011 at $482 an ounce. But in August the company blamed its $54.6-million Q2 loss largely on Kumtor’s “abnormal mining costs.”

Last September Kyrgyzstan ordered Stans Energy Corp TSXV:HRE to suspend drilling at its Kutessay II REE Deposit. According to the company, the government wanted “a firm proposal for the gratuitous transfer of a percentage of ownership” of a company subsidiary to the state. The stop-work order ended as the company met with Satybaldiyev and Economic Minister Temir Sariev.

In a statement issued Monday, Stans quoted Sariev saying, “Our state does not have the necessary financial and technical resources for the development of deposits and we have, so far, no such specialists. Development of the mining industry of our country at this stage is only possible by attracting investment. And the investors will come to our country when they will be confident in the safety of their financial investments.”

South Africa: A tragic outcome from a positive move?

Another striking miner was killed in South Africa Thursday night. On Friday Anglo-American Platinum fired 12,000 strikers. A Reuters dispatch in the Globe and Mail stated, “When rival Impala Platinum fired 17,000 workers in January to squash a union turf war, it led to a six-week stoppage in which three people were killed, the company lost 80,000 ounces in output and platinum prices jumped 21%.”

One disturbing aspect of the crisis is that a generous pay hike in a poor country can cause so much controversy. In last month’s “Lonmin settlement,” the platinum producer raised miners’ wages between 11% and 22%. Nic Borain, described as “an independent political analyst,” told Reuters, “Amplats had been giving signals that it was going to hold the line after Lonmin had folded—but it’s a huge gamble. Someone had to take it on the chin or this would have kept on unravelling and spread through the economy. It’s difficult to know whether this causes the unrest to spread or whether it takes some of the sting out of it. It could go either way.”