LatAm 2003 mining wrap

It could be argued that two contrasting themes dominated Latin America's mining sector 2003. On the positive side, rising metal prices created new opportunities and a flurry of activity, especially towards the end of the year. But on the other side of the coin, two emblematic projects, El Desquite in Argentina and Tambogrande in Peru, demonstrated how community issues can increasingly make or break a project. ARGENTINA Reno-based Meridian Gold halted development of its US$100mn El Desquite gold mine near Esquel in southern Argentina after 81% of Esquel voters said in March they opposed construction - originally slated to start this year - of the 300,000oz/y project. Canada's Barrick Gold started construction late in the year of its US$455mn Veladero gold mine in the country's northwest. It is expected to produce 530,000oz/y gold over 13 years from late 2005 at direct costs of US$155/oz. Canadian Wheaton River's acquisition of a 37.5% stake in the Alumbrera gold-copper mine (12.5% from BHP Billiton and 25% from Rio Tinto) helped to boost its third quarter net earnings to US$14.7mn from US$949,000 year-on-year. CHILE State copper giant Codelco's decision to withhold 200,000t of the metal this year from the market in order to strengthen demand, with notable negative effects to its bottom-line, appeared to have paid off at year-end as prices soared to six-year highs, helped by a strike at Codelco's Andina division among other factors. Anglo-Australian miner BHP Billiton announced October the decision to end cutbacks of some 200,000t/y at its majority-owned Escondida copper mine in northern Chile from January 2004, allowing the enormous open-pit operation to meet capacity of 1.25Mt next year. Earlier, Escondida's owners gave the go-ahead to the US$400mn Escondida Norte copper project, earmarked to start production in fourth-quarter 2005 to top up mill feed from the existing Escondida operation with higher-grade ore. Environmental regulators approved the EIS for Codelco's US$600mn open-pit Gaby project, slated to produce 170,000t/y copper cathodes after a 19-month construction period. Codelco's board has yet to give the project the green light. The owners of the Cerro Casale gold-copper project - led by Vancouverite Placer Dome - announced plans to update the feasibility study by March 2004 and start talks with potential backers for the US$1.43bn open-pit mine. The boards of Canadian companies Kinross Gold and Bema Gold officially announced in December the restart of operations - from late 2004 - at their Refugio gold mine in northern Chile a rate of 230,000oz to 260,000oz/y for US$71mn. PERU Anti-mining issues topped the agenda in Peru. The government pushed a mine closure law through congress, dealing with some aspects of opposition to the industry, but struggled to come up with concrete measures to make mining contribute to sustainable development. Canada's Manhattan Minerals hit a major roadblock for its Tambogrande polymetallic project after state miner Centromin ruled in December that it failed to meet the option contract conditions. Fierce local opposition to the project obstructed legally required EIS public hearings and most likely hindered Manhattan's efforts to sign up a needed partner to comply with the requirements. Phelps Dodge's majority owned Cerro Verde copper mine launched a feasibility study on the approximately US$400mn primary sulfide project to produce around 110,000t/y copper. BHP Billiton resumed the 90,000t/y sulfide operation at its Tintaya copper mine, originally suspended in January 2002 due to weak demand. The Lima stock market launched a venture exchange in September for junior mining companies wanting to raise funds for exploration. Barrick Gold's board approved the draft feasibility study for its 7.2Moz Alto Chicama project in northwest Peru. The mine is forecast to produce 540,000oz/y at cash costs of US$135/oz over the first decade of the mine's life for capex of US$340mn. Construction start-up is slated for 1H04. London-based Monterrico Metals launched a bankable feasibility study at its Rio Blanco copper project in northern Peru, after pre-feasibility work indicated that a US$191mn mine could support about 100,000t/y copper in concentrate for the first seven years. BOLIVIA The government's plans to export natural gas sparked political turmoil and violence, in which discontented small-scale miners played an important role, leading to the resignation of Bolivian President Gonzalo Sanchez de Lozada in October. Miners are already putting pressure on new interim president Carlos Mesa, giving the government 60 days to find solutions to problems facing the sector or face demonstrations. Meanwhile, little headway was made in Bolivian state miner Comibol plans to sell off some of the country's mining assets, including El Mutun iron ore deposit. ECUADOR The year showed a slow but steady increase in exploration interest in Ecuador, boosted by greater political stability and a reformed mining law. Community issues, however, remain a potential dark cloud on the horizon. Vancouver-based Corriente Resources launched a feasibility study at its Mirador copper-gold project in October, due for completion mid-2004, while Arizona-based junior International Minerals started feasibility work at its Rio Blanco gold-silver project. COLOMBIA Colombia's government spent much of the year reorganizing the state mining sector to increase competitiveness, improve mining data and establish stable rules of the game for investors. It wound up state coal company Carbocol and, likewise, intends to dissolve state mining company Minercol and merge the two agencies into a single entity. Canada's Greystar Resources raised US$15.4mn to start a three-phase, 65,000m exploration drill program at its Angostura gold property to take the project to feasibility stage. VENEZUELA Despite Venezuela's continued unstable political situation, and the threat of mining concessions being withdrawn under a government review, some important projects made significant ground over the year. A feasibility study for Toronto-based Crystallex International's 10.2Moz Las Cristinas gold project estimated average production of 266,000oz/y gold for 34 years at total cash costs of US$196/oz, based on a 20,000t/d operation, for capex of US$243mn. Crystallex is now considering expanding the operation to 40,000t/d. A bankable feasibility study for Toronto-based Bolivar Gold's Choco 10 property showed average production of 125,000oz/y gold over 6.5 years at total cash costs of US$146/oz for capex of US$38.6mn. Mill commissioning is earmarked for September 2004. BRAZIL Brazilian giant CVRD planned to invest US$1.8bn in 2003 in its diverse mining, logistics and electric power generation operations, the largest amount the company has ever committed in a single year. Of this, US$575mn was to go into CVRD's ferrous division including iron ore and manganese production, and US$353mn for the company's copper projects in northern Brazil. Later in the year, CVRD said it would accelerate investment of US$1.5bn in iron ore expansion projects, originally planned for 2005, to next year to keep up with demand from China. CVRD forecasts output of 160Mt this year, with an additional 15Mt in 2004 and 200Mt in 2005. It also upped estimated investment in its copper projects by US$700mn to US$3.3bn. CVRD is developing five copper mines to produce a total of 690,000t/y of the red metal when they are all in operation by 2007. CVRD paid Japan's Mitsui US$426mn for its stake in iron ore miner Caemi, to give it 100% of Caemi's common shares and 40% of its preferred stock. In a parallel transaction, Mitsui paid US$830mn for a 15% stake in Valepar, CVRD's leading shareholder, from the equity arm of Brazil's Bradesco bank and Previ pension fund manager. Canada's Kinross Gold obtained gold assets in Brazil following the merger with fellow Canadians TVX Gold, the former owner of the Brazilian portfolio, and Echo Bay Mines, which helped boost its third quarter production by 91% to 434,816oz gold. Also on the M&A front, Canadian but Brazil-focused miner Jaguar Mining merged with fellow Canadian Rainbow Gold. Jaguar is developing the Sabara gold project in southeast Brazil's Minas Gerais state. Canada's Diagem began mining operations in mid-August at its Fazenda Chicoria diamond property, also in Minas Gerais. The current aim is to achieve production of 5,000 carats/month. A feasibility study on Toronto-based Desert Sun's Jacobina gold mines in Bahia state estimated production of 102,500oz/y gold at cash costs of US$189/oz beginning in 2005 for capex of US$33.9mn. The region's largest long steelmaker, Brazilian company Gerdau, announced plans to buy the iron ore assets of Paraibuna Metais, a zinc-producing subsidiary of local group Votorantim, for US$30mn. MEXICO The country's mining-metals giant Grupo Mexico completed a lengthy and complex financial restructuring, including US$879mn with institutional investors and creditor banks of its subsidiary, Grupo Minero Mexico (GMM). Later in the year, G-Mex raised 2.75bn pesos (US$246mn) by issuing equity to strengthen its financial structure, including honoring debt obligations. Canada's Alamos Minerals and National Gold merged to form Alamos Gold, focused on development of the Salamandra gold property in northern Mexico's Sonora state. Reno-based Glamis Gold started construction of its US$91mn El Sauzal gold mine in northern Chihuahua state, on track to be commissioned late-2004 with commercial production of 190,000oz/y at total cash costs of US$110/oz starting in 1Q05. Silver-focused Industrias Penoles reported plans to invest US$180mn to develop the Milpillas copper project in Sonora state with production estimated at 60,000t/y cathodes starting in 2005. Canadian Pan American Silver completed its US$20mn oxide expansion project at La Colorada silver mine under budget in July. Canada's Wheaton River Minerals paid US$87mn cash for the advanced Los Filos gold deposit, a 21.2% interest in the El Limon gold deposit and the operating, but relatively small, Nukay gold mine. Coeur d'Alene-based Hecla Mining started initial production from San Sebastian silver mine's gold-rich Don Sergio vein, earlier than expected and under budget. Don Sergio is expected to produce 30,000oz/y gold for two years. CENTRAL AMERICA AND THE CARIBBEAN Canadian miners Glencairn Gold and Black Hawk Mining, which has the El Limon mine in Nicaragua, merged to form what they called a major Central American-focused company. At the end of the year, Glencairn Gold kicked off construction of its US$26mn Bellavista gold project in Costa Rica, slated to produce 60,000oz/y at US$163/oz starting end-2004. Finally, Quebec-based Cambior and Ariane Gold also merged, consolidating operations in the Guyana Shield. Cambior started construction of its US$95mn Rosebel gold project in Suriname, which is forecast to produce 270,000oz in its first year at a mine operating cost of US$157/oz from early 2004.