Canadian company defers gold mine study over market instability

Canadian mining company Sandspring Resources Inc has put off completing a feasibility study for its proposed large-scale gold mine at Toroparu, Upper Puruni River as a result of uncertainty in the gold market.

The company’s Toroparu Gold Project in Region Seven was one of three large-scale mines including Troy Resources Limited and Guyana Goldfields who were set to open mines and begin gold production this year. Troy Resources and Guyana Goldfields have moved ahead with their plans and are set to begin production this year. Sandspring, however, earlier this week cited the uncertainty in the gold market and challenges in raising capital for the deferral of its feasibility study.

In a statement, the company said that it is undertaking a series of steps to enhance its ability to move forward while responding to the extended period of volatility and uncertainty in the gold market and the challenges in raising equity capital that continue to face junior developers.

Sandspring said that it has completed all field and design engineering work required for the feasibility study for its Toroparu Gold Project. However, the company has elected to defer the additional expenditures required to complete the final stages of the Toroparu Gold Project feasibility study such as value engineering and optimization studies.

Under an agreement for part financing from Silver Wheaton amounting to US$148 million, Sandspring has until December 31, 2015 to deliver a definitive feasibility study and other related documents to Silver Wheaton, at which time Silver Wheaton may elect to proceed with the agreement.

“I am pleased that we have completed this extensive amount of work within the projected timeframes. However, because the Early Deposit Agreement allows us until the end of 2015 to deliver the actual feasibility report, we have chosen to reduce our overall expenditures now and be better positioned to take advantage of future improvements in the gold and equity markets. We are prepared to take the necessary steps to ensure a timely delivery of the report,” Chief Executive Officer (CEO) Rich Munson was quoted as saying.

Poised

In his budget 2014 presentation, Minister of Finance Dr. Ashni Singh had said that the ETK/Sandspring project was poised for further developmental works geared to production start up by 2015. The authorities were also processing an application by Sandspring for a Mineral Licence. The company had said that it wants to produce 228,000 ounces of gold per annum from its proposed Toroparu Gold Project. It had envisioned beginning production this year but that is not going to happen now.

In 2012, the Environmental Protection Agency granted an environmental permit for the development, construction and operation of a large-scale gold mine at Toroparu. In an updated pre-feasibility study for the Toroparu Gold Project in 2013, the company said that the results revealed an initial mine development of 4.1 million ounces of gold mineral reserves with a good production profile and bright economic outlook.

It added that the capital and operating cost estimates are US$501 million for capital expenditure and US$954 million over the 16-year life of the mine. In a presentation to investors at the time, the company had noted that it is construction ready and had a fiscal stability agreement and environmental permit in place while a Memorandum of Understanding was granted for development of a hydroelectric facility.

In April 2013, government and CM Power Company, a subsidiary of Sandspring Resources/ETK Inc, inked a MOU for a feasibility study for construction of a hydropower plant at the Kumarau Falls on the Kurupung River. Prime Minister Samuel Hinds had said that the MOU gives CM the exclusivity to continue studying the site to develop plans to the point of going into construction.

 Small-scale mining

Meantime, the company has also announced that it will re-establish its small-scale mining division.

“Our Guyana subsidiary, ETK Inc. conducted small-scale mining operations from 2004 to 2009 until the discovery of the hard rock deposit at Toroparu. The historical small-scale mining operation produced approximately 4,000 to 4,500 ounces of gold per year. The initial areas targeted for mining are permitted, the basic exploration has been completed and we expect to achieve at least historical production levels,” Munson was quoted as saying

The small-scale mining operation will be operated via a newly formed joint venture between ETK and Guyana Ventures LLC. Guyana Ventures will acquire, subject to certain conditions, from ETK 50% of its interest in a property adjoining the Toroparu Gold Project. There has been exploration work conducted on the property but the company also considers the area to be prospective for the recovery of alluvial gold with a small-scale alluvial mining operation.

Guyana Ventures acquired its position in the joint venture in exchange for a US$500,000 nonrefundable cash deposit. This amount is approximately equal to ETK’s out-of pocket acquisition expenditures on the property to date. ETK will contribute equipment to the operations but is not obligated to provide any funding to the operation for the first two years. Thereafter, ETK and Guyana Ventures shall contribute funds necessary for operations in an amount equal to its then ownership percentage of the joint venture.

Profits from the operation will be distributed on a priority basis to Guyana Ventures until Guyana Ventures has received distributions equal to three times the cash deposit. Thereafter, the profits shall be utilized to fund further exploration activity on the property unless ETK and Guyana Ventures mutually agree to distribute some or all of the profits to each of them.

It was also announced that Yani Roditis is leaving his position as President and Chief Operating Officer to pursue other opportunities. “The completion of all the field and design engineering work is a major milestone for the Toroparu Project,” he commented. “I am pleased to have led the move in advancing the feasibility work to a higher level of accuracy, further de-risking the project. I have elected to relinquish my formal position in the company and make myself available to assist Sandspring on a consulting basis as they take the next steps in the feasibility process and in their efforts to secure an operating partner for development of the project as market conditions improve,” he added.

“Yani has done a tremendous job in completing this phase of the feasibility work within budget and on schedule. We are greatly appreciative of Yani’s contribution and we look forward to being able to utilize his significant skills on a consulting basis as we continue our efforts,” Munson said.

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