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Eco Oro waiting on Colombian ‘moment of truth’ to develop gold project

7th August 2013

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – Colombia-focused project developer Eco Oro Minerals is eagerly awaiting a decision by the Colombian government defining the boundaries of the Páramo of Santurbán, a newly proclaimed wilderness area that could potentially impact on the company’s operations at its flagship multimillion-ounce Angostura project, president and CEO João Carrêlo told Mining Weekly Online this week.

Carrêlo said that despite mining being declared by President Juan Manuel Santos Calderón one of the main ‘locomotives’ of the Colombian economy, and despite a flurry of exploration projects taking place in the country, it seemed as if mining was failing to prosper in recent times, as the industry had not seen a significant medium- to large-scale operation move from the exploration phase to construction or production in over 20 years.

The country is richly endowed with minerals, including coal, oil and natural gas, emeralds, gold and nickel, which today made up an increasing part of the country’s gross domestic product. However, should the Colombian authorities’ indecision persist, this positive trend could be detrimentally affected.

Environment authorities at the start of the year declared a wilderness park, but without coordinates, sparking a great deal of speculation as to whether the park would detrimentally affect the Angostura project. On January 17, the authorities declared the Saturban park with coordinates, when the company first became aware that the project would be impacted.

Eco Oro, formerly known as Greystar Resources, had until 2011, received support from communities close to the project (Soto Norte) but faced opposition from local authorities in Santander province as well as from environmental groups, despite having been active in the country during the past 18 years.

Carrêlo said that up until about March 2011, the project was intended to be a mega-openpit operation, however leading up to that time, a combination of misinformation by environmentalists and the local political arena had created a political storm surrounding the project.

This had resulted in a board shakeup and the new management had to return to the drawing board and fundamentally change its approach to the multimillion-ounce project, this time opting to go underground.

A preliminary economic assessment (PEA) study completed on the project in March 2012, had estimated the project to hold 2.7-million recoverable ounces of gold equivalent comprising 90% gold. The PEA called for an average yearly production of 269 000 oz of gold equivalent at a rate of 6 000 t/d and would have a ten-year mine life.

Cash costs per ounce were just shy of $500/oz, including silver by-product credits, and the initial capital cost were estimated to be $529-million. The project’s net present value, assuming a gold price of $1 200/oz, and using a 5% discount rate, was estimated at $334.5-million and the internal rate of return would be 14.8%. Payback would be in 5.5 years.

The Angostura deposit covers a total area of 215 ha of which 193 ha, or 90%, falls outside of the surface boundaries of the park. Of the previously disclosed mineral resources for the deposit, about three-million ounces of gold equivalent, or 89%, of the indicated resources, and 2.3-million ounces of gold equivalent, or 96%, of the inferred resources, fell outside the surface boundaries of the park.

PROJECT IN LIMBO

However, despite the compelling metrics for a significant new gold mine in Colombia, Eco Oro had suspended work on a prefeasibility study (PFS) until government could provide more clarity on the exact páramo boundaries.

Early in July, Eco Oro said it would implement cost-reduction initiatives to protect the company's treasury, while it worked with the Colombian authorities to obtain a favourable resolution of the matter.

Carrêlo said that to this end, the company had provided the corresponding authorities with all information necessary to enable the Environment and Sustainable Development Ministry to define any ecosystems that might exist in and around the company's project.

Eco Oro had engaged Colombian firm Ecodes Ingenieria to conduct an ecosystem biodiversity and socioeconomic study “to a degree of detail not previous undertaken in Colombia”. The study concluded that páramo did not exist in the area of the Angostura deposit, and both the study and its conclusions were discussed extensively with the relevant authorities.

The purpose of the Ecodes report, which covered an area of 600 ha surrounding the Angostura deposit, was to have a thorough understanding of the conservation status of biodiversity of ecosystems in the company's area of influence, Carrêlo said.

The study was commissioned by Eco Oro in early 2012 and comprised a team of specialists in areas ranging from biology, ecology of ecosystems, ecological restoration and hydrology, to climatology, edaphology, ecological modelling, and social and economic sciences.

"The company believes that the Ecodes study provides the authorities with a robust analysis of the state of conservation of biodiversity and expects that these findings will assist them in delineating the ultimate boundaries of the Santurban páramo. The study supports our view that the Angostura deposit is not located in páramo,” Carrêlo said.

However, the company was still awaiting a formal decision regarding the páramo delineation.

In the meantime, the company had determined to defer all discretionary spending on the project until the boundaries of the páramo in relation to the Angostura project were formally declared. This included suspending work on technical activities, including completing the PFS. Carrêlo said the company planned to maintain its environmental and security programmes at Angostura and all permits would be kept in good standing.

Further, the company would also reduce general and administrative expenses in both Canada and Colombia, through reducing employees and consultant costs, reducing travel and marketing costs, and limiting discretionary expenditures.

The nonexecutive members of the board had also taken a fee reduction.

Carrêlo said the company's cash position would be managed prudently while management sought out other opportunities, within Colombia and elsewhere, to diversify the company's portfolio of assets.

"We look forward to the day that the authorities accept the conclusions in the Ecodes study and Eco Oro can proceed with developing the Angostura project and providing the associated benefits for all our stakeholders, including the people of Santander and all Colombians,” Carrêlo said.

Meanwhile, Colombian authorities at the end of July declared the Angostura project a “project of national interest”.

The company said it had received Resolution 000592 of June 19, from Colombia's national mining agency, declaring it one of four gold mining companies holding mining titles of national interest.

"We are pleased that the Colombian mining authorities have confirmed that the Angostura project is of national interest. We continue to be committed to this project and to work to demonstrate to all stakeholders in Colombia that Eco Oro can develop the Angostura project in a responsible and sustainable manner,” Carrêlo said.

Edited by Creamer Media Reporter

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