VANCOUVER, B.C. - Greystar Resources Ltd. shares plunged Monday after the Canadian mining company warned that its flagship Angostura project is now in doubt because of sweeping changes being sought by Colombia's environment ministry.
By midday, the Vancouver-based company's shares (TSX:GSL) were down $2.80 or about 43 per cent at $3.69 on volume of more than 5.4 million shares, making Greystar one of the active issues on the Toronto Stock Exchange.
Greystar says Colombia's Ministry of the Environment, Housing and Territorial Development (MAVDT) wants the new environmental study that assumes the open pit mining project would occupy an area below 3,200 metres of elevation because of its location on the fringes of an environmentally sensitive area.
That would be a problem for Greystar since almost all of the project's infrastructure and half the proposed open-pit gold and silver mine would be above 3,200 metres, the company said in a news release..
"MAVDT's request would require the Angostura project to be completely redesigned," including identifying and acquiring new land positions to house displaced facilities and initiating new environmental baseline studies, Greystar said.
"At this juncture, the company has not had the opportunity to determine the feasibility of redesigning the Angostura project to comply with MAVDT's request," it said.
"However, this requirement will severely impact the project schedule and may have a material effect on its economic viability."
Greystar president and CEO Steve Kesler told a conference call with analysts that company was surprised when it learned of ruling by MAVDT ruling on Friday.
Kesler and other Greystar executives said the company had been working closely with Colombian officials and expected its project would be exempt from some provisions of the new law announced in February.
"It's a complex problem of definition" over just where sensitive environmental areas overlap with traditional mining areas, Kesler said.
He said the project, which he described as "one of the largest gold projects in development in the world" also enjoys "exceptionally strong support from local communities around the mine"
Executive vice-president Frederick Felder said that in discussions with the ministry back in the summer the company was told it would only be marginally affected by the new law.
"As to what we have in terms of guarantees, we actually have a written letter from the ministry saying that they understand Greystar's situation and will deal with it in an appropriate manner so that Greystar would not be affected by this change of law, ..." he said.
The company has five days to appeal the administrative decision and Kessler said it planned to file such an appeal by this Thursday. The MAVDT would then have 15 working days to respond.
"Our view is that decisions on how a project moves ahead should be taken on a much wider view incorporating both environmental, social, economic and security issues and not pure technical, legal interpretation, particularly where there is a lack of definition as to what is (and) where is Paramo, sub-Paramo,..." Kesler said.
The project, as envisaged before Monday's announcement, was expected to cost US$1 billion to build and US$3 billion to operate over a 15-year mine life. Greystar said it has spent more the $135 million so far and was in the process of securing US$650 million in financing for the project.
A prefeasibility study announced in March 2009 envisaged average annual production at Angostura of 511,000 ounces of gold and 2.3 million ounces of silver over a 15 year mine life.
The original environmental impact assessment was filed in December, before Colombia's mining code was modified in February.
The new code excludes mining from the Paramo ecosystem, which Greystar describes as an area with "glacier formed valleys and plains with lakes, peat bogs and wet and dry grasslands intermingled with shrub lands and forest patches."
"While the definition of Paramo is determined by fauna, flora and other ecological categories, it is also defined by elevation," Greystar said.
Another Canadian mining company, Vancouver-based Ventana Gold Corp. (TSX:VEN), said Monday that its La Bodega project is not affected by the new mining company.
"The highest point on our La Bodega property is about 2,900 metres. Further, La Bodega is operating under an approved environmental management plan," Venta president and CEO Steve Orr said in a statement.
Venta shares traded Monday at $9.15, down 46 cents or 4.8 per cent, on the Toronto Stock Exchange at mid-afternoon.