April 26, 2010 / 2:20 PM / in 8 years

UPDATE 3-Greystar drops on Colombia project uncertainty

* Told by government to file new environmental study

* Says new design could severely affect Angostura project

* Stock down 41 percent; Ventana says not affected (Adds details, analyst’s comment, Ventana comment)

By Cameron French

TORONTO, April 26 (Reuters) - Shares of Greystar Resources GSL.TO plunged on Monday after the company said it had been asked to redesign its key Angostura gold project to conform to new Colombian mining regulations.

Greystar stock tumbled 41.5 percent after a brief halt to its shares, while the shares of other Canadian gold miners active in northern Colombia also hit turbulence.

Ventana Gold VEN.TO, whose La Bodega project is located next to Angostura, dropped 16 percent on the news, but then rebounded after the company said it would not be affected by the regulations. Galway Resources GWY.V, which is exploring property next to Ventana‘s, dropped 7.8 percent.

Greystar said the country’s environment ministry told the company last week that it would have to alter plans for Angostura and file a new environmental assessment conforming to regulations passed in February. The new rules forbid mining in Paramo ecosystems, which occur at high altitudes in the Andes Mountains between upper forest limits and the lower edges of the snow line.

The company, which acknowledges Angostura “impinges” on a Paramo area, said it has been told to confine development to an elevation below 3,200 metres (10,500 feet) on the property.

This would force a disruptive rethink of entire project, as nearly all of the planned infrastructure and about half of the open pit are envisioned above that altitude, the company’s chef executive, Steve Kesler, said on a conference call.

He said the order contradicts assurances the company had received in writing from the government.

“We... understood that because of Greystar’s development history, we would be considered grandfathered and that the new law would not apply to the Angostura project,” he said, noting that the company has been working on the project for 15 years.

He also questioned the 3,200-metre cutoff altitude, saying the definition of a Paramo ecosystem has “grey areas”.

Greystar will appeal the ruling, he said.


Analysts said losing the appeal could have a significant impact on the timing and scope of the project, which currently has a resource of 11.5 million ounces.

Filing a new environmental assessment would delay mining and boost costs, while a redesign could be even more problematic, said Trevor Turnbull of Scotia Capital.

“The project they propose makes the most economic sense, and modifications to that are likely to be suboptimal in terms of what Greystar is trying to achieve,” he told Reuters.

Angostura lies next to and on the same geological trend as Ventana’s La Bodega project, which has become a favorite of investors over the past year due to impressive drill results. Galway explores next to Ventana, also on the same trend.

Analysts have suggested the combined area could hold as much as 30 million ounces of gold, and see a combination of the companies or assets at some point as likely.

Ventana, one of the hottest stocks on the Toronto Stock Exchange last year, said the new regulations would not affect La Bodega, which has a maximum altitude of about 2,900 metres.

However, Ventana has had its own problems in Colombia, which has experienced a boom in mining investment as paramilitary groups have lost power under the government of President Alvaro Uribe.

Ventana is making staged payments to aquire mineral rights at the La Bodega project, and in November the local owner filed for arbitration in the hopes of reclaiming the property. That dispute has not yet been resolved.

Greystar stock was down C$2.70 at C$3.80 on the Toronto Stock Exchange on Monday. Ventana was down 37 Canadian cents at C$9.24, while Galway was down 8 Canadian cents at 95 Canadian cents.

$1=$1.00 Canadian Reporting by Cameron French, additional reporting by Bhaswati Mukhopadhyay in Bangalore, editing by Peter Galloway

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