July 3, 2008 / 4:43 PM / 11 years ago

UPDATE 2-Pacific Rim stops Salvador drilling, stock drops

(Adds analyst comment, updates shares to close)

By Cameron French

TORONTO, July 3 (Reuters) - Pacific Rim Mining PMU.TO has cut its work force and suspended drilling in El Salvador due to frustration over a lengthy permitting process for its El Dorado gold mine, the Canadian company said on Thursday, sending its stock down by 34 percent.

However, the company will not abandon the assets and has ruled out selling them, Chief Executive Thomas Shrake said in an interview.

El Dorado “is a very attractive mine, high margin, environmentally solid, and the other projects that we have just have extremely high odds of success,” he said.

In addition to El Dorado, Pacific Rim owns the Santa Rita and Zamora gold projects in the Central American country. It also owns a 49 percent interest in the Denton-Rawhide gold mine in Nevada, as well as the Carrera and Colina gold projects in Chile.

Pacific Rim’s shares fell 27 Canadian cents to 52 Canadian cents on the Toronto Stock Exchange.

El Dorado, which has measured and indicated resources of 1.1 million ounces, would represent the first new precious metals mine in the country in 70 years, Pacific Rim said.

The company started the permitting process in 2004 but it became bogged down in 2006. Shrake attributed the delays in part to the government’s concerns about potential public opposition because of the environmental impact of mining.

“I think the real issue here is politics,” said Shrake.

“They have no technical issues. The mine we’ve designed would probably be the single most advanced environmental designed mine of its kind anywhere in the Americas.”

With little movement, the company decided to halt drilling and slow its exploration activities until it gets some indication of movement on the part of the government, he said.

John Hayes, an analyst at BMO Capital Markets, said that as the first modern mine in El Salvador is decades, El Dorado’s development has implications for how the country is seen as a target for mining investment.

“The thing we’ll look for is what kind of response this gets from the government and whether they realize that you can’t expect people to invest if they don’t have some certainty of an outcome,” he said.

Pacific Rim, which has spent about $77 million to date on gold exploration an development in El Salvador, will continue to try and secure a mining permit through diplomatic efforts and pursue its rights in the matter.

In the meantime, it will shift its exploration efforts to Costa Rica and Guatemala, which the company said in a statement were geologically similar to El Salvador, but “more politically stable for mining investment.”

The company has has laid off 42 employees in El Salvador and could lay off more of its remaining 225 employees if the issue isn’t resolved soon, it said.

$1=$1.02 Canadian Reporting by =Cameron French; Editing by Frank McGurty

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