Greystar blindsided by new environmental rules at Angostura

Steve Kesler hardly had time to get comfortable in his new chief executive’s chair before finding himself in the midst of a historic problem.

Kesler took over the reins at Greystar Resources (GSL-T) on Apr. 8 and just two weeks later the Colombian Ministry of the Environment, Housing and Territorial Development (MAVDT) unexpectedly imposed a regulation on the company’s Angostura gold project which could threaten its very existence.

The regulation has to do with the protection of a high altitude ecosystem known as the Paramo, which is important to the country’s watershed.

And while Greystar was well aware that Angostura is, in part, in the Paramo, it was counting on both a different definition of what constitutes the zone and a grandfather clause promised by the Ministry of Mines, to protect it from the regulation.

“At the end of last week we were surprised to receive a letter from the ministry saying that it was returning our EIAS with a request for a new one conforming to the new law with all mining occurring outside of the Paramo, below 3,200 metres,” Kesler said on a conference call.

The news is particularly harsh given the amount of time that Greystar has put in to the project. The company has been developing Angostura for past the past 15 years – time in which it had to endure a takeover of the Angostura site by the guerilla outfit FARC and all the investor skepticism that went with trying to build a mine in Colombia.

And while it seemed to be beyond the most difficult hurdles — it planned to have its definitive feasibility study finished by the end of this year – having to go back to do another Environmental Impact Assessment Study (EIAS) on a project below the 3,200 metres is a game changer.

Analysts on the conference call wondered whether such a lower altitude project could be economically viable in any scenario.

Kesler said it was too early to say, but that should the regulation stand the company would have to examine other options.

Clearly that is a road down which the company would rather not travel, but right now all it has to rely on is the government’s former pro-business reputation.

“The government of Colombia is keen to see mining development but on the other side it wants the Paramo protected,” he said. “We want to demonstrate that you can successfully develop a mine and recognize the sensitivity of the area and then rehabilitate it once all mining is done.”

Kesler called the drive to protect the Paramo “legitimate” but said the region was already protected under the mining code of 2001.

“It is a requirement of the mining code that companies wanting to develop in Paramo must protect and minimize their impact,” he said.

The latest regulation comes out of a revision to the 2001 mining code that was passed in February of this year.

And while everyone agrees that, broadly speaking, the Paramo deserves special attention, the precise definitions as to what zones qualify as Paramo is causing some confusion.

Currently the ecosystem is broken down into the Paramo and sub-Paramo zone, with the Paramo proper zone beginning at roughly the 3,800 metre level, while the sub-zone begins at the 3,200 metre level.

The ministry’s latest edict classifies the sub-zone as part of the Paramo zone proper.

Another cause for confusion and frustration from Greystar’s point of view is that Angostura is by no means on a rich, virgin Paramo zone.

To begin with, the area where the company operates – which covers just 0.4% of Colombia’s Paramo — is a dryer zone that has less vegetation than other areas. Additionally the area has been scarred by artisanal mining and farming that has reached up to the 3,700 metre level.

Under Greystar’s plan the company would have rehabilitated the zones that had been damaged by such activities.

“The work we’ve done on the environmental side has been very thorough,” Kesler said. “Even though we’d be infringing on the Paramo, it is a very small area compared to greater Paramo and we have within our rehabilitation a plan on how to restore it, post-mining, back to its (original) condition.”

And while Kesler said the company had not been given any information as to how the ministry arrived at its current position, he says it was told that the grandfather clause was removed at the last minute.

Greystar’s next step is to file an appeal, which it says it will do on Thursday. The ministry then has 15 working days to consider whether it wants to modify its original resolution.

“We will work actively and go through the appeal process and get the result for the project to proceed in its present form. That is the intention,” Kesler said.

He went on to say that the company will make its case based on the broader economic and social benefits the project will bring to the region as well as arguing on technical, environmental and legal grounds.

If nothing changes, however, then Greystar would have to examine major project structure and design changes.

“There’s the underground option, the smaller project option, or we could utilize areas away from site, but those have environmental and economic impacts,” he cautioned, “and we don’t know if it would be a viable project.”

And while the Alexander Von Humboldt Biological Resources Research Institute has played a key role in defining Paramo, executive vice-president Fred Felder clarified that the institute doesn’t provide parameters on the biological basis on which the area is defined – that job falls to the local environmental authorities.

Greystar was already grappling with local environmental authorities over such a definition, but the line being debated was the 3,500 metre level.

So when the company received notification that it would subjugated to the 3,200 metre level it was doubly shocked.

“Even at 3,500 metres there would need to be significant changes since the (planned) heap leaching pads are above 3,500 because that is where it’s topographically most suitable to have them,” Kesler explains. “To take the leach pad below 3,500 metres would affect river valleys or other watersheds. That would have more of an environmental impact than where they are at the moment.”