Baja says commercial production is around the corner at Boleo

Tom Ogryzlo has been working hard to resuscitate Baja Mining (TSXV: BAJ) and its copper-cobalt-zinc Boleo project in Mexico since he was named interim CEO in May 2012 — a post he still holds to this day.

The mechanical engineer, who has developed many multimillion-dollar mining projects, initially hoped to set things right at the deeply troubled project within a year, and to start production no later than the first quarter of 2014.

But Boleo, reeling from hundreds of millions of dollars in cost overruns, has been hit by a perfect storm of other problems too, including class-action lawsuits, equipment and labour delays, and the need for a new mine plan to deal with difficult ground conditions.

By mid-2013 it was clear that roof instability posed major problems due to historic underground workings and the softness of the ore, with its high clay content in the deposit’s seven near-surface mineralized seams, or mantos.

Baja also had to negotiate a funding solution with its Korean partners, which cut the company’s stake in the project to 49% from 70%, and then down to 10%.  

In April 2015, Baja announced that production ramp-up delays meant that further funding of up to US$200 million to finance the operations for the rest of the year was needed, and that it had reached a non-binding agreement in principle with Korea Resources (Kores) on an equity dilution formula that would result in dilution reducing Baja’s ownership by 1% for each $100-million cash call made.

Kores holds the dominant share in a consortium of five Korean companies that now own 90% of the project.

Baja also had to contend with other issues in 2015. In September, access to the Boleo site was briefly restricted by the Muncipality of Mulege, which said it was entitled to construction permit-related payments.

Access was later restored and the plant resumed normal operations.

Plant personnel also addressed process and equipment issues, which became apparent when copper production ramped up.

At the same time, the company has continued to evaluate new underground mining methods, with some crews advancing access tunnels in three mines at the manto level, and contract miners undertaking trials using short-wall mining techniques.

In November, the company reported that surface mining still provides most of the material delivered to the stockpiles, and that 140 miners on three production shifts were employed underground.

The company also said underground mining conditions remained “constrained by difficult ground conditions, availability of experienced personnel and equipment,” and that underground production averaged 450 tonnes per day.

At the time it forecasted this number would increase to 1,000 tonnes per day before the end of 2015, with the delivery of more equipment.

Late last year the company also reached an $11-million settlement on class-action litigation, which will be covered by Baja’s insurers. The settlement was made without any admission of liability.

In a press release, Ogryzlo said resolving the litigation “will remove a heavy burden that Baja has carried for the past three and a half years,” and help the company “seek much broader opportunities for creating value for its shareholders.”

Baja kicked off 2016 with news that test work on samples taken from Cinto Colorado tailings, next to the Boleo mine site, yielded positive results, and showed that the tailings are suitable for leaching.

It also forecast copper production for 2015 of 7,319 tonnes, down from an earlier forecast at the end of April 2015 of 20,000 tonnes. Baja says the cobalt and zinc sulphate circuits are being commissioned and commercial production is targeted for February 2016.

In January 2015, Baja said it hoped to start up the cobalt-zinc circuits by July, and ramp up production by October.