Bear Creek back in the saddle at Santa Ana

The courts of Peru have had  Bear Creek Mining’s (TSXV: BCM) stock rolling.

The Lima First Constitutional Court has recognized the company’s title to the Santa Ana silver property, returned its rights and reaffirmed that the project does indeed fit the national interest.

All of that means Bear Creek could be back on the ground at Santa Ana in a matter of months.

Speaking on a conference call, Bear Creek’s president and CEO Andrew Swarthout said that although “Corani is the flagship . . . Santa Ana represents an important opportunity for us, hence our perseverance over the last almost three years to recover our rights to operate this property.”

With 53 million global oz. silver resources and a deposit that is open in many directions, it would be hard to simply walk away.

But the market had considered the possibility, practically removing the project from Bear Creek’s equity valuation after the former government rescinded its right to operate the project in June 2011.

After the decree Bear Creek filed a constitutional challenge, and a recent decision ruled in favour of the challenge.

“The essence of the ruling is that Bear Creek’s constitutional rights were violated in 2011,” Swarthout said.

While the ruling stipulates that the company’s former rights to the property have been unconditionally returned, the current government still has the right to challenge the ruling.

“Typically when governments have rulings go against them, they appeal,” Swarthout conceded. “But I think in this case there is an interest to get this resolved, so there may be an exception to that historical trend.”

By June, Bear Creek will know whether or not the government goes ahead with an appeal. If it does, Swarthout said the company will negotiate for a resolution.

And while community resistance to the project three years ago was seen as one of the reasons behind the government rescinding the licence, Swarthout says relations have changed for the better, as evidenced by community leaders and members travelling to Lima to support the project before the presiding judge.

Swarthout also thinks the ruling will impact beyond the project boundaries.

“It demonstrates that Peru respects the rule of law and respects rights for foreign investors,” he said. “I think it will have good ramifications for everyone investing in Peru.”

In light of the ruling the company is set to reopen its environmental and social impact assessment, which is 95% complete.

The plan is to reactivate the study and beef up its social licence and hydrologic model. Swarthout estimated this work would be low cost, and take a month.

“Technically the project has not changed, and the capital requirements will not change either,” he said.

With an estimated $70-million capex, Santa Ana could be built for a relative bargain. Once complete the mine would be based on a simple heap-leach operation that could produce 5 million oz. silver a year, at a US$10 per oz. cash cost.

These numbers helped generate a 41% after-tax internal rate of return and US$167-million net present value, using a 5% discount rate and current silver prices.

Scotiabank analyst Trevor Turnbull estimates it will take one year for approval and another year for building a mine, which would push production to 2017. 

Turnbull rates the stock as a “sector perform,” with a $2-per-share price target — lower than his previous $3 target. With Santa Ana back in the fold, however, the price target would return to $3 per share. 

On May 14 — the day after the news was released — company’s stock was up 35%, or 52¢ to $2, on 1.2 million shares traded.