Bear Creek hit, fights back in Peru

Vancouver – Already hit by a retreat in the silver price, a leftist presidential victory and rumblings of local discontent, Bear Creek Mining (BCM-V) was broadsided on the weekend by the Peruvian government’s decision to revoke the license for its Santa Ana silver project.

The move follows weeks of protests in the Puno area of southern Peru, where both of Bear Creek’s projects are located. The most recent protest culminated in activists marching on the main airport in the region, with the ensuing police crackdown leaving six dead and 30 injured.

To diffuse the situation, outgoing president Alan Garcia reversed a decree allowing the Santa Ana project to go forward and temporarily halted new mining concessions in the area.

Bear Creek’s stock plunged $1.41 to $3.75 on the Monday following the news, while the following day it traded at a 52-week low of $3.58 before recovering and ending at $3.77. The company hit an all-time high of $12 in March.

The sudden move hurt other Peruvian mining stocks, with Candente Copper (DNT-T) down 11¢ or 8.8% to $1.14, Duran Ventures (DRV-V) off 4¢ or 14.6% at 21¢, Sulliden Gold (SUE-T) down 26¢ or 13.9% at $1.61 and Fortuna Silver down 31¢ or 6% at $4.81. Sulliden and Fortuna bounced back somewhat on Tuesday, while Candente and Duran slipped slightly further.

Bear Creek chief executive officer Andrew Swarthout said in a Monday conference call that the company is ready to pursue legal options but still believes that a political solution is possible.

Swarthout said in the call that the reversal was a “poor choice to resolve a political situation…its very appealable” and described the move as “not legal, unconstitutional, in violation of Peru foreign investment laws, and constitutes expropriation.”

The company argues that the government has not sited any violations or problems of procedure, that Bear Creek in no way threatens the local water supply, and that it has actually led exemplary public consultations.

“We believe the real cause of the reversal,” said Swarthout “was due to political pressure exerted on a transitional government under extreme pressure to resolve a multi-faceted political and growing general protest in Puno.”

Bear Creek is assuring investors that its flagship Corani project is not affected by the reversed decree and that it is distinctly different from Santa Ana. Swarthout said that Corani sits at a high elevation in a sparsely populated area with an entirely different culture.

The Corani project currently hosts 139.6 million proven and probable reserve tonnes grading 57.5 grams silver per tonne, 0.94% lead and 0.46% zinc plus 110.4 million measured and indicated tonnes grading 20.2 grams silver, 0.45% lead and 0.4% zinc. The project, on track to completing a feasibility study, with production targeted for 2014, represents roughly 80% of Bear Creek’s resources.

Santa Ana, with proven and probable reserves of 37.1 million tonnes grading 53 grams silver, 0.34% lead and 0.58% zinc, represents only about 20% of its reserves in the country.

Local protests have revolved around worries of environmental contamination and anger that the area has not enjoyed the benefits of Peru’s economic growth.

Swarthout said that the project will not hurt water supplies and that the mine will actually help the region.

“Santa Ana is exactly the kind of project that the newly elected Peruvian government needs for its stated objective of reducing poverty,” said Swarthout.