Carpathian’s RDM mine remains closed, CEO resigns

Shares of Carpathian Gold (TSX: CPN; US-OTC: CPNFF) sank 22%  to 7¢ apiece after the Toronto-based miner shuffled its management, including axing its CEO, weeks after it was forced to shutter its newly producing Riacho dos Machados gold mine in Brazil due to heavy rainfall.

In January the troubled firm said that SUPRAM, the state environmental agency, suspended its operational permit because of the heavy rain in the area. This announcement, released Jan. 8, caught many investors off guard, as a day earlier Carpathian reported pouring its first doré gold bar and that the mine would ramp up as planned, despite adverse weather.

But unfortunately that was not the case. After the surprise permit freeze, Carpathian halted production at its sole mine and began working with authorities to assess damages at the mine site in order to revalidate its permit.

On Jan. 25, Carpathian said it had begun remedial work and outlined the requirements that it would need to fulfill to resume operations. Some of the tasks include: fixing the drainage systems near the plant site, installing new retention dykes, reducing the amount of water in the tailings and removing material from the carbon-in-leach area.

The miner notes that the government has allowed it to finish processing the in-circuit material so that it can properly shut down the processing plant. It expects to produce 1,000 oz. gold from this material.

Carpathian expects finishing the remedial work at the end of February 2014 for US$500,000 to US$700,000. Once done, SUPRAM will inspect the mine site before it can lift the suspension.

While the cost of the remedial work appears trivial, the impact on production is significant. Carpathian estimates it will lose 7,000 to 9,000 oz. gold a month, which equates to US$8.8 million to US$11.3 million of revenue per month at current gold prices. This could set Carpathian back US$26 million to US$34 million, if production doesn’t start by the end of March.

The costly suspension has triggered management changes. Carpathian’s CEO Dino Titaro and chief operating officer Daniel Kivari have resigned. Executive vice-president Guy Charette will step down from his role and serve as the interim CEO. Vito Hugo Belo has been appointed chief operating officer.