Century suffers another setback as Peru mill suspended over tailings

Vancouver – Peru’s Ministry of Mines has told Century Mining (CMM-V) to suspend milling and processing operations at its San Juan gold mine while the ministry completes an evaluation of the mine’s tailings dams. The company provided no timeline for when it thought milling activities would resume, but said at least one week’s worth of production will be lost.

The Ministry of Mines originally ordered Century to shut down all operations at San Juan because it said the company did not have the proper permits in place for tailings areas. However, after Century “provided documentation demonstrating that appropriate permits were properly issued,” and filed a formal petition to lift the order, the government changed tack. It has allowed Century to resume mining operations and stockpile ore but not process the ore through the mill. That will have to wait until the ministry completes an “evaluation of the stability of the San Juan tailings disposal areas because of information received from external consultants and issues that have occurred with similar impoundments at other locations,” according to a recent press release.

Those issues at other locations likely include an environmental disaster in the nearby Huancavelica region last summer, when the tailings dam of a polymetallic mine collapsed, sending 5.7 million gallons of tailings waste into the Opamayo River. Local reports accused a private Peruvian mining company of failing to maintain the dam and said it was one of the worst mining-related disasters in Latin America since a 1996 cyanide spill at the Omai gold mine in Guyana.

Century Mining’s vice-president of legal and corporate development, Richard Meschke, confirmed consultants for the Ministry of Mines visited the property before deciding to halt the company’s milling operations.

The San Juan mine is on the slopes of a valley near the Ocana River, which hosts several downstream communities and eventually reaches the small town of Camana, population 16,500, on the Pacific coast.

The company says all its tailings areas at San Juan “meet permit requirements and relevant engineering standards,” including the levee system it built last year to prevent spillage into the Ocana River. It notes an engineering company contracted by Century last year evaluated the tailings dams and determined they are stable and properly constructed.

Though Century acquired San Juan in 2006, it has been operating since the 1970s. According to Century’s 2008 technical report for the project, mill tailings from past operators remain on the property, including cyanide-treated tailings and flotation tailings held in a large, five-section impoundment on the west side of the Rio Chorunga, a tributary of Ocana. The report noted, “Flooding of the Rio Chorunga has washed away a large portion of the flotation tailings in the past so the total of 4.1 million tonnes of tailings [previously produced] has been reduced considerably.”

This is Century’s second major setback in as many months, following the breakdown of a cone crusher in February at its Quebec gold mine, Lamaque. That helped reduce gold production from the mine to 5,815 oz. in the first quarter of 2011 from 6,018 oz. in the previous quarter. Century is hoping to pour up to 75,000 gold oz. at Lamaque this year, or roughly 18,750 oz. a quarter, leaving it behind schedule already.

The company has yet to downgrade its production forecast for the year and says recent developments at Lamaque, including remobilizing a mining contractor for the North Wall zone and the completion of a third mill refurbishment, should help it ramp up operations.

“This has been a difficult quarter for Century,” acknowledged president and CEO Daniel Major in the company’s news release. “We are working diligently to overcome these issues and re-establish our development schedule at Lamaque.”

The tailings issue will likely hinder the efforts of Century’s minority shareholders, who have been trying to drum up support to block the company’s proposed merger with Maxim Finskiy’s White Tiger Gold (WTG-T). They say the all-share merger undervalues Century’s assets and presents a conflict of interest, as White Tiger’s chairman Finskiy, a Russian businessman, is the largest shareholder of both companies.

Century shares retreated 5¢ to 39.5¢ on the day of the announcement, a few cents shy of their 52-week low.