Malaga plummets after stopping Pasto Bueno’s production

Malaga (MLG-T) lost a third of its value after temporarily suspending production at its Pasto Bueno tungsten plant in Peru, as it wrestled to keep down costs following a recent power outage at its underground operation.

The blackout at its mine and plant occurred “a few weeks ago” after “the hydro-electric transmission line was accidently severed and several transmission poles were damaged,” the company said.

After which, the Montreal-based junior continued production used diesel-powered generators, but cited that this drove up operating costs and “resulted in a negative cash flow position.” It decided on Oct. 22 to put the plant on care and maintenance until the power line is repaired. This should take at least four weeks. 

“This has been a difficult decision for all of us, as we consider that Pasto Bueno remains a property of high quality with significant resources and the potential to develop hydro-electric power on site,” said Pierre Monet, the company’s president and CEO in a statement.

“At this time, the processing plant is completely stopped but activity at the mine is continuing,” Nicole Blanchard, the company’s head of investor relations, wrote in an email response.

Blanchard maintains “it’s too early to tell” how this will impact production and costs, suggesting it may be reviewed in the third-quarter results, expected on Nov. 14.

Prior to the power outage, the plant was processing about 350 tonnes a day at an average cost of $191 per MTU, writes Blanchard, adding the company is looking to raise funds to improve operations. 

“The company is pursuing discussions with debt and equity investors for a minimum of $3 million in order to develop the mine and use the processing plant to its full capacity of 500 tonnes per day.”

This should boost cash flow which Malaga reports has lately been lower-than-expected as production has dropped mainly due to the extraction of lower-grade ore and a dip in tungsten prices.

On the operational front, the company met delays in building a decline ramp to reach the higher-grade ore in the Huayllapon zone and noted higher costs to add a new tailings pond. As a result, it’s looking for ways to trim costs. 

“Cost reductions include reduced SG&A and delay of expenses that are not essential until a financing is secured, which management is actively negotiating at this time,” Blanchard explained.

Once the financing is in place, Pasto Bueno, the company’s sole mine, is expected to kick into full production. The mine is located in the Andes, some 657 km from the capital city of Lima.

On the suspension news, Malaga fell 33% to close at 5¢ on more than 1.6 million shares traded.