Metallica’s Cerro San Pedro Project Draws Fire as Production Nears

Monterrey, Mexico — As Mexico enjoys a resurgence in gold and silver mining, local and international miners have quietly celebrated the country’s stable and open mining sector, free from the environmental protests that have scuppered lucrative projects in Peru and Argentina. Until now, that is.

Canada’s Metallica Resources (MR-T, MRB-X) has found itself in the middle of an unexpected battle for the precious soul of central Mexico’s Sierra Madre mountain range, or at least a tiny part of it.

Where some onlookers might just see dusty, cactus-studded hills, for miners, the 400-year-old Cerro de San Pedro town and its surroundings are a rich site of gold and silver that has turned up ample deposits for centuries. Recent mining activity dates from the 1950s and Metallica hopes to start producing at its US$30-million Cerro San Pedro project in the third quarter of this year, ending a decade of preparation for the project. According to a recently updated reserve estimate, the project hosts about 1.5 million oz. gold and 62 million oz. silver, in 85.8 million tonnes of ore grading 0.55 gram gold per tonne and 22.5 grams silver, based on US$475-per-oz. gold and US$8-per-oz. silver. Average annual production is seen at 90,000 oz. gold and 2.1 million oz. silver.

But some local environmental activists see completion of the San Pedro mine as an “environmental disaster” and a threat to water sources. Activists say blasting at the site is causing structural damage to the town of San Pedro in central San Luis Potosi state, while the open-pit leach pad will leak cyanide into surrounding rivers.

For Mexico, the irony is that its first major anti-mining protest against an international company is against what is likely to be one of the country’s most efficient and modern mines and which, according to one poll, also has community support. A recent survey by Mexican pollster Epiica showed 55% of residents in Cerro San Pedro and its surrounding towns in favour of the mine, with 31% against and 14% undecided. If Metallica lives up to its pledges of community and environmental support, its operations are likely to be in sharp contrast with the leaking pipelines of state oil monopoly Pemex, for instance, whose aging installations rarely make headlines.

“People understand that the arid hills of San Pedro, which are full of minerals, are not good for anything but mining,” says political and economic analyst Sergio Sarmiento, asserting that the impoverished town needs the jobs mining brings.

Mexican officials and experts, who expect US$3.6 billion in mining investment in 2007, say the campaign to oust Metallica comes from the state capital San Luis Potosi, itself a mining town founded on the silver wealth of the 17th century. The Pro San Luis Ecology movement has led protests to the Canadian embassy in Mexico City, holding up banners with slogans such as “Canadian eco-terrorists get out of Mexico” and in March blocked the entrance to the embassy to try to hand in a letter to the ambassador demanding the closure of the project.

While the activists have not blocked the entrance to the mine project in Cerro San Pedro, they have lodged a formal complaint with a Montreal-based court linked to the North American Free Trade Agreement (NAFTA), on the grounds that the Mexican government illegally granted an operating permit to Metallica. They have also won sympathy from some Canadian NGOs and church groups, who worry that Mexican law is not strong enough to protect the environment, the unique flora and fauna in the area, the Spanish colonial-era town and the potential threat of any cynanide leaks.

“If this goes ahead, we will face the worst environmental disaster in San Luis Potosi’s history. . . all for the sake of one company,” says Juan Carlos Romo, a local conservation expert at the Colegio de San Luis Potosi institute.

Officials at Metallica’s Cerro de San Pedro subsidiary, San Xavier, say the project has suffered from confusion over its environmental impact, with some locals believing the town, which aims to become a UNESCO world heritage site, would have to be moved, or that entire mountains would be destroyed. San Xavier says the leach-pad operation would not be an environmental threat and has allocated funds to restore local buildings in the town, as well as overcoming legal disputes about its blasting and exploration rights.

“The leaching process is used all over the world without any problems,” says Jorge Mendizabal, the company’s local director. “San Xavier will be no exception and will be monitored with the utmost security.”

Mendizabal adds that after the 10-year mine life is exhausted, the area of Cerro San Pedro affected by the mine will be reforested with 23,300 cactus trees.

For Metallica, which also has properties in Chile and Alaska, reaching production will be the end of a long road, having acquired an option to take on the project in 1995 and sharing Cerro San Pedro with Cambior and Glamis Gold before taking control in 2003. In April, the company started its dor pours program as it nears production, with 660,000 tonnes of ore currently on the leach pad, containing some 14,000 oz. gold and 760,000 oz. silver.

— Based in Monterrey, Mexico, the author is a freelance writer specializing in mining issues.