Metallica tumbles on lease woes (April 26, 2004)

A Mexican court has nullified Metallica Resources‘ (MR-T) land lease agreement for the Cerro San Pedro heap-leach gold-silver project.

The Agrarian Court in San Luis Potosi state nullified the lease, which was signed in 1997 with the Ejido of Cerro San Pedro (a group representing the historic occupants of the land) but stopped short of calling for a stop to construction.

The court also quashed the authority of the Ejido representatives who signed.

Metallica and the Ejido are appealing to a federal court to freeze the lower court’s decision and say the group contesting the lease comprises several non-residents who obtained membership to the Ejido based solely on family lineage.

If its appeal fails, Metallica would have to negotiate a new lease with the Ejido with no guarantee as to the outcome. Metallica says it is also looking at “other options aimed at establishing a long-term legal basis for using the land.”

Metallica began construction at Cerro San Pedro in mid-February, and was planning to begin leaching in September; the recovery plant is slated for completion in October, followed by the first gold pour in November. The operation is expected to produce an average of 90,500 oz. gold and 2.1 million oz. silver annually for more than eight years.

Construction of the mine and processing facility carries an estimated price tag of US$28.2 million. Another US$98 million is required to fund contract mining.

At last count, reserves stood at 61.1 million tonnes grading 0.59 gram gold and 24 grams silver per tonne, based on a gold price of US$325 per oz. and a silver price of US$4.62 per oz.