Runaway tailings forces closure of Gold Hawk’s Coricancha mine in Peru

Unexplained ground movement around the dry tailings storage area of Gold Hawk Resources’ (CGK-V, CGHRF-O) Coricancha silver-gold-lead-zinc mine in Peru has forced the company to shut down crushing and milling operations.

Consultants are on-site conducting a geotechnical audit to figure out how much more ground movement the company can expect.

Gold Hawk, which declined an interview request, did not say how long the shutdown would last in its announcement. Jennings Capital analyst Ron Coll estimates that it could be several months before Gold Hawk will be able to reopen the 600-tonne-per-day operation.

“Once you involve consultants to look at something and to get the report back, it’s not going to be something that happens in a few days,” Coll says.

He says that even though the ground may have only moved a few centimetres, it’s something that must be thoroughly investigated.

Gold Hawk believes that unusually heavy rainfall during the rainy season could be to blame, as well as regional seismic activity and leakage from a water channel that passes through the property.

Coll says that a telltale sign of tailings movement would be seeing little cracks on the surface. “It means some pieces of tailings have separated from others, so you start to see these one-centimetre cracks. . . (It’s) a sign of movement somewhere.”

Gold Hawk began the audit in April to evaluate how the tailings handling facility was responding to full-scale production, which began last October.

The evidence of ground movement prompted the company to halt operations on May 9 to find out exactly what was going on.

“While we are uncertain as to the extent of the movement we are committed to ensuring that we mitigate risk,” Gold Hawk president Kevin Drover said in a statement.

For the time being, Gold Hawk is stockpiling ore, which will be processed when operations start up again.

The current tailings site was set up by the former owner and the local government before Gold Hawk bought the property in 2006. The tailings were moved from their previous site alongside a river and near the local community, when that site was deemed an environmental risk.

“They thought it was an environmental problem and now they’ve got a ground movement problem. It’s not very funny but that’s how things have evolved,” Coll says.

Gold Hawk was planning to use the current tailings area for only two more months until another temporary site, just a few hundred metres away, would be ready.

Coll says that Gold Hawk may have to find an entirely new temporary tailings site.

“It’s so close to the existing facility that it might have some of the same characteristics,” Coll says.

Both sites are on an incline, making them more susceptible to collapsing.

The company is in the process of permitting a long-term tailings storage area in a valley 20 km away but that won’t be ready until sometime in 2009.

The news sent Gold Hawk shares down 27%, or 10, to 27 each on a trading volume of 527,000 shares.