In Peru, a smelter's future stirs fears of its toxic past

Peruvian President Pedro Pablo Kuczynski's efforts to revive a nearly 100-year-old smelting complex could overcome a crucial hurdle at a coming auction where five companies have shown interest in placing bids.

But celebration is far from universal given the sprawling smelter's toxic legacy and Kuczynski's criticism of environmental rules.

Reviving La Oroya, nestled in a destitute region in Peru's central Andes at nearly 3,800 meters (12,500 feet), would mark an early victory in Kuczynski's plan to ramp up the country's smelting capacity to wring more value from mineral shipments that make up at least half of overall export earnings.

    Such exalted goals are of little comfort to some La Oroya residents like Sonia Ponce, who worries the government will not do enough to prevent a repeat of the smelter's dirty past. Its smokestacks once spewed so much smoke that midday sometimes appeared to be evening, lacing the soil with heavy metals to a depth of two feet (60 cm) in some parts of town.

Hundreds of children in La Oroya have been found to have dangerous levels of lead in their blood, including Ponce's grandchildren, who once had to spend their days in a different town to reduce their exposure and today cannot keep up with schoolwork. "They're constantly fatigued," Ponce, 56, said from her home in a hillside slum in La Oroya, blaming the smelter. "It's very sad to see young people grow up sick. No one can give them their health back."

At the same time, scores of La Oroya residents have been agitating for a full revival of the smelter, which ground to a halt in 2009 but has since restarted some zinc production.

Dismissing pollution concerns as exaggerated, they say the town, which has already lost a quarter of its population, will wither away without it. "It's terrible to live like this," said Marisela Perez asshe waited for customers in her grocery shop. "There's no workand businesses are closing."

Finding a new owner for the smelter while ensuring a cleaner operation will be a key test for Kuczynski, 78, who once ran a mine in West Africa for Alcoa Corp, as he seeks to "modernize" the Andean country to cap an illustrious career in finance and public administration.

OBSTACLE TO INVESTMENTS

Five companies, including Chinese-owned steel waste recycler GreenNovo Environmental Technology, have signaled interest in buying the smelter in three days of auctions starting March 10, said Luis Castillo, a workers' representative in the group of creditors overseeing the sale.

Kuczynski said last year the smelter would be able to process copper concentrates from Chinese miner Chinalco's nearby Toromocho mine that contain arsenic levels that surpass Chinese import limits, forcing it to pay special fees. When the smelter's most recent owner, Doe Run Peru,controlled by New York billionaire Ira Rennert's Renco Group,operated La Oroya, sulfur dioxide emissions sometimes surpassed the daily limit of 365 micrograms by a factor of 10, according to a report by the environment ministry. "It used to import highly contaminating material to feed the smelter ... that ended up in the city and in residents," said Luis Egocheaga, the former manager of state clean-up agency Activos Mineros that is still working on removing pollution from soil in La Oroya. Doe Run Peru went bankrupt without finishing mandatory environmental upgrades, saying it had invested heavily to try to transform a creaking unit that had previously been under state control for decades.

A 2015 auction failed to draw any bidders as potential buyers fretted over liability for lingering pollution, labor contracts for some 2,200 workers and an estimated $700 million needed to clean up copper smelting, said Pablo Peschiera, the director of consulting firm Dirige, which is in charge of the bidding.

But Kuczynski, who declined requests to be interviewed, has said it would be cheaper to revive La Oroya if emission limits were looser, calling current standards an obstacle to investment in smelters.

While Peru's national sulfur dioxide limit is far stricter than Canada's, current law allows La Oroya to comply with a looser standard until 2029.

Kuczynski's government has said it is revising environmental rules.

"We want the metallurgical complex to be reactivated, but in an environmentally and socially responsible way," said La Oroya Mayor Carlos Arredondo.

Magellan Gold's Peruvian Niñobamba Exploration Venture Adds New Gold/Silver Concession with Promising Potential

Magellan Gold Corporation (OTCQB:  MAGE) ("Magellan" or "the Company") today announced that its Peruvian Niñobamba exploration venture with Rio Silver Inc. (TSX.V: RYO) ("Rio Silver") has applied for a new 553-hectare concession, bringing its consolidated land package to 36.53 square kilometers (9,027 acres). The new concession was the subject of an exploration program by Newmont Mining Corporation in 2009-2010, which yielded encouraging geochemical and geophysical anomalies and included an initial drilling program. One hole intersected 72 meters averaging 1.19 grams per tonne gold. Niñobamba is located in south-central Peru near infrastructure and with excellent access. Title to the new concession is expected to be granted by the Peruvian Ministry in the first half of 2017.

"This additional concession expands the extent of known silver-gold mineralization under our control to over six kilometers in an east-west direction", said Dr. Pierce Carson, CEO. "This extensively altered and mineralized trend contains a number of largely untested and open-ended silver and gold anomalies, several of which appear to represent excellent bulk mineable open pit targets. The newly acquired concession lies on the western portion of the trend. The main Ninobamba concession is located at the eastern end of the trend. We are particularly encouraged by results of historical drilling and surface trenching, which returned potential ore grade mineralization over substantial widths.  

"Currently we are compiling the extensive technical database, and are prioritizing targets for an aggressive exploration program planned for 2017."

In 2009-2010, Newmont Mining Corporation completed significant exploration within the area of the new concession and identified four prospective targets of which the Jorimina zone returned particularly encouraging results. Surface geochemical sampling identified a gold anomalous area of at least 700 meters by 1000 meters. Highlights of surface sampling include results from rock channel samples that returned 17.4 meters of 3.06 grams per tonne ("g/t") Au and 200 meters of 0.26 g/t Au. Geophysical induced polarization surveys showed four strong chargeability anomalies coinciding with gold-silver anomalies. Two of the four chargeability anomalies were defined as 680 meters by 150 meters and 700 meters by 200 meters.

Thirteen holes totaling 4,377 meters were drilled at Jorimina. Six of these holes drilled in the Jorimina Central area encountered significant Au-Ag-Zn-Pb mineralization in an area 700 meters by 300 meters. Drill hole JOR-001 returned 72.3 meters averaging 1.19 g/t Au starting at a depth of 53 meters. The Jorimina prospects exhibit promising potential for a significant discovery and additional exploration appears to be warranted.

On October 25, 2016, the Company announced it had concluded a Definitive Agreement with Rio Silver pursuant to which Magellan has the right to earn an undivided 50% interest in the Niñobamba Silver/Gold Project. To earn its 50% interest, Magellan must spend $2.0 million in exploration over three years.

In connection with the Rio Silver transaction, Magellan is required to complete two private placement unit financings in Rio Silver, each for aggregate proceeds of Cdn$75,000. The Company has completed the first unit private placement financing and expects to complete the second in January 2017.

About Magellan Gold Corporation

Magellan Gold Corporation (OTCQB: MAGE) is a US public enterprise focused on the exploration and development of precious metals. The Company's two mineral properties are located in Arizona and in Peru.

The 100% owned Silver District Property in southwest Arizona comprises over 2,000 acres covering the heart of the historic Silver District.  The property contains a near-surface historical drilled resource of 16 million ounces of silver and exhibits exploration promise for significant expansion. The Niñobamba Silver-Gold Property in southern Peru, on which the Company has the right to earn a 50% interest, covers 9,027 acres and demonstrates potential for one or more large, bulk tonnage, silver-gold deposits.

To learn more about Magellan Gold Corporation, visit http://www.magellangoldcorp.com.

Cautionary Statement

The United States Securities and Exchange Commission permits mining companies, in their filings with the SEC, to disclose only those mineral deposits that a company can legally extract or produce. Under SEC Industry Guide 7 standards, a "final" or "bankable" feasibility study is required to report reserves. Currently we have not delineated "reserves" on any of our properties. We cannot be certain that any deposits at our properties will ever be confirmed or converted into SEC Industry Guide 7 compliant "reserves." Investors are cautioned not to assume that all or any part of any "resource" estimates will ever be confirmed or converted into reserves or that they can be economically or legally extracted.

Forward Looking Statements

This release contains"forward-looking statements."  Such statements are based on good faith assumptions that Magellan Gold Corporation believes are reasonable but which are subject to a wide range of uncertainties and business risks that could cause actual results to differ materially from future results expressed, projected or implied by such forward-looking statements.  Factors that could cause actual results to differ from those anticipated are discussed in Magellan Gold Corporation's periodic filings with the Securities and Exchange Commission.

Gold and Silver Stocks Regain Their Luster, but Will It Last?

Gold and Silver Stocks Regain Their Luster, but Will It Last? - The Motley Fool

Between Election Day and the end of the year, physical gold and silver, along with the miners that produce these precious metals, were absolutely clobbered. For instance, physical gold, which hit an overnight high of $1,340 per ounce once it appeared Donald Trump was on the path to securing a win, tumbled to the $1,120s per ounce in late December. In fact, gold wound up falling for seven straight weeks post-election, marking its worst downturn in 12 years.

However, the new year has brought new luster to physical gold and silver, as well as its underlying precious metals. Here's a snapshot of some of today's biggest moves:

• First Majestic Silver(NYSE:AG): up as much as 15%

• Coeur Mining(NYSE:CDE): up as much as 13%

• McEwen Mining(NYSE:MUX): up as much as 13%

• IAMGOLD(NYSE:IAG): up as much as 11%

• Northern Dynasty Minerals(NYSEMKT:NAK): up as much as 10%

• Alamos Gold(NYSE:AGI): up as much as 13%

Today alone, physical gold is higher by nearly $17 per ounce, to $1,180, which would mark a better than one-month high in the yellow metal. Silver's move is a bit more modest, with a $0.14 per ounce increase (just below 1%) to $16.55 per ounce.

Why gold and silver are surging higher

What's responsible for gold's and silver's surging per-ounce prices? For starters, a falling U.S. dollar helps. The dollar tends to move hand in hand with the U.S. economy, meaning a rising dollar denotes strengthening GDP growth prospects in the United States. Since gold tends to do well when there's economic uncertainty, a falling dollar inflates gold's prospects, and silver usually follows suit.

Image source: Getty Images.

We've also witnessed a sizable pullback in Treasury yields over the past couple of weeks. On Dec. 16, the U.S. 10-year note hit a yield of 2.60%. As of 2:30 p.m. EST, the 10-year note had a yield of just 2.37%, implying that bond buyers have returned. Remember, bond prices and yields head in different directions. As with the movement in the dollar, this dip in yields could just be a breather after yields moved more than 80 basis points higher in a matter of a few weeks.

The reason Treasury yields matter is because of opportunity cost. Opportunity cost is the act of giving up a near-guaranteed return in one asset, such as a U.S. Treasury bond, in favor of an asset with a higher return potential, like gold or silver. The thing is, neither gold nor silver pay a dividend. This means the yields of interest-bearing assets, like bonds, CDs, and savings accounts, need to remain unattractively low to spur gold and silver buying. As long as this trade-off remains low, gold and silver should do well.

It's also quite possible that weak holiday sales figures from retailers like Macy's and Kohl's could be sparking today's rally in gold. Both behemoths reported weaker-than-expected year-over-year sales slumps, with Macy's announcing the layoff of more than 10,000 workers in the coming months. Since the U.S. economy is more than 70% consumption-driven, weakness on the retail front could be great news for gold and silver.

Lastly, there's still uncertainty surrounding Donald Trump's upcoming presidency. With no political or military background, there are clear concerns that his policies and trade negotiations could hurt, rather than help, the American economy.

Image source: Getty Images.

The rally could last for these mining companies

While precious-metal investors are undoubtedly enjoying today's rally, the big question remains: Will this rally last? I believe the answer to that can be found in the fundamentals of the aforementioned biggest movers today. Many of them have done an admirable job of cutting costs, and in some cases, boosting production. A few, though, are still best avoided, even with a nice rally to begin the year.

First Majestic Silver, Coeur Mining, Alamos Gold, and McEwen Mining belong to the first column of companies that could motor higher.

First Majestic's most recent quarterly report featured a 27% increase in silver equivalent production to 4.5 million ounces, all while all-in sustaining costs (AISC) fell 27% to $10.52 per payable silver ounce. Aside from favorable currency movements, First Majestic Silver benefited from renegotiated smelting and refining agreements and record silver production, on the aggregate, from its six producing mines. The star continues to be Santa Elena, which, with by-product costs included, produced silver at an AISC of just $1.82 per ounce in Q3 2016.

Silver miner Coeur Mining wasn't able to deliver the cost-cuts of First Majestic Silver because of a number of ongoing projects, but it certainly impressed in other areas. For example, Coeur managed to reduce its outstanding debt by 21%, or $109.3 million, during the third quarter, pushing its total debt to adjusted EBITDA ratio down to 2 from 5.5 in the year-ago period. Even though its adjusted AISC rose 17% year over year in Q3, Coeur is expected to initiate production at Jualin in 2017 and ramp up Independencia throughout 2017, meaning higher production seems imminent (as does an eventual reduction in AISC).

Image source: Getty Images.

Alamos Gold, on the other hand, has only seen modest production growth, but it's really made a dent on the cost side of the equation. In the third quarter, Alamos reported an AISC of $979 per ounce, which was down from $1,155 per ounce in the prior-year period. Much of this was achieved through cuts in capital expenditures at its three producing mines. However, Alamos did announce in September that its developing La Yaqui mine has nearly twice as many resources as first believed, so there's reason for shareholders to be excited about the future.

Even McEwen Mining could continue to scamper higher despite its reliance on just two mines. Lower-than-expected costs at its El Gallo mine helped push the midpoint of the company's gold AISC down to just $780 in the third quarter from a previous midpoint of $857.50 per ounce. What's more, McEwen has no debt, and it's on track to potentially bring two new mines online over the next two-to-three years. Sometimes these small treasures can offer the greatest rewards.

Be wary of these precious-metal miners

On the other hand, precious-metal investors would be wise to keep their distance from Northern Dynasty Minerals, and perhaps IAMGOLD, as well.

IAMGOLD, as I discussed recently, isn't necessarily a bad company. Gold production rose by 7% in its most recent quarter, primarily a result of rapid growth at its Essakane mine in Burkina Faso. However, IAMGOLD's exposure to higher labor costs and political instability in West Africa make it a risky bet in the gold industry. The company is currently forecast to generate an AISC of $1,075 per ounce, which means it has one of the smallest margins relative to spot gold of its peers. It wouldn't take much to push IAMGOLD to a quarterly loss at this point, which is why I'd be a bit skeptical of this rally until gold prices are considerably higher and its AISC a bit lower.

Image source: Getty Images.

However, Northern Dynasty Minerals is a company I'd suggest avoiding at all costs. Northern Dynasty is a developmental-stage company, and the Pebble Project essentially represents the bulk of its valuation. The problem is this: Developing Pebble may not be economically feasible, regardless of its measured and indicated resources. Even if Northern Dynasty Minerals finds a path to develop Pebble, it has nowhere near the hundreds of millions, if not billions, of dollars it would take to make Pebble a top-producing mine. There's no guarantee Northern Dynasty Minerals has what it takes to survive over the long run, which is why I'd call this latest rally fool's gold, with a lowercase "f."

I believe there are reasons to expect gold and silver to move higher, but you've got to be pickier with the companies you choose to include in your portfolio, or you could be disappointed.