CHILE Toronto-based PLACER DOME aims to keep advancing the US$1.65-billion Cerro Casale gold/copper project in Chile despite disagreements over financing strategies with its joint venture partners, said company spokespeople. "This is an important project for us. Our goal is to continue optimizing technical aspects of the project and evaluate financing alternatives," explained Placer Dome media relations official Meghan Brown.
Placer's partners BEMA GOLD (24%) and ARIZONA STAR RESOURCE (25%) have threatened to revoke Placer's 51% stake in the project for allegedly breaching the joint venture agreement. Part of the conditions of Placer's stake is that it arranges US$1.3 billion in financing. Placer is also required to issue quarterly statements on project funding, following negotiations with banks. On June 30, Placer issued a document saying the project cannot be financed.
Among other allegations, Bema Gold and Arizona Star claim the company has not made "reasonable efforts" to ascertain whether the project is fundable.
According to Bema and Arizona Star, Placer says the project cannot be financed without hedging guarantees from the parent companies. However, Bema and Arizona believe it "may be possible" to arrange a hedging structure which does not require such guarantees and that Placer has not done its best to ascertain this.
"If Placer Dome fails to remedy its defaults within 30 days, Bema and Arizona Star intend to pursue arbitration to reclaim the 51% interest in Cerro Casale currently held by Placer Dome," the pair said in a joint statement.
Nevertheless, Placer Dome believes the default notice is without merit and intends to start discussions with Bema and Arizona to find a way forward without resorting to arbitration, explained company officials.
"Should we not be able to find a mutually agreeable way forward we are very comfortable with our position as we believe that Placer Dome has fully discharged its obligations under the shareholder agreement," Felipe Ruiz, Placer Dome Latin America VP of public affairs, said in an e-mail. "We are of the opinion that the balance of their press release contains numerous omissions, inaccuracies and misleading statements," he added.
Analyst Vctor Flores at HSBC pointed out that the row came down to responding to Bema shareholder concerns about Cerro Casale. "Bema has to justify to its shareholders why it's not going ahead with the project," he said.
According to Flores, the project's economics were preventing financing being pinned down. "Placer has to raise an awful lot of money in an environment which has been changed by a royalty," Flores said, referring to Chile's decision to introduce a 3% royalty on revenue less direct labor and input costs.
Large-scale, low-grade Cerro Casale envisages producing approximately 975,000 oz/year of gold and 130,000 tonnes/year of copper using open pit methods over 18 years based on a measured and indicated resource of 25.4 million oz of gold and 2.90 million tonnes of copper.
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