As of September of this year, Tamaya Resources put a stop to the project to extract gold from the Lichkvaz and Terterasar mines. According to a statement released by the company the primary reason for the project’s termination were financial problems. However, as one of our sources states the problems faced by Tamaya weren’t only financial. Our source, a former company employee who wishes to remain anonymous, notes that the company found itself in this position due to the “efforts” of local management. The insider claims that the local management team incurred more hefty expenses than had been planned for – the purchase of expensive jeeps, showing big salaries on the books but in reality paying less as well as costs for work junkets and other items.
It all goes to prove that the mining industry in Armeniahas been essentially unregulated by government agencies for years on end. While true that the government did step in to the picture it was a case of too little, too late. When the company went belly up, local managers sold off whatever assets of the company they could, expensive equipment and expensive machinery, all at rock-bottom prices. And the people who walked away with all the kit and caboodle were the very managers themselves, along with regional authorities in the Syunik Marz. According to our information, once the government got wind of the shenanigans taking place it froze the bank deposits of Tamaya.
However according to another source of ours, an expert in the mining industry, the main reason behind the firm declaring bankruptcy because the figures based on previous studies of the mine really didn’t correspond to actual reserves and ore quality. It turned out that the ore at the Lichkvaz-Ter site was refractory.
In the initial due diligence by Tamaya, before the acquisition of Iberian, samples taken were primarily from the historical ores samples which were oxidized. When Tamaya bought the mine they started sampling the ore veins and discovered that the ore was refractory. This meant that the ore was not treatable with traditional “carbon in pulp” leaching methods. Unfortunately, Tamaya only realized that the ore at the Lichkvaz complex was refractory in the late spring and, with this news, all their economic assumptions went out the window. Tamaya was planning to use a “carbon in pulp” leaching plant that they acquired in Australia to extract gold from Lichkvaz. But this turned out to be impossible. Refractory ore cannot be treated this way.
What does CIP (carbon in pulp) leaching mean in simple English? According to Wikipedia – CIP is a technique for the recovery of gold which has been liberated into a cyanide solution as part of the gold cyanidation process, a gold extraction technique. The traditional option used to treat refractory ore would be to use the pyro-metallurgical process, such as roasting. These methods are very expensive to operate due to high energy consumption and equipment maintenance costs. These technique would not be economic for such a small mine at Lichkvaz. The inferred resources at Lichkvaz were only 600,000 oz. of gold with a potential to go to 1M oz. This is where we get to the second problem.
“Mining is a capital intensive business. You need to borrow money to build a project. To do this you need a banking feasibility study with calculated proven and probable reserves. Sipan, Iberian and Tamaya never got to a level of drilling on the property to develop reserves. They only had resources and, for that matter, they were inferred, which is the lowest quality of data you can have for a mine development plan,” states an expert involved at these mine sites. The expert also wished to remain anonymous due to his ties to the company.
In his opinion, the analysis of the gold on the property was based on historical data and chip samples from the underground mine. This is fine if you want to use old-fashioned hand mining, low volume operation, where you follow the vein.
Our expert states, “With this method, you finance next month’s operations from last month’s gold recovery. Should you make a mistake and not recover any gold from your operation because you hit a zone with little or no gold, you can then go bankrupt.
Tamaya was planning to use cash flow from other operations to fund the mine development plan. They did not need a bank feasibility study to raise money from the banks. They were planning to use their own cash. There was sufficient confidence that if they processed the historic ore piles on the property they would recover enough gold to buy more time and finance their drill program and keep developing the mine using modern techniques.
Unfortunately, all their assumptions went up in smoke when they discovered that the ore was refractory. This incremental mine development method will not work at Lichkvaz.
The future for Lichkvaz
Taking into account that gold prices haven’t fallen due to the economic crisis, it is possible to assume that the mine won’t be closed for long. This is particularly true if we take into account that the fate of mining industry enterprises in Syunik Marz is still uncertain and that a large army of unemployed in the region is unavoidable. Thus, the government will be compelled to focus attention on the site and the company. The government will always be able to deprive the company of its mine operator’s license if it doesn’t fulfill its obligations. The question remains whether the government is ready to take such action. Our information confirms that an entrepreneur in Armenia, as well as two foreign companies, has expressed an interest in obtaining the mine.
“Whoever buys this mine may decide that the old Soviet-era method of hand mining and crushing ore using a gravitational mill to obtain 25% gold recovery is profitable enough. But there are other options that the purchaser must be aware of. There is a Canadian firm that employs the bio-leaching technology, which is excellent at recovering over 90% of gold from refractory ore. Bio-leaching is also an environmentally friendly process,” states our anonymous expert source.
The expert notes that, “This project needs a minimum of $3M to $5M of drilling to prove up and expand resources. This needs to be done for two reasons. First, you need representative samples from the ore body to complete proper metallurgical testing to fine tune the gold extraction and bio-leaching process. Secondly, you need proven resources and a thorough understanding of the veins system to build a cost-effective mine plan and operation.”
In conclusion the expert states, “This process will take two years but you will wind up with a mine that is well thought out and profitable for the investors, the workers and the state. Gold production can be maximized and environmental damage can be minimized.”