Alamos Gold Inc. has suspended construction of a new mine in Turkey after failing to obtain a renewal of a mining concession following widespread protests by environmentalists.
The mining concession for the Kirazli mine development expired on Sunday. Alamos said Monday it is still working with the Turkish department of energy and natural resources to try to obtain a seven-year renewal.
News of the delayed concession renewal sent shares of Alamos tumbling more than 12 per cent Tuesday.
In August, about 5,000 people flooded the area in the vicinity of the proposed mine in northwestern Turkey, protesting deforestation associated with the project and the company’s planned use of cyanide at the Kirazli mine. Cyanide is widely used in the mining industry to treat ore in contained facilities.
“It appears that the government did not want to provoke the opposition to the project by granting the renewal at this time,” Credit Suisse mining analyst Tariq Fahad wrote late Monday in a note to clients.
Kirazli was touted as a new growth project for Toronto-based Alamos that would also help reduce its average cost of production.
“Given the uncertainty around the timing of the concession renewal, initial production from Kirazli has been delayed from the previous guidance of late 2020,” Alamos said in a release.
It’s not clear if the government of Turkey is merely delaying the renewal of the concession, which gives the company the right to develop and mine a property subject to further requirements, or blocking the project indefinitely.
“Whether this is the government taking its time, or an intentional step by the Turks to prevent Alamos from doing any more activity until things die down, either way this is going to be a protracted delay I think,” said Jon Case, precious metals portfolio manager with Sentry Investments Inc., which owns a small position in Alamos.
Shares in Alamos fell by 12.4 per cent to $6.57 apiece on the Toronto Stock Exchange on Tuesday, its biggest single-day drop since September, 2017.
The setback for Alamos comes amid a wider climate of uncertainty around Turkey on the international stage. Last week, the country launched an air-strike campaign against Kurd forces in neighbouring Syria, justifying the military incursion as necessary to curb a border security threat. On Monday, the United States imposed sanctions on Turkey and called for it to retreat from Syria.
“The government’s got a lot of things going on. They’ve pushed into Syria and they’re trying to push back the Kurds,” said Kerry Smith, mining analyst with Haywood Securities Inc., in an interview.
“I think they’re nervous there are these [mine] demonstrations and these protests. They don’t want it to get out of hand.”
“The last thing they want is social unrest in the country,” he added.
Mr. Smith is optimistic that Alamos will eventually be successful in obtaining the needed concession to be able to restart the construction of Kirazli, noting that Alamos originally had some trouble obtaining necessary forestry permits but was ultimately successful.
Alamos had planned to produce an average of 100,000 ounces of gold a year at Kirazli, over a six-year period. The mine’s all-in sustaining cost (AISC) is projected at US$363 an ounce, significantly lower than Alamos’s 2019 forecast of US$940 an ounce across its existing portfolio.
While Alamos already operates mines in Canada and Mexico, Kirazli would be its first in Turkey. The company acquired the project in 2010 for US$90-million. Alamos started construction of the mine this spring and its capital cost has been pegged at US$152-million.
In an interview with The Globe and Mail in August, John McCluskey, Alamos’s chief executive officer, defended the company’s planned use of cyanide in the processing of gold at Kirazli as extremely safe. He also said it is Turkey’s forestry service, and not the company, that is responsible for clearing the site of trees, and that the forestry service has been busy replanting the area.
Alamos did not respond to a request for comment on Tuesday.
While Turkey has historically been pro-foreign investment from the international mining community, some companies have struggled to gain traction. Anatolia Minerals Development Ltd. (now part of Alacer Gold Corp.) initially struggled to obtain necessary forestry permits to build a mine in Turkey, but eventually was successful after it brought in a local partner. Eldorado Gold Corp., which operates the biggest gold mine in Turkey, has mostly operated trouble-free in the country without a local partner.
Sentry’s Mr. Case said if Alamos doesn’t make progress over the next few months, it might want to consider bringing in a local partner.
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