Placer Dome Inc. has agreed to begin a four-year study on reopening a gold and silver mine in the Dominican Republic at a potential cost of $336-million (U.S.).
The company estimates that the Pueblo Viejo mine could produce 400,000 ounces of gold a year, but Brenda Radies, a spokeswoman for Vancouver's Placer Dome, said projections made so far are simply back-of-the-envelope estimates.
"We are proceeding with a great deal of caution," she said. "This is not an easy deposit."
Placer Dome said it plans to spend about $10-million on the feasibility study. The ore body contains a complex sulphide and zinc-bearing rock, which makes the gold difficult to extract.
The state-owned company that operated the mine took out the easy-to-process oxide ore in the deposit between 1979 and 1999.
The abandoned mine is causing environmental problems because of acid rock drainage from the site, Ms. Radies said.
Acid rock drainage is a type of pollution caused by the runoff of acidic water after coming into contact with sulphur-bearing rock.
Part of the reason Placer Dome was chosen by the government for the project was its technological ability and the experience it gained in British Columbia with acid rock drainage, she said.
The Congress of the Dominican Republic recently ratified a special lease agreement between the government and Placer Dome.
Under the agreement, a trust or special fund will be set up for cleaning up the environmental damage and for land reclamation, Ms. Radies said. Some of the money the government expects to receive from a net smelter return and profit interest will be used to finance that fund, she said.
The government also expects to receive regular taxable income on the project, she said.
The Dominican Republic remains responsible for all past environmental liabilities, while Placer Dome will assume responsibility for environmental effects resulting from its operations, the company said.
It also said it expects to use conventional processing methods, as well as a bioleach process, in which bacteria are used to help extract the gold from low-grade ore. The "bugs" or bacteria eat away the sulphur.
The government has placed the potential exploitable sulphide resource at more than 14 million ounces of gold, which holds the potential for a 33-year mine life, Placer Dome said.
Placer Dome is displaying a more cautious approach compared with 1999, when its former management acquired the Getchell gold mine in Nevada for $1.1-billion before learning the gold could not be mined at a profit.
As a result of low gold prices, the company also failed to go ahead with the development of the Las Cristinas gold project in Venezuela, which it later sold.
"We are certainly not promising the moon," Ms. Radies said of the methodical approach being taken in the Dominican Republic.
The company has been more cautious since Getchell, Venezuela and other projects it has undertaken and then abandoned because of low grades, analysts said yesterday.
"Since Jay Taylor has taken over as chief executive officer of Placer, he has tried to underpromise and overdeliver," said Larry Strauss, a mining analyst at investment dealer Griffiths McBurney & Partners.
Placer, "for some reason, think they can do something here no one else could," Kerry Smith, a mining analyst with Haywood Securities Inc. told Bloomberg News. "I think it's probably less than 50-50 that they will go ahead on it."
Also yesterday, Placer Dome said it has extended its takeover offer for Australia's AurionGold Ltd. until Aug. 30. This is the fourth extension of the share-exchange and cash offer. Placer Dome said it currently holds 31 per cent of AurionGold.
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