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The best laid plans of mice and men often go astray.
For Colossus Minerals (TSX:CSI), the finish line was on the horizon. The company was moving forward with its 75-percent-owned Serra Pelada gold-platinum–palladium mine in Brazil and was on track to start commissioning in July, followed by early production by Q1 2014.
Unfortunately, sometimes the best laid plans of mice and men go astray.
Cause
On July 15, Colossus provided investors with a development update for Serra Pelada. Having identified that the mine’s dewatering wells and pumps were not performing to design specifications, the company was forced to look into additional dewatering capacity.
As a result of the dewatering issue, Colossus delayed production until at the earliest Q4 2013, turning its focus instead to infrastructure development in order to stay on track with a 1,000-tonne-per-day target of gold production by the end of the first quarter of 2014.
Fast forward to the September, and the company appeared to be on track with its dewatering program and was still ready to start up operations in 2014. However, by mid-November, things weren’t looking so great.
A company press release dated November 14 states that “[t]he rate of recharge to the bore field [was] observed to be approximately 20% higher than anticipated during the period September and October 2013. This is being investigated by our hydrological consultants. It is considered likely that this is the result of interconnection with an aquifer.”
Further, “[t]otal dewatering capacity is currently at 790 m3 per hour. Three more bores are in the process of being refurbished. Two additional bores with a capacity of 250 m3 per hour each are being established. Installation of this equipment has been delayed due to issues of mobilizing drill rigs to site and equipment supply. It is currently expected that the first of the two new wells will be operational by early December 2013.”
With the new bores having a higher capacity to pump water, Colossus plans to increase its dewatering capacity to 1300 to 1400 cubic meters per hour, enabling the resumption of activities.
Effect
While the company intends to get to the bottom of what went wrong with the well field, it has more pressing concerns. Time has not been kind to Colossus, and the company is learning very quickly the price of not being in production.
At time of publication, Colossus is expecting production to start up in Q2 2014, much later than it had originally planned. Despite having completed a $33-million equity financing in August, the company is in urgent need of a capital injection to keep it on track.
Unfortunately, the market for funding for the junior resource sector is challenging on its best days. And in recent months, good days have been few and far between. Add to that the delays that Colossus has been hit with in the last five months, and the battle for funding will no doubt be uphill.
Wisdom in hindsight
Years ago, when gold was plowing through resistance levels and climbing towards the $2,000-per-ounce mark, Colossus made the decision to develop its project without a resource estimate in hand, the normal follow-on step of producing a feasibility study. The decision was born out of confidence and positive market sentiment. However, with gold down at $1,200 an ounce, that move is hurting the company today, especially as it seeks additional financing.
Echoing that sentiment, Jocelyn August from Sagient Research told The Mining Report in August that Colossus’ share price could have moved passed $0.74 following its financing. “If it had the resource estimate, it probably would have gotten a better share price.” August believes that although Serra Pelada is a former producing mine, the company should put out a resource estimate, stating, “[i]t will definitely help it or hurt it.”
Let’s have a conversation
Gold Investing News would like to hear what you think about the latest developments with Colossus Minerals. Join the conversation with us on Twitter by following @INN_Editorial and sending your tweets with #INNColossus.
Securities Disclosure: I, Vivien Diniz, hold no investment interest in any of the companies mentioned.
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