By Samantha Wright | Ouray
The fate of the Revenue silver mine near Ouray remains unclear this week, following last Friday’s announcement that the mine’s Canadian owner, Fortune Minerals Limited of London, Ontario, has defaulted on a $35 million metal prepay agreement with its major financing partner.
Fortune blamed flagging silver prices, coupled with a slower than expected ramp-up to production and other unforeseen complications and expenses, for its failure to turn a profit from the operation, which employs 160 people from Ouray County and surrounding communities.
“We have been working on financing options but were unable to complete any in time to maintain operations at the site and our creditors issued a notice of default,” Fortune spokesman Troy Nazarewicz told the Canadian publication Mining Weekly earlier this week.
Fortune did not respond to inquiries about whether the mine would continue to operate going forward. Local sources said that miners were still going to work this week.
The Revenue silver mine, with its underground mill and concentrator and numerous surface facilities, is located in the mountains high above Ouray in the historic Sneffels mining district.
Fortune, through its wholly-owned subsidiary Fortune Revenue Silver Mines Inc., closed on a deal to buy the RSM from its previous owner Silver Star Resources just last fall, financing the acquisition through a $35 million finance arrangement called a metal prepay facility, which was to be repaid over the mine’s first five years of production from a fixed schedule of metal shipments plus interest to Lascaux Resource Capital Fund.
Fortune came into the deal as a publicly traded junior company with two large, controversial mining development projects in the works in Canada (one of which has since been sidelined) and touted the RSM acquisition as a way to boost its profile to that of a producing mining company.
Shortly after closing on the RSM deal last fall, Fortune’s COO and Vice President of Operations Mike Romaniuk told the Ouray County Commissioners he was “excited to turn this into a profitable thing,” and that “we intend to be here for a long time.”
Fortune was still focused on completing the commissioning and ramp-up of the RSM to a planned 400 tons-per-day production rate when Lascaux pulled the plug on the financing deal. To date, the RSM has made 27 shipments of concentrate, and has yet to turn a profit.
Fortune’s TSX-listed stock has plunged 85 percent over the past year. Shares were trading at C$0.03 apiece when markets closed on Thursday.
In the 15 months since Fortune first acquired an interest in the Revenue Silver Mine and became its contractual operator, the price of silver has also dropped from $22/oz to about $15/oz, forcing Fortune to change its mining plan mid-stride to go after higher-grade ore areas, which has in turn required additional investment and development work, and the purchase a fleet of trackless mining equipment, Nazarewicz told Mine Weekly.
The Revenue mine was first operated between 1876 and 1912 by Caroline Mining and had historical output estimated at 15 million ounces before it closed as a result of a fire. For the past century, the mine has been intermittently active with long periods of dormancy. In 2012, it was reactivated once again by Denver-based Star Mine Operations and its parent company Silver Star Resources, which constructed a new mill and concentrator before Fortune bought the project.
The mine has been troubled by safety concerns ever since its reactivation. In November 2013, two miners there died of carbon monoxide poisoning. Last August, a blasting accident led to the air ambulance evacuation of an injured miner. In September, the Mine Safety and Health Administration issued a Pattern of Violations notice to Star Mine Operations for “demonstrating a disregard for the health and safety of its miners through a pattern of significant and substantial violations” over a one-year observation period ending in July 2014.
During Fortune’s tenure at the mine, the company says it has invested in a number of capital improvements to improve safety and realize efficiencies to meet production objectives. These included a new raise bore hole to dramatically improve the ventilation and secondary egress from the back of the mine, a new ramp to get access to the ore from lower levels, and a major upgrade to the mill.
Additional safety accomplishments Fortune says it has made over the past 15 months include an overhaul of the mine’s safety leadership team; the implementation of a new safety plan; completion of “safety stand downs” with the workforce to reinforce safety priorities; implementation of 5-point safety cards, safety meetings, safety statistics collection, incident reporting and accident investigation; improvement of safety reporting across the site, with safety statistics and incidents visibly posted; and completion of surveying and geotechnical assessments.
Last fall, shortly after MSHA issued the POV notice, Nazarewicz said that Fortune has placed a priority on changing the mine’s safety culture “to be respectful and responsive to MSHA to effectively address issues and eliminate repeat offenses.”
The strategy appears to have worked – MSHA lifted the POV notice in February.
Should the pending deal close, Fortune Minerals Limited will transfer Fortune Revenue Silver Mines, Inc. to Lascaux (or its designated affiliate), and spin off its remaining development project, the Nico gold/cobalt/bismuth/copper mine and concentrator in the Northwest Territories and metals processing plant near Saskatoon, into a new wholly owned subsidiary of Fortune in which Lascaux will own shares of preferred stock. The Nico project is permitted but not yet fully financed.
Details of the agreement in principle were described in a July 3 press release.
“We regret the loss of the RSM, but the company is positioned to carry on with its Canadian assets, without any debt, provided the negotiated agreement closes,” Nazarewicz told Mining Weekly.
The San Juan Independent reached out to Fortune’s COO and Vice President of Operations Mike Romaniuk several times over the past week, but did not succeed in making contact.
“Appropriate contacts are preoccupied with other priorities and are unavailable for additional comment at this time,” Nazarewicz said in a July 9 email.
Fortune Minerals representatives are schedule to update the Ouray Board of County Commissioners on the status of the mine during next Tuesday’s BOCC meeting at the Ouray County 4-H Event Center at 3:45 p.m.
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