Feature Story Date: February 10, 2006 Lafayette Mining Has...

Feature Story Date: February 10, 2006

Lafayette Mining Has Problems With Water In The Philippines, But Appears To Be Surfacing.

By Our Man In Oz

The British are not alone when it comes to complaining about the weather. In the Philippines, where weekly rainfall can be measured in metres rather than millimetres, the problems are compounded, as investors in the small Australian gold and copper company, Lafayette Mining, have discovered to their expense. Late last year, just as it was starting to crank up speed, Lafayette was forced to suspend operations at its Rapu Rapu polymetallic mine after two leaks from the tailings dam. Naturally, the stock market took a dim view, but not too dim. In the days after the spills were reported in early November the stock slipped from around A17 cents to a low of A12.5 cents. More recently, and despite operations still under a self-imposed suspension, the stock has crept back up to A15.5 cents thanks partly to a vote of confidence in the business by major shareholders who supported a A$10 million capital raising, but also because the fundamentals of the mine remain strong.

“The key issue is for us to demonstrate that the tailings facility is technically sound, and its integrity is appropriate,” Lafayette chief executive, Andrew McIlwain, told Minesite from his Melbourne office. To do that, Lafayette is using a “water balance” computer model which calculates the amount of water going in, and what goes out. McIlwain said he was confident that mineral processing would resume soon, and that Rapu Rapu would be on its way, converting from its early days as a gold producer to its long-term future as a base metals mine with the capacity to yield an annual 10,000 tonnes of copper a year, 14,000 tonnes of zinc, plus 50,000 ounces of gold and 300,000oz of silver.

But, to achieve those targets, McIlwain will need to be as good a weather predictor as he is mine operator because it’s worth noting that an early problem at the minesite was a shortage of water. When production of gold from soft oxide ore started in mid-2005, there was a water shortage because it didn’t rain enough, resulting in intermittent operations caused by a shortage of process water. In October it poured, triggering the tailings overflow. What makes that situation look even less funny for McIlwain is that he could reasonably have expected decent rain because in 2004 Rapu Rapu was hit by three typhoons which deluged the place. Last year, the December rainfall was 70mm short of the highest ever recorded in the area. “Never in our wildest dreams would we have anticipated having this volume of water,” McIlwain said.

Today, it’s a case of knuckling down and learning to live with erratic weather, blaming either the rain gods, or global warming – or simply copping it on the chin and admitting that no-one can accurately predict rainfall in the tropics. Canny Australian minerals investor, Robin Widdup, is certainly prepared to put his money where the weather is (or isn’t, depending on the season) by using his Lion Selection and AuSelect investment funds to support the pre-Christmas capital raising, and to go one step further and join Lafayette’s board.

Apart from the embarrassment of the water spill, the financial pain of lost production and a mine suspended, there is a political price being paid because Rapu Rapu was a showcase project for the Philippines government which has agonised over foreign investment in the country’s once prolific mining industry. Re-starting the mine, and switching from the gold phase of the development to base metals, means that every possible problem is being analysed and fixed. “We have a process by which there are probably over 100 items that we will sign off on internally,” McIlwain said. And the re-start? “We anticipate doing that by the end of February.”

When processing re-starts Lafayette will move away from its remnant stockpiles of oxide ore and focus on base metals. “To participate in the current metal price environment we basically get about three times the revenue out of running our base metals plant as we do our gold plant,” McIlwain said. “We produce two concentrates, copper concentrate that has gold and silver in it, and zinc concentrate. Those concentrates will be sold to LG in Korea.” He said the next key milestone for Rapu Rapu was being able to demonstrate that it can “operate within all regulatory guidelines”. If that can be done, then Lafayette may finally be able to deliver on promises made.

McIlwain said he remained confident that the geology of the mine, and its surrounding exploration potential remains intact. He said the ore reserve at Rapu Rapu remains around six million tonnes, with 6.8 million tonnes in the resource category. The polymetallic nature of the ore is shown in grades of 1.3 % copper, 2.4 % zinc, 2.2 g/t gold , and 30g/t of silver. Boiling that down to a gold equivalent means that annual planned production of the metallic mix is equivalent to a 1.1 million ounce a year goldmine – an output level which makes the current suspended operation all the more frustrating.

Among the true believers in Lafayette is ABN Amro which helped organise the A$10 million share placement. At the time of the deal, the broking firm published very bullish earnings projections for Lafayette which included a profit in the current financial year to June 30 of A$11.6 million, rising to A$35 million in 2007 and A$38.2 million in 2008. Those numbers might slip because of the caution being taken in planning the re-start, but the resource remains in place – and hopefully not too much water.