Belo Sun's next challenge at Volta Grande: 2,000 illegal miners

Belo Sun (TSX:BSX) added 7.7% on Wednesday after emerging from a tough trading week that saw the company cancel and then reinstate a $50 million financing deal for a project in Brazil after authorities announced a probe into what is the South American country's largest gold project.

Stock in the $320 million Canadian company was hammered after Brazilian federal prosecutors opened an environmental review of the controversial mine in the Volta Grande do Xingu area, but is now back to trading at $1.40 a share in Toronto – exactly the level the bought deal was priced at.

While the investigation is centered on the impact of the project of little over $1 billion on local communities and water use, Belo Sun's biggest challenge may not be convincing the indigenous Xingu people or Norte Energia, the owners of the Belo Monte hydroelectric project, that the gold mine is in their best interest.

A potentially bigger stumbling block, reports Valor Econômico (sub required), could be the 2,000 miners working illegally at three unlicensed gold mines in the area who would not welcome Belo Sun, particularly if it gets the lion share of the local resources.

Belo Sun also hopes to partner with Norte Energia to share the costs of building power transmission lines as the mine would be located just 14 kilometres from the hydro plant. The artisinal miners would also be negatively impacted by the dam which would cut of waterflow to their operations.

The 165,000 gold ounces per year project is set to enter the definitive feasibility stage next year. Belo Sun owns 100% of Volta Grande and increased its property position from 195 sq. km to 1,305 sq. km a year ago.

Image is by Ryan M. Bolton / Shutterstock.com of Peruvians participating in illegal gold mining along the Madre de Dios river.