Silver tailings: Profitable waste?

Tailings are materials produced from mining such as milled rock and effluents. In many cases, massive quantities of these materials, regarded as waste, are left from previous operations. Given the potential health and environmental risks associated with tailings, they could be viewed as problems or project deterrents, but then again, they could be viewed as a source of cash.

Despite the best of efforts, miners do not achieve 100 percent recovery rates. But that may not be all bad news. Failure to extract all the metal from mined materials may present profitable opportunities for those who are able to economically reprocess waste materials.

Tailings projects underway

A number of companies are exploring or embarking upon tailings projects.

PanTerra Gold (ASX:EVG,OTC Pink:ERGTF), announced plans to commence production from tailings in March or April 2012.

According to the company, the Las Lagunas project in the Dominican Republic involves reprocessing high-grade gold and silver refractory tailings that were accumulated at the Pueblo Viejo mine by a state-owned mining corporation over a period of seven years. PanTerra Gold is expecting to recover 65,000 ounces of gold and 600,000 ounces of silver annually for six and half years from this source.

In August 2011, Brian Johnson, Executive Chairman, said “[i]f current prices are maintained for the first two years of operations, profits over the two year period would be expected to increase from the previously estimated $US78 million to approximately $US104 million after tax and Government profit sharing, which would result in significant early cash flow for an emerging producer.”

El Tigre Silver (TSXV:ELS,OTC Pink:EGRTF,FWB:5RT) is an exploration company looking for cash flow from waste materials. The company announced its intentions for a silver-gold tailings project in Sonora, Mexico where it has access to materials accumulated from production at the El Tigre mine between 1903 and 1938.

The tailings program was initiated last November, with a one-year proposed work plan to achieve production. El Tigre Silver hopes that the resulting revenue will put an end to its stock dilution. Other objectives set for the project include developing infrastructure for future mining and developing in-house production experience.

Silver tailings not ready-made revenue

High silver prices and the need for cash could encourage increased interest in tailings projects, especially among junior miners. However, mining companies and their investors should understand that these are mining operations that are subject to many of the same considerations and procedures as companies that are extracting minerals from the ground, including feasibility studies and an assessment of adequate access to the needed capital.

In October, International Silver (OTC Pink:ISLVannounced the signing of a letter of intent with Aurum LLC, owner of the Caselton Tailings, in anticipation of a joint venture agreement. The tailings, according to an independent engineer’s report cited by International Silver, contain approximately 1,819,800 ounces of silver and 55,710 ounces of gold prior to the application of a recovery factor.

International Silver hopes to operate the Caselton Tailings project while finalizing drilling and testing at its adjacent Prince mine. Before embarking on that plan, the miner will first conduct further validation sampling and metallurgical testing to reconfirm tonnages, grades, and recovery of the precious metals values.

How metal is to be recovered from tailings is an issue of particular importance, as it will factor heavily into the success of the project. There are several options that could be considered, and the circumstances surrounding them, such as costs and recovery rates, can vary.

El Tigre Silver, for example, is modeling its project after Dia Bras Exploration(TSXV:DIB,OTC Pink:DBEXF) whose silver tailings recovery in Mexico dates back to 2009. As a result, El Tigre Silver concluded that the Merrill Crowe method is the best. PanTerra Gold will be using an option known as the Albion process.

Tailings and public concern

Another consideration is the attitude toward the existence of particular tailings. Mining waste can be a sensitive issue given health and environmental concerns. Tailings, from silver operations or otherwise, and the circumstances of their disposal and storage, are issues of growing concern for the public and environmentalists.

The Clayton Silver Mine, for example, was a large producer of silver and lead in Idaho that operated from 1935 to 1985. It had a massive tailings pile 15 acres in size that was in direct contact with a creek. Erosion led to contamination flowing downstream, eventually making its way to Salmon River. Concerning levels of metals were found in the soil in the town of Clayton, and the threats posed by continued wind and water erosion led the community to embark on a clean up mission nearly a decade later.

A mining company would likely want to avoid getting entangled in a project where the government or community has soured attitudes due to prior damage, or where there is an agenda for justice.

Miners are often seen as agents of damage, but when there are positive attitudes at play, tailings projects can offer the opportunity for companies to change that by providing communities with solutions for problems created in the past.

Steven Craig, Vice President of Exploration at El Tigre, said the tailings at the site of El Tigre’s project in Mexico were dumped directly on top of the ground. “For about 100 years, they have been rained on with the drainage flowing down into the river, which is not good,” he said.

If El Tigre’s tailings project is successful, it will do more than provide the company with cash flow. The reprocessed waste materials will be moved to a location where it will be stabilized using plastic barriers and rocks, reducing the associated risks.

“With the project we will clean up the site and create jobs,” said Craig.

Securities Disclosure: I, Michelle Smith, do not hold equity interests in any of the companies mentioned in this article.

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