VANCOUVER — Precious metals outfit Colossus Minerals (TSX: CSI; US-OTC: COLUF) faces increasing market scrutiny as it has once again delayed a first production target at its 75%-owned Serra Pelada gold–platinum–palladium project in Brazil’s Carajas region. And a US$70-million funding shortfall has only added more uncertainty to the development timeline.
Back in November, Colossus pushed back its production date from late 2013 to the second quarter of 2014, due to complications with dewatering at Serra Pelada, and revealed it would need to revise its capital and operating expenditures at the project.
Following the announcement, CEO Claudio Mancuso resigned and was replaced by chief financial officer David Massola. The shakeup triggered a major sell-off on Nov. 15 of Colossus’ shares, which dipped 52% on 24.7 million shares traded, before closing at a multi-year low of 20¢ per share.
At the time Colossus said it would proceed with underground development, while reporting that construction at Serra Pelada was 95% complete. The company also maintained that infrastructure development in the red and grey siltstone would not be impacted. But by December the future appeared even more uncertain for the project, given the reported capital shortfall.
After revising its development budget, Colossus went back to its stakeholders in a bid to close the funding gap between starting production and realizing cash flow from operations.
It appears that markets were not co-operative, as the company announced on Dec. 6 that it was ceasing underground development at Serra Pelada to focus on de-risking the project.
Colossus stated it would complete dewatering and underground drilling campaigns, but would need to cut its capital burn rate.
One of the qualities lacking at the project is a National Instrument 43-101 compliant mineral resource, which the company hopes to release before 2014.
Thanks to high grades found during drilling, Colossus had expedited underground development to extract bulk samples from Serra Pelada’s central mineralized zone. In 2011 the company cut 7.3 metres grading 1,494.7 grams gold per tonne, 516 grams platinum per tonne and 559 grams palladium per tonne, from 237 metres depth in hole 99.
To date Colossus has spent US$90 million developing the site, along with US$14.5 million in exploration and administrative costs.
The company completed a $38-million bought-deal financing in August, when it placed 44 million units for 75¢ per unit.
Colossus’ cash and equivalents in September were pegged at just US$19 million.
Streaming company Sandstorm Gold (TSX: SSL; NYSE-MKT: SAND) has a $60-million agreement with Colossus, wherein it would purchase an amount equal to 1.5% of the gold and 35% of the platinum produced from Serra Pelada.
Colossus has a minimum ounce-delivery requirement for both 2013 and 2014, and Sandstorm acknowledged in a press release that it would review the investment for a partial or full impairment, stating: “Colossus has material negative working capital” and “there can be no assurance that adequate funding will be available for [the company] in the future.”
The latest setbacks triggered a sell-off for Colossus shares, which had bounced back to 30¢ in November. On Dec. 6, 10 million shares traded hands, with the company’s stock dropping to an intraday low of 12¢ per share. Colossus ended the day down 34% at 16.5¢ per share. The company had 169 million shares outstanding at press time for a $28-million market capitalization.
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