Malaga (MLG-T) shares lost a third of their value after the company suspended production at its Pasto Bueno tungsten plant in Peru, as it wrestles to keep costs down following a recent power outage at its underground operation.
The company says the blackout occurred “a few weeks ago” at its mine and plant, after “the hydroelectric transmission line was accidently severed and several transmission poles were damaged.”
The Montreal-based junior continued production using diesel-powered generators, but said this drove up operating costs and “resulted in a negative cash-flow position.” On Oct. 22, it announced that it would put the plant on care and maintenance until the power line is repaired. It should take roughly four weeks to fix.
“This has been a difficult decision for all of us, as we consider that Pasto Bueno remains a property of high quality, with significant resources and the potential to develop hydroelectric power on-site,” says Pierre Monet, the company’s president and CEO.
“At this time the processing plant is completely stopped, but activity at the mine is continuing,” the company’s head of investor relations Nicole Blanchard writes in an email response.
Blanchard maintains “it’s too early to tell” how this would impact production and costs, suggesting it may be reviewed in the third-quarter results, expected on Nov. 14.
Prior to the power outage, the plant was processing about 350 tonnes a day at an average cost of $191 per MTU, Blanchard writes, adding that Malaga “is pursuing discussions with debt and equity investors for a minimum of $3 million to develop the mine and use the processing plant to its full capacity of 500 tonnes per day.”
This should boost cash flow, which Malaga reports has lately been lower than expected, with production dropping mainly because of the lower-grade ore being extracted, and a dip in tungsten selling prices.
On the operational front, the company met delays in building a decline ramp to reach the higher-grade ore in the Huayllapon zone, and noted higher costs to add a new tailings pond. As a result, it’s looking for ways to trim costs.
“Cost reductions include reduced selling, general and administrative expenses, and delay of expenses that are not essential until a financing is secured, which management is actively negotiating at this time,” Blanchard explains.
Once the financing is in place, Pasto Bueno, the company’s sole mine, is expected to kick into full production. The mine is located in the Andes, some 657 km from the capital city of Lima.
On the suspension news, Malaga shares fell 33% to 5¢, on more than 1.6 million shares traded.
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