Telson Mining Corp. [TSN-TSXV, SOHFF-OTC, TSGN-Frankfurt] shares rallied Friday after the company said it will restart operations at its Campo Morado mine in Guerrero, Mexico. It said the decision was prompted by improved relations within the local community and a better market for zinc.
“We are pleased that we have achieved conditions to restart productive operations in Campo Morado. The mine is ready to produce mill feed for more than two years without new underground development,’’ said Telson CEO Antonio Berlaga in a press release.
Telson shares rallied on the news, rising almost 8% or $0.01 to 14 cents on October 25, 2019. The shares are trading in a 52-week range of 12.5 cents and 50 cents.
Since it moved to suspend mining operations at Campo Morado in August, 2019, under force majeure conditions, Telson has been without cash flows resulting in non payment under a loan agreement dated June 12, 2018 with the mine’s former owner Nystar Canada (Holdings Ltd.)
The company said it decided to suspend operations for two key reasons.
As a result of certain activities in the vicinity of Campo Morado, the company said it was concerned about the health and welfare of the workforce. The company went on to explain that following an extended scheduled shut down for maintenance work, the company experienced a work stoppage at the mine. “A significant portion of Campo Morado’s current local work force and trucking companies, including their drivers have advised that they are unable to continue providing services to the Campo Morado mine as they claimed concerns with the relationship with the local community.
The second reason for the suspension decision was the substantial decline in the price of zinc, which had a negative impact on the mine’s profitability.
“Neither of these issues alone would have necessarily led to the decision to curtain operations at Campo Morado, however, Telson’s management and board of directors believe that the company’s focus in an improving gold market should be to complete construction of the company’s Tahuehueto gold mine in Durango, State, Mexico,’’ Telson said in a press release on August 14, 2019.
Tahuehueto is Telson’s flagship asset and once in production will shift the market’s perception of Telson form primarily a base metals producer to a gold producer, the company said.
Campo Morado is an underground multi-metal mine with infrastructure, installations, and equipment capable of processing 2,500 tonnes of ore per day. Telson acquired a 100% interest in the Campo Morado mine from Nystar in June, 2017. Commercial production was declared in May, 2018.
During fiscal 2018, the mine produced 39,363 tonnes of zinc concentrate with average grades of 44.87% zinc, 1.40 g/t gold, 409 g/t silver, and sold 39,332 tonnes of zinc with an average grads of 41.9% zinc, 1.29 g/t gold, 367.9 g/t silver, generating total sales of US$35.4 million. In addition, the mine produced 7,311 tonnes of lead concentrate, grading 26.24% lead, 2.60% copper, 6.31 g/t gold, 734 g/t silver and sold 7,566 tonnes of lead concentrate, generating total sales of US$5.6 million.
On Friday, Telson said all necessary steps are being taken to restart mining and milling operations at the project commencing immediately with transporting for delivery and sale of lead and zinc concentrates stored on site to the port of Manzanillo.
“Over the next four weeks, the mine will be taken out of care and maintenance and brought back to production such that the company anticipates initiating full mining and processing operations near the beginning of December 2019,” the company said.
With the addition of new reagents, Telson said it hopes to increase the gold and silver recovery in flotation concentrates. The ultimate goal is to transition Campo Morado from being a base metal producer into a silver and gold precious metal producer such as it historically was.
Meanwhile, the lack of cash flow has resulted in a non payment under a loan agreement with Nystar. This has resulted in Nystar issuing to the company a notice of default and demand for payment. Telson’s outstanding debt under this loan agreement, including principal and interest is approximately US$6 million.
Telson said it has attempted to contact Nystar to discuss this situation and seek abeyance of any protential default proceedings. “Once Campo Morado is put back into commercial production, Telson expects to be able to recommence outstanding payments to Nystar and in the meantime is exploring other financing alternatives,’’ the company said.