Mr. boring checking in

Vancouver company faces an uphill battle to secure permits for an open pit gold mine in Colombia. Meanwhile analysts see little upside for the stock price.

BOGOTA - As it continues to wage a so far unsuccessful battle to secure environmental permits for an open pit gold mine in Colombia, Greystar Resources Ltd. (TSE: T.GSL, Stock Forum), appears to be losing some of its stock market momentum.

Shares of the Vancouver company rose 33% in the days after AngloGold Ashanti Ltd.’s (NYSE: AU, Stock Forum) March 30 announcement that it planned to spend $300 million on further exploration in Colombia.

News that South Africa-based AngloGold is seemingly undeterred by Greystar’s well documented permitting problems drove the stock price to $3.25 on April 4 from $2.45 on March 29, the day before the AngloGold announcement.

But the stock has since slipped back to close at $3.17 on Friday, April 8, giving the company a market cap of $265.3 million, based on the 84.2 million shares outstanding.

At current levels, the stock has not been a good investment for people who bought in when Greystar was trading near the 52-week high of $6.75. Analyst Michael Curran of RBC Capital Markets says this will continue to be the case, at least for the foreseeable future.

“I don’t see the stock doing much in the next 12 months,’’ said Curran, one of two analysts who currently have a sell rating on the stock, according to Bloomberg News Service. The other is Cailey Barker of Numis Securities Ltd. in London England.

Crystallex International Corp. (TSX: T.KRY, Stock Forum) is another company that has spent years trying, without success, to get a gold mine into production. Crystallex’s Las Cristinas project is in Venezuela.

As indicated by the fact that AngloGold has already spent $250 million in Colombia since 2003, the South American country has become a hot area for mineral exploration.

However, while the government has regained control of many parts of the countryside that were once controlled by Marxist guerillas, environmental concerns remain a significant headache for some companies.

Vancouver-based Greystar has been in Colombia for over 10 years, in that time spending $140 million to develop its Angostura gold-silver project in a mountainous area in northeastern Columbia. According to company estimates, Angostura could generate up to 500,000 ounces of gold and 2.3 million ounces of silver annually, starting in 2012.

But that’s only if it ever goes into production.

After earlier flip-flops, the government signaled last month that it was going to reject the project, a move that prompted the company to withdraw its application, leaving its future in Colombia in doubt.

On March 7, the company issued a statement saying that it was disappointed by the early termination, due to confrontations, of environmental public hearings that had been set up by the government as part of the environmental permit application process.

Opposition to the mine centres on the fact that it is located within ecosystems called paramos, which are made up of grasslands and peat bogs.

Paramos start at a specific elevation of around 2,800 metres and are a kind of Neo-tropical and treeless wonderland of lakes and wet grasslands.

They have the capacity to capture, store, and regulate flows of surface and underground waters that are needed to feed crops and reservoirs and to supply the aqueducts of the city of Bucaramanga, Cucuta, and 21 other municipalities in the department of Santander.

In an open letter to Colombian Environment Minister Beatriz Elena Uribe Botero, the Colombian Network Against Large-scale Transnational Mining urged the minister to reject Greystar’s bid to secure an environmental license.

It did so on the basis that 81% of the total area destined for mineral extraction, processing of ore with cyanide, and waste rock, is situated in the Paramo Santurban, an area in which mining activities are not permitted.

The letter to the Minister said the granting of an environmental license for Angostura would be a threat to the water on which two million Colombians depend.

Jennifer Moore, a co-ordinator for Latin American Programs with MiningWatch Canada in Ottawa told Stockhouse that in her opinion the future of Angostura now appears to depend on whether or not the government of Colombia will follow its own laws.

“Clearly the market is not sure what the ultimate resolution is,’’ said Curran of RBC.

For its part, Greystar has said that it will review the project to determine whether modifications are possible to address these concerns.

Meanwhile, it has decided not to proceed with the finalization of the feasibility study on the open pit mine, while it considers alternatives, including a possible underground option.

Greystar has no operating revenue, and in the year ended December 31st, 2010, the company posted a loss of $35.9 million or 43 cents a share, up from a loss of $24 million or 43 cents in 2009. The consensus among analysts polled by Bloomberg is that the junior will report a loss of 5.5 cents a share in the quarter ended March 31, 2011.

Curran said Greystar shareholders must now sit tight and hope that Brazilian billionaire Eike Batista will ride to the rescue by launching a takeover bid for the company, following his purchase, last month, of Ventana Gold Corp. (TSX: T.VEN, Stock Forum).

Ventana’s key asset is the La Bodega project, which is part of the same geological structure that hosts Greystar’s Angostura deposit. However, La Bodega is located at a much lower elevation and is not expected to face the same permitting issues.

Meanwhile, Curran said he is not giving up hope that Greystar will secure the necessary permits. But he is not optimistic about the near term outlook for the stock. “We think that the stock will tread water and it will be another year before the feasibility study is completed,” he said.