Chastened by vote, Meridian vows to listen

Losing a community referendum by an 83 percent vote is chastening, but officials of Reno's Meridian Gold haven't lost hope that they someday can move ahead with a major mining project in Argentina.

"When 83 percent of the people say 'no,' we hope that 83 percent are saying 'maybe,'" Brian Kennedy, Meridian's president and chief executive, told securities analysts last week.

But Kennedy also was the first to admit that his company erred badly in its relationship with the people of Esquel, a city of 31,000 people about four miles from the three million ounces of gold that Meridian hopes to mine.

"In the past, we've been saying a lot of things.

But we haven't been listening to a lot of things," the mining executive said.

Meridian learned the depth of its errors in a non-binding referendum in late March, when fears about the mine's effects on water supplies led to the strongly negative vote.

The company's strategy now? Put the Esquel project on hold, listen to the worries of the neighboring townspeople and head back to the drawing board.

"We need to sit with our neighbors," Kennedy said.

"We don't want to go forward with this project with a community that distrusts what we are doing.We need to be neighbors before we are operators."

Before the chastening vote, Meridian executives were excited about the mine's potential.

They were ready to put $100 million into developing a mine that could produce 300,000 ounces of gold during each its first five years.

With an average cash production cost estimated to be $108 an ounce, the mine would generate nearly $60 million a year in gross profits if gold remains at $300 an ounce.

Now Meridian executives find themselves in a tough fight to protect a mining property that they acquired last May with Meridian's takeover of Brancote Holdings PLC.

The Argentine mining property which is surrounded by grazing land for sheep is valued on Meridian's books at $310 million.

Kennedy said the political situation in Esquel began to come unraveled last autumn as residents learned that cyanide would be used in the processing operation.

There aren't any good alternatives to use of cyanide at the project, he said, and cyanide is used at 98 percent of the gold mines in the world.

Nevertheless, the very word drew an emotional response.Worries about whether the mine would damage water supplies to the community only added to the opposition.

"The community began to feel the issues were not resolved to their comfort level," Kennedy said.

"There was no trust in the regulatory process."

The mine proposal drew wider attention, too, because it's about 40 miles away from a national park, although the park is in the drainage of the Pacific Ocean while the mine is in the Atlantic drainage, said Wayne Hubert, Meridian's vice president of corporate development and investor relations.

Esquel is known, too, for a nearby ski area.

Hubert said a ridge would hide the proposed open-pit mine from the ski area.

Those environmental concerns outweighed the economic effects of the mine, which is expected to provide 400 jobs in a nation whose economy is badly in need of investment and jobs.

Kennedy said the company believes that Esquel includes well-educated, technically savvy leaders who can understand the ways the company will protect the environment.

Meridian executives led by Edward Colt, the executive vice president dispatched to spearhead the effort plan to meet with small groups of residents in a bid to win their support.

The company had said it planned to begin operations at the Esquel property in 2005, and Kennedy said that's still a possibility.

More important than any timetable, he said, is the need to listen to the community and revise plans to address residents' concerns.

"How can both parties look at it (the mine and the gold deposit) not as a curse but as an opportunity?" he asked.

In the meantime, the company estimates its carrying costs on the project will run about $500,000 a month.