$1 billion Colombia gold mine rejected

Colombia planned to reject Greystar Resources Ltd. (GSL)_s proposed $1 billion gold and silver mine, which lacked _vi...

Colombia planned to reject Greystar Resources Ltd. (GSL)_s proposed $1 billion gold and silver mine, which lacked _viability_ because of environmental concerns, said Mines and Energy Minister Carlos Rodado.

The company said today in a statement it will meet with regulators next week to discuss _alternative options._ Vancouver-based Greystar withdrew its permit applications yesterday for the Angostura deposit in northeastern Colombia, according to Rodado.

The project in a watershed area of Colombia had _technical and environmental difficulties,_ Rodado said today on Bogota- based W Radio. _There was no possibility that it passed._

The decision is a blow to Greystar_s efforts to start its first gold production and end losses, said Juan Felipe Mejia, an analyst at brokerage Interbolsa SA in Medellin. Greystar needed environmental approval by the end of June to start output in 2013. The company had said Angostura would produce about 2 million ounces of silver and 500,000 ounces of gold annually.

_Clearly there will be a delay to anticipated first production,_ Chief Executive Officer Steve Kesler said in the statement. A new plan under study would produce 200,000 ounces of gold annually, the company said.

Greystar rose 1.9 percent to C$2.75 in Canadian trading at 4 p.m. in Toronto. Earlier, it dropped as much as 16 percent.

The company has a market capitalization of C$231.6 million ($234.9 million).

Revising Proposal

Greystar said it doesn_t plan to withdraw from the project.

_The intent is simply to desist from ongoing environmental licensing to allow for a future refiling in the terms that reflect concerns,_ the company said. _There is a need to reconfigure it._

Greystar has been studying the possibility of an underground mine at the site, where it had been planning an open-pit mine.

Greystar had a net loss of C$24.6 million in the first nine months of 2010, according to its website. The company has reported losses every year since an initial public offering in August 2004, according to Bloomberg data.

The decision may hamper efforts by President Juan Manuel Santos to draw foreign investors to Colombia because of concern about environmental regulations, Interbolsa_s Mejia said in a phone interview. Increased security has prompted billionaires Carlos Slim and Eike Batista to plan investments to tap energy and metals reserves.

Repelling FARC

Foreign direct investment in Colombia more than tripled to $7.2 billion in 2009 from $2.1 billion in 2002, when former President Alvaro Uribe took office with pledges to repel guerrilla forces, including the Revolutionary Armed Force of Colombia, or FARC.

Opponents to the Angostura project said it endangered water supplies to the nearby city of Bucaramanga. Greystar has the option of ending its development plans or redesigning the project, which might take one to two years, Mejia said.

The stock has declined 55 percent in the past year, compared with a 25 percent gain for the S&P/Toronto Stock Exchange Smallcap Index.

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