November 27, 2022

OURAY – Revenue Mine’s court-appointed receiver is looking for potential buyers as Ouray Silver Mines, Inc., which aimed to resume production before shutting down last year, faces multiple lawsuits for more than $10 million of dollars in allegedly unpaid bills.

According to a report filed in Ouray County District Court this month by Alliance Management, LLC, the mine is now in a “care and maintenance” state and the company has only eight employees. Both are in stark contrast to plans for the facility in 2021, when the company aimed to start production and hire nearly 200 employees, most of whom were laid off late last year and early this year . At the time, the company cited structural and rockfall problems, forcing them to halt their efforts to ramp up production.

District Court Judge Cory Jackson appointed Alliance as receiver in July in response to a request from Mercuria Energy Group, which is the mine’s main financial backer. Ouray Silver Mines defaulted on a $28 million loan from Mercuria, which then asked the court to appoint a receiver to protect the mine’s assets.

A letter from OSMI to the state’s Division of Reclamation, Mining and Safety said the mine “experienced financial difficulties in late 2021” and that led to layoffs and later a lawsuit. Poppy Staub, who was the company’s vice president of environmental affairs, wrote, “As a result, OSMI does not have the funding available to begin ore development or complete mill construction at this time.” The letter said the company planned to put the operation on “temporary cessation,” a status that can be in effect for up to five years, until 2027. During that time, the company must maintain environmental sampling and compliance of their permissions. Staub no longer works for the company.

Alliance is now looking for a buyer for the historic mine, according to the court report. The company has hired Three Keys Investment Advisors and paid them $90,000, as of Oct. 30, to conduct a sale process. Three Keys has “distributed marketing materials to a broad list of potential buyers,” the report says, and has had “numerous conversations with potential buyers.”

The process is expected to last several months and will have to be approved by the court before it ends.

In the meantime, the mine must maintain environmental testing and permits, including resolving an identified problem with lead in water discharged from its treatment system. “Mitigation activities have begun and will continue to be monitored for effectiveness,” the report said.

Todd Jesse, environmental manager for Ouray Silver Mines, said the problem occurred in May and June, due to higher water flows.

Miners lay near donkey cars of mine ore taken from donkeys and piled logs at the Revenue Mine tailings dump near Ouray in August 1896. (Denver Public Library Department of History and Genealogy) .

The Colorado Department of Public Health and Environment sent the company a letter in July, saying the amount of lead potentially dissolved in the treated water discharged from the mine had exceeded the limit allowed under its permit. The 30-day average cannot exceed 2.6 micrograms per liter, but in May, the level averaged 3.5 micrograms per liter, according to the letter from CDPHE’s Division of Water Quality Control .

Jesse said the problem first occurred in 2021, but the company was in the process of getting the mine up and running and putting it into production. “We thought it was related,” he said, until the highest lead levels occurred again in 2022.

In a letter to CDPHE in August, Staub said the company notified the state in June when the problem was identified and cited several weather-related issues, including high winds, unusually warm temperatures and rapid snow melt These contributed to the high flow conditions and caused the water to breach the sand filters in the treatment system. That allowed the water to move more quickly through the treatment system, he said.

“Based on initial research, OSMI believes that high flow conditions (ie, spring runoff) and lower residence time in the treatment system may be the cause of the exceedance,” he wrote Staub.

“We’re looking at ways to improve the passive water treatment system,” Jesse said, including working with a consulting firm.

He said other efforts, including cleanup projects at Governor Basin and the Atlas mine, will also improve water quality in the area and eventually “should change our discharge limit as well.”

In his letter, Staub said the utility will likely seek modifications to its water quality standard in 2023 “to assess more reasonable permit limits based on actual ambient water quality.” Due to water quality improvement projects in the area, water quality has improved and the limit for the mine permit could increase, according to the letter.

A worker at Ouray Silver Mines Inc. surveys progress toward lining a tailings pond at the Revenue-Virginius mine. (Photo provided by Ouray Silver Mines Inc.)

“Environmentally, we’re still in compliance and we’re making progress on improving our systems, and we’re still very committed to that,” Jesse said. He said work on a restoration project at Governor Basin is also expected to move forward in 2023. “We hope to have a new owner by then,” he said.

Aurcana Silver Corporation, headquartered in Vancouver, Canada and owned by Ouray Silver Mines since 2018, also owns the Shafter Silver Project in Presidio County, Texas. The Big Bend Sentinel reported in August that Presidio Silver, an El Paso-based company, hopes to buy that mine and has a deal in the works. Aurcana has not made any announcements about the Texas project.

When Jackson issued the order appointing Alliance as receiver, he also stayed court cases related to the mining company, preventing them from moving forward.

These include four lawsuits related to money allegedly owed by the company, totaling more than $10 million.

Salt Lake City-based Brahma Group, Inc. filed a complaint against OSMI and Mercuria, as the mines’ financial sponsor, in District Court in September 2021, alleging that OSMI owes more than 3.3 millions of dollars. Brahma Group entered into an agreement with OSMI for construction work and services at the Revenue-Virginius mine in August 2020, according to the suit, which OSMI terminated in March 2021. Brahma then submitted labor invoices , equipment and materials, which have not been paid for. , the company claims. According to court records, the parties began arbitration and had a hearing scheduled for January 2023; however, the hearing was postponed due to the court’s order staying the suit.

Aurora-based Wagner Equipment Co. sued OSMI, Brahma Group, Western Refractory Construction Inc. and Mercuria in May, also alleging that it had not been paid $366,196 for equipment and supplies leased by OSMI.

Western Refractory Construction then filed a counterclaim, alleging that OSMI owes an outstanding balance of more than $6 million for work as a general contractor at the mine. The company was supposed to pay WRC in periodic payments, but stopped making them in July 2021, according to the complaint. The suit currently stands.

Border States Industries, Inc. sued OSMI in June, alleging the company owes $58,226, plus interest, for “electrical materials, goods and supplies” purchased on credit.

Mountain guides in San Juan de Ouray also have a lawsuit pending against OSMI for unpaid bills for avalanche forecasting services. The guide company alleges that the mining company had a contract to pay $22,500 per month for the forecast between December 2021 and May 2022, but failed to pay any bills after December 2021. San Juan Mountain Guides says that he is owed $101,250. The company asked the court in July to lift the stay of the case to allow it to continue, which the Alliance Management opposed. In a ruling last week, Jackson lifted the stay.

Liz Teitz is a reporter for the Ouray County Plaindealer and a reporter for Report for America, a nonprofit service program that helps advance journalism in underserved areas.

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