Skye Resources project in Guatemala

Skye Resources project in Guatemala

By Frank Jack Daniel, Reuters

5th May 2005

Guatemala City - Canada's Skye Resources Inc. has started drilling at a long dormant Guatemalan nickel project and hopes to start production on time in 2008 despite delays and local opposition to the project.

Skye said it expected to complete a feasibility study at its Fenix project in eastern Guatemala within 12 months, despite a delay in getting drilling equipment to the site.

"Drilling started a week ago Friday with one drill, about a month behind what we'd have like to have been. The second drill has now started," Skye Chief Operating Officer David Huggins told Reuters late on Wednesday.

Huggins said that subject to Skye receiving the right licenses, part of the mine should go online in 2008.

"The optimistic schedule is that if we are able to get (the feasibility study) done in a year, we would like to get the first line on 24 months after that, and the second line, the doubling of the thing, after about 36 months," he said.

The Fenix project was previously known as Exmibal and was jointly-owned by Inco and the Guatemalan government. It was mothballed in 1980 amid rising fuel prices and collapsed nickel prices.

Exmibal used to produce 11,000 tonnes of nickel a year. Skye aims to raise that to 20,000 tonnes a year after an estimated $540 million investment over the next 5 years.

Under the terms of a 2004 deal, Vancouver-based Skye got Inco's 70 percent-stake in Exmibal, a company formed to exploit the nickel project and processing plant in eastern Guatemala, if the miner can bring it up to active mine status.

Skye would like to buy the remaining 30 percent still in government hands. The miner faces a number of hurdles before it can begin production -- including high fuel prices, community opposition and an ambiguous government position on issuing new mineral exploitation licenses.

Several outspoken critics of the Exmibal project were assassinated in the 1970s during military regimes and there is stiff opposition to the renewed project in Maya Indian villages that fringe the property.

Even as the company works hard to shake off the past, this year investing $500,000 in a community development fund, the project has not shed its critics.

"The communities have serious concerns and fears about this project, and at the same time, have a real small scale economy based on the sale of cardamom and other crops that would be jeopardized if not destroyed should the project go ahead," said Daniel Vogt of Aepdi, a local Mayan Indian development group. Skye has promised to compensate farmers for lost crops.

Anti-mining feeling ran high in Guatemala early this year when a villager was shot dead after peasants tried to blockade a highway another miner was using to transport mine equipment.

Following the incident Guatemalan Vice-President Eduardo Stein said the government would not issue more mining licenses while it waited for a commission to look at ways of reforming the country's mining law.

(Editing by Christian Wiessner; Mexico City newsroom)