Dar es Salaam. The Canaco Tanzania Limited has said that it is currently facing challenges to develop the mine due to encroachment by illegal miners on its Handeni site.

The company, a subsidiary of East Africa Metal Inc - a Canadian firm that focuses on gold and base metal exploration in East Africa - has invested in Handeni Gold Mine Project. 

A geologist in charge of the project, Denis Philip, told BusinessWeek through an email communication that with interference, the company finds it increasingly difficult to engage mine developers and other financing opportunities given the fact that gold prices have also decreased tremendously during the past three years.

Gold is currently fetching less than $1,200 per ounce, a massive drop from as high as $1,800 per ounce three years ago.

He said the company, which has been in Tanzania since 2006, has been looking forward to developing the project since 2013.

“However, the mine development process is currently being threatened with challenges including volatile market conditions, which has proved difficult in getting financing deals…The company was in its initial process to sign a deal with one of the developers but illegal miners invaded the site,” he said. The company has been exploring in Handeni since 2007.

Before that it also held other exploration projects in Morogoro and Mwadui.  In May 2012, it announced the initial mineral resource estimates of 15.2 million tonnes grading 1.48 g/t gold and containing 721,300 ounces in indicated category as well as 6.7 million tonnes grading 1.39g/t gold containing 292,400 ounce in the inferred category. 

“In other words the project is feasible with about 10-15 year’s life span and the company has already obtained its Mining Licence which paves the way towards mine development. It is still viable even at this difficult market conditions,” he said. It has invested over $60 million in the project since 2007 and more funds were required to be injected for mine development. 

Initially, the mine development capital was estimated at about $100 million. 

However, with the gold price plunge plus volatile market conditions, he said they now need to significantly scale down the initial investment costs to get the project into operation. 

“Everything needs to be scaled down, the developer is working to get magic numbers for small scale operation that will create a fair amount of cash flow to maintain its properties and overheads. The figures are not out yet but the purpose is to grow slowly and expanding operation on bases of the turbulent market trend that won’t affect the company’s growth,” he said.

According to him, if the planned mine was only feasible at US $1,500/oz Au in 2012 different from US$1,200/oz today, then mine parameters have to be scaled down, such as investment cost, production and processing capacity, employment, mining techniques, supplies, among other things.

He said that Canaco has been investing in communities since its inception in 2006 and the company has established a well-furnished seven-classroom primary school which had only two classrooms in 2007, drilled a water well for the local community and primary school pupils, empower women in poultry farm business and engaged local suppliers at the village, contract local drilling companies to construction companies. It has employed a total of 300 locals during years of exploration between 2007 and 2013. 

He said that the company has been offering some of their own explored grounds which are feasible for small scale miners’ operations and have been able to work closely together with some legitimate groups of small scale miners by offering them a stake in the company.

“The government needs to put up laws that will ensure both investors and small scale miners work amicably,” he stressed.