Kobex leaving Lucky Jack project behind

Community members rejoice

In a victory for community members fighting the development of a molybdenum mine on Mt. Emmons, one of the mining companies has pulled out of the project. Vancouver, B.C.- based Kobex Resources Ltd. announced on Monday, March 31 that it was terminating its partnership with U.S. Energy Corp., citing regulatory and legal uncertainties.

The announcement was greeted with enthusiasm by community groups opposed to the mine. “The Red Lady Coalition views the decision of Kobex to terminate its agreement with U.S. Energy as a huge victory,” said Red Lady Coalition board president Bill Ronai. “It certainly appears that Kobex doesn’t think the Lucky Jack represents an attractive use of their resources, particularly in light of the high hurdles set by the community, High Country Citizens’ Alliance (HCCA) and the RLC, along with all the organizations and firms that have offered their assistance.”
Local environmental group HCCA also expressed satisfaction over the news. HCCA mineral resources director Bob Salter said, “We welcome this departure as a strong indication of how effective local efforts have been in stopping the development of a mine on Mt. Emmons. It’s clear that Kobex Resources, and their highly experienced CEO Roman Shklanka, have made a wise decision to cut their losses here in Crested Butte.”
Community liaison Perry Anderson said on Monday that his Gunnison office is waiting for the dust to settle after the announcement, but the six-member office will remain open and make the transition to U.S. Energy management. “We still have an economically feasible project and we’ll go forward with that,” he said.  Anderson was appointed Lucky Jack community relations director on Wednesday, April 2 by U.S. Energy.
In a telephone conversation from his Wyoming office, U.S. Energy Corp CEO Keith Larsen said he wasn’t surprised by Kobex’s decision. “Mining is not an easy thing and exploration of mineral projects is not for the weak of heart,” he said. He also noted that Kobex may have “underestimated what they saw as the issues.”
Anderson says it was always a possibility that Kobex would withdraw from the project. “I had anticipated this possibility but when you get the phone call, it does make your jaw drop,” he said.
In 2006, Kobex Resources, a Canada-based junior resources company, signed on to partner with Lucky Jack owners U.S. Energy Corp. to develop a molybdenum mine on Mt. Emmons, which neighbors Crested Butte. Under terms of the now-severed agreement, Kobex operated the project and stood to earn at least 50 percent and up to a 65 percent interest in the project. Last spring, Kobex put together a “bought deal basis,” which raised more than $28 million in capital.
In a press released dated March 31, Kobex Resources said the decision was made reluctantly because of the “Lucky Jack (Mt. Emmons) molybdenite property is still considered to be one of the best undeveloped primary molybdenum deposits in the world.” The release went on to state that “the regulatory and legal uncertainties which currently exist at the Federal, State, County and Municipal levels, in the Company’s opinion, have become too great to justify the necessary time and major pre-development expenditures that are required to advance this property.”
At least one stock analyst predicted Kobex’s retreat earlier this month. Kaiser Bottom Fish Online owner John Kaiser suggested to his subscribers via email last month that Kobex president and director Leo King and chairman and director Roman Shklanka would cut their losses on the Lucky Jack project and pursue another, more profitable, mineral project elsewhere.
Kobex has already spent approximately $8 million on rehabilitation at the existing Keystone Mine, studies of the metal at the site, and investigating the molybdenum. The company was facing the choice of spending $14 million of its $23 million in capital on the new tunnel project—or “drift,” in mining parlance—that it needs to prove the ore body’s value. The state of Colorado approved the tunnel but the Mined Land Reclamation Board tentatively agreed to review the decision. In addition, both Gunnison County and the Town of Crested Butte have permitting jurisdiction over the proposed tunnel.
Gunnison County had been poised to announce what impact category the proposed tunnel would fall into. Gunnison County planning director Joanne Williams said this week that the announcement would be put off in light of Kobex’s withdrawal.
Anderson said U.S. Energy officials are now taking another look at the data that’s been collected and have not decided whether or not to pursue the tunnel, which was needed to meet Canadian requirements. “I think they’ll stop and analyze what data they have,” he says. “It’s going to take a week or two to regroup.”
Crested Butte mayor Alan Bernholtz said he is gratified by the work they’ve done to create a strict regulatory environment. “I think the town is doing a good job in protecting our town and minimizing any potential impacts to town,” he said. “I’m glad to see Kobex realize that the impacts were too great and they’re now looking into other endeavors.”
While Kobex has opted to end its partnership, Ronai points out that U.S. Energy has not withdrawn. “Let’s not lose sight, however, of the fact that the mine is still in play, but getting another investor interested is bound to be tough, given Kobex’s withdrawal,” he says.
Salter agrees. “Efforts to stop mine development are far from over,” he said. “The threat of mine development is still very real and U.S. Energy has significant financial resources and is likely to seek other means of continuing the permitting and development process. HCCA will continue to seek a permanent way of protecting Gunnison Valley watersheds from the impacts of a mining operation on Mt. Emmons.”
However, U.S. Energy Corp officials remain optimistic that they will be able to find a new partner.
In a press release dated March 31, “Kobex’s decision to move on to other opportunities means that U.S. Energy Corp. again owns and controls 100 percent of the ‘world-class’ Lucky Jack molybdenum deposit. Kobex spent over $8 million on the project, all for the benefit of our shareholders. This is in addition to over $150 million reportedly spent by the previous owners. We are evaluating all of our options in regards to the property, which may include bringing a much larger mining company in as a joint venture partner.”
Anderson said he doesn’t see Kobex’s decision as either a loss or a victory. “It’s a business decision,” he said.
On Wednesday, April 2, U.S. Energy announced the appointment of Fredrick Craft as project manager of the Lucky Jack project and Anderson as director of community relations. The company also said its board of directors had approved $5 million supplemental budget for the project. “These additional funds will allow the company to continue, without disruption, working with all of the various consulting firms that are in the process of conducting numerous engineering and technical studies,” the release stated.