VANCOUVER, BRITISH COLUMBIA -- (Marketwired) -- 04/30/13 -- South American Silver Corp. (TSX: SAC)(OTCQX: SOHAF) announced today that its wholly-owned subsidiary, South American Silver Limited ("South American Silver"), has commenced international arbitration proceedings against the government of Bolivia ("Bolivia" or the "Government") under the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL) pursuant to the Agreement between the Government of the United Kingdom and the Government of Bolivia for the Promotion and Protection of Investments (the "Treaty").
The arbitration has been commenced as a result of acts and omissions of the Government including the issuance of Supreme Decree No.1308 on August 1, 2012 (the "Decree"). The Decree revoked mining concessions covering the Malku Khota Mining Project (the "Project") held by Compania Minera Malku Khota S.A. (CMMK), a wholly-owned subsidiary of South American Silver Limited. These measures resulted in the complete expropriation of the Project without compensation. The arbitration claim is for Bolivia's breach of the Treaty and international law. Bolivia has breached the Treaty's requirement to provide full protection and security to foreign investors and their investments, as well as the Treaty's protections against, among other things, expropriation without just and effective compensation, unfair and inequitable treatment, and less favorable treatment than afforded to Bolivian nationals or nationals of third states.
Since the Decree, the company has made numerous attempts to open a dialogue with the Government with the aim of reaching an amicable resolution of the dispute, including receiving fair-value compensation. In late February 2013, the company was invited to attend a meeting set for 17th April, 2013 in La Paz, Bolivia. Attorneys representing South American Silver attended the April meeting but no resolution was reached and no compensation offered. The Decree stated clearly that the Bolivian state mining company, Corporacion Minera de Bolivia (COMIBOL), would hire an independent firm to carry out a valuation of the investments made by CMMK within a period not to exceed one hundred and twenty (120) business days. However, no such valuation has been carried out, nor has an independent firm been hired to undertake the valuation.
Exploration commenced at Malku Khota in 2003 and work on the Project continued through the expropriation in August 2012. After completing a total of 42,700 meters of drilling in 121 diamond core holes, and undertaking metallurgical testwork, process development and engineering design, a Preliminary Economic Assessment (PEA) Update was filed on SEDAR on 13th May, 2011 in a NI 43-101 technical report (News Release NR 11-06 dated 16th May, 2011). The May 2011 PEA Update included economic modeling that indicated pre-tax net present value (NPV) at a 5% discount rate of:
-- $704 million at metal prices of $18.00/oz silver and $500/kg indium-- $1.482 billion at $25.00/oz silver and $570/kg indium-- $2.571 billion at the $35.00/oz silver and $650/kg indium.(1)
After the 2011 PEA Update, the pre-feasibility study (PFS) phase was started in June 2011. The ongoing work program, which was designed to expand mineral resources and enhance project economics, included the development of social and community programs to benefit indigenous communities, baseline studies for the environmental review and assessment program, exploration, metallurgical testwork, flowsheet development, engineering design and preparations to construct a modern 150 person exploration camp near the exploration site. The planned work programs including the PFS were not completed due to the expropriation.