OURAY – The court-appointed receiver for the Revenue Mine is searching for potential buyers, as Ouray Silver Mines, Inc., which aimed to resume production before shutting down last year, is facing multiple lawsuits over more than $10 million in allegedly unpaid bills.
According to a report filed with the Ouray County District Court this month by Alliance Management, LLC, the mine is now in a state of “care and maintenance,” and the company has just eight employees. Both are in stark contrast to plans for the facility in 2021, when the company aimed to be starting up production and hired almost 200 employees, most of whom were laid off late last year and early this year. At the time, the company cited rockfall and structural issues, which forced it to stop efforts to ramp up production.
District Court Judge Cory Jackson appointed Alliance as the receiver in July in response to a request from Mercuria Energy Group, which is the primary financial backer of the mine. Ouray Silver Mines defaulted on a $28 million loan from Mercuria, which then asked the court to appoint a receiver in order to protect the mine’s assets.
A letter from OSMI to the state’s Division of Reclamation, Mining and Safety said the mine “ran into financial difficulties in late 2021,” resulting in layoffs and then receivership. Poppy Staub, who was the company’s vice president of environmental affairs, wrote, “As a result, OSMI lacks the financing available to commence development of the ore or complete construction of the mill at this time.” The letter said the company planned to put the operation into “temporary cessation,” a status that can be in place for up to five years, through 2027. During that time, the company must maintain environmental sampling and compliance with its permits. Staub is no longer working for the company.
Alliance is now seeking a buyer for the historic mine, according to the receivership report. The company has hired Three Keys Investment Advisors, and paid it $90,000, as of Oct. 30, to conduct a sale process. Three Keys has “distributed marketing materials to a broad list of prospective buyers,” the report said, and has had “numerous conversations with prospective purchasers.”
The process is expected to take several months, and will need to be approved by the court before it is finalized.
In the meantime, the mine must maintain its environmental testing and permits, including addressing an issue identified with lead in water discharged from its treatment system. “Mitigation activities have begun and will continue to be monitored to determine effectiveness,” the report said.
Todd Jesse, Ouray Silver Mines’ environmental manager, said the issue occurred in May and June, due to higher water flows.
The Colorado Department of Public Health and Environment sent a letter to the company in July, which said the amount of potentially dissolved lead in the treated water discharged from the mine had exceeded the allowable limit 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 Water Quality Control Division.
Jesse said the issue first occurred in 2021, but the company was in the process of commissioning the mine and bringing it into production. “We thought it was related,” he said, until the higher levels of lead occurred again in 2022.
In a letter to CDPHE in August, Staub said the company notified the state in June when the issue was identified, and cited several weather-related issues, including high winds, unseasonably warm temperatures and rapid snow melt. Those contributed to high flow conditions, and led to water breaching the sand filters in the treatment system. This allowed water to move through the treatment system more quickly, she said.
“Based on initial investigation, OSMI believes high flow conditions (i.e., spring runoff) and lower residence time in the treatment system may be the cause of the exceedance,” Staub wrote.
“We’re looking into ways to improve the passive water treatment system,” Jesse said, including working with a consulting firm.
He said other efforts, including cleanup projects in Governor Basin and the Atlas mine, will also improve water quality in the area and, eventually, “should also change our discharge limit.”
In her letter, Staub said the company would likely seek modifications to its water quality standard in 2023 “to evaluate more reasonable permit limits based on actual ambient water quality.” Because of water quality improvement projects in the area, the water quality has improved and the limit for the mine’s permit could potentially increase, the letter said.
“Environmentally, we’re still in compliance with everything and we’re moving forward with improving our systems, and we’re still very very much committed to that,” Jesse said. He said work on a restoration project in Governor Basin is also still expected to move forward in 2023. “Hopefully we’ll have a new owner at that time,” he said.
Aurcana Silver Corp., which is based in Vancouver, Canada, and has owned 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, a company based in El Paso, is hoping 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 naming Alliance as receiver, he also put a stay on related court cases involving the mining company, pausing them from moving forward.
Those include four suits related to money allegedly owed by the company, totaling more than $10 million.
Brahma Group, Inc., which is based in Salt Lake City, filed a complaint against OSMI and Mercuria, as the mines’ financial backer, in District Court in September 2021, alleging that OSMI owes more than $3.3 million. Brahma Group entered 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 invoices for labor, equipment and materials, which have not been paid, the company alleges. 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.
Wagner Equipment Co., which is based in Aurora, sued OSMI, Brahma Group, Western Refractory Construction Inc., and Mercuria in May, also alleging it had not been paid $366,196 for equipment and supplies rented by OSMI.
Western Refractory Construction then filed a counterclaim, alleging 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, the complaint alleges. The suit is currently stayed.
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.
Ouray’s San Juan Mountain Guides also has a pending suit against OSMI for unpaid bills for avalanche forecasting services. The guiding company alleges the mining company had a contract to pay $22,500 per month for forecasting between December 2021 and May 2022, but failed to pay any invoices after December 2021. San Juan Mountain Guides says it is owed $101,250. The company asked the court in July to lift the stay on the case to allow it to proceed, which Alliance Management opposed. In a ruling last week, Jackson lifted the stay.
Liz Teitz is a reporter at the Ouray County Plaindealer and journalist with Report for America, a nonprofit service program which helps boost journalism in underserved areas.