Investors, directors flee Baja after Boleo costs rocket. Stock tanks 37%

By the close the Vancouver-based developer was trading down 37.3% at $0.57 on the Toronto big board, near its lowest for the day. The mining sector was generally weak on Monday with the TSX Global Mining index down more than 2%.

Around 6.7 million shares in the $203 million company had changed hands compared to the daily average of 430,000. The counter is down 25% year to date.

Some 339 million shares are outstanding, but the statement out today suggest funding through other means than debt will now have to be sought which could lead to dilution for shareholders.

Before the cost run-ups, first flagged at the end of March, Baja forecast $890 million would be needed to build the 70%-owned mine. Korean investors hold the rest.

The company will now give a definitive cost estimate next quarter saying “more robust systems are being implemented to improve forecasts and project controls going forward.” The company said Boleo remains on track to enter production in the second half of 2013.

Baja also hinted that it anticipates further financial pain to bring the project to completion, saying it is “cognizant that raising additional funding from the Boleo project’s lenders may subject the project to further risk management strategies as required by its lenders including but not limited to additional cost overrun facilities beyond the $100 million already funded and applied to its projected cost increase.”

Apart from the snags with construction of Boleo, Baja has also been involved in a bitter – and very public – boardroom dispute with 20%-shareholder Mount Kellet Capital Management.

Mount Kellett, which has pumped $80 million into Baja, had not been pulling punches, accusing Baja CEO John Greenslade of “enriching family and friends” at the expense of shareholders.

For its part Baja called Mount Kellet a wolf in sheep’s clothing wishing to do a takeover of the company by stealth.

At a special shareholder meeting on April 3, the Greenslade camp scored a narrow victory over Mount Kellet, although given today’s events, it seems Pyrrhic. Mount Kellett had been saying all along the board needs more independent directors, which will now happen.

Press Release:

VANCOUVER, BRITISH COLUMBIA, Apr 23, 2012 (MARKETWIRE via COMTEX) — Baja Mining Corp.CA:BAJ -34.07% (otcqx:BAJFF) today announced the preliminary results of its current capital cost review of the Company’s 70 percent owned Boleo copper-cobalt-zinc project and three resignations from the Board of Directors.

Capital Cost Review

While the review is not yet complete, Baja has identified a projected cost increase of approximately $246 million after exhausting existing contingency and cost overrun facilities. Financing for the Boleo project was based on a 2010 projected go-forward funding requirement of US$1.143 billion. The projected $246 million cost increase represents a 21.5% increase over the 2010 funding requirement.

The projected cost increase is attributable to a variety of pressures including change of scope, design improvements and price increases in key consumables such as steel and fuel. This current estimate exceeds previous forecasts, which were based in part on cost trend analysis. More robust systems are being implemented to improve forecasts and project controls going forward and the Company will provide further information regarding such controls shortly. Nevertheless, the increase is consistent with increases experienced by other mining development projects.

The Company is reviewing the updated cost projections for accuracy and is exploring the potential of various options to defer or reduce costs. In addition, and in consultation with the lenders for the Boleo project and Baja’s strategic partners, Baja is considering the most efficient and non-dilutive options for funding its 70% of the budget shortfall. To date, Baja has been successful in minimizing dilution to existing shareholders by providing a financing package 70% comprised of debt and non-equity contributions and is committed to providing the most effective funding to complete the Boleo project.

Under the Boleo project’s lending agreements, the projected cost increase requires Baja and its Korean Partners to fund the shortfall. Baja has initiated discussions with the Boleo project’s lenders and Baja’s partners to develop an acceptable remedy within the next two months allowing the Boleo project to continue drawing on available loan facilities. Baja is cognizant that raising additional funding from the Boleo project’s lenders may subject the project to further risk management strategies as required by its lenders including but not limited to additional cost overrun facilities beyond the $100 million already funded and applied to its projected cost increase.

The Company’s Korean partners continue to support the project and are working with Baja and the project’s lenders to develop and execute the funding plan. Baja also reports that development of the Boleo project continues on a schedule which is consistent with production targets. As previously disclosed, copper production at the Boleo project is targeted for the first half of 2013.

Director Resignations

Baja also announces the resignations of Graham Thody, Tom Ogryzlo and Wolf Seidler from the Company’s Board of Directors, temporarily reducing the size of the board to three members, of whom two are independent. The Company is working to appoint new independent nominees to the Board to replace the departing directors as swiftly as possible and will keep shareholders apprised of progress.

About Baja

Baja Mining Corp. CA:BAJ -34.07% (otcqx:BAJFF) is a mine development company with a 70 percent interest in the Boleo copper-cobalt-zinc-manganese Project located near Santa Rosalia, Baja California Sur, Mexico. Baja is the project operator and a Korean syndicate of industrial companies holds the remaining 30 percent. Boleo is funded, currently under construction and targeted for copper commissioning in 2012, and copper production in early 2013. Boleo has 265 Mt of measured and indicated resources (including 85 Mt of proven and probable reserves) and 165 Mt of inferred resources. A March 2010 updated technical report to the 2007 definitive feasibility study, confirmed that Boleo could be developed economically at an after-tax IRR of 25.6 percent (100 percent equity), with a minimum scheduled mine life of 23 years (during which approximately 70 Mt of the noted proven and probable reserves will be exploited), a NPV of US$1.3 billion (8 percent discount rate), and an average life-of-mine cash cost of negative US$0.29/lb for copper, net of by-product credits. Metal Prices were based on SEC pricing guidelines (which at the time of the 2010 report were US$2.91/lb Cu, US$26.85/lb Co and US$1,175/tonne ZnSO4H2O). For more information, please visit www.bajamining.com .