LONDON (ResourceInvestor.com) -- AIM, TSX & AMEX listed, Brazil focused gold miner Yamana gold now operates two producing projects, and is determinedly developing three more that see it established firmly on the middle rung of the gold producing ladder.
The company's two producing assets currently do so at around 130,000oz per annum, while two further projects now in the construction phase and with full financing in place are likely to hike this steadily towards a projected 410,000oz by 2007, at targeted company wide cash costs of between $210 and $225 per oz.
The Fazenda Brasiliero project is Yamana's primary producer, and the company's President & CEO Peter Marrone envisages a 'transitional' coming year for the ex CVRD owned mine. Current reserves are almost exhausted and consist primarily of low grade ores, but the company is 'looking to gain access' to a promising zone located below the existing open pit, as well as exploring in the mine's environs with the aim of establishing sufficient reserves to extend its life. Attainment of this goal is anticipated by mid 2006, and reserve replacement is currently exceeding depletion through mining.
Yamana's second producing project is Fazenda Nova, a small project which is already operational on a pilot basis and will ultimately contribute 35-37,000oz gold per annum over four years, at a cash cost of $175/oz. Aberrationally copious local rainfall is delaying the declaration of commercial production at the project. The rain is likely to abate in the next couple of months; meanwhile actual output is exceeding that expected on a commercial basis.
The Chapada project will be the primary driver of the Yamana's coming production growth, and the early part of 2007 will see production from this asset at a level of around 130mlb/yr copper and 134,000oz/yr gold. Construction of the mine is well underway and a mine life of 19 years from shallow open pit reserves is planned. Life of mine cash costs are put at around $185/oz gold and $0.68/lb copper, while during the first five years of operation these are expected to run at $140/oz gold and $0.57/lb copper. Production is modelled to peak in 2008 at 213,000oz gold and 185mlbs copper, with a total life of mine extraction of 2bnlbs copper and 1.3moz gold.
The second project Yamana has under construction is Sao Francisco, a conventional open pit, gravity, and heap leach operation projected to produce 815,000oz over 7.5 years, at a cash cost of $208/oz and commencing output at the end of this year. The gold encountered at Sao Francisco is very coarse, and according to Marrone drilling 'significantly underestimates the grades', possibly by up to 300% based upon results obtained through bulk sampling. This leaves scope for expansion of reserves and resources once the extent of the miscalculation is known. Marrone says in the future higher grade underground targets beneath the Sao Francisco pit will be explored, and that the life of the mine is likely be extended through the conversion of existing resources to reserves.
Sao Francisco's nearby 'sister project', Sao Vicente, is currently under feasibility study, expected to be completed within the month, regarding the possibility of a stand alone mine being established at the deposit as an alternative to it being mined as a satellite of Sao Francisco. Yamana's future production schematics exclude the output that could be derived from Sao Vicente, but this may turn out to be quite significant.
Yamana claims to be a touch undervalued versus its peer group; a gap that Marrone ascribes to investor trepidation concerning the relatively short time elapsed since the company's inception. This valuation gap has though been closing of late since Yamana's stock began a broad recovery curve around the middle of last year.
'Green field' exploration is being undertaken by Yamana to the north of the Fazenda Brasiliero mine in the Itapicuru Greenstone belt, and elsewhere in Brazil in the Santa Elina gold belt. The company is spending $14m on exploration this year, of which Marrone says $10m will be apportioned to these two areas with the aim of adumbrating in each location stand alone resources from one or more deposits. Another exploration project, Cumaru, is being 'actively drilled' with results expected towards the end of March or in early April. The company also remains open to new acquisitions located in Brazil and Latin America.
Marrone cites a host of operational advantages for Brazil as a mining nation; beginning with steel that is two thirds the international price; inexpensive labour; subsidised diesel; indigenous industry that can supply mining firms with most of their requisites; and an oversupply of hydroelectric power generation facilities that keeps electricity prices usefully low. These factors allow Yamana to keep its capital costs under control and its operating costs low; the company has managed to keep is $50m expenditure thus far on the former 8-10% under budget.
Yamana remains vulnerable to currency swings, as of course do comparable outfits. The present rate of 2.721 reias to the dollar is expected by the company to weaken closer to a parity of 3, and Marrone is 'confident' that in the medium term Yamana can stick to its cost estimates. Around 55-60% of the company's costs are incurred in reias, and the recent strength of the currency versus the greenback has imposed some upward pressure on costs.
Yamana's financial position is a strong one. The company today reported net yearly earnings of $2.8m, and expects going forward to be fully funded, utilising a $100m debt facility that remains as yet undrawn and the proceeds of the C$91m worth of equity financings it conducted last year.