Yamana’s ‘massive cash cow’

With the startup of two mines since last August, Yamana Gold (YRI-T, AUY-N, YAU-L) is at ease with its goal to be a 1-million-oz. gold producer by the end of 2008.

The company’s flagship Chapada copper-gold mine in Goias state, Brazil, has surpassed production targets since its startup on Feb. 11. So far, production has averaged more than 660 tonnes of concentrate per day — outstripping the company’s 500-tonne-per-day goal. Concentrates produced have also been higher than expected, between 27.7% and 28.4% copper and 26.3 to 29.1 grams gold per tonne.

“Chapada is this big, fat, massive cash cow — that’s the best way I could describe it,” said president and CEO Peter Marrone in a recent conference call. “We are now looking at and coming to the conclusion that perhaps the feasibility study didn’t get it entirely right.”

The Chapada deposit consists of two different types of ore — a softer, higher-grade ore and a harder, lower-grade ore.

“There may be more of the softer than the harder, lower-grade material,” Marrone said. “Which means we would be producing more of the softer rock and more of the higher-grade material, less power consumption, and more copper and gold at a lower cost.”

Yamana expects Chapada to produce 180,000 to 205,000 oz. gold and 130 to 145 million lbs. copper in 2007. The company plans to produce a total of 585,000 oz. and 650,0000 oz. gold this year.

Yamana, which also has properties in Argentina and Honduras, produced a total of 359,000 oz. gold in 2006 compared with about 116,000 oz. in 2005. The company had a commercial production rate of 283,000 oz. at an average cash cost of US$326 per oz. and an average gold price of US$613 per oz.

Mine operating earnings were US$35.1 million compared with $8.6 million in 2005. Yamana reported net earnings of US$19.5 million or US7 per share in 2006 on revenue of US$169.2 million — a 270% increase over 2005. Higher revenue was offset by a strengthened Brazilian real and higher operating costs for items such as maintenance, fuel and power.

The company is now debt-free, with a US$200-million loan facility and US$69.7 million in cash as of the end of 2006. Yamana also completed a US$170-million financing from the public issue of 17.4 million shares.

Year-end proven and probable reserves were 6.8 million ounces contained gold — up 1.55 million oz. from 2005 due to the acquisitions of the Jacobina mine in northeastern Brazil and the San Andres gold mine in western Honduras — and 2.3 billion pounds of contained copper. The numbers are based on a gold price of US$425 to US$450 per oz., except for the Fazenda Nova mine figures, which were calculated using a US$550-per-oz. gold price.

The company also brought the Sao Francisco gold mine into production last August. The mine, located in the west-central Brazilian state of Mato Grosso, produced nearly 58,000 oz. gold in 2006. The 2007 production target for Sao Francisco is 120,000 to 130,000 oz.

Although production at the Jacobina mine has been affected by the collapse of sill pillars in an older portion of the mine, Marrone was not concerned about the projected loss of 30,000 oz. gold. Yamana’s original target for Jacobina, acquired last April, was 120,000 to 130,000 oz. gold.

“The other mines will make up the shortfall and perhaps then some,” Marrone said.

Yamana plans to complete a feasibility study for its Gualcamayo property in Argentina this year. The Quebrada Del Diablo zone has a measured and indicated resource of 61 million tonnes grading 0.98 gram gold per tonne, or 1.9 million oz. gold. The measured and indicated resource at the Amelia Ines zone is 2.1 million tonnes grading 2.82 grams gold, or 192,000 oz. gold; the Magdelena zone has an inferred resource of 2.6 million tonnes grading 1.87 grams gold, or 151,000 oz.