Yamana building up to 1M-oz. mark in Brazil

If Yamana Gold (YRI-T, AUY-N) chairman and CEO Peter Marrone had been asked about the challenges the company was facing two years ago, he would have come up with a long list.

Marrone says bringing two large-scale Brazilian gold mines into production during that time required its fair share of co-ordination.

“Two years ago, we embarked on a path of building an operations team and a construction team and building these mines and running them,” he says. “That was difficult.”

Yamana’s Sao Francisco open-pit gravity heap-leach mine in Mato Grosso state reached commercial production in August 2006, followed in February 2007 by the Chapada open-pit copper-gold mine in Goias state.

But now that the technical, operations and management teams are in place, Marrone says the pressure is off a bit.

“It’s significantly less of a challenge today than it was two years ago,” he says.

That being said, Yamana’s mine-building experience has been quite trouble-free.

The Chapada mine reached production six months ahead of schedule and the company is benefiting from coarse gold discovered in low-grade and waste areas of the Sao Francisco mine.

“In the first quarter this year, we produced almost all gold recovery from marginal ore that we had to move to get to the high-grade ore,” Marrone says of Sao Francisco. “Areas we thought were waste were mineralized and areas we thought were low-grade were much higher.”

Production at Sao Franciso this year is estimated at 120,000-130,000 oz. gold, while Yamana expects 180,000-205,000 oz. gold and 130-145 million lbs. copper to come from Chapada.

Marrone says the company has progressed from minimal production to 280,000 oz. gold last year, and will continue to increase production to 600,000 oz. in 2008, and 1 million oz. in 2009, plus copper.

A recently completed scoping study on Chapada showed the potential to recover 320,000 oz. gold and 94 million lbs. copper from the pyrite concentrate taken from the tailings.

What’s more interesting is the potential to produce about 560,000 tonnes of sulphuric acid per year as a byproduct, which Marrone says could add another US$50,000 in cash flow at Chapada.

A US$70-per-tonne price was used for the scoping study, though sulphuric acid was going for around US$90 per tonne at the time of the study.

Sulphuric acid is used in nickel leaching and Marrone has counted two nickel projects near Chapada that should reach production within the next few years. He also has identified fertilizer businesses as potential buyers of sulphuric acid.

Building a plant would cost nearly US$200 million.

“I don’t believe we’ll build a plant,” Marrone says. “I would prefer to take a royalty and leave it to someone else to build.”

Yamana has yet to complete a feasibility study.

Up next for the company is an expansion of operations at its Jacobina underground mine, which is expected to reach a yearly production rate of 150,000 oz. gold per year by the end of 2007 and 200,000 oz. gold per year by late 2008.

The company also plans to complete a feasibility study for its Gualcamayo gold project in Argentina, which is expected to produce 200,000 oz. gold per year by late 2008.

Marrone says that once Yamana reaches the 1-million-oz. mark in 2009, the company will focus on sustainability for at least 10 years.

“I have no plans to take it to more than a million (ounces) at this point,” he says.

Yamana’s mission is to be a dominant intermediate company and Marrone says that replacing ounces over the long term becomes difficult when production gets too high. He says that he’d consider expanding beyond 1 million oz. if not doing so meant losing Yamana’s place in the marketplace.

So far, the company’s growth strategy has been a combination of making acquisitions, exploration and developing its assets. This year, Yamana is spending US$20 million on exploration in Brazil, as well as another US$12 million on its properties in Honduras and Argentina, with a similar plan for the following year.

The company has about 10,000 sq. km of property in Brazil on four greenstone belts.