Jaguar Mining licks its wounds

Jaguar Mining (JAG-T, JAG-N) saw costs rise and profits fall in 2011 despite an increase in gold production and gold prices.

The Brazil-focused gold miner saw a 13% increase in gold production to 156,000 oz. gold and a 28.6% increase in its average sale price to US$1,563. But in the end Jaguar’s net income went from US$22.2 million, or US26¢ in 2010, on US$170.8 million in revenue to a net loss of US$33.7 million — or US78¢ in 2011 — on US$243.1 million in revenue.

The fourth quarter of 2011 was particularly challenging, with the company’s operations hit by escalating labour and materials costs, increased mining dilution and a lot of rain. Cash costs went from US$886 per oz. in the third quarter to US$1,114 per oz. gold in the fourth.

Fourth-quarter revenue came in at US$57.4 million, compared with US$44.6 million in the year-ago quarter, while net income came in at a loss of US$33.7 million compared with a US$9.6-million loss in the fourth quarter of 2010.

Adjusted net loss was US$8.8 million for the quarter, which excluded a US$12.8-million expense related to derivative valuations after a switch to International Financial Reporting Standards accounting, US$3.7 million in termination benefits to executives, US$3.3 million in interest expenses related to convertible notes, a US$2.2-million writedown of inventory at Paciência, US$1.6 million of deferred income taxes and a US$1.6-million loss on property, plant and equipment disposition.

This year the company expects to produce between 150,000 oz. and 160,000 oz. gold at an average cash-operating cost between US$950 and US$1,050 per oz. gold from its Turmalina, Paciência and Caeté operations in Brazil.

The company is also advancing its Gurupi gold project in Brazil, with production expected by 2013. The project hosts 63.8 million tonnes in reserves grading 1.14 grams gold per tonne for 2.3 million contained oz. gold.

Last November speculation arose that China’s Shandong Gold Group would buy Jaguar for US$1 billion, which sent Jaguar’s shares from around $5.50 to a high of $8.13. But the company’s share price never came close to matching the rumoured $9.30 offering price, and whatever preliminary deal had been in place, if any, never came to pass.

Shortly after the potential deal fizzled, Jaguar president and CEO Daniel Titcomb left the company. A three-member committee led by chairman Gary German has since been filling the role of CEO. The company’s vice-president of exploration and engineering, Adriano Luiz do Nascimento, retired at the end of 2011, while chief operating officer Lucio Cardoso stepped down at the end of January and was replaced by Rogerio Fernandes. Jaguar stated that both retirements were planned before the failed sale of the company and that both would stay on as consultants. Nascimento, Cardoso and Titcomb all helped found the company in 2002.

Jaguar Mining is reviewing its entire business to better maximize value for Jaguar shareholders, according to statements made by German. Jaguar is also insituting a shareholder rights plan in preparation for a potential takeover.

Jaguar’s share price dropped 21¢, or 4%, on its latest financial results to end at $5.12 after hitting a $4.80 low during midday trading. Share prices dropped from $7.30 in late January, and the company has 84.4 million shares outstanding.