Jaguar Mining CEO resigns, company cuts guidance for 2018

Shares of Jaguar Mining (TSX: JAG) lost a third of their value in mid-August after the abrupt resignation of the company’s CEO Rodney Lamond, along with news the junior gold miner has cut its 2018 production guidance to a maximum 85,000 oz. gold from the previous range of 90,000 to 105,000 oz. gold.

“Rod’s resignation is bad news — he must have felt it was getting hopeless,” says an industry observer familiar with the company.

Lamond joined Jaguar in late 2015 and became CEO the next year.

Jaguar conveyed the news, along with the company’s second-quarter results, in a press release on Aug. 15.

Replacing Lamond as interim CEO is Benjamin Guenther, who was appointed to the company’s board in November 2017 and is the chairman of its technical committee.

Jaguar’s troubles come from geotechnical issues at its Turmalina mine in the state of Minas Gerais.

“We had some geotechnical issues in the stoping area that has higher grade, and because we didn’t have a good inventory of developed reserves in front of us, we had to change our schedule and start mining areas where we really weren’t fully prepared, and in a lower-grade area of the mine, and hence the grade has been lower than we planned, and performance has been lower than we planned,” Guenther says of Turmalina.

The company had to back out of the high-grade stope due to rock mechanics. “We were seeing stress on the ground support and some movement, and we decided that it required us to change our mining sequence and mining plan, so it caused us problems in the second quarter,” he says.

Workers underground at Jaguar’s Caete complex in Brazil:. Credit: Jaguar Mining.

To sort things out, the company has appointed Kevin Weston as vice-president of operations. The mine engineer has helped turn around a number of operations, the company says, including the Kemess open-pit mine in B.C., which moved from receivership into a viable operation.

Weston’s plan is to modify the mining approach by minimizing the number of unfilled open stopes. The company plans to convert from blind back stopes to cut-and-fill stoping below sill pillars to ensure minimal exposure from unfilled stope walls and strict adherence to backfilling in the stoping cycle to lower unfilled open stopes, it says.

Other near-term priorities include using top-down drilling to ensure quality control, lowering dilution, improving mine recovery and backfilling with waste rock. (The paste backfill plant has been commissioned and paste backfilling has begun in the upper levels of the mine.)

The game plan also involves better blasting techniques to lower vibration into the rock mass, and improving ore-control drilling, planning and execution.

“We’ve got a detailed plan for the remainder of the year that we believe will get us to about 80,000 to 85,000 oz. gold guidance, and over the period of the next few quarters, we should be able then to start improving the mine inventories to give the mine more flexibility,” Guenther says. “It’s not gloom and doom. We’re optimistic about our future.”

Meanwhile, at its other mine in Brazil, called Pilar, the company is performing well and is on track to meet the high-end production guidance of the year of 30,000 to 45,000 oz. gold, Guenther says. 

“It’s improving as the year has gone on,” Guenther says of Pilar. “The team and operations are performing very well. It not only has a good production rate, but it also has a good inventory of developed reserves in front of itself to sustain production.”

During the second quarter, Jaguar produced a total of 18,819 oz. gold, down from 19,769 oz. in the same period a year ago.

Consolidated all-in sustaining costs grew 1% year-on-year to US$1,277 per ounce.

The company posted a US$6.1-million gross profit (up 139% from the year-earlier quarter) on revenue of US$22.9 million, down 2% year-on-year.

At the end of June, Jaguar’s had US$9.2-million cash on its balance sheet, compared with US$18.6 million at the end of December 2017.

The Turmalina and Pilar underground mines (along with its Roca Grande underground mine, now on care and maintenance, and the Caete plant) are situated in Brazil’s Iron Quadrangle, a prolific greenstone belt in Minas Gerais.

Pilar is 50 km east of Belo Horizonte and Turmalina sits 130 km northwest of the city.

The company has just over 250 sq. km in the Iron Quadrangle — an area of mining and mineral exploration dating back to the sixteenth century.

Guenther notes that while neither Pilar nor Turmalina have a long mine life based on reserves, their location is a major plus.

“The trends in the Iron Quadrangle tend to be very continuous at depth, so my feeling is they have a long life in front of them,” he says.

Jaguar also owns the Paciencia gold mine, which has been on care and maintenance since 2012. Jaguar bought the mine — 50 km southwest of Belo Horizonte — from Anglo American (LON: AAL) in 2005.

The company also owns the Roca Grande Mine, which has been on temporary care and maintenance since April 2018. (The problems at Roca Grande have to do with a 4- to 8-metre oxide cap that sits on the orebody, and is saturated with water.)

Barry Allan of Laurentian Bank Securities cut his target price on the company from 65¢ per share to 35¢ per share, after Jaguar lowered its 2018 guidance.

In a research note released on Aug. 15 entitled “Ship has not turned, and the captain is gone,” the mining analyst noted that the Turmalina mine “continues to be problematic,” and that he has “materially lowered” his expectations.

“Mine dilution at the Turmalina mine remains a problem,” he says. “While there is an expectation that better control over the mining method [labour] should help alleviate the amount of mine dilution, we have materially lowered our grade expectations for future production — preferring to take a ‘show me’ approach, given the duration that this problem has existed.”

At press time Jaguar’s shares were trading at 20¢ within a 52-week high of 41¢ per share in March, and a 52-week low of 18¢ on Aug. 17.