Yamana breaks ground in Brazil (November 24, 2004)

Armed with a recently completed feasibility study, Yamana Gold (YRI-T) has begun construction at its Sao Francisco gold project close to the Bolivian border in Mato Grosso state, Brazil.

Prepared by Kappes Cassiday Associates (KCA), the study pegs Sao Francisco’s proven and probable reserves at 47.8 million tonnes running 0.68 gram gold per tonne, for just more than 1 million oz. of contained gold. The estimate is based on cutoff grades ranging from 0.16 gram to 0.32 gram gold.

That reserve is included in a larger measured and indicated resource totalling 40 million tonnes at 0.92 gram gold, based on a cutoff grade of 0.3 gram. Another 25.2 million tonnes of inferred material runs 0.66 grams gold, also at a 0.3-gram cutoff. Yamana says there is potential to extend the deposit along strike to the north and primarily to the south, where high-grade zones have already been identified.

Sao Francisco’s gold occurs freely in fractures along quartz veins both in the shallow and deeper zones, with significant coarse gold. Yamana says that bulk sampling suggests the deposit’s overall grades have been underestimated, and that some waste may in fact be ore.

Plans call for the open-pit mining of up to 25 million tonnes per year, with around 4 million tonnes sent through the crushing and gravity-concentration circuits, and up to 4.3 million tonnes classified as run-of-mine ore.

Sao Francisco’s ore will be subject to one of three proposed processing streams; high-grade ore will be run through four stages of crushing, jigging and leaching; average-grade ore will follow the same route but will only face a three-stage crush; marginal ore will be stacked directly onto dedicated leach pads.

The mine is expected to pour an average of 108,666 oz. of gold per year over 7.5 years; recoveries are projected at 80% for the average- and high-grade ores, and 71% for marginal ore. Yamana expects Sao Francisco to begin producing late in 2005.

The operation carries a price tag of $46.1 million, which includes $14.2 million for mining and pre-production development, $27.1 million for the processing plant, utilities and facilities, $1.8 million for contractor and owner costs, plus a $3-million contingency fund. The price includes construction of a power line to connect to the national grid, a high-grade crushing circuit, and a front-end gravity processing circuit. Net sustaining capital costs amount to US$8.5 million.

KCA figures the project’s after-tax net present value at US$50.2 million, based on a 5% discount and gold price of US$375 per oz.; the NPV jumps to US$69 million at a still conservative gold price of US$412.50 per oz. Likewise, the internal rate of return climbs from 29.8% to 37.6%. Capital payback is expected in about three years.

On the operational side, life-of-mine total operating costs, including refining, are estimated at US$3.58 per tonne; that includes mining costs of about US$1.83 per tonne of ore (based on an average stripping ratio of 2.44 to 1), processing costs of US$1.42 per tonne; US22 per tonne in administrative and environmental costs; US11 per tonne for transport, refining and freight costs. Life-of-mine cash operating costs are pegged at US$212 per oz. of gold, with the average over the first three years set at US$202 per oz.

Looking ahead, Yamana is updating the mine plan for the nearby Sao Vicente deposit, which the company is considering treating in combination with Sao Francisco. Proven and probable reserves at Sao Vicente stand at 5.2 million tonnes grading 0.96 grams gold. The company is looking at the potential to increase that figure, and pending positive results may consider developing the resource on a stand-alone basis. There is some evidence of a higher-grade zone at depth.

Meanwhile, construction is also freshly underway at the US$177.9-million Chapada gold-copper project in the northern portion of Goias state.

Mining at 16 million tonnes per year via an open pit, Chapada is expected to churn out more than 1.9 billion lbs. of payable copper and 1.3 million oz. of gold over 17 years (T.N.M. Feb. 2-8/04). On average, the operation will spit out some 172,000 tonnes of clean concentrate containing 28% copper and 20 grams gold each year. Average cash costs during the first five years are pegged at US$128 per oz. of gold and US53 per lb. of copper.

The project centres on 297.1 million tonnes of reserves averaging 0.35% copper and 0.26 gram gold. After taxes, the net present value rings in at US$227 million, with an internal rate of return of 32%, based on an 8% discount and metal prices of US$1 per lb. of copper and US$375 per oz. of gold.

Yamana has agreed to off-take agreements with smelters for up to 150,000 tonnes of Chapada’s copper-gold concentrate. Hatch Associates have been lined up to manage engineering, procurement, and construction.

Chapada is expected to being producing in early 2007.

Yamana will partially fund Chapada via a US$100-million debt-financing deal with a institutional fund; the secured, 6-year notes bear interest at the rate of 10.95%, and are repayable in full at maturity. Yamana can defer interest during the first three years but only at the cost of boosting the rate by 150 basis points during the first two years interest is accrued. Yamana has also agreed to pay commitment fees totalling US$2.2 million accompanied by warrants good for 5 million common at a 25% premium to the market price.