Yamana gains control of Brazilian gold mine

Vancouver — Spokane-based Yamana Gold (YRI-T) (formerly Yamana Resources) has assumed operatorship at its newly acquired Fazenda Brasileiro gold mine in northeastern Brazil.

Last month Yamana paid Companhia Vale do Rio Doce (CVRD) (RIO-N) US$20.9 million for the mine. The funds were made possible by a $55.5-million financing that saw the junior consolidate its shares on the basis of 27.9-old-for-1-new and issue 46.25 million units priced at $1.20 apiece. A unit consists of one share and half a warrant. A full warrant allows the holder to buy a share at $1.50 per share until July 31, 2008.

Minus the agent’s commission and expenses, the proceeds tallied $50.63 million. These funds are earmarked for: the Fazenda Brasileiro acquisition ($29.4 million); development and exploration ($11.2 million); transaction costs relating to the acquisitions of the Santa Elina properties, the Chapada properties and the Fazenda Brasileiro mine ($1.1 million); and working capital purposes ($8.9 million).

Situated in Bahia state, the Fazenda Brasileiro open-pit/underground mine has been producing bullion for 15 years. Yamana took control of the mine in mid-August from CVRD without any production interruptions and has so far produced 3,420 oz. gold. The mine is slated to produce 112,000 oz. gold in 2003 at a cash cost of US$225 per oz.

Yamana plans to initially maintain cash costs around CVRD’s forecast US$225 per oz. and then reduce them to around US$200 per oz. It intends to achieve this by cutting contracting services and allowing employees to assume these duties. Yamana also plans to replace worker benefits and pensions and increase shift hours.

The company will streamline purchasing and procurement procedures as well as implement an updated maintenance program for the mining fleet. Another goal will be to reduce dilution and boost the mining grade through improved monitoring procedures.

In the agreement with CVRD, Yamana also acquired 720 sq. km of exploration ground along the Rio Itapicuru greenstone belt.

Discovery

Fazenda Brasileiro is the largest shear-hosted gold deposit in the belt and it occurs in metamorphosed supracrustal rocks. Gold mineralization was deposited mainly during late collisional tectonism some 2 billion years ago.

CVRD discovered the gold-bearing region in 1972 while prospecting alluvial occurrences along the Itapicuru River. A regional geochemical survey led the company to Fazenda Brasileiro, where a quartz-feldspar breccia containing disseminated pyrite and arsenopyrite returned 2 grams gold per tonne.

By 1984, Fazenda Brasileiro had become the first heap-leach operation in Brazil, and underground mining began four years later.

The deposit is in the South Mineralized zone in what is known as the Weber belt, which hosts seven major occurrences, including Fazenda Brasileiro. Mineralization consists of sets of centimetre-to-metre-scale quartz veins. The underground mineralization originally averaged 7 grams gold per tonne, based on a cutoff grade of 3 grams gold, and is processed using the carbon-in-pulp method. The open-pit portion uses a 0.7-gram gold cutoff with the weathered ore extracted via heap leaching.

The operation hosts proven and probable reserves of 1.8 million tonnes grading 3.84 grams gold per tonne underground and 630,000 tonnes of 2.14 grams gold in the open pit, for a total of 262,000 contained oz.

In addition, the operation hosts an underground measured and indicated resource of 2.26 million tonnes grading 3.93 grams gold, plus 600,000 tonnes grading 2.23 grams gold in the open-pit section, for 128,000 contained oz.

New prospects

With only three years of reserves remaining, attention has shifted to surrounding prospects. This year drilling will focus at the F, G, CE and E-deep underground areas around the mine as well as the Canto and Cedro satellite deposits. Over the next six months, the company has budgeted 36,000 metres of diamond drilling with internal rigs and an additional 10,000 metres of deeper drilling through contractors. Yamana is also evaluating core drilled by CVRD to update its reserves and resource estimates.

Canto lies immediately north and northeast of the mine. It is underlain by the northern portion of the Weber belt stratigraphy and, while no official resource has been identified, the site has seen limited production from oxide pits.

Canto is marked by a largely untested, 3-km-long structural zone where recent drilling hit 11 metres grading 26.84 grams gold per tonne, 5 metres grading 12.11 grams, and 4 metres grading 10.98 grams.

Reports indicate that the Canto-2 pit hosted mineralization averaging about 5 grams gold per tonne. The mineralization strikes to the east and dips about minus 45 to the south and has a gentle, undulating plunge to the west.

The Cedro property is situated about 6 km southeast of the mine on the east end of the Weber belt. The prospect hosts a geochemical anomaly and one drill hole cut 4.4 grams gold over 0.5 metre, 3.3 grams gold over 2 metres and 1.8 grams over 4 metres.

Yamana began targeting Brazil earlier this year when it acquired various assets from Santa Elina Mines, including the open-pit Chapada copper-gold project in the west-central Goias state. A 1998 feasibility study for that project envisioned a 15-year mine life based on a resource of 187.3 million tonnes grading 0.39% copper and 0.31 gram gold.

The deposit is defined by a flat-lying shallow tabular body capable of producing 12.7 million tonnes per year from a shallow open pit with a stripping ratio of 0.43-to-1. The study recommended a starter pit for the first five years of production and estimated grades would average 0.47% copper and 0.45 gram gold.

The price tag for Chapada is $48.5 million in stock. Yamana must also pay up to 47.5% of the net-asset value of Chapada, in cash or stock, as determined by an updated feasibility study.

Included in the deal was the Fazenda Nova property, which hosts six shallow, blanket-like, saprolite gold deposits. The most advanced is the Lavrinha target, where previous work defined a gold-bearing zone with widths reaching up to 50 metres. The area includes an open pit from the early 1990s, where a small heap-leach operation processed saprolite ore without the need for blasting or crushing. Yamana aims to test the mineralization below the shallow saprolite deposit for a higher-grade primary gold deposit.

The company has hired Kappes, Cassiday & Associates from Reno, Nev., to complete a final feasibility study at Fazenda Nova. Golder Associates and ECI Engineering have also been retained to aid in the study. As part of the review, Kappes Cassiday will determine whether gold production can be increased above the previously proposed 109,000 oz. gold over the initial 3-year mine life. Yamana hopes to increase planned production from 35,000 oz. to 50,000 oz. per year. As it stands now, production is scheduled to begin during the second half of 2004.

Starting in September, the company will drill Fazenda Nova’s Lavrinha and Vital satellite deposits as well as the deeper zones underneath the saprolitic zones at Lavrinha and Vital. A 3,500-metre drill program is planned for the oxide zones and 4,000 metres is budgeted to test the deeper sulphide zones. Drilling will initially focus outside the areas of the planned open pits as well as between Lavrinha and Vital. An updated resource estimate will be tabled on completion of Yamana’s fiscal year.

Total production from both the Fazenda Brasileiro and Fazenda Nova deposits is expected to exceed 150,000 oz. gold per year assuming the accelerated production plan at Fazenda Nova is feasible. Cash costs are expected to ring in at or below US$200 per oz.

Yamana has 87 million shares outstanding, or 129 million on a fully diluted basis. With the acquisition of Fazenda Brasileiro, the company is slated to produce more than 120,000 oz. gold in 2004, and more than 200,000 oz. in 2005.

Meanwhile, in neighbouring Mato Grosso state, Yamana is preparing to explore the Sao Vicente and Sao Francisco projects.

In October at Sao Francisco, Yamana will begin excavating a 210-metre ramp from which a drift will be extended for 500 metres into the high-grade ore beneath the areas of the planned open pit. This would be followed by bulk sampling for grade determination as well as metallurgical testing.

A 9,000-metre underground drill program is then planned, to be complemented by an additional 5,600 metres of surface drilling. The company is optimistic that Sao Francisco’s reserves may be significantly increased by this program.

Sao Vicente produced 187,000 oz. gold before being mothballed in 1997 as a result of declining gold prices. However, results from 241 holes drilled in a 1-km-by-150-metre area now indicate a prospective shallow deposit, and deeper holes averaging 260 metres in depth indicate the promise of a higher-grade zone farther below the surface.

At Sao Francisco, 335 previous drill holes identified a shallow zone of mineralization over an area measuring 1.8 km by 150 metres. The project is similar to Sao Vicente in that it is underlain by an insufficiently explored higher-grade gold target (identified in 19 drill holes averaging 200 metres in depth; intercepts range from 2 to 14 metres grading 1.86-58 grams gold per tonne).

Yamana will continue to update the initial feasibility study for the Sao Vicente and Sao Francisco deposits with production at Sao Vicente scheduled for early 2005, though this may be deferred if drill results from Sao Fransisco meaningfully increase reserves. Production at Sao Fransisco is planned for early 2006 and may be accelerated depending on drilling results.

Brazil has long been considered attractive for its geological potential, but until recently, foreign firms have shied away from the country. The reason was the 1988 Constitution, which allowed exploration privileges only to companies controlled by national capital. The foreign restrictions took their toll, as annual exploration expenditures fell to US$50 million in the 1988-1994 period from US$159 million in 1980-1988.

Things improved in 1995, when the national congress ended restrictions to foreign capital. As a result, more than 50 international companies are now exploring the country.