Yamana Gold updates exploration in Chile

Of Yamana Gold’s (YRI-T, AUY-N, YAU-L) $125 million budgeted for exploration this year (a 10% increase over 2011), about $29.5 million or 23% is earmarked for northern Chile, where it owns 100% of the high-grade El Peñón underground gold-silver mine, about 160 km southeast of Antofagasta.

The exploration program includes 140,000 metres of surface and underground drilling and aims at replacing reserves and resources and outlining new high-grade ounces that will sustain the company’s long-term production goals. 

In the first five months of this year, Yamana completed 34,383 metres of drilling and made several discoveries, among them Fortuna Este—a new vein structure about 400 metres west of the Fortuna deposit. The Fortuna deposit is about 8 km from the El Peñón mine.

It also came across two new targets: A zone of mineralization south of the main Dorada vein and to the west between Dorada and Providencia, and a new high-grade deposit at the Elizabeth vein, about 400 metres east of Victoria within Pampa Augusta Victoria. (Yamana geologists discovered the Pampa Augusta Victoria vein system in 2009, about 30 km north of El Peñón, and subsequent exploration identified the Elizabeth vein system.) 

Yamana believes the new discoveries present an opportunity to significantly extend the mine life at El Peñón and enhance production at a production level at or above 440,000 ounces of gold a year.

At the Fortuna deposit, exploration drilling completed in the second half of last year discovered a quartz vein structure 400 metres west of Fortuna deposit. Discovery hole SFE0001 returned 3.12 metres of 1.30 grams gold per tonne and 74.45 grams silver per tonne and since the discovery the company has completed seven widely spaced surface reverse circulation and diamond drill holes and three underground diamond drill holes along a strike length of 800 metres.

Commercial production at El Peñón began in 2000 and an expansion of the Merrill-Crowe processing plant to 4,500 tonnes per day was completed in 2010. Last year El Peñón, which currently has an estimated mine life of more than eight years, churned out 475,586 ounces of gold at a cash cost of US$400 per gold-equivalent ounce (GEO). Between 2006 and 2011, the mine produced an average of 330,000 ounces of gold and 7.7 million ounces of silver each year. 

El Peñón has 2.2 million ounces of gold in the proven and probable reserve category and 447,000 ounces of gold in the measured and indicated category. The corresponding figures for silver are 66.5 million ounces of proven and probable and 11.4 million ounces in the measured and indicated category.

On May 1, Yamana announced that El Peñón produced 110,675 gold-equivalent ounces during the first quarter of 2012 compared to 115,798 gold-equivalent ounces in the same quarter of 2011. Production for the quarter consisted of 72,742 ounces of gold and 1.9 million ounces of silver, compared with 73,568 ounces of gold and 2.1 million ounces of silver in the first quarter of 2011.

Gold production was marginally lower due to the lower tonnage of ore processed, partly offset by improved gold feed grade and recovery rate. Silver production was impacted by lower tonnage processed and lower silver feed grade partly offset by higher recoveries.

The lower tonnage processed was planned in order to optimize metallurgical recoveries. The mine is also focused on increasing stockpiles of ore in order to enable greater flexibility for future production.

Cash costs were US$442 per GEO in the first quarter, compared with US$397 per GEO in the first quarter in 2011. The impact of fewer tonnes processed, increases in the prices of power, diesel and other consumables and other mining inflation compared to that of the first quarter of 2011, contributed to higher per unit cash costs. Cash costs are expected to decrease as feed grades are expected to improve for the balance of 2012.

El Peñón has a long track record of replacing ounces mined. The company expects its exploration efforts on high-grade areas at El Peñón to return significant near-surface gold and silver values, improve production, provide mining flexibility for a sustainable production level of at least 440,000 GEO per year, and ultimately increase mine life.

At the end of 2011 Yamana held cash and equivalents of US$550 million and debt of US$432 million.  Its dividend has increased by about 450% since 2009 and the company raised its dividend rate three times in 2010 and twice in 2011. Earnings last year grew to US$713 million from US$448 million in 2010, on revenues of US$2.2 billion, up from US$1.7 billion in 2010.

At presstime in Toronto Yamana was trading at $16.38 per share within a 52-week range of $10.96-18.09. The company has about 746 million shares outstanding.