Yanacocha gold mine possibly world’s best: analyst

Having produced 1.7 million oz. gold at a total cash cost of US$103 per oz. last year, the Yanacocha mine in Peru now ranks as the largest gold producer in the Americas. Geoff Stanley, a mining analyst with BMO Nesbitt Burns, recently visited the mine and was so impressed he described it as “possibly the best gold mine in the world.”

In a research report, Stanley gives a nod to the mine’s 51% owner, Newmont Mining (NEM-N), rating it “our top pick in the gold sector,” because of its assets, cost control and leverage to the gold price. “We continue to rate the shares a five, with a target price of US$33.”

Newmont has 167.6 million shares outstanding and trades at about US$23 in a 52-week range of US$30 and US$16.38.

Compania de Minas Buenaventura (BVN-N) holds a 44% interest in Yanacocha, which is in the Peruvian Andes, near Cajamarca. The International Finance Corp. holds the remaining 5% interest.

“Yanacocha has been a spectacular story of success since its development based on a modest reserve of 1.28 million oz. in 1992 to [2000], when we anticipate it to produce over 2 million oz. from a reserve base of 33 million oz.,” Stanley notes in his report. “It is apparent from the results of our visit that its growth is likely to continue for several years to come, and reserves should expand significantly from this level.”

Cash operating costs are expected to fall below US$70 per oz. this year, Stanley writes, and remain low for the foreseeable future. Grades are expected to average 0.034 oz. gold per tonne (1.15 grams) this year, falling only marginally to 0.029 oz. (1 gram) over the subsequent few years. By the middle of this decade, silver production is expected to grow to as much as 5 million oz. from the present 2.8 million oz.

The analyst goes on to state that near-term production is not the story at Yanachocha. “It is a story of enormous potential and likely substantial production growth based on reserve growth and sulphide potential. It is easy to envisage a project that produces 2.5 million oz. annually from heap-leach oxide mineralization and a further 1 million oz. of production from sulphide sources, possibly developed in conjunction with the Minas Conga deposit on the adjacent property.”

Stanley stresses that exploration is the driving force behind the operation’s performance and notes that 26 drill rigs are now turning. Of these, 18 are carrying out development drilling while eight are dedicated to exploration programs.

“This commitment to reserve and resource definition is paying dividends,” he adds. “There was an addition of 14 million oz. to reserves in 1999 prior to depletion, and we anticipate an addition of at least 10 million oz. during 2000.”

Among the more prospective targets to be tested are the following:

– Coromayo — Situated near El Topado and likely an extension of that mineralized system, this is viewed as having good potential for large basement mineralization.

– Kupfertal — This target, which consists of porphyry-style mineralization adjacent to and below the original Yanacocha mineralization, represents a potentially large resource for the long term.

– Tatiana — Oxide mineralization north of La Quina Norte.

– Quecher — Currently an 800,000-oz. resource adjacent to Carichugo and Chaquicocha Sur.

– Maqui Maqui — Sulphide mineralization.

– La Sorpresa — Another high-profile sulphide target, near the northeastern border of the Minas Congas property.

“It is worth noting,” Stanley concludes, “that this is only a sample of the high-profile targets that the joint venture will be testing this year.”