Yamana sizes up Chapada

Having revised resource and preliminary reserve estimates earlier this year, Yamana Gold (YRI-T) has tabled a final feasibility study for the Chapada copper-gold project in Brazil.

In January, Tucson-based International Mining Consultants (IMC) pegged Chapada’s measured and indicated resource at 421 million tonnes running 0.31% copper and 0.23 gram gold per tonne; included is 310.5 million tonnes of reserves grading 0.34% copper and 0.26 gram gold. Another 68 million tonnes of inferred material averages 0.2% copper and 0.14 gram gold per tonne (T.N.M., Feb. 2-8/04).

Completed by Hatch Associates, the latest study envisages a 16-million-tonne-per-year open-pit operation, a 22% increase in throughput volume from the original mine plan. A feasibility study in 1998 proposed production of 12.7 million tonnes annually from a reserve of 187 million tonnes grading 0.39% copper and 0.31 gram gold per tonne. The increase comes thanks in part to the addition of a pebble crusher in the semi-autogenous grinding circuit (SAG).

“Chapada at 16 million tonnes per year is an entirely different project. It allows us to take advantage of economies of scale. We are pleased with the feasibility study and its positive results," Yamana’s chief executive Peter Marrone said in a prepared statement.

Over 17 years, the owner-operated mine is expected to churn out more than 1.9 billion lbs. of payable copper and 1.3 million oz. of gold. During the first five years, a high-grade starter pit is expected to yield 676 million lbs. of copper and 692,000 oz. of gold. The mining plan centres on 297.1 million tonnes of reserves averaging 0.35% copper and 0.26 gram gold. The average life-of-mine strip ratio, excluding pre-production development, is 0.8-to-1.

Copper and gold will be recovered to annually produce some 172,000 tonnes of clean concentrate containing 28% copper and 20 grams gold per tonne. Hatch figures recovery of copper and gold form the concentrate to average 88.6% and 54.6%, lower than the 90% and 61% suggested by previous test work.

On the financial front, the operation’s pre-tax net present value rings in at more than US$350 million, based on an 8% discount and metal prices of US$1 per lb. of copper and US$375 per oz. of gold. The internal rate of return is estimated at 41% (on a 100% equity basis). After taxes, the net present value slips to US$227 million, with the internal rate of return still clipping along at a healthy 32%.

The project’s price tag weighs in at US$177.9 million, including US$114.9 million for the processing, utilities and other facilities, US$25.4 million for mining and pre-production development, plus a US$21.3 million contingency fund. Capital payback would come in 2 years.

Initial working capital of US$11 million in the first year of production is expected to be offset by cash flow; the net sustaining capital over the life-of-mine is US$40 million.

Total operating costs are estimated at US$2.88 per tonne of ore, including mining costs of US76 per tonne (excluding pre-production and development expenses, which are counted as capital costs), and processing costs of US$1.68 per tonne. The estimate includes a 5% contingency.

Operating costs (net of gold credits) are placed at US27 per lb. of copper during the first five years, and US51 per lb. over the operation’s lifetime. Average cash costs in the first five years are US$128 per oz. of gold and US53 per lb. of copper.

Pending a positive production decision expected later this year, production would gear up in early 2007. The company has all construction permits in hand, and owns all necessary land. The company continues talks aimed at arranging debt financing for construction; technical due diligence relating to two proposals is ongoing.

The company is also talking to several smelters about long-term concentrate off-take agreements, including the potential sale of an equity interest in the project. Looking ahead, Yamana aims to finalize financing and smelter arrangements, and to receive tenders for engineering, procurement and construction contracts by the end of the summer.

Yamana acquired the 84-sq.-km Chapada project, 250 km northwest of Brasilia, from Brazilian-based Mineraao Santa Elina in August 2003.

Shares in Yamana were off a dime, or 3.5%, at $2.79 in afternoon trading in Toronto following the news on June 29.


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