Wednesday, November 11, 2009

San Juan

The gold price is now US$1,115. I would like to see it get to US$1,125 – 1,150 then trade in that range for an extended period of time, prior to moving forward again.

1) If SJ’s production remains at Q2 level:

Q2 production = 4,290 ounces (17,160 annualized ounces)
Q2 cash cost per oz = US$437
Current US/Cdn exchange rate = 1.046

(US$1,115 – US$437) * 1.046 = C$709 Operating Margin per oz

4,290 ounces * C$709 = C$3,042,417 Operating Profit for the next 90 days at SJ, assuming the gold price stays at US$1,115

Of that op profit amount, about $900K on avg will need to go towards covering company overall G&A, at least until Lamaque’s financing has been closed off and it is able to carry a fair share of the company’s G&A. Also, let’s say that on average about $400K will need to go towards ongoing mine development on a quarter to quarter basis (every mine requires ongoing development capital).


2) Switch to a 3 shift schedule at SJ:

Milling capabilities are limited to around 250 tpd at SJ (based on my calculations, Q2 averaged around 253 tpd), until expansion (see #3 below). In the meantime, hopefully we will be able to squeeze out a bit of extra production from the following move:

Q2’09 MD&A: “Management has recently implemented a new three shift per day operating schedule at the San Juan mine. The mine is also planning improvements of the tailings dam to increase tailings storage capacity.”

I’m hoping this means that they are going to a 3rd shift of both mining and milling, without reducing significant hours from the 1st shift and the 2nd shift. If it means shifts 1 and 2 remains intact and the new (potentially new) 3rd shift represents mainly (or partly) incremental hours then it may equate to a higher tpd and production ounces prior to making the necessary capital investment for mill expansion. Basic logic would dictate an increase is warranted, but I don’t know either way though as I have no other details.


3) A small US$1.5M investment can push SJ’s annualized gold production to 25,000 ounces:

Q2’09 MD&A: “The San Juan operation continues to produce at the rate of 4,000 to 4,500 ounces of gold per quarter. The operation is in need of cash for expansion. With US$1.5 million of additional cash investment in the operation, it can be expanded from 250 tons per day to 400 tons per day, which will increase production by over 50% to 6,000 to 6,500 ounces per quarter.”

6,250 ounces * C$709 = C$4,432,425 Operating Profit per quarter after SJ gets expanded, assuming the gold price stays at US$1,115


4) A more extensive upgrade to SJ (maybe mid-term) can enable us to realize 30,000 ounces:

7,500 ounces * C$709 = C$5,318,910 Operating Profit per quarter after this expansion, assuming the gold price stays at US$1,115

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