'scheduled to produce more than 70,000 ounces of gold next year'

From yesterday's Bloomberg article: "Lamaque in Canada and San Juan in Peru are scheduled to produce more than 70,000 ounces of gold next year."

Let's assume San Juan can manage to eventually squeeze out 5,000 ounces per quarter (1,667 per mth) for the first 6 months of 2010, from having a 3rd shift in the schedule. Also, let's assume that SJ's production will increase to 6,250 ounces per quarter (2,083 per mth) for the last 6 months of 2010, from spending US$1.5M on the mill expansion. This would equate to 22,500 SJ ounces in 2010.

70,000 - 22,500 = 49,500 Lamaque ounces

'next year' The meaning of those 2 words is key to the rest of the analysis. Did something get lost in translation or does 'next year' literally mean 2010 calendar year, as oppose to something getting lost in translation and the intent is really first 12 months after gold pour (with Lamaque's 12 months bleeding into the first 3 months of 2011).

For the purpose of our analysis, let's assume that 'next year' literally means next calendar year (2010). That would therefore mean that Century intents to produce around 47,500 ounces over 9 months in 2010 (as first gold pour doesn't happen until Apr'10).

This is a meaningful development - the increased ounces, coupled with the US$1,190 gold price, improves our chances to become cash flow positive earlier. The Fortis (Jan'09) plan had a start date of April also. That plan had identified 38,363 ounces over the remaining 9 months of the start up year. Also, in the last conference all, it was identified that the plan was to produce 49,300 ounces for the first 12 months after first gold pour. This meant about 35,000 ounces for a 9 month period, which is consistent to the Fortis plan.

Quite frankly, given the most recent developments, I have been expecting more production than 35,000 ounces over the 9 month period. The recent developments being:

1) Century is now planning on spending $4M on exploration instead of $1M. Most of this money will be focused on upgrading existing 43-101 ounces to higher categories, with an extra focus on increasing near-surface reserves.

2) The gold price is now US$1,190 per oz. Lowering the cutoff grade from 2.5 g/t to 2.1 g/t (US$900 gold price - still very conservative) should increase reserves to be mined (even in the first 9 months).

Given these 2 significant factors, I do not see 47,500 ounces of production over the 9 months of gold pour in 2010 as being unrealistic. At least it shouldn't be if they execute. Actually, I will be disappointed if they are still targeting 35,000 ounces.

All 3 portals are in place (Sigma West Zone/Bedard Dyke, Cross-Over Zone, North Wall Dyke), although Century will likely need to perform some internal development to reach the various ore bodies, as well as development/preparation work before launching into the long hole stoping method of ore extraction.

Here is a short description of long hole stoping (from the World Gold Council):

"Where large blocks of ore can be identified and the surrounding rock is reasonably strong, then a long hole mining method is generally the lowest cost mining method. The result is not unlike an underground quarry. Access to the top and bottom of the ore block is established with drifts or tunnels. A vertical hole (slot raise) is created within the ore from the top of the block to the bottom. Long holes are drilled to blast vertical slabs off the ore block. Normally a loader will pick up the broken ore from the lower tunnel and take it away to an ore pass. For safety reasons, the loader is operated remotely by a radio control when it is inside the large open stope. Once the ore block has been blasted and extracted, the stope will normally be filled with waste rock to stabilise the void and make possible the extraction of adjoining ore blocks. This mining method is very popular, and is almost the underground analogy to the advances achieved in mechanising a large open pit. Where large blocks of ore can be identified in relatively strong rock this method is productive and has low costs."