Achieving commercial production vs Achieving cash flow positive status

From the Jan 11th Canadian Mining Journal article:
``The initial milling rate will be approximately 1,200 t/d by the end of 2010 and will rise to 2,000 t/d as production increases.

Feb. Corp Presentation:
``....Lamaque...ramping up to full production of 100,000 to 110,000 ounces...(LOM average cash cost $450 - $500/oz)``
``Lamaque 2011 production - 85,000
``Lamaque 2013 production - 104,000``
``....Lamaque....»May 2010 - TPD: 500 - 800``

Jan. 4th NR:
``Until the Lamaque operation reaches commercial production, which is expected to occur in 2011``

Grades in near-term mining areas:

1) Lamaque number 2 area = 5.72 g/t avg grade in the narrow flats (from Jan`09 independent DD rpt), some bonus low grade ore could be also mined along the way, which will could increase tonnage but decrease avg grade

2) Bedard Dyke grade looks to be over 5.0 g/t (perhaps well over)

3) North Wall reserves avg 4.99 g/t (per the Jan`09 independent report)


The near-term ramp up looks to be as follows:

1) Lamaque number 2 area - mining starts at end of February`10/beginning of March`10
2) Bedard Dyke - mining perhaps starting in the May to July timeframe
3) North Wall - development occuring in Q4`10 and mining to start beginning of 2011

If all goes well, the numbers seem to suggest that cash cost per oz will likely be alright at 600 t/d, decent at 700 t/d, good at 800 t/d, very good at 1000 t/d and excellent at 1200 t/d. If all goes well, at current levels of gold price, the numbers are suggesting that cash cost per oz will be well below the gold price at all of these ramp up levels.

Here is a link to my post from a couple of weeks ago (DD details and calcuations with regards to t/d and cash cost per oz - highly recommended (if haven`t viewed as yet) in understanding the base premise):

http://www.stockigloo.com/2010/02/dd-data-on-operating-costs.html


Commercial production:

As mentioned before, I view achieving commercial production and reaching cash flow positive status as 2 separate events (even though Lamaque financials will be capitalized until GAAP commercial production standards are achieved).

For mining companies, achieving GAAP commercial production typically means achieving 60% (or greater) of designed capacity or planned steady state production, for 30 or 60 or 90 consecutive days, depending on the mine I suppose. My guess is they are treating Lamaque as 90 consecutive days, given the 2011 timeframe.

It is seeming to me that they are using 104,000 ounces of production as 100% production. We know that 104,000 ounces is the max for the current plan. The next plan will likely be built with a max of 150,000 ounces (once Sigma shaft 2 is refurbished in 3 or 4 years time - of note on Sigma 3 shaft, the 3000 - 6000 ft shaft, should not require a lot of work as it is in good shape). None of the shafts are required to ramp up to 104,000 ounces. The ore feeds will flow through the 3 declines (Lamaque number 2, Bedard Dyke and North Wall).

A tonne per day of 2000 and a year 2013 avg grade of 4.7 g/t = 104,000 ounces (which is the planned production for 2013)

2000 t/d * 60% = 1200 t/d

It`s impossible to know 100%, obviously, but everything is suggesting that hitting 1200 t/d on consecutive days for 1 to 3 months will get Lamaque to commercial production status. Also, as noted above, if all goes well, the cash cost per oz should be excellent at 1200 t/d, and if the gold price holds up, Lamaque should be driving out signficant cash.

We should also note that the company is targeting 500 - 800 t/d in May - June timeframe. That will include stockpiled ore of course, but it should not be too much higher than a reasonable near-term go forward rate. I say this because they have 34 miners already and are adding 50 more miners in February. That`s a total of 84 miners planned for the end of February (before any attrition). The company has target 250 employees at Lamaque for the current plan. If we back out 40 non-miners then we are targeting 210 to get us to 104,000 ounces. Thus, having 84 miners of 210 miners in place by February would be a solid start. We should have a better idea once we find out how February`s recruiting is going.