Also, Finskiy will need to convert his remaining C$8M worth of warrants by end of Jun`11 (8.5 months from now). The C$9M escrow cash + the C$8M Finskiy cash will give us C$17 million in extra cash. We will be able to go heavy with San Juan upgrades to enable 30,000 oz per yr production. They might even be able to bring in the power line (which is 15 km away). They estimate it would cost $6 - 10M to make it happen. Century was talking to the Peru government about splitting the cost at one time, but I don`t know what the latest is on that front. With serious economies of scale from a 30,000 oz operation (though, that might be partly/slightly offset if they have to go heavily into narrower veins to mine some of the extra ounces) , coupled with electical power (rather than diesel), I wouldn`t be surprised if they can get the San Juan cash cost per oz back to the US$400 - 500 range. After all, San Juan use to be consistently in the US$300 - 350 range (even without electrical power).
Of note, the key San Juan veins (San Juan and Mercedes) are mesothermal veins (potentially even all of the veins are mesothermal in nature). It means the ore grade gets higher as these veins are mined at deeper levels. San Juan`s mining approach is mainly adit based (access through the sides of the mountains, as oppose to open pit or full underground mining), with limited internal shafts. San Juan hasn`t really operated as an underground operation in the past. In some parts they have gone to a decent level below surface level (which would be considered underground mining), but not extensively in all parts. There still remains plenty of opportunities to increase focus on both underground mining and underground exploration - the main veins are kilometres long, thus it makes for interesting underground potential. All main veins are still open at both along strike and at depth. San Juan recently successfully lowered one of the internal shafts. They recently also increased the tailings pond.
Also, of note, my understanding is that some of the old Lamaque equipment is now at San Juan in Peru (this equipment represents an upgrade to what the Peru miners were using).
Anyway, as mentioned previously, the C$9M escrow access is based on hitting 70,000 run rate production ounces for 4 consecutive months. However, this time, we are able to use ounces from both Lamaque and San Juan. Though, we are still able to use the average of the sum of the consecutive 4 month approach (as oppose to having to hit the average for each and every day of the 4 consecutive months).
As usual, it is impossible to know what the numbers will look like. As such, let`s use a somewhat safe / conservative approach with the data. This gives us a decent or at least semi-decent shot at reaching the escrow goal at the end of Jan`11 (assuming no further significant delays):
1) San Juan:
Let`s say that San Juan keeps trucking at 1,700 ounces of production per month
1,700 * 4 consecutive months = 6,800 * 3 = 20,400 ounces San Juan annualized run rate for 12 months
2) Lamaque:
October (900 tpd, 3.7 g/t, 96% recovery):
Let`s now apply the formula.
900 tpd * 30 days avg * 3.7 g/t grade * .96 recovery / 31.1 grams in each troy ounce
= 3,083 ounces
Use the same formula for the other 3 consecutive months.
November (1,100 tpd, 4.0 g/t, 96% recovery):
= 4,074 ounces
December (1,200 tpd, 4.2 g/t, 96% recovery):
= 4,667 ounces
January, 2011 (1,300 tpd, 4.2 g/t, 96% recovery):
= 5,056 ounces
Total Lamaque ounces produced for the 4 consecutive month period, using this conservative approach:
3,083 + 4,074 + 4,667 + 5,056
= 16,880 for 4 months
Annualized run rate production based on the 4 consecutive months at Lamaque:
16,880 * 3
= 50,640 annualized Lamaque run rate ounces (12 months)
3) San Juan and Lamaque combined - annualized run rate production based on 4 consecutive months starting this month (October 2010):
20,400 San Juan + 50,640 Lamaque = 71,040 total ounces
11 comments:
I know we don't have these numbers as of yet, but isn't it possible that September could be included in the 4-month period? This would allow us to access the $9M at the end of December. It would be a nice Christmas gift.
Hi Sam,
Yes, indeed, it would be a nice Christmas present. It certainly is a possibility. I think it will depend heavily on how quickly Century is able to bring Bedard Dyke online and how rapid they can ramp it up. It will also depend on how much they can move the overall blended grade from the 3.5 g/t - 4.0 g/t Lamaque 2 range to decently over the 4.0 g/t level in November and December, with Bedard Dyke blended in.
I haven`t considered anything from North Wall for the Sept - Dec 2010 timeframe.
To get the $9M at the end of December, Century needs both an excellent BD start up November 1st or before, and rapid ramp up immediately.
Here are some Lamaque numbers that can get it done for us at end of December:
*Sept - 900 tpd, 3.7 g/t, 96% recovery (of note, I am going with 900 tpd for Sept, instead of 1,000 tpd, just in case the tpd is flucuating a bit from month to month, due to mineralized development muck or/and other reasons)
*Oct - 1,000 tpd, 3.8 g/t, 96% recovery
*Nov - 1,200 tpd, 4.2 g/t, 96% recovery
*Dec - 1,300 tpd, 4.3 g/t, 96% recovery
3,083 + 3,519 + 4,667 + 5,176 = 16,445 Lamaque ounces for the period Sept to Dec
16,445 * 3 = 49,335 Lamaque annualized run rate ounces
49,335 Lamaque + 20,400 San Juan = 69,735 combined annualized run rate ounces
69,735 oz run rate at end of December would be close enough to get us the C$9M cash at that point
U.S. unemployment data report came out today and it was bad, thus fueling gold prices due to strong speculation that U.S. will engage in further quantitative easing. Big banks have raised their estimates of the gold price to $1,450+ some at $1,450 some greater around $1,550 within a 12 month time frame. How how long this gold bull will last no one knows. However, from a lot of research it seems to me that gold will rise in the next 12 months, but may not stay there as long as initial predictions of 2-3 years or greater. Analysts predict the fall in gold prices could be more than twice as fast as its rally.
Here's hoping to Century to get their commercial production status as early as possible in 2011 so we can take FULL advantage of this gold bull market. I also read about Ashanti gold and gold companies leveraging gold by buying it and creating a floor in gold prices as well as a potential currency war where countries devalue their currency to help their economies grow.
Since I discussed San Juan in the main post, I figured this is a good time to briefly mention about our Veta Clara vein system.
The Pampas area on the San Juan land package is where production has been mainly focused on historically. It is where the SJ mine is located. Also, the original drill program was focused almost entirely on this area - it was the first ever systematic drill program on our SJ land package. Of note, I believe there are about 35 known veins in the Pampas area (a number of them are very strong and rich, but some are small or extra narrow also). The current 43-101 report was entirely based on first phase (in some cases somewhat limited) drilling in this area.
About 5 km south of Pampas/SJ Mine area is the Veta Clara vein system. It is small relative to Pampas, but it has the potential to add meaningful incremental ounces to our 43-101. Veta Clara has 7 or 8 veins. None of the Veta Clara veins have been included in the current 43-101 report. At least one of the Veta Clara veins has been developed and is currently being mined, and contributing to production. As such, we know that Veta Clara system houses economic ore.
Veta Clara can to be drilled into 43-101 once we launch our SJ drill program in 2011. From the Apr`08 Tech Rpt: ``The Veta Clara mine openings should be used as a base to drill across the stratigraphic section and thereby obtain details on all of the Veta Clara veins that parallel the strata.``
Hi Prod05
One question. When and under what conditions can the Co use the money earned from all the gold mined so far? Believe from April to Sept. there could be +-15,000 oz mined from Lamaque and by Dec, should we meet target, there will be a total of +- 30,000 oz.
I know this is off topic but I'm curious. I know a lot has been made over the location of CMM headquarters in Blaine, but I can't help but wonder how this is impacting the CEO search. IMO, it hurts our chances of getting a quality CEO. What are your thoughts?
Hi Wingfong,
There are no restrictions with the use of the money from Lamaque gold sales. Century can use the funds as soon as they are receive payment amounts from the gold sale transactions. I believe Century sells its Quebec gold to the Royal Canadian Mint (they did historically - not sure if things have changed).
The commercial production status situation is mainly about GAAP (Generally Accepted Accounting Principles) accounting and reporting treatments. Prior to reaching commercial production status, the revenues from gold sales are netted against the costs of producting the gold, with the net difference (be it a surplus or shortfall) booked to (or against) the Lamaque asset value that currently sits in the Balance Sheet.
The Lamaque asset value (in the Balance Sheet) will be depreciated a bit at a time (each month) over the life of the asset (say 10 or 15 years, for example), but this depreciation only starts after commercial production has been declared (using GAAP definitions). The depreciation reduces the Balance Sheet asset amount over time, and will eventually be widdled down to zero (or salvage value) in 10 to 15 years (or whatever is set up as the asset depreciation life - the life could change over time as the asset grows, etc.). Of note, there are a few depreciation methods (i.e. Staight-Line, Declining Balance, etc.), but Straight-Line is the most popular, which essentially allows even depreciated amounts throughout the life of the asset.
The depreciation gets booked into the Income Statement. In a nutshell, an Income Statement profiles revenues and costs within a given fiscal year (typically calendar year, but can differ with some companies) - includes both cash items and non-cash items. Essentially, the depreciation is to recognize the use of the asset towards generating revenues. Depreciation is a non-cash item.
Aside from reaching commercial production status allowing asset depreciation to kick in, it allows the revenues and the expenses associated with gold production to remain in the Income Statement, and factor into the calculation of bottom line profit (or loss). At that point, revenues from gold sales will be matched against both operating costs to produce the gold and asset wear and tear/ asset depletion, in the form of depreciation.
Century is going to amortize their asset on an activity method of depreciation instead of straight line if I remember their annual report correctly
Most gold mining companies usually do that so their amortization expense gives a fair reflection on how much they produce, no?
Prod05
Thank you for the explaination
As a side note, it was mentioned in the June 2nd conference call (around the 9 minute mark) that San Juan was working on extending/upgrading the hoist. This relates to my earlier note on lowering the internal shaft.
However, in addition, they also mentioned (on June 2nd) about working on putting in a new Mercedes ramp.
It`s not clear if the hoist and ramp development work have been slowed since then, due to reduced surplus cash situation (at least prior to the PP).
There appears to be plenty of benefits from having the Mecedes ramp in place at SJ. The obvious one is the abilities to mine the lower level existing reseves. We can also use the ramp to drill more ounces from Inferred into P&P Reserves.
Perhaps the biggest benefit of the ramp will be to support a deep drilling campaign to test the deeper underground potential of the mine. Century should be able to put in drill stations at various locations down the Mecedes ramp, similar to the drill stations they now have in place at the Bedard Dyke ramp.
Here is some info from the SJ Tech Rpt (on Century`s web site, in the Reserves/Resources folder, pg 91 of the SJ rpt):
``The lower levels of the Mercedes and San Juan (Esperanza) have internal winzes equipped with hoists that have a one tonne hoisting capacity. The Mercedes has a hoist capable of hoisting 2 tonnes however is limited to one tonne until the electrical system is upgraded. These levels are currently accessed by the miners by means of ladders. It is Century’s intention to provide ramp access to the Mercedes lower levels and upgrade the San Juan (Esperanza) hoist to two tonne
capacity in the near future.``
As you may recall, winzes are essentially internal shafts.
It looks like SJ is making good process towards these goals. All of this development work (along with tailings area upgrade and expansion work already done this year) can only help to support the mid-term gold of ramping up to 30,000 ounces.
Pg. 103 shows a nice little digram of what the Mercedes ramp might look like. It seems to go down to a vast space that appears to be unmined (naturally, as there were no access before), both vertically and horizontally.
To be continued......
It should be interesting once we finally get to launch a new drill program in Peru in 2011. We have enough targets to keep us extremely busy. We have so many interesting targets down there that we will likely have to pick and choose:
1) Drill upgrade Inferred ounces into P&P Reserves all around the Pampas vein swarm system (and nearby areas), as well as drill to expand total 43-101 resource.
2) Drill to upgrade and increase mid range ounces located along the ramp down levels, underground.
3) Drill test deep underground potential at San Juan. Positive deep drill results (positive grade, widths and other economical underground requirements that would justify deep infrastructure development) could be a significant development for the mine, especially give the length of the primary veins, coupled with the large number of veins on the property.
4) Test specific high potential surface opporunties, including where the Mercedes vein and the Alpacay veins cross the Chorunga valley, and also establish if they are connected under the valley as one extended vein.
5) Go after discovery of more parallel veins. They are prominent on the property, especially in the nothern half of the Pampas/SJ vein swarm area. Parallel veins can often be drifted to from existing veins, thus requiring less development costs and can be brought into production more rapidly.
6) Veta Clara vein system: Drill the system into 43-101. Try to expand the system by locating additional veins in the system. Test the down dip potential of the system.
7) Lily La Huaca prospect: Shows very early signs of being another vein system, but too early to know with a high level of certainty without the appropirate exploration work.
8) Champune
9) Santa Clarita
10) Erika (copper porphyry potential)
Post a Comment