The Tech Rpt is filed on SEDAR. I have only taken a quick glance thus far, but here are some immediate thoughts.
For the calculation of SJ 43-101 reserves a 4.5 g/t cut-off grade was used, which appears to be substantially more conservative relative to actual mining (2007 and historical – 3 g/t cut-off previously reported), as well as go forward mine plans.
SJ Tech Rpt ’08, Pg 97: “The mine uses a cut-off grade of 4.2 g/t gold that covers all the costs including exploration, refurbishment and increasing production levels. The reserves have been calculated using a slightly more conservative cut-off grade of 4.5 g/t Au.”
Pg 97: “If the cut-off grade is set to cover operating costs only, then a cut-off of 2.7 g/t at an 85% recovery would be appropriate at a US$800 gold price. Recent rapid increases in the price of gold have made either cut-off grade conservative.”
P&P reserves – 653,445 tonnes @ 8.87 g/t = 186,316 ounces, however SJ 43-101 Project Economics schedule (pg 122) uses a grade of 6.34 g/t. The company expects to see grade dilution of 40% (pg 130). As such, they have increased tonnes to be mined (5 yr life) from 653,445 to 914,823 (pg 130 and 122). This suggests to me that they are planning to mine a significant number of ounces with g/t grading between 2.7 and 4.5. My guess is that these ounces would not have been included in the SJ 43-101 resource count due to the 4.5 g/t cut-off.
This diluted mining method is most likely consistent with actual mining in 2007, as the 2007 average grade came in at 5.55 g/t (pg 87).
Working under this theory:
*467,062 tonnes @ 8.87 g/t (counted in 43-101)
*447,761 tonnes @ 3.70 g/t (potentially non-counted in 43-101)
That would need to be the profile in order to average 6.34 g/t, while mining 914,823 tonnes (instead of 653,445) and deliver 186,316 ounces (156,449 ounces after using an 84% recovery rate, pg 122), over the first 5 years of mine life.
This potentially means that the company is planning to mine 53,500 (3.7 g/t) ounces (that are not counted in 43-101) to supplement the 8.87 g/t reserves (over the next 5 yrs). It could also mean that 186,383 tonnes (653,445 – 467,062) of the 8.87 g/t P&P reserves might be left over, to extend mine life for another 2 years, as follows:
*186,383 tonnes @ 8.87 g/t (counted in 43-101)
*178,681 tonnes @ 3.70 g/t (non-counted in 43-101)
The financial economics of the extra 2 years have not been factored into the company’s model.
If this theory is correct then using the 3.7 g/t ore could potentially allow for an additional 75,000 mineable ounces (potentially not counted in 43-101), and potentially extend mine life for 2 years.
However, it is only an interpretation and a theory. This is only for discussion purposes. The company’s actual mine plan may be completely different from this interpretation. I only have access to the published data.
Let me know if there are any other interpretations.
6 comments:
Good analysis but we don't know the unpublished numbers. My gut feel like yours is the veins are too thin and the drill data insufficient to support a higher reserve/resource. Further work needs to be done (cash) to expand it. Chances are the resource is close to 500K oz but CMM cannot publish that as N43-101 compliant.
No word yet on Rosario and how the negotiations went. 6K oz per year is no big loss vs another massive dilution. I say walk away if we cannot come to terms.
as for Shahuindo, come on guys, let's negotiate with Wega/Sue/Scion to form a deal to create a win-win situation for all. Maybe set up a third company with CMM holding 1/3 and SUE taking the other 2/3, and Algamarca gets paid by the combined new co.
Production, I haven't read any part of the SJ 43-101 technical report yet but it seems to me, based on the NR, that Century has made a conscious decision to sacrifice reserves ounces for higher grades.
The consequences are higher revenues and profits, and lower cash costs over the next 5 years. The tradeoff of course is a shorter mine life if there is no more gold to be found or defined. I think more ounces will be defined in the next 5 years.
The current bottleneck is mill grinding capacity and the higher the grade, the more ounces produced.
If my theory is correct, I believe this is the correct decision for Century at this time. SJ is not the company's major property and its continued survival beyond 5 years is not dependant on maximizing the mine life of SJ. Lamaque is the company's flag ship operation and it has enough gold there to operate for 20 years or more.
One of the reasons I'm saying this is that I believe in order for CMM to produce 21,802 oz in 2008 they will have to increase the avg grade milled from 5.5 g/tonne to something closer to 8 g/tonne.
Currently the mill is limited to 225 to 250 tpd and its going to take some time to get to 400 tpd. If we assume that the first 3 quarters average 240 tpd and Q4 is at 400 tpd, then the average milled grade will need to be close to 8 g/tonne to make 21,802 oz this year.
BTW, I believe the 55,000 oz forecast for 2008 consisted of 27,000 from Lamaque, 20,000 from SJ and 8,000 from Rosario.
bargain hunter, thanks for your comments.
I agree with you on Rosario in that if we cannot get deferral of the payments terms and cannot get debt financing to cover the $13.5 million payment due in June, we cannot keep it via another low-priced PP. That is not an option.
Unlike Shahuindo however, Rosario is not an option agreement. We own the property and are obligated to pay for it if the seller demands payment. He might only consider deferral if there is something in it for him that he is willing to accept such as more money later or higher royalties on production.
Otherwise we have to look for another buyer so that we at least re-coup money already invested.
Surely if Rosario's brand new operating mine and surrounding exploration potential and its 400,000 inferred ounces were worth $20 million in May 2007 when the POG was $685/oz, it has to be worth more than that with a POG of $916.
As for Shahuindo a negotiated settlement should be the only option. I disagree though with conceding 2/3 of the property to SUE, if we truly believe we have a better legal case than Sulliden has. The most recent important court ruling was not in their favour.
My suggestion would be for the 2 sides to agree on an independent and completely impartial arbitration panel of 3 persons with impeccable reputations. Say a retired Peruvian Supreme Court judge, a professor of law at Peru's best university and a principal lawyer from one of the most prestigious private law firms in Peru. The stakes would be the winner takes 2/3 and the loser 1/3.
All mine development costs (including payments to Algamarca) and all revenues would be divided on the the same basis.
Hi Carib,
SEDAR is down right now so I will have to go off of memory. Once it’s back up (and once you get the chance), take a look at page 122 of the SJ Tech Rpt. The entire Economics Model appears to be driven off of the 6.34 g/t grade and the 914,823 tonnes. Even the low $302 (LOM) cash cost per oz (and subsequently profits) is driven off of the 6.34 g/t grade – it doesn’t seem to be dependent on the 8.87 g/t.
For example:
31 grams in oz / 6.34 grams per tonne = 4.89 tonnes per oz * $58.49 cost per tonne @ 350 tpd level = $286 cash cost per oz
If we use the high grade P&P reserve only (8.87 g/t) then the cash cost per oz becomes $204, which makes it too low (relative to the LOM $302 used in the model).
Also, the 914,823 tonnes (P&P reserves) used in the 5 yr LOM economic model is far greater than the 653,445 tonnes booked in the official SJ 43-101 reserves report. This is where their 40% expected grade dilution factor comes into play, by potentially mixing in the 3.7 g/t (average) mineable ounces (below the 4.5 g/t cut-off grade used in the 43-101 resource calculation, but above the 2.7 g/t economical cut-off grade). It’s possible that I might be missing something here. However, even if I was to toss my thinking cap aside (and do just basic math), they would need to find a way of making up the difference in tonnes used in the Economics Model versus what was booked in P&P reserves in the 43-101 report. Specifically, with them using a grade of 6.34 g/t, from a weighted average perspective they need to find/mine 447,761 tonnes @ 3.70 g/t (in the 5 yr mine life) to supplement the 8.87 g/t, for any of the math to work. Any deviation from the 6.34 g/t, the 84% recovery rate and the 914,823 tonnes over the 5 yr mine life (positive or negative) will influence the numbers generated out of SJ Economics Model.
With regards to 2008, the Economics Model also uses the 6.34 g/t to drive out the 21,800 ounces. I agree with you, it will be a major challenge for them to achieve that level of production in 2008, especially given that we are getting close to May. They still need to secure debt funding, perform the development work and then ramp up. The timeframe seems to be too short, and with a lot of uncertainties for 2008. I haven’t seen their detailed ramp up plan for 2008 so it’s hard to say what it actually looks like. However, at a 6.34 g/t mining grade (and the difficulties identified above for 2008), 15,000 – 18,000 ounces seems to be more attainable in 2008, IMO.
Carib, you said,” I disagree though with conceding 2/3 of the property to SUE”, then its probably stay in court for a few more years, I don’t think Sue will take any less. That could be a non issue if Century fails to negotiate a new agreement. Someone should buy both companies and solve the problem, CSM?
On a different note; here we sit with Century having close to 5 million ounces in the Republic of Quebec (one of the best places for mining) at a ridiculous valuation, while mining companies have to put up with a lot more than bad management.
Miners hit by Ecuador freeze
Reuters
April 18, 2008 at 6:21 PM EDT
QUITO — — Aurelian Resources Inc. [ARU-T] and other Canadian miners with projects in Ecuador saw their shares tumble for a second day on Friday as the South American country voted to suspend their exploration projects for up to six months, until a new mining law with tougher environmental controls is approved.
Hi Production,
Now that Sedar is back up, I've had a brief look at the SJ 43-101 and I agree that 6.34 g/tonne is what is being used to calculate production ounces. The 6.34 g/tonne mill grade is the 8.87 g/tonne reserve grade diluted by 40%.
There is an inconsistency with the tpd forecast for 2008 in the Report. They are forecasting an avg of 354 tpd in 2008, but they say that the mill is currently processing 225 to 250 tpd. They can't possibly average 354 this year based on this current production and not getting to 400 tpd until sometime later this year.
However I did notice that the actual tpd number for December was about 280 tpd (based on 30 days, assuming at least a Christmas Day holiday) and the average for the last 6 months of 2007 was about 260 tpd (based on 180 days).
So the 225 to 250 tpd current production seems to be understated and if so, perhaps the 354 tpd for 2008 is possible.
I've updated the Century 2008 Forecast to show 6.34 g/tonne and 260 tpd for the first 3 quarters which produces 18,400 oz in 2008.
I've also extracted the Financial Model from the SJ 43-101 Report and added it to the Information Links to make it more easily accessible than going through Sedar.
BTW, there is someone looking for you at Stockhouse. Perhaps you should send him over here.
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