VANCOUVER, BRITISH COLUMBIA — (MARKET WIRE) — 11/14/11 —
Third Quarter 2011 Financial and Operating Highlights:
— Gold production of 44,022 ounces for the third quarter, with on-site average cash costs(1) of gold produced of $1,181 per ounce, comprised of the following: For the three months For the nine months ended September 30, ended September 30, 2011 2011 Ounces Cash Ounces Cash Produced Costs(1) Produced Costs(1) —————————————————————————- San Andres Mine 13,579 $ 943 47,669 $ 761 Sao Francisco Mine 18,665 $ 1,304 38,730 $ 1,167 Sao Vicente Mine 11,778 $ 1,263 29,896 $ 1,332 —————————————————————————- Total / Average 44,022 $ 1,181 116,295 $ 1,043 —————————————————————————- (1) See cautionary note regarding non-GAAP measures. — Completed the first full quarter of production following completion of the dedicated waste stripping program at the Sao Francisco Mine in early April 2011. Since restarting operations, gold production has improved, with the third quarter production increasing to 18,665 ounces; — Production at the Aranzazu Mine of 2,276,800 pounds of copper in the third quarter of 2011, up 41% over the prior quarter. On-site average cash costs(1) were $2.53 per pound of payable copper, net of gold and silver credits, which represents a 23% decrease from the second quarter cash costs(1) despite lower than expected throughput in July due to water supply issues caused by a minor wall failure of the main supply well early that month; — Sales revenue of $80.1 million in the third quarter of 2011, an increase of 16% over the prior quarter, and comprising net gold sales of $71.2 million from 42,859 ounces and $8.9 million from the shipment of 4,000 dry metric tonnes (“DMT”) of copper concentrate; — Realized average price of gold sold from the Company’s gold mines of $1,683 per ounce for the third quarter of 2011 compares with the average market price of $1,702 per ounce (London PM Fix); — Loss for the quarter of $37.3 million or $0.16 per share and adjusted profit(1) for the quarter of $5.1 million or $0.02 per share, after adjusting for write-downs of inventory, impairment of the Sao Francisco Mine and the Sao Vicente Mine (“Brazilian Mines”), unrealized foreign exchange losses and other non-recurring revenue and expense items; — Awarded the feasibility study on the Serrote de Laje deposit (the “Serrote Deposit”) to
James M. “Jim” Bannantine, a Civil and Mechanical Engineer and an MBA, as President and Chief Executive Officer (“CEO”) and as a member of the Board of Directors effective October 18, 2011. Mr.
Tom Ogryzlo will be stepping down as Interim CEO following a brief transition period and will remain a director of
(1) See cautionary note regarding non-GAAP measures.
“After having joined the Company in mid-October, I have visited each of the Company’s mines and met the senior operating management and their teams. I am excited about the prospects for our business and impressed by the people,” stated
Jim Bannantine, President and CEO of
For our Sao Vicente and Sao Francisco mines the Company recently announced a reduction in mine life, estimated mineral resources and reserves and ore grades. These factors will reduce the total recoverable ounces at these mines. However, the updated mine plans resulting from the new geological modelling will optimize production to give us considerable cash flow for the next three years.
The San Andres Mine is operating generally according to the long term plan for the mine and should be a cash generator for the Company for the foreseeable future. That said, the third quarter’s production continued to be affected by the higher than planned proportion of low-recovery mixed ore, albeit at somewhat lesser levels than earlier this year, and minor cyanide supply constraints experienced early in the quarter. Further the onset of the rainy season lowered ore tonnage output from the mine and increased downtime associated with handling of wet ore. We are pleased to have hired a new general manager at the mine with extensive experience at operating mines with similar seasonal constraints Plans are in place to install a vibrating grizzly screen ahead of the primary jaw crusher to improve plant throughput and efficiency in the wet season. We also commenced mining in the upper benches of the Twin Hills pit in the third quarter, and should see an increasing proportion of oxide ore in coming quarters, resulting in higher recoveries at the San Andres Mine.
At the Aranzazu Mine, the Company saw significant increases over the second quarter in ore mined from both open pit and underground operations, recoveries, and copper in concentrate. These increases were in spite of milling operations being severely reduced for a good portion of July as a result of the water well problem during the month. The increased metal production allowed the Aranzazu Mine to reduce its cash costs by 23% to $2.53 per payable pound of copper. Continuing improvements in both mine and milling operations and the lower proportions of oxide ore, as a result of more material being sourced from underground and at lower depths in the open pit, will allow the mine to achieve its targeted production levels. In October, the Company announced an updated resource estimate for the Aranzazu Mine, which reported measured and indicated resources increasing by 25% over the previous estimate, using a 0.8% copper cut-off. This demonstrates the significant potential of this deposit and we are initiating a preliminary economic assessment study to increase mine and plant throughput.
Although we expect positive cash flows from operations going forward, we took steps in the third quarter to increase our revolving credit facility to fund working capital for growth, and recently received approval for an increase to $45 million, from $25 million, and expect to be able to close the upsizing in December.”
The following financial information does not constitute management’s discussion and analysis (“MD&A”) as contemplated by relevant securities rules and should be read in conjunction with the Company’s unaudited interim consolidated financial statements for the three and nine months ended September 30, 2011 and the annual audited financial statements for the year ended December 31, 2010 and the MD&A’s for the two periods, which are available on SEDAR at www.sedar.com under the Company’s profile or on the Company’s website.
The following table presents a summary of financial information for the three and nine months ended September 30, 2011 and 2010:
(In thousands of Three months Three months Nine months Nine months dollars, except ended ended ended ended per share Sept 30, Sept 30, Sept 30, Sept 30, amounts) 2011 2010 2011 2010 —————————————————————————- (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenues $ 80,137 $ 47,550 $ 202,690 $ 105,917 Mine operating expenses (68,120) (53,127) (182,166) (92,144) —————————————————————————- Gross profit (loss) 12,017 (5,577) 20,524 13,773 Expenses Exploration expenses (2,698) (6,655) (9,424) (18,346) General and administrative expenses (7,010) (6,104) (20,941) (22,786) Impairment charge – Brazilian Mines (38,534) – (38,534) – Finance costs (1,148) (1,364) (3,471) (3,179) Interest and other income 19 465 258 709 Gain on restructuring of contractual obligations – – 17,009 – Other gains (losses) 1,035 4,414 3,146 4,910 —————————————————————————- Loss before income taxes (36,319) (14,821) (31,433) (24,919) Income tax expense (945) (2,006) (222) (6,647) —————————————————————————- Loss for the period $ (37,264) $ (16,827) $ (31,655) $ (31,566) —————————————————————————- Adjustments: Unrealized foreign exchange losses (gains) (216) 626 (3,181) 896 Other unrealized gains and losses (528) – 549 – Share-based payment expense 2,620 2,228 6,560 9,749 Writedown of inventory to net realizable value 1,928 3,188 6,963 3,188 Impairment charge – Brazilian mines 38,534 – 38,534 – Gain on restructuring of contractual obligations – – (17,009) – Non-recurring transaction costs – (376) – 2,335 —————————————————————————- Adjusted profit (loss)(1)for the period $ 5,074 $ (11,161) $ 761 $ (15,398) —————————————————————————- Basic and diluted loss per share $ (0.16) $ (0.08) $ (0.14) $ (0.16) —————————————————————————- Adjusted earnings (loss)(1)per share $ 0.02 $ (0.05) $ 0.00 $ (0.08) —————————————————————————- (1) See cautionary note regarding non-GAAP measures.
Gold ounces sold for the respective periods, the average realized prices per ounce and net sales are detailed in the following table. The average realized prices per ounce for the three months ended September 30, 2011 and 2010 compare to the average market prices (London PM Fix) of $1,702 and $1,227, respectively. The average realized prices per ounce for the nine months ended September 30, 2011 and 2010 compare to the average market prices (London PM Fix) of $1,534 and $1,178, respectively.
Three months Three months Nine months Nine months ended ended ended ended Sept 30, Sept 30, Sept 30, Sept 30, 2011 2010 2011 2010(1) —————————————————————————- San Andes Mine, (ounces) 12,758 13,963 50,067 50,471 Sao Francisco Mine, (ounces) 18,691 14,129 38,403 21,057 Sao Vicente Mine, (ounces) 11,410 10,995 31,262 17,617 —————————————————————————- Total ounces sold during Quarter 42,859 39,087 119,732 89,145 —————————————————————————- Realized average gold price per ounce in Quarter $ 1,683 $ 1,229 $ 1,534 $ 1,200 Gold sales revenues (in ‘000’s) net of local sales taxes $ 71,205 $ 47,550 $ 181,679 $ 105,917 Copper concentrate sales (in ‘000’s) $ 8,932 $ – $ 21,011 $ – —————————————————————————- Total net sales (in ‘000’s) $ 80,137 $ 47,550 $ 202,690 $ 105,917 —————————————————————————- (1) For the Sao Fransciso Mine and the Sao Vicente Mine, following the date of acquisition of the mines on April 30, 2010.
Copper concentrate sales in the above table comprised shipments for the three and nine months ended September 30, 2011 of 4,000 DMT and 8,744 DMT, respectively. Payable metal from copper concentrate for the three months then ended includes 2,028,268 pounds of copper, 1,473 ounces of gold and 24,532 ounces of silver, and payable metal for the nine months then ended includes 4,302,607 pounds of copper, 3,642 ounces of gold and 68,702 ounces of silver. Of the shipments made in the nine months ended September 30, 2011, 367 DMT containing payable metal of 183,223 pounds of copper, 153 ounces of gold and 3,313 ounces of silver were sold in the period prior to the declaration of commercial production and were applied against the cost of property, plant and equipment. Accordingly, copper concentrate sales, net of treatment and refining charges, were $8.9 million and $21.0 million for the third quarter and year-to-date 2011, comprised as follows:
Three months Three months Nine months Nine months ended ended ended ended September 30, September 30, September 30, September 30, (In thousands of dollars) 2011 2010 2011 2010 —————————————————————————- Copper revenue, net of treatment and refining charges $ 6,511 $ – $ 14,544 $ – Gold by-product revenue 2,549 – 5,781 – Silver by-product revenue 888 – 2,453 – Price adjustments recorded (1,016) – (813) – —————————————————————————- Total revenue $ 8,932 $ – $ 21,965 $ – —————————————————————————- Less: pre -production revenue applied against property, plant and equipment cost – – (954) – —————————————————————————- Total revenue recorded in the statement of income $ 8,932 $ – $ 21,011 $ – —————————————————————————-
For the three months ended September 30, 2011, the Company recorded total cost of goods sold of $68.1 million, of which $57.6 million related to gold sold and $10.5 million related to copper concentrate shipments. Total depletion and amortization charges included in third quarter cost of sales were $11.9 million.
Third quarter cost of goods sold on gold sales of $57.6 million included cash operating costs of $48.6 million or $1,134 per ounce, which included a write-down of $1.8 million, or $42 per ounce to bring production inventory, including low-grade stockpiles, to its net realizable value. Together with non-cash depletion and amortization charges for the quarter of $9.0 million or $209 per ounce, total cost of goods sold was $1,343 on a per gold ounce basis.
Third quarter cost of goods sold on copper concentrate shipments of $10.5 million included cash operating costs of $7.6 million or $1,898 per DMT of concentrate. Together with non-cash depletion and amortization for the period of $2.9 million or $739 per DMT, total cost of goods sold was $2,637 per DMT of copper concentrate.
Gross profit for the quarter ended September 30, 2011 was $12.0 million, which compares to a gross loss of $5.6 million for the third quarter of 2010.
Other expenses for the three months ended September 30, 2011 consisted of exploration expenses of $2.7 million and general and administrative expenses of $7.0 million which relate primarily to the running of the Company’s corporate offices in Canada and Brazil. For the three months ended September 30, 2011, such general and administrative costs included: salaries, wages and benefits of $2.3 million; non- cash share-based payment expense of $2.6 million; professional and consulting fees of $0.6 million; and general and administrative expenses of $0.9 million. The remaining $0.6 million relates to other general expenditures, which include travel, directors’ fees, and investor relations and filing fees, totalling $0.4 million, and amortization expense of $0.2 million.
For the three months ended September 30, 2011, the Company recorded an impairment charge of $38.5 million related to the long-lived assets and goodwill at the Sao Francisco Mine and the long-lived assets at the Sao Vicente Mine. As announced by the Company on November 10, 2011, the shortened mine lives and the decrease in mineral resources and reserves resulting from the reinterpretation of the geological models and the use of updated mine design parameters, including higher cut-off grades reflecting current operating experience, have resulted in the Company being required to assess whether the carrying value of the Brazilian Mines’ long-lived assets and related goodwill are impaired. Although the mines were acquired as part of a single transaction, along with the San Andres Mine which is performing near the plan upon which its asset value is based, the Company is required to perform these impairment analyses at the lowest level for which separate identifiable cash inflows exist. As such, the impairment analysis was performed for each of the two Brazilian Mines. The impairment comprises a charge of $14.4 million for the Sao Vicente Mine, which consisted of a reduction in the value of the mineral properties of $5.1 million and a reduction in plant and machinery of $9.3 million, and a charge of $24.1 million for the Sao Francisco Mine, which consisted of a reduction in the goodwill of $18.2 million and a reduction of mineral properties of $5.9 million.
Finance costs for the quarter totalled $1.1 million and included interest paid on debt of $0.2 million and accretion expense on the Company’s asset retirement obligations and other long term liabilities of $0.9 million.
For the three months ended September 30, 2011, the Company recorded other net gains of $1.0 million, primarily comprised of a foreign exchange gain of $1.2 million, an unrealized loss on foreign currency contracts of $5.3 million and an unrealized gain on the Company’s copper collar contracts of $5.2 million.
For the third quarter of 2011, the Company recorded a net income tax expense of $0.9 million, consisting of: $1.8 million in current income taxes at the San Andres Mine and $0.9 million in deferred income tax recovery.
For the three months ended September 30, 2011, the Company recorded a loss of $37.3 million or $0.16 per share. Adjusted earnings(1) for the third quarter was $5.1 million or $0.02 per share after adjusting for asset impairment charges, unrealized foreign exchange gains and losses, share-based payment expense, and other non-recurring revenue and expense items.
(1) See cautionary note regarding non-GAAP measures.
Liquidity and Capital Resources
As at September 30, 2011, the Company’s working capital was $66.7 million, including cash and cash equivalents of $20.6 million. In addition, the Company had $5 million available under its $25 million Credit Facility. The working capital increased of $3.9 million over the previous quarter, primarily as a result of the build-up of inventory at the Sao Francisco Mine following the resumption of normal operations in April 2011.
The Company’s ongoing liquidity needs will be funded from current cash and cash equivalents, operating cash flows, and funds available under the Credit Facility, if necessary. With improved results at the Aranzazu Mine, combined with positive cash margins at each of the Company’s gold operations, continued strong metal prices, and reduced levels of capital expenditures expected for the balance of 2011, the Company believes it is fully financed to achieve its near-term growth objectives. This includes the financing of the Serrote Deposit feasibility study, but not additional expenditures associated with the development and construction of the project, for which project financing will be required. Subsequent to quarter end, on October 28, 2011, the Company received a commitment letter from another lender to become a party to the Credit Facility, such that the Credit Facility would be amended to allow for an increase to $45 million on the same terms and conditions, save for a new covenant to allow the new lender to satisfactorily assess the existing resources and mine plan at the Aranzazu Mine, within 90 days of the commitment letter. The Company expects to be in a position to finalize the documentation and close the amended credit facility in December 2011.
Operational and Project Review
San Andres Mine
Production at the San Andres Mine in the third quarter was 13,579 ounces of gold, down 16% from the 16,133 ounces produced in the third quarter of 2010 and down 15% from the 15,965 ounces produced in the second quarter of 2011. Lower gold production in the quarter was primarily attributable to the continued impact of processing lower-recovery mixed ore, cyanide supply constraints experienced early in the quarter and the onset of the rainy season which typically results in lower ore movement from the mine and downtime associated with handling of wet ore and cleaning of chutes.
The table below sets out selected operating information for the San Andres Mine for the three and nine months ended September 30, 2011 and 2010:
Operating Information Q3 2011 Q3 2010 YTD 2011 YTD 2010 —————————————————————————- Ore mined (tonnes) 945,500 1,172,700 3,362,100 3,449,500 Waste mined (tonnes) 392,500 406,900 1,208,900 639,000 Total mined (tonnes) 1,338,000 1,579,600 4,571,000 4,088,500 Waste-to-ore ratio 0.42 0.35 0.36 0.19 Ore plant feed (tonnes) 945,500 1,158,600 3,366,000 3,465,200 Grade (g/tonne) 0.75 0.67 0.77 0.72 Production (ounces) 13,579 16,133 47,669 51,171 Sales (ounces) 12,758 13,963 50,067 50,471 Average cash cost per ounce of gold produced(1) $ 943 $ 709 $ 761 $ 606 —————————————————————————- (1) See cautionary note regarding non-GAAP measures.
Operating cash costs(1) of $943 per ounce of gold produced in the third quarter of 2011 were approximately 24% higher than the prior quarter and 33% higher than in the third quarter of 2010. Increased cash costs over the same quarter in 2010 are primarily a result of: the higher strip ratio in the third quarter of 2011; a lower recovery rate caused by the processing of mixed ore; and higher operating costs, which were partly due to increases in consumables required to treat mixed ore. The Company has taken mitigating steps to improve production, including: hiring an experienced general manager; expanding its suppliers of cyanide; and replacing the wobbler during the first quarter of 2012 with a vibrating grizzly screen ahead of the primary jaw crusher to improve plant throughput and efficiency.
(1) See cautionary note regarding non-GAAP measures.
Sao Francisco Mine
Production at the Sao Francisco Mine in the third quarter of 2011 was 18,665 ounces, a 45% increase over the prior quarter’s production of 12,877 ounces and an increase of 50% over the same quarter in 2010. Higher gold production in the third quarter over the second quarter in 2011 and over the same quarter in 2010 is primarily attributable to the higher grade ore mined, processed and stacked in the second quarter 2011 and operational improvements made early in 2011.
The table below sets out selected operating information for the Sao Francisco Mine for the third quarter and year-to-date 2011 and 2010:
Operating Information YTD Q3 2011 Q3 2010 YTD 2011 2010(2) —————————————————————————- Ore mined (tonnes) 1,658,700 1,224,700 2,697,200 2,058,500 Waste mined (tonnes) 3,704,900 2,759,800 6,569,900 5,074,100 Capitalized stripping program (tonnes) – 790,500 6,072,200 790,500 Total mined (tonnes) 5,363,600 4,775,000 15,339,300 7,923,100 Waste-to-ore ratio 2.23 2.90 4.69 2.85 Ore plant feed (tonnes)(3) 1,193,800 1,233,200 2,195,200 2,015,200 Grade (g/tonne) 0.60 0.37 0.67 0.40 Production (ounces) 18,665 12,424 38,730 23,355 Sales (ounces) 18,691 14,129 38,403 21,057 Average cash cost per ounce of gold produced(1) $ 1,304 $ 1,682 $ 1,167 $ 1,421 —————————————————————————- (1) See cautionary note regarding non-GAAP measures. (2) For the year-to-date 2010, results are included from the acquisition of the Sao Francisco Mine on April 30, 2010. (3) For Q3 2010, ore plant feed includes lower grade ore mined and stacked onto leach pads.
Increased ore and waste movements in the above table reflect the dedicated waste stripping program which was completed early in the second quarter of 2011, the reconfigured pit design, and additional contractors’ equipment. Year-to-date material moved includes 6.1 million tonnes of waste moved in order to complete the dedicated stripping program which began in early-December 2010. The total waste removed during the dedicated stripping program was 7.8 million tonnes at a total cost of $21.3 million.
Average cash costs(1) of gold produced during the quarter were $1,304 per ounce, approximately 12% higher than the second quarter of 2011, and 22% lower than the $1,682 recorded in the third quarter of 2010. Cash costs(1) per ounce in the current quarter were negatively impacted by an increase in the mining contractor rates, general inflation and cost escalation, and the continued strength of the Brazilian real as compared to the United States dollar throughout much of the quarter.
The dedicated stripping program was to have permitted access to higher grade ore. Although second quarter 2011 ore grades of 0.77 g/tonne were approximately 80% higher than the average grades mined in 2010 of 0.42 g/tonne, third quarter ore grades were reduced to 0.60 g/tonne. Based on the expectation of mining higher grade ore and the return to steady state leach pad operations, the Company previously reported that it expected cash costs(1) would be lowered to between $1,100 – $1,200 per ounce for the full year 2011, with fourth quarter cash costs(1) expected of between $1,000 – $1,100 per ounce. The Company further expected that by mid-2012, upon mining even higher head grades, the mine would achieve an annual production rate of 100,000 ounces of gold and cash costs(1) of between $900 – $1,000 per ounce. However, with the updated mine plan for the Sao Francisco Mine, based on the new mineral resource and reserve estimates(2), the Company is revising its projections. Key aspects for the new mine plan at the Sao Francisco Mine include: (i) a reduced mine life from 2015 to the second half of 2014, with leaching operations expected to continue into 2015; (ii) a life of mine strip ratio of approximately 2.8 : 1, a reduction from the current life of mine strip ratio of approximately 3.7 : 1; (iii) a reduction in the average reserve grade by approximately 29%; and, (iv) total gold recovery from 2012-2014 under the new mine plan of approximately 236,000 ounces. Consequently, the mining and processing of lower grade ore material during the first half of 2012 is expected to result in increased cash costs(1) to above $1,500 per ounce. However, cash costs(1) are expected to decrease to less than $1,200 per ounce in the second half of 2012 and further decrease to under $1,000 per ounce in 2013 and 2014 as progressively higher grade ore material is mined as the pit deepens.
Sao Vicente Mine
During the third quarter, gold production at the Sao Vicente Mine was 11,778 ounces, an increase of approximately 27% over the prior quarter’s production and an increase of 19% over production recorded in the third quarter of 2010. Operating cash costs(1) for the third quarter were $1,263 per ounce of gold produced, as compared to a cash cost(1) of $1,292 per ounce in the second quarter of 2011 and $1,091 per ounce in the third quarter of 2010. The slight decrease in cash costs(1) for the current quarter as compared to the prior quarter is primarily the result of higher production in the current quarter. The 16% increase in cash cost(1) per ounce recorded in the third quarter of 2011 as compared to the third quarter of 2010 is primarily a result of the strengthening of the Brazilian real, in-country inflation and general cost escalation.
As with the Sao Francisco Mine, the Company updated the mine plan for the Sao Vicente Mine based on the new mineral resource and reserve estimates(2). Key aspects for the new mine plan at the Sao Vicente Mine include: (i) a reduced mine life from 2014 to mid-2013, with leaching operations expected to continue through to the end of 2013; (ii) reduced waste tonnes mined from 33.9 million tonnes in the current three-year mine plan to approximately 5.0 million tonnes over 2012-2013, or by approximately 85%, and a reduction in the strip ratio from approximately 4.3 : 1 to 1.5 : 1; (iii) a 20% increase in the average reserve grade from 0.70 g/tonne to 0.84 g/tonne; and, (iv) total gold recovery in 2012-2013 under new mine plan is expected to be between 55,000 to 60,000 ounces. Consequently, the Company expects that the reduced mining and haulage costs associated with considerably less waste and the elimination of two rainy seasons, which have historically resulted in low production and high cost quarters, are expected to result in cash costs(1) of between $1,200 – $1,300 per ounce for 2012, which would otherwise be expected to be much higher under the current mine plan.
(1) See cautionary note regarding non-GAAP measures.
(2) Refer to the Company’s news release No. 2011-19 Aura Minerals Announces Updated Resource and Reserve Estimates for Brazilian Gold Mines.
The table below sets out selected operating information for the Sao Vicente Mine for the third quarter and year-to-date 2011 and 2010:
Operating Information YTD Q3 2011 Q3 2010 YTD 2011 2010(2) —————————————————————————- Ore mined (tonnes) 827,900 1,015,300 2,511,500 1,578,200 Waste mined (tonnes) 1,307,900 1,121,600 4,469,800 2,191,600 Deferred stripping (tonnes) – 545,800 – 545,800 Total mined (tonnes) 2,135,800 2,682,700 6,981,300 4,315,600 Waste-to-ore ratio 1.58 1.64 1.78 1.73 Ore plant feed (tonnes) 643,700 1,008,500 2,275,400 1,589,500 Grade (g/tonne) 0.56 0.47 0.52 0.47 Production (ounces) 11,778 9,908 29,896 18,542 Sales (ounces) 11,410 10,995 31,262 17,617 Average cash cost per ounce of gold produced(1) $ 1,263 $ 1,091 $ 1,332 $ 998 —————————————————————————- (1) See cautionary note regarding non-GAAP measures. (2) For the year-to-date 2010, results are included from the acquisition of the Sao Vicente Mine on April 30, 2010.
The table below sets out selected operating information for the Aranzazu Mine for the first, second and third quarters and year-to-date 2011:
Operating Information Q1 2011 Q2 2011 Q3 2011 YTD 2011 —————————————————————————- Ore mined (tonnes) 105,600 159,200 189,300 454,100 Ore milled (tonnes) 126,100 175,100 169,800 471,000 Copper grade (%) 0.74% 0.92% 0.88% 0.85% Gold grade (g/tonne) 0.30 0.56 0.53 0.48 Silver grade (g/tonne) 15.78 14.12 10.33 13.20 Copper recovery(1) 46.2% 54.0% 69.7% 57.6% Gold recovery 50.7% 57.0% 56.6% 55.2% Silver recovery 49.1% 44.5% 51.0% 48.1% Concentrate Production: Copper concentrate produced (dry metric tonnes (“DMT”)): 1,728 2,830 4,263 8,821 Copper contained in concentrate (%) 24.8% 26.0% 24.2% 24.9% Gold contained in concentrate (g/DMT) 12.4 18.9 12.8 14.7 Silver contained in concentrate (g/DMT) 538.8 337.02 223.34 321.6 Copper contained in concentrate (pounds) 942,900 1,619,100 2,276,800 4,838,800 Estimated payable copper produced (pounds) 892,700 1,536,500 2,170,800 4,600,000 Estimated payable gold produced (ounces) 601 1,574 1,540 3,716 Estimated payable silver produced (ounces) 27,023 25,984 23,698 76,706 Average cash cost per payable pound of copper produced, net of gold & silver credits(2,3) $4.87 $3.28 $2.53 $3.14 —————————————————————————- (1) Recoveries based on mixture of sulphide and oxide ores, not primary sulphide ore. (2) See cautionary note regarding non-GAAP measures. (3) Q1-2011 and year to date 2011 cash cost of payable copper produced from February 1, 2011.
For the third quarter of 2011, a total of 189,300 tonnes of underground and open pit ore were mined, an increase of 19% over the second quarter, reflecting increases in mining of both open-pit and underground ore. A total of 169,800 tonnes were milled in the quarter, a decrease of 3% from the second quarter, which included approximately 16,000 tonnes from the historic, high grade gold ore in the Jaime stockpile. Mill throughput in the quarter continued to be impacted by lower than expected mill and equipment availability due in part to a water shortage caused by the caving of a portion of the main supply well. As a result, the operation averaged one-third milling capacity for approximately 16 days during July. The Aranzazu Mine is in the process of obtaining approval for a permit to drill a back-up well to avoid the recurrence of this event. In addition, the difficulty of processing fine wet ore through the vibrating feeders has caused reduced throughput rates and alternate feeder arrangements are being investigated.
The processing of a higher than planned proportion of oxidized ore material in 2011 has also had a negative impact on concentrate grade, although copper recoveries have increased quarter over quarter as the proportion of oxidized material decreased. The mine plan for 2011 includes a combination of both open pit and underground mining and the Company expects to continue mining mixed oxide / sulphide ore in the fourth quarter.
The average head grades of the ore processed during the quarter ended September 30, 2011 were 0.88% copper, 0.53 g/tonne gold and 10.33 g/tonne silver. This represents decreases of 4%, 5% and 27% in copper, gold and silver grades, respectively. Third quarter recoveries increased to 69.7% and 51.0% for copper and silver, respectively, from 54.0% and 44.5% in the second quarter, but gold recoveries were unchanged. As a result, the Aranzazu Mine produced 4,263 DMT of copper concentrate in the third quarter, containing 2,276,800 pounds of copper (2,170,800 pounds of payable copper). As compared with the second quarter of 2011, concentrate tonnes produced increased by 51% and metal content increased by 41%, primarily the result of improved recoveries.
Cash costs(1) per payable pound of copper have steadily decreased quarter over quarter as production continues to increase, recoveries improve and the Aranzazu Mine moves towards design levels for throughput and concentrate production. Cash costs(1) in the third quarter of $2.53 per payable pound represent a 23% decrease from the second quarter of 2011 despite being adversely impacted by the water supply shortage in July, which reduced production during that month.
On October 17, 2011, the Company issued updated resource estimates using a 0.8% copper cut-off grade pursuant to which the Company announced that the tonnes of measured and indicated resources for the updated estimate increased by 25% as compared to the previous resources estimate and based on similar average copper, gold and silver grades. (Refer to Company’s news release No. 2011-16 “Aura Minerals Announces Updated Resource Estimate for the Aranzazu Mine”). As a result, based on the wide and continuous mineralization system further demonstrated by the new resource estimate, the Company will be initiating a preliminary economic assessment study based on evaluating an expanded throughput rate of approximately 5,000 tpd or more, using a low cost bulk mining scenario such as long-hole open stoping.
(1) See cautionary note regarding non-GAAP measures.
The feasibility study will focus on developing the Serrote Deposit as an open pit mine that will supply sulphide ore to a concentrator at a rate of 12 million tonnes per year, producing copper in concentrate with gold credits, as well as an iron in magnetite concentrate. With all critical permits in place, and with the excellent infrastructure in the vicinity of the project, and assuming a positive result of the feasibility study, the Company expects to commence negotiations for project financing and development during 2012, with a construction decision to follow later that year.
The price of commodities, namely gold and copper, is one of the largest factors affecting
In the first three quarters of 2011, gold prices continued with their upward trend rising from just above $1,400 per ounce at the start of the year and reaching record highs of over $1,900 per ounce during the third quarter of 2011 before dropping to $1,620 per ounce at the end of the quarter. Gold prices remain well-supported in light of continued concerns over the
The price of copper has been volatile throughout 2011, trading within a range of $3.16 – $4.46 per pound. Since the end of the third quarter, copper prices have remained volatile and have traded in the range of $3.08 – $3.64 per pound. The main contributors to this volatility appear to be concern over Eurozone debt, fears of a recession in the U.S. and Europe, and a slowdown of growth in China and other major emerging economies.
For the San Andres Mine, the Company is lowering 2011 production guidance to approximately 63,000 – 66,000 ounces of gold from 68,000 – 72,000 ounces of gold with per ounce cash costs(1) for the fourth quarter production in the $800 – $850 range and full year cash costs(1) guidance of $770 – $790 per ounce. The reduced guidance for 2011 is a result of higher strip ratios and the higher-than-normal percentage of clay altered mixed ore which has a lower recovery. Increased cash costs(1) guidance is due to the lower ounces produced than previously guided and general cost escalation on certain inputs such as cyanide.
Early in the third quarter, the government of Honduras passed a new tax law, including new taxes on revenues. The most significant of the new taxes to the Company was a 5% security tax on the San Andres Mine’s export revenues, which was to be effective from July 8, 2011. However, later in the quarter, the government of Honduras suspended the collection of this tax while it addressed and discussed concerns from the business community in the country. The government subsequently passed a new law, effective early October 2011, which reduced this tax rate to 2%.
The updated mine plan prepared for the Sao Francisco Mine, based on the updated mineral resource and reserve estimates, has resulted in significant revisions to 2011 guidance. For the Sao Francisco Mine, the Company has reverted back to its original 2011 production guidance of between 55,000 – 60,000 ounces of gold from the 60,000 – 65,000 ounces of gold estimated after the second quarter. Also, with the estimated 29% reduction in average grades for 2012, as compared to the mine plan which was based on the previous mineral reserves and resources, the Company’s preliminary guidance for 2012 is estimated to be 75,000 – 80,000 ounces of gold, with cash costs(1) during the first half of 2012 of above $1,500 per ounce. However, cash costs(1) are expected to decrease to less than $1,200 per ounce in the second half of 2012 and further decrease to under $1,000 per ounce in 2013 and 2014 as progressively higher grade ore material is mined as the pit deepens.
At the Sao Vicente Mine, the Company expects to be within its 2011 production guidance of between 42,000 – 43,000 ounces of gold, as well as its estimated cash costs(1) of $1,250 – $1,350 per ounce. As a result of the new mine plan at the Sao Vicente Mine, the Company expects that the reduced mining and haulage costs associated with considerably less waste and the elimination of two rainy seasons, are expected to reduce cash costs(1) to between $1,200 – $1,300 per ounce for 2012.
Accordingly, estimated 2011 gold production guidance per mine, based on the restart of normal operations at the Sao Francisco Mine in early April, is summarized in the table below:
Gold Production Estimates ——————————————- San Andres Mine 63,000 – 66,000 oz Sao Francisco Mine 55,000 – 60,000 oz Sao Vicente Mine 42,000 – 43,000 oz ——————————————- Total 160,000 – 169,000 oz ——————————————-
During the third quarter, the Company saw significant improvements in mining and processing rates, process recoveries, and production levels, as well as significantly lower cash costs(1) at the Aranzazu Mine. Copper grades mined to date have been below the resource average grades and the continued mining of mixed oxide / sulphide ore has also had a negative impact on metal production. The Company has revised its 2011 production guidance for the Aranzazu Mine to between 7 – 8 million pounds of copper, and 5,000 – 6,000 ounces of gold and 110,000 – 120,000 ounces of silver, with fourth quarter cash costs(1) expected to be between $1.75 – $2.25 per payable pound of copper, net of by-product credits from gold and silver.
Total capital expenditure guidance for the fourth quarter of 2011 is approximately $6.5 million, of which $3.7 million relates to underground development and machinery and equipment at the Aranzazu Mine, and $2.8 million relates to the San Andres Mine. Exploration expenses are forecast to be approximately $2.8 million for the fourth quarter of 2011, primarily relating to the Serrote Deposit feasibility study.
(1) See cautionary note regarding non-GAAP measures.
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This news release includes certain non-GAAP performance measures, in particular, the total cash costs of gold per ounce, and adjusted profit or loss and adjusted profit or loss per share. These non-GAAP measures do not have any standardized meaning within International Financial Reporting Standards (IFRS) and therefore may not be comparable to similar measures presented by other companies. The Company believes that this information is useful to management and certain investors in evaluating the Company’s performance. The data presented is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. Cash costs are presented as they represent an industry standard method of comparing certain costs on a per unit basis. Total cash costs include on-site mining, processing and, administration costs, off-site refining and royalty charges, reduced by by-product credits, but exclude amortization, reclamation, and exploration costs, as well as capital expenditures. Total cash costs are divided by ounces to arrive at per ounce cash costs. Adjusted profit or loss and adjusted profit or loss per share are calculated by taking the Company’s net profit or loss, excluding (a) non-recurring revenue and expense items; (b) share-based payment expense; (c) unrealized foreign exchange gains and losses; (d) unrealized gains and losses on derivative financial instruments; and (e) impairment losses.
Cautionary Note Regarding Forward-Looking Statement:
This document contains “forward-looking information” within the meaning of Canadian securities legislation and “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995. This information and these statements, referred to herein as “forward- looking statements” are made as of the date of this news release or as of the effective date of information described in this news release, as applicable. Forward-looking statements relate to future events or future performance and reflect current estimates, predictions, expectations or beliefs regarding future events and include, without limitation, statements with respect to: (i) the amount of mineral reserves and mineral resources; (ii) the amount of future production over any period; (iii) the amount of waste tonnes mined; (iv) the amount of mining and haulage costs; (v) cash costs; (vi) operating costs; (vii) strip ratios and mining rates; (viii) expected grades and ounces of metals and minerals; (ix) expected processing recoveries; (x) expected time frames; (xi) prices of metals and minerals; (xii) mine life; and (xiii) anticipated gold hedge programs. Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as “expects”, “anticipates”, “plans”, “projects”, “estimates”, “envisages”, “assumes”, “intends”, “strategy”, “goals”, “objectives” or variations thereof or stating that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved, or the negative of any of these terms and similar expressions) are not statements of historical fact and may be forward-looking statements.
All forward-looking statements are based on the Company’s or its consultants’ current beliefs as well as various assumptions made by and information currently available to them. These assumptions include, without limitation: (i) the presence of and continuity of metals at the Brazilian Mines at modeled grades; (ii) the capacities of various machinery and equipment; (iii) the availability of personnel, machinery and equipment at estimated prices; (iv) exchange rates; (v) metals and minerals sales prices; (vi) appropriate discount rates; (vii) tax rates and royalty rates applicable to the mining operations; (viii) cash costs; (ix) anticipated mining losses and dilution; (x) metals recovery rates, (xi) reasonable contingency requirements; and (xiii) receipt of regulatory approvals on acceptable terms. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. Many forward-looking statements are made assuming the correctness of other forward looking statements, such as statements of net present value and internal rate of return, which are based on most of the other forward-looking statements and assumptions herein. The cost information is also prepared using current values, but the time for incurring the costs will be in the future and it is assumed costs will remain stable over the relevant period.
By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that estimates, forecasts, projections and other forward-looking statements will not be achieved or that assumptions do not reflect future experience. The Company cautions readers not to place undue reliance on these forward-looking statements as a number of important factors could cause the actual outcomes to differ materially from the beliefs, plans, objectives, expectations, anticipations, estimates assumptions and intentions expressed in such forward-looking statements. These risk factors may be generally stated as the risk that the assumptions and estimates expressed above do not occur, but specifically include, without limitation, risks relating to variations in the mineral content within the material identified as mineral reserves and mineral resources from that predicted, changes in development or mining plans due to changes in logistical, technical or other factors, the impact of general business and economic conditions, global liquidity and credit availability on the timing of cash flows and the values of assets and liabilities based on projected future conditions, fluctuating metal prices (such as gold, copper, silver, nickel and iron ore), currency exchange rates (such as the Canadian dollar, Brazilian Real, Mexican Peso and the Honduran Lempira versus the United States dollar), possible variations in ore grade or recovery rates, changes in accounting policies, changes in the Company’s corporate resources, changes in project parameters as plans continue to be refined, changes in project development and production time frames, the possibility of project cost overruns or unanticipated costs and expenses, higher prices for fuel, steel, power, labour and other consumables
contributing to higher costs and general risks of the mining industry, failure of plant, equipment or processes to operate as anticipated, unexpected changes in mine life, final pricing for concentrate sales, unanticipated results of future studies, seasonality and unanticipated weather changes, costs and timing of the development of new deposits, success of exploration activities, successful completion of proposed acquisitions, permitting time lines, government regulation of mining operations, environmental risks, unanticipated reclamation expenses, title disputes or claims, limitations on insurance coverage and timing and possible outcome of pending litigation and labour disputes, as well as those risk factors discussed or referred to in the Company’s Annual Information Form, dated March 30, 2011, under the heading “Item 4.2 – Risk Factors”, in the annual financial statements and management’s discussion and analysis of the Company for the year ended December 31, 2010, in the Sao Francisco Technical Report, in the Sao Vicente Technical Report and in the technical reports relating to each of the Brazilian Mines expected to be filed by the Company within 45 days. The foregoing list of factors that may affect future results is not exhaustive.
When relying on our forward-looking statements, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. The Company does not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by the Company or on behalf of the Company, except as required by law.
The forward-looking statements contained herein is presented for the purpose of assisting investors in understanding the Company’s expected financial and operational performance and results as at and for the periods ended on the dates presented in the Company’s plans and objectives and may not be appropriate for other purposes. The reader is also cautioned that mineral resources that are not mineral reserves do not have demonstrated economic viability.