Vancouver — Looking to become a 100,000-oz.-per-year producer, Spokane-based
Situated in northeastern Brazil’s Bahia state, the open-pit/underground operation has been producing bullion for 15 years and is slated to produce 112,000 oz. gold at a cash cost of US$225 per oz. in 2003.
Companhia Vale do Rio Doce (CVRD), an iron ore producer, discovered gold in the region in 1972 while prospecting alluvial occurrences along the Itapicuru River. A subsequent geochemical program resulted in the discovery of Fazenda Brasileiro, after a quartz feldspar breccia containing disseminated pyrite and arsenopyrite was found to have a grade of 2 grams gold per tonne. By 1984, the site had become the first heap-leach operation in Brazil, and in 1988, underground mining began.
The deposit is in the South Mineralized zone of the Weber belt, which hosts seven major occurrences, including Fazenda Brasileiro. Mineralization consists of sets of centimetre-to-metre-scale quartz veins. The underground mineralization originally averaged 7 grams gold, based on a cutoff grade of 3 grams per tonne, and the ore is processed using the carbon- in-pulp method. The open-pit portion uses a 0.7-gram cutoff, with the weathered ore extracted through heap leaching.
The operation hosts proven and probable reserves of 1.8 million tonnes grading 3.84 grams gold in the underground portion and 630,000 tonnes averaging 2.14 grams gold in the open-pit section, for a total of 262,000 contained ounces. In addition, the operation hosts an underground measured and indicated resource of 2.3 million tonnes grading 3.93 grams gold, plus 600,000 tonnes grading 2.23 grams gold in the open-pit section, for a total of 128,000 oz. gold.
Yamana expects gold production to average 100,000 oz. over the next three years at a cash cost of less than US$200 per oz. However, with only three years of reserves remaining, the focus has shifted to the promising prospects surrounding the mine, most notably the Canto target, to the east. Canto is marked by a largely untested, 3-km-long structural zone, where recent drilling intersected 11 metres grading 26.84 grams gold, 5 metres of 12.11 grams gold, and 4 metres of 10.98 grams gold. Other nearby targets include Cedro and Barrocas, 5 and 12 km away, respectively.
The deal also includes 720 sq. km of ground along the Rio Itapicuru greenstone belt. Fazenda Brasileiro, the largest shear-hosted gold deposit in the belt, occurs in metamorphosed supracrustal rocks. Gold mineralization was deposited mainly during late collisional tectonism 2 billion years ago.
Fewer restrictions
Brazil has long been considered attractive for its geological potential, but until recently, foreign firms have shied away from the country. The reason is the 1988 Constitution, which allowed exploration privileges only to companies controlled by national capital. The foreign restrictions took their toll, as annual exploration expenditures fell to US$50 million in the 1988-1994 period from US$159 million in 1980-1988.
The situation improved in 1995, when the national congress ended restrictions to foreign capital. As a result, more than 50 international companies are currently exploring in the country.
Earlier this year, Yamana acquired various assets from Brazil’s Santa Elina Mines, including the open-pit Chapada copper-gold project in Goias state, in the country’s central-western region. A 1998 feasibility study for the project envisioned a 15-year mine life based on a resource of 187.3 million tonnes grading 0.39% copper and 0.31 grams gold.
The deposit is defined by a flat-lying, shallow, tabular body capable of producing 12.7 million tonnes of ore per year from an open pit with a stripping ratio of 0.43:1. The feasibility study recommended a starter pit for the first five years of production with grades expected to average 0.47% copper and 0.45 grams gold.
The price tag for Chapada is $48.5 million in stock. Yamana must also pay up to 47.5% of the net-asset value of Chapada, in cash or stock, as determined by an updated feasibility study.
Included in the deal is the Fazenda Nova property, which hosts six shallow blanket-like saprolite gold deposits. The most advanced is the Lavrinha deposit, where previous work defined a gold-bearing zone over a 3-by-1.5-km zone with widths reaching up to 50 metres. The area includes an open pit from the early 1990s, where a small heap-leach operation processed the saprolite ore without the need for blasting or crushing. Yamana aims to test the mineralization below the shallow saprolite deposit for a higher-grade primary gold deposit.
Meanwhile, in western Mato Grosso state, Yamana is preparing to explore the Sao Vicente and Sao Francisco projects.
Sao Vicente produced 187,000 oz. gold before being mothballed in 1997 as a result of declining gold prices. Some 241 holes drilled in a 1-km-by-150-metre area indicate prospects for a shallow deposit. Deeper holes, down to 260 metres below surface, indicate a higher-grade zone at depth.
At Sao Francisco, 50 km away, 335 previous drill holes identified a shallow zone of mineralization over an area measuring 1.8 km by 150 metres. Similar to Sao Vicente, the underlying mineralization, marking a deeper, higher-grade gold target, has been explored only minimally. Nineteen drill holes averaging 200 metres in depth have returned intercepts ranging from 2 to 14 metres, with gold grades of 1.86-58 grams per tonne.
Under this deal, Yamana agreed to issue 27.7 million shares, giving Santa Elina some 85% of the issued and outstanding share capital of the company.
To close the deals, Yamana needs to complete a 24-old-for-1-new stock rollback and raise $50 million. The financing is expected to close in July, though the transactions are subject to due diligence and shareholder approval.
With the acquisition of Fazenda Brasileiro, Yamana is slated to produce more than 120,000 oz. gold in 2004, increasing to beyond 200,000 oz. in 2005.
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