Jaguar Mining licks its wounds after tough quarter

Vancouver —  Referred to by its chairman as a ‘challenging year’, Jaguar Mining’s (JAG-T) saw costs rise and profits fall in 2011 despite an increase in gold production and the price of gold.

Overall for 2011 the Brazilian gold miner saw a 13% increase in gold production to roughly 156,000 oz. gold and a 28.6% increase in its average sales price to US$1,563, but in the end Jaguar’s net income went from US$22.2 million or US¢26 in 2010 on US$170.8 million in revenue to a net loss of US$33.7 million or US¢78 in 2011 on US$243.1 million in revenue.

The fourth quarter of 2011 was particularly challenging as the company’s operations were hit by generally escalating labour and materials costs, increased mining dilution, and a lot of rain. Cash costs went from US$886 per oz. in the third quarter to US$1,114 per oz. gold in the fourth.  

For the quarter revenue was US$57.4 million compared with US$44.6 million in the fourth quarter of 2010, while net income came in at a loss of US$33.7 million compared with a loss of US$9.6 million in the fourth quarter of 2010. Adjusted net loss was US$8.8 million for the quarter, which excluded a US$12.8 million expense related to derivative valuations after a switch to IFRS accounting, US$3.7 million in termination benefits to executives, US$3.3 million in interest expenses related to convertible notes, a US$2.2 million write-down of inventory at Paciência, US$1.6 million of deferred income taxes and a US$1.6 million loss on disposition of property, plant and equipment.

Looking forward to 2012 the company expects to produce between 150,000 and 160,000 oz. gold at an average cash operating cost of between US$950 and US$1,050 per oz. gold from its Turmalina, Paciência, and Caeté operations.

The company also continues to advance its Gurupi gold project in Brazil with production expected to start in 2013. The project hosts reserves of 63.8 million tonnes grading 1.14 grams gold per tonne for 2.3 million contained oz. gold.

Last November speculation broke out that Shandong Gold Group was going to buy Jaguar for US$1 billion, sending the Brazilian gold miner’s shares from around $5.50 to a high of $8.13. However the company’s share price never came close to matching the rumoured $9.30 offering price, and whatever preliminary deal had been in place never came to pass.

Shortly after the potential deal fizzled, Jaguar president and CEO Daniel Titcomb stepped down from the company. A three-member committee led by chairman Gary German has since been filling in the role of CEO. The company’s vp of exploration and engineering, Adriano Luiz do Nascimento, retired at the end of 2011, while chief operating officer Lucio Cardoso stepped down at the end of January and was replaced by Rogerio Fernandes. Jaguar stated that both retirements were planned before the failed sale of the company and that both would stay on as consultants in 2010. Nascimento and Cardoso and Titcomb all helped found the company in 2002.

The company continues to work through a strategic review process to maximize value for Jaguar shareholders, according to statements made by German. Jaguar has also moved ahead with a shareholders rights plan in preparation for a potential takeover.

Jaguar’s share price dropped 21¢ or 4% on its latest financial results to end at $5.12 after hitting a low of $4.80 during mid-day trading. The company’s share price has dropped from around $7.30 in late January and the company has 84.4 million shares outstanding.