Minefinders' Dolores Mine Should Meet Expectations

Jun.25.07 | About: Pan American (PAAS)

We attended Minefinders Corporation Ltd.’s (MFN) analyst day at the Dolores project February 13, 2007 and found construction of the project well underway with production scheduled for this fall. Following the recent Cambridge House conference in Vancouver we visited the Minefinders headquarters and captured their recent corporate presentation and determined the project continues substantially on track.

The photographs in the corporate presentation evidence substantial progress compared to those taken during our visit. It appears that the company is rapidly moving toward initiating commissioning of the project leading to its first gold pour in 4Q07 and is scheduled to reach commercial production in early 2Q08. From the time of Minefinders’ CEO Mark Bailey’s initial discovery, it has taken about eleven years to complete exploration and development, and bring the mine to production. As development was suspended for about three years due to low metal prices, the actual time to development is more like seven years. Considering that few discoveries ever become operating mines the company is doing better than most.

Shareholders may be pleased with the careful advancement at the Dolores project. A more rapid pace would have certainly resulted in greater dilution of shareholder’s interests. At present there are a meager 48.6 million shares outstanding (60.3 million fully diluted). In addition, a comprehensive drill program of more than 630 drill holes totaling 168,000 meters has led to a well defined resource. For this reason, we anticipate that in operation the project may have increased probability of meeting investor expectations relative to more hurried projects.

Minefinders recently received an updated audited resource estimation resulting in an increase of 23.1% in contained gold and 21.3% in contained silver at 0.4 gpt AuEq cutoff over that used in the bankable Feasibility Study. The new resource should be followed by a reserve update and additional pit optimization. It is important to note that due to space limitations, management intends to leach grades over 0.4 gpt and discard lower grades. Fortunately, by increasing the cutoff from 0.3 g/t to 0.4 g/t, total tonnage mined will decrease approximately 25% from the100 million tonnes of reserves, while total AuEq ounces will decline less than 8.5%, from the 4.5 million ounces contained in the open pit. Mining and processing higher-grade tonnes will produce relatively more ounces per tonne mined and processed, which should be more profitable on a per tonne or per ounce basis.

The current plan is to start with the 18,000 tonne per day heap leach operation for gold and silver, immediately followed by construction of a mill, which will significantly boost recoveries of both gold silver from the high-grade portion of the deposit. Based on the current heap-leach only Feasibility Study, 85.8 million tonnes could be mined, producing 1.7 million ounces of gold and 63.5 million ounces of silver by leaching over a 14 year mine life. Completion of a mill for processing higher grades is likely, as it would boost recoveries to over 90% for both gold and silver (compared to leaching alone, estimated at 73.9% for gold and 50.3% for silver) and mine life. Management will need to make a decision to construct the mill in the next twelve months if they are to expand production in three years as planned.

Typically, appreciation stalls during construction, followed by a revaluing of assets upon reaching production. We anticipate several events may occur by the end of the year which may provide an additional catalyst for appreciation of the company’s shares. In addition to their first gold pour, management may make a decision to move forward with the mill and further assess the possibility of an underground operation running concurrently with the open pit. Potentially more significant may be additional information on prospects of Minefinders’ unappreciated pipeline of exploration projects. Any combination of these should lift perceptions of the company from a mine builder to a profitable mine operator with expansion and discovery potential.

Disclosure: The author provides corporate advisory and research services to MFN. The author is long MFN.

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