Yamana Gold (NYSE:AUY) announced that it made some significant new discoveries at its El Penon and Chapada mines. It discovered a new vein parallel to its existing Bonanza vein structure at El Penon, with higher grades than its current reserve grade at that mine. It also announced that it drilled the best hole in the history of Chapada, and that the new Sucapira mineralization supports the potential for a significant expansion of mineral resources at Chapada. A key item for me is that the new discoveries are close to existing mine infrastructure and facilities, and are expected to be quickly and easily brought into production. Although we do not know the estimated development cost at this time, the above information indicates that it is likely to be quite reasonable and commercially viable. I did not anticipate this particular news for Chapada and El Penon, but have noted Yamana's history of continuing to develop existing mines and extending mine life.
At the end of 2013, El Penon had proven and probable reserve grades of 5.83 grams of gold per tonne and 191.5 grams of silver per tonne, so the new discovery would be higher grade than that. For comparison, El Penon's production grades were 6.26 grams of gold per tonne and 210.6 grams of silver per tonne during the first three quarters of 2014. El Penon also has a strategic mine life of 10 years, and this discovery has the potential to expand that. At the end of 2013, Chapada had proven and probable reserve grades of 0.25 grams of gold per tonne, and a 0.29% copper grade. Hole NM-101 intersected 0.46 grams of gold per tonne and 0.5% copper over 172 meters. Chapada has a strategic mine life of 18 years.
This is promising news since El Penon and Chapada are Yamana's two most important mines (Canadian Malartic would be up there too, but Yamana only has a 50% stake in that mine). El Penon accounted for 26% of Yamana's revenue during Q3 2014, while Chapada accounted for 25%. El Penon accounted for 34% of Yamana's gross margin during Q3 2014, while Chapada accounted for 27%. Obviously, we will need to know more about how these discoveries will quantitatively affect the resource bases at the respective mines, but it is good to see the replenishment of resource bases at Yamana's most important mines.
Disclosure: The author is long AUY.
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