Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Minera Gold Ramping Up Copper, Gold Production In Peru

Minera Gold (ASX:MIZ) is moving to ramp up copper-gold production in Peru following the acquisition of the San Santiago processing plant and successful commissioning of the CIP gold circuit.

First gold sales started in late August 2014 with gold production from commissioning phase for the balance of the quarter of 454 ounces.

Management control of plant's copper toll treatment and production passed to Minera on 17 September 2014 with 2,742 tonnes of copper sulphide ore processed post from that point up to the end of the quarter for third parties.

The company reported positive cash flow of $227,000 for the quarter including $100,000 from the 13 days that it had control of the copper flotation circuit.

Funding for the acquisition is primarily non-dilutive to Minera shareholders and immediately earnings accretive.

It was provided by resource investment house, SilverStream SZEC, and through a mezzanine debt facility with an existing shareholder of Minera Gold.

The company has also acquired 9,000 hectares of surrounding exploration and mining concessions including three historic copper mines, with one in production today under contract.

Minera has signed contracts third parties to provide gold ore for processing. More contracts are currently being negotiated.

"The acquisition of the San Santiago processing plant and surrounding concessions is a transformational event for Minera Gold," managing director Ashley Pattison commented.

"The cash flow benefits and cost savings are immediate and the funding arrangements put in place are largely non-dilutive for shareholders, making this a very attractive transaction.

"Additionally, the upside of the large concession holdings in the mining rich Nazca Ocona province of southern Peru, sits neatly within our existing exploration strategy at the company's nearby Torrecillas and Tumi Projects.

"We have now been in Peru since 2007 and from this quarter, are in control of our own copper and gold operations and more than 25,000 hectares of highly prospective concessions."

Analysis

There is much to look ahead to for Minera Gold as it ramps up copper and gold production in Peru.

Amongst the highlights are its recording positive cash flows of $227,000 from processing of gold during the commissioning phase of its gold circuit and the $100,000 from the 13 days that it had control of the copper flotation circuit.

Cash flows should increase further in the December 2014 quarter with the company enjoying a full quarter of control over the copper circuit.

In addition, all-in cash costs for its Torrecillas gold project are expected to drop from the US$890 per ounce in the September quarter as it realises the full cost benefits from the plant acquisition and commissioning.

The company is also reviewing a number of drill ready targets at the 9,000 hectares of under explored concessions at San Santiago to assess exploration priorities.

These are located in a highly prospective area for gold, copper and silver.

Looking ahead, the primary focus for Minera over the next six months is to gain a solid geological understanding of the three mines acquired at San Santiago and to assess both the oxide and sulphide mineralisation potential.

This work will include the use of ground based geophysics and RC drilling to target the priority zones for mining in 2015.

Regional exploration work will also be undertaken to assess the potential for large tonnage exploration targets.

Business Development

The acquisition of the Processing Plant and surrounding concessions provides commodity diversification and immediate cash flow to Minera.

Business development activities for the remainder of 2014 and 2015 to increase cash flow are:

- Increase and extend contracts with local mine operators for treating third party gold ore at the processing plant during the remainder of 2014 and into early 2015;
- Increase base feed processing plant from 100% owned MIZ mines with third party gold ore, improving grade and increasing profit margins for Minera;
- Improve capture rate of copper mined at San Santiago for processing at the Processing Plant: Three mines developed plus numerous small scale workings operating (about 500tpd currently mined from within 100% owned mining rights and concessions with only 250tpd currently captured for processing at the processing plant); and
- Expand permitting and capacity of the processing plant to 600tpd to enable the operation of all circuits at San Santiago at capacity.

Exploration will be focused on delivering JORC copper resources across Purisma, Brasil and Decimo Quinto mines and testing two large tonnage disseminated systems at the Torrecillas and Tumi gold projects.

Peruvian Operations

Minera has operations in three locations within the well-established Nazca Ocona region of Southern Peru.

The centre of operations is at San Santiago, 400 kilometres southeast of the capital Lima, where Minera owns and operates the recently acquired San Santiago processing plant as well as undertaking copper mining and exploration on the surrounding 9,000 hectare concessions.

Its gold operations at Torrecillas and Tumi are connected via a 40 kilometres service road and located 180 kilometres south east of San Santiago.

Processing Plant and Copper Project Acquisition

During the quarter, Minera acquired, upgraded, expanded and commissioned the fully permitted San Santiago gold/copper processing plant and surrounding mining concessions for US$5.5 million.

The purchase was primarily non-dilutive to the company's shareholders and immediately earnings accretive, saving it approximately US$1 million per annum compared to previous gold processing arrangements.

The acquisition provides project and commodity diversification for Minera, including three copper mines (one in production today under contract) that it is evaluating for recommencement of production and control of an operating copper toll treatment business generating positive cash flow for Minera.

After the company's recent upgrade to the gold circuit at the plant, the complex consists of three operational processing circuits including:

- 125 tonnes per day (tpd) CIP gold circuit refurbished in July at a cost of US$700,000 (low CAPEX to upgrade to increase to 200tpd);
- 250tpd copper sulphides circuit (allowing the transition from toll treatment to mix of owner operator and toll treatment); and
- 150tpd copper oxide circuit (currently idle - studies underway to source oxide ore from within the acquired concessions).

The operations have national grid power, sufficient water supply from controlled bores and are located within a supportive mining community.

The tailings dam in place has approximately 12 months capacity and a new tailings dam site has been secured in consultation with the community.

Plans are underway to commence construction of the new tailings dam over the next six to nine months post receipt of permitting.

Gold Circuit Operations

During the quarter, gold mined and stockpiled in the previous quarter was treated at the newly commissioned San Santiago processing plant with first fold pour in August 2014.

Production for the quarter was 454 ounces with a majority of this being sold in September 2014.

The processing plant was commissioned on 6 grams per tonne gold material with approximately 1,680 tonnes of feed put through the circuit during August 2014 and into September 2014.

By the middle of September, the average feed grade had increased to approximately 16g/t gold.

All in sustaining cash costs for the quarter were US$890 per ounce, with full cost benefits from the plant acquisition and commissioning to be further realised in the current quarter.

As at 30 September, the company had 104ozs of gold in circuit and with additional ore stockpiled on the ROM pad at Torrecillas and the plant.

During the quarter, three contracts were signed with local mine operators for the toll treating of third party gold ore through the gold circuit.

These contracts typically run for 12 months and sporadic delivery of ore under these contracts commenced during the quarter.

The company is working with the suppliers of ore to seek to smooth deliveries over each month to optimise the blended ore feed to the processing plant.

While third party ore deliveries were lower during the second half of September and into October due to the decrease in gold price, shipments recommenced in the second half of October as prices recovered.

Additional sources of quality gold ore continue to be assessed to ensure full compliance with local laws in relation to the processing of third party material.

The current environment for toll processing is extremely competitive in southern Peru illustrating the importance of the company having access to gold from its 100% owned properties.

Copper Flotation Circuit

Minera took control of the copper operations at San Santiago on 17 September 2014.

This resulted in 13 days of operations from the copper floatation circuit contributing to the September quarter financial results.

The copper floatation operations are today 100% toll treatment of third party ore that is primarily sourced from within the newly acquired 9,000ha of concessions.

Twenty-six groups have been permitted to mine within these concessions on the basis that all ore is processed through the San Santiago processing plant at fixed fees and parties pay a participation fee on the concentrate produced.

Post acquisition, the company treated 2,742 tonnes of copper ore for third parties with sulphide stockpiles for treatment just under 5,000 tonnes at the end of September.

Positive cash flow of just over US$100,000 was generated during the period under the company's control, enabling critical and preventative maintenance to commence in the first three days of October.

It is anticipated that production for the balance of FY2014 will primarily be from third party sulphide toll treatment.

However, some ore from Minera's Brasil mine is anticipated to be ready for processing by the end of November.

In 2015, processing of sulphide ore at San Santiago is proposed to be a mix of toll treatment and owner operator material, focusing on the floatation circuit at a rate of 250tpd.

The optimal mix that the company will seek to achieve is 150tpd from owner operator mining and 100tpd from toll treatment.

This would result in approximately 5 million pounds of copper produced per annum from the floatation circuit, in addition to gold and silver credits, attributable to Minera.

Copper Oxide Operations

At quarter end, the copper oxide vat leaching operation was completing a batch treatment program for a third party that was contracted prior to Minera assuming control of the processing plant.

This program is now complete and the circuit is idle.

As at 30 September 2014, a stockpile of about 1,370 tonnes of copper oxide material at an average grade of 1.8% copper is on the ROM pad that is owned by Minera.

In addition to this ore, Minera has received strong enquiries from local miners to recommence copper oxide purchasing and processing.

Commercial assessment of the copper oxide circuit is ongoing with a view to assessing the recommencement of copper oxide mining operations from our 100% owned mines through this circuit in 2015 to produce a copper cement concentrate for sale into the domestic market.

Local miners within Minera's concessions have reported that a commercial source of copper oxide ore is present within its concessions to potentially sustain production of 40-50tpd on a consistent basis.

This ore would supplement known oxide material in situ in the Purisima, Decimo Quinto and Brasil mines.

Copper - San Santiago

The San Santiago acquisition includes mining rights for three mines that were partially developed at a historical cost of US$3.5 million.

These primarily provide sulphide material that has averaged about 4.5% copper with gold and silver credits based on historical processing.

Mining of the Purisima veins is currently contracted until August 2015 to a local family.

Minera receives 100% of this ore for toll treatment and also has a net revenue participation in this mine equal to approximately 12%.

Net revenue is the revenue received from the sale of concentrate from the traders less flotation processing and trucking costs of the ore from the mine to the processing plant (approximately US$42/t of ore).

Production from Purisima has historically averaged approximately 80-90tpd.

Minera will focus its owner operator efforts on the Brasil and Decimo Quinto mines which are currently largely idle with the exception of some selective mining at depth by trial mining.

Copper sulphide and oxide potential with large ore shoots have been identified and intersected at depth.

Work subsequent to quarter end has commenced on the Brasil mine, with Minera's surveyors and geologists commencing mapping and sampling of the developed areas of the mine.

Gold - Torrecillas

During the September quarter, ore was primarily sourced from the Torrecillas, Tumi and Rebeca veins.

At Torrecillas, a majority of the ore was sourced from Level 0 in the mine.

Ongoing geological assessment of the Torrecillas vein structure identified a number of remnant stopes within the first developed area of the Torrecillas vein that was easily accessible by Minera's owner operator workforce.

Assessment of the upper levels of the Torrecillas mine is continuing. Mining also continued in lower levels of the mine.

At the Rebeca and Tumi veins, the Company continues to work with small contracting teams on the exploitation of those veins.

The veins at Rebeca and Tumi are narrower than Torrecillas but exhibit an almost vertical dip and a superior grade to the other veins.

The mining is low cost and provides valuable high-grade feed to supplement the remaining production.

Mining at Tessie was limited during the quarter as contractors utilised their manpower on mining at Rebeca and Tumi.

Proactive Investors Australia is the market leader in producing news, articles and research reports on ASX "Small and Mid-cap" stocks with distribution in Australia, UK, North America and Hong Kong / China.