I was thinking about this recent statement from the 4th Dec and...

I was thinking about this recent statement from the 4th Dec and how it applies to their BFS:

“Andean is beginning work on a Bankable Feasibility Study (BFS) for the Cerro Negro project, scheduled for completion in 2009. In addition to the Prefeasibility Study (PFS) design, which encompassed capital and operating-cost environments prevalent in Q2 2008, Andean will be reviewing a number of initiatives designed at maximising the financial performance of the project and thus increasing the project return on capital that would include the following concepts:

• Rather than developing two mines in parallel with higher upfront capital as contemplated in the Prefeasibility Study, develop the two mines in series with the high grade Eureka deposit first followed by Vein Zone
• Evaluating used processing facilities with capability to process Eureka ores at rate of at least 2,000 tonnes-per-day
• Relocating the processing facilities nearer to Eureka reducing upfront infrastructure requirements
• Evaluate contract mining of Eureka and Vein Zone rather than the owner-operator scenario incorporated in the PFS”

Understandably with the difficulty in dept funding projects AND have taken a reality check on the US$281M estimated capex bill for Cerro Negro project despite the fast payback period and positive gold price environment. AND are not the only ones in this leaky boat with recent reports suggesting all large scale unfunded base metal projects are unlikely to obtain funding in the short term.

Some simplified calcs using

Gold silver ratio of 65

Production only from UG mine plan in PFS

Additional production needed for each due to high UG production is directly from the subsequent year – simplified yes…

20% additional tpa as this figure give close making up production oz from the current PFS in at least the first two years of production - could be higher or lower.

Both the current PFS and +20% case produce the same amount of Aueq ounces in four years – 1.04MozAueq.

For the first four years

Year 1 Year 2 Year 3 Year 4
PFS tpa 677700 674700 675100 502700
PFS Au 227000 275000 254000 98000
PFS Ag 3552000 3778000 2938000 1259000
PFS Ag in Au 58230 61934 48164 20639
PFS total Au eq 285230 336934 302164 118639
Au oz/t 0.33 0.41 0.38 0.19
Ag oz/t 5.2 5.6 4.4 2.5

PFS tpa + 20% 813240 809640 810120 97200
20% tpa needed from following year in PFS 135540 270480 405500 (no tonnes)
Extra Gold 20% tpa 55245 101766 79051 18949
Extra Silver 20% tpa 758960 1177115 1015565 243435
Au Eq from 20% tpa 67687 121063 95700 22940
New Au eq with 20% exra 352916 390310 276801 22940

PFS total Au eq UG only 285230 336934 302164 118639
PFS +20% Au eq UG only 352916 390310 276801 22940


After all that.....the net result in the first 3 years using 2400tpd from just the Eureke UG mine produces 1020koz Aueq compared to 957koz Aueq for the now base case 2000tpd option.

From my calcs this additional 96koz brought forward is mostly distributed in year 1 and 2 because year 2 has a highest planed grade than any other year. Again this is simplified and would depend on the new assumptions AND makes for any change in the mine plan and where year 2 fits in.

Selected 20% as it resonably replaces the open pit gold production but maybe too high for UG mine constraints. Even 2000tph their production profile is still higher and cash cost (probably) lower than DOM, SBM and AVO ect.

In year 4 and beyond AND would then have to “find” 800kt pa from either or a combination of both UG and open pit a lot sooner than the current base case. So the exploration success is just as critical with any option.

Looking at capex the most expensive item is the plant at $113M which may drop by a third or more with the lower production. The open pit mine capital would be deleted and possibly some of the infrastructure costs. The UG mining capital would however increase although they have muted contractors for both anyway.

So perhaps the new capex will be around the US$200M with higher production in the first 3 years than current PFS. The actual cost per t not sure on as the UG cost/t will reduce and the processing cost will increase. Also the assumption regarding the first 3 years will affect this.

Alternatively some other options could become available (or a reality…).

1. A full takeover or JV partner with one of the well funded gold/silver companies, most likely in NA.
2. AND further reduces with start-up capital with a production less than 2kt/day, this maybe more feasible if they have to raise a higher equity component.
3. None of first two are viable for management and AND uses the Swiss cheese exploration model.


Definitely partial to the first option atm.

Thought I would have a stab.

Comments and ideas welcome.