This time last year, Minera Andes, Inc. was embarking on a profitable transformation. “Minera Andes is an exploration company that’s now transitioned into the realm of a producer,” said Allen Ambrose, CEO, referring to their co-owned high-grade silver/gold mine in southern Argentina, known as San José.
Initial production at the San José mine began in June of 2007 and then ramped up to full production by year-end. With a projected annualized production rate of 3.1 million ounces of silver and 61,000 ounces of gold, Minera Andes owns 49 percent of the mine’s value, and 51 percent is owned by Hochschild Mining plc.
“Our cash costs are quite low; about $320 an ounce for gold or $5.70 on a silver basis,” noted Ambrose, adding, “We tend to talk about the project in gold terms, and then the next day we may talk about it in silver terms, but it’s basically about 50/50 by value, depending on the metals prices in gold and silver. We currently have about 2.4 million tons, and it’s grading about 7 grams of gold and 430 grams of silver. So right now, our reserves on the property are about 3.4 million ounces.”
First quarter 2008 production results show that San José produced nearly 1 million ounces of silver and more than 12,000 ounces of gold. Mine production optimized at 750 tpd of processed production in the second quarter of 2008, and that’s just the beginning… Minera Andes recently announced a 2008 exploration program at San José which will identify new targets through 4,000 meters of surface drilling and 3,800 meters of underground drilling as a follow-up on the targets generated from the surface work. Mine production is on schedule to double to 1,500 tpd by the end of the year. New proven and probable ore reserve calculation is pending.
San Jose: A (ten-year) overnight success
Founded by Minera Andes in 1997, Ambrose recalled that their partner, Hochschild Mining, helped with the San José project financing so that “we had no hedging. We’ve been able to take advantage of these high metals prices, so it’s been quite lucrative,” said Ambrose. “And as the mine is just ramping up, we’re starting to see the sales go through, so we’ve had some inventory in stock. A lot of the sales started occurring in first quarter of this year from last year’s production. And a lot the sales of the first quarter production for this year is occurring in April and May.” Eventually the mine will be producing about 8 million ounces of silver and 100,000 ounces of gold. “And then we would own 49 percent of that production. So it has been very satisfying, as an exploration-based company, to see this project through to production. We found it in 1997 and went in production in 2007, so it’s been a long time coming. I call it a 10-year overnight success. And that region of Argentina has a couple other nice gold mines,” he acknowledged, adding that they’ve found approximately 40 kilometers of veins trans-identified on the property, and are currently in production on about three kilometers.
Last year’s drilling program encompassed about 30,000 meters, which doubled reserves. This year will further increase reserves with approximately 20,000 meters of drilling.
Two veins discovered and drilled in just the past couple of months are another 2.8 kilometers of strike length, said Ambrose, adding that the project continues to grow exponentially with time. “We currently have about 14 kilometers of underground workings, and we’ve got over 600 people working on the site. Mine life has been increased from 5.3 years to 9 years. ”
San Jose is beginning to pay off for the company which discovered the high-grade vein systems on which the mine is built. In the second quarter of 2008, Minera Andes reported net income of $8.9 million, or $0.05 cents per share. The average weighted sales price was $901 per ounces of gold and $16.47 per ounce of silver. Said Ambrose “Showing net income is the next step as we transition to a producing company with a growing gold and silver asset.”
Los Azules copper project
Located in the San Juan province of Argentina, about 30 kilometers from the Chilean border in the Andes, the Los Azules copper project is evolving into a sizeable discovery. In November of 2007, Minera Andes put together the tentative option agreement with Xstrata Copper Americas. “This particular project had Xstrata owning the northern half of the target and we own the southern half,” said Ambrose, noting that the deal was constructed to consolidate both halves into one project. “Our deal with Xstrata is to bring it along and present them with a scoping study, which we hope to do by year-end. And then Xstrata will have to pay us back three times our expenditures if they exercise their option. And they have to complete a bankable feasibility study, and then they would earn a 51 percent interest and become the operator.”
Minera Andes may have already vested 100 percent in Los Azules ownership, under terms of the agreement with Xstrata Copper Americas. Under the agreement’s terms, Xstrata would have the opportunity to “back in” to a 51 percent ownership. Xstrata’s decision to back in (or not) to the 51 percent ownership will formally be based on how it likes the results of the economic analysis Minera Andes is conducting at Los Azules. That data may be turned over to Xstrata in the fourth quarter. A third-party resource calculation is underway and will comply with Canada NI-43-101 requirements.
Xstrata is already active in that region, said Ambrose. “They own Bajo de la Alumbrera, which is the big producing copper mine in Argentina, about 200 kilometers north of us. And then they own the El Pachón Project, about 60 kilometers southwest of us, right on the border. We’re a little ways from the border, but the size of the target is what’s significant. We see the target there being in the 10 billion pounds range. We’ve now got around 30 drill holes 1,000 meters by 300 meters long, so it’s a sizable target.”
Drilling has yielded attractive results. “We’ve announced several intervals of over 1 percent,” said Ambrose, pointing to the highlights: “We’ve got 132 meters of 1.1 percent copper and a zone of 250 meters of 0.9 copper, a couple with a bunch of other holes of similar grades along that trend there, the best holding 221 meters of 1.62.” Additional results suggest a high-grade zone may have been extended to the northeast.
“We’re excited about putting together a resource calculation that’ll come out in the next couple of months on that project,” he said, adding that the scoping study will come out by year-end, basically putting the economic parameters on that resource. “That will be an exciting project and I think a significant milestone for us.”
Since its discovery about four years ago, Los Azules has continued to evolve as a sizeable find, with new mineralization located in each subsequent field season. In the third quarter of 2008, Minera Andes reported an 11.2 billion-pound inferred mineral resource for Los Azules, based on 922 million tonnes grading 0.55 percent copper. The resource estimate forms the basis for an economic scoping study planned for completion at the end of 2008. Los Azules remains open to the north and at depth.
A focused team effort
Late in the last century, Chile was the hub of many exploration efforts, but neighboring Argentina was untouched due to restrictive mining laws. However, Minera Andes’ board of directors kept their eye on the prize and went in as soon as Argentina’s legal landscape matched its attractive mineral landscape. “We’ve always looked at Argentina as the land of opportunity and that was what drove us there in the mid-‘90s when we went public,” recalled Ambrose, noting that big mineral belts aren’t confined by borders. “We were one of the first batch of companies on the scene in the mid-‘90s.”
Under the direction of Vice President of Exploration Brian Gavin, a geologist with extensive experience in North and South America, Minera Andes’ Argentina team has revealed two lucrative discoveries. And with up to ten other projects cooking in the background, Ambrose anticipates more to come. “We’ve got a couple new ones that we’re planning on drilling this year that we own 100 percent, down in San Cruz Province in southern Argentina.”
Headed by veteran exploration geologist Dennis Hall, the team in Argentina is composed of Argentinean geologists who have been trained and brought along through the company’s program within Argentina. “Dennis has a lot of experience with these types of high-grade vein systems and was closely involved in the development bringing San José along, our first discovery down there. And good prospectors and geologists continue to develop new prospects and targets for us down there.”
With nearly three decades of experience in the mining industry, Ambrose has worked as a geologic consultant in the U.S., Venezuela and Argentina, and boasts extensive experience in all phases of exploration, project evaluation and project management. A trained geologist, he was a co-discoverer of a Venezuelan auriferous massive sulfide deposit known generally as the Brisas deposit, and has worked as a geologist for Cyprus Minerals, Kidd Creek Mines, Molycorp, Boise Cascade and Dennison Mines. Ambrose currently serves as a director for several junior exploration companies and a capital company and provides management and geologic consulting services to several companies.
“I took the knowledge that I had gained from working in North and South America and really put it into Minera and focusing it within Argentina,” said Ambrose. He has been running Minera Andes since its inception as a private company in 1993. The company went public in 1995 and made its first discovery (San José) in 1997.
Originally formed as a gold, silver and copper exploration company, Minera Andes’ strategy of partnering with other proven companies that excel in mine development and operation is paying off. “We’re kind of a hybrid,” said Ambrose of Minera Andes’ two-fold approach, “which I think sets us apart. We’ve got some of the growth potential of an exploration company, plus we have the stability and the foundation in our production story, with production providing cash flow, supporting our exploration activities. With the exciting size of these projects, a lot of growth can come from that production side, too.”
For more information contact:
http://www.minandes.com
Art Johnson
Investor Relations
111 East Magnesium Road; Ste. A
Spokane, WA USA 99208
(509) 921-7322
(509) 921-7325 (fax)
E-mail: info@minandes.com