TORONTO (miningweekly.com) – Canada's Yamana Gold will start construction around mid-year at its Ernesto/Pau-a-pique gold project, in Brazil, and expects to start first production at the mine in 2012, the Toronto-based miner announced on Tuesday.

Yamana, led by CEO Peter Marrone, also unveiled the results of optimisation studies on its Agua Rica project, in Argentina, including updated estimates for capital costs and average annual production.

At Ernesto/Pau-a-pique, a recently-completed feasibility study estimated the capital cost for the project at $116-million, and annual production is expected to average 100 000 oz/y over a seven year mine life, which will represent between 8% and 10% of Yamana's total production after start-up.

Cash costs are forecast at $427/oz and the project is expected to have a payback period of around two years.

Detailed engineering and permitting is currently under way, and Yamana is also working on pilot tests on metallurgy and recoveries.

The capital cost has increased from a previous estimate of $86-million, mainly because of a stronger Brazilian real and a change in plan from contractor mining to the mine acquiring its own mine fleet.

The project has current mineral reserves of 710 000 oz of gold included in measured and indicated mineral resources of 854 000 oz of gold.

However, the company believes there is potential to extend the mine life as it continues efforts to upgrade mineral resource ounces to the proven and probable category and expand mineral resources at Ernesto as results demonstrate the deposit is open at depth and down dip.

The operation will be structured as two separate operating mines – the Ernesto and Pau-a-pique deposits are about 62 km apart by road – with a common processing plant.

RAMP-UP TO 2012

Ernesto/Pau-a-pique is the fourth new operation approved by Yamana that is scheduled to start-up in 2012.

The company has already announced construction decisions for its Mercedes gold/silver project, in Mexico, the C1 Santa Luz mine, in Brazil, and a tailings-recovery project at its Minera Florida operation, in Chile.

Together, the four projects are expected to add 410 000 gold-equivalent ounces a year, and will boost Yamana's production to around 1,3-million ounces in 2012 as they ramp up one by one.

By the beginning of 2013, the company expects to be producing at an annualised rate of 1,5-million gold-equivalent ounces, compared with the 1,03-million to 1,15-million forecast for this year.

Development work is progressing well at both C1 Santa Luz and Mercedes and permitting is under way for both operations, ahead of the start of construction in mid-2010, Yamana said.

Work is also continuing on the Minera Florida tailings project, which will start up early in 2010.

At its other projects, Yamana is working on an updated mineral resource and basic engineering for the Pilar project, in Brazil, and will follow this work with a feasibility study.

The firm has also begun a project to increase throughput at the Chapada plant, also in Brazil, to 22-million tons a year.

Finally, the company expects to complete a feasibility study in the second half of this year on accelerating development of the QDD Lower West deposit, at Yamana's new Gualcamayo mine, in Argentina.

AGUA RICA

Yamana also published updated plans on Tuesday for its Agua Rica copper/gold/silver/molybdenum project, in Argentina.

A feasibility study was completed in 2006 for Agua Rica and the mine received an environmental license last year.

Yamana said it has been studying “optimisation initiatives” for the project, including a new mine plan that reduces the initial overburden, lowering both operating and capital costs.

The firm also looked at thickening paste disposal of tailings and replacing the concentrate pipeline with trucking to an existing rail road system, both of which will reduce costs.

It is also reviewing the mineral reserves, using higher metal price assumptions, and expects the contained metal at Agua Rica will increase by at least 5%.

Based on recent studies, the mine is expected to produce about 12,5-million tons of copper/gold concentrate and 357 750 t of molybdenum concentrate over a 26,5-year mine life.

By-product cash costs for copper, net of all by-product credits, including gold and silver, are estimated to be about $0,30/lb which makes Agua Rica one of the lowest cost copper/gold projects in the world.

The mine will likely cost about $2,1-billion, Yamana said.

The company is also studying further optimisation options, including improving the pit slopes, optimising the grinding requirements and recovering the rare metal rhenium, which would improve the mine's economics.

“We are pleased to have completed this first round of optimisation initiatives at Agua Rica which confirm the exceptional value of the project and identified several initiatives that may add further value to the project,” said president and COO Ludovico Costa.

“We believe that Agua Rica is a remarkable project offering robust returns and further value enhancement."

Yamana was formed in 2003 and bought rival Meridian Gold and the smaller Northern Orion Resources in October 2007.