(TSX Venture Symbol: AAG)
OVERVIEW
Andean is a Canadian mining company producing gold and silver from its
Santa Rosa mine
in the Andes mountain region in Peru, South America.
Andean owns 100% of the 24,000 hectare property, which is located 550km
southwest of the capital city, Lima.
The mine, which attained commercial production in March
2002, produced record levels of gold in the most recent quarter ended Dec 31,
2004. Ounces of gold recovered and sold were
4,730, up
108%
from the same quarter a year ago. In the earlier quarter ended September 30,
2004, sales had already climbed
193%
from the same quarter a year earlier. from the same quarter a year ago.
The Company also has a property,
Sinchao, in northern Peru, which covers 1,300
hectares that overlie 16 mining concessions.
The Company is in growth mode, already profitable,
cash-flow positive, with prospects for increasing production and with
significant exploration potential.
The Vancouver Sun, British Columbia’s largest newspaper, awarded a Top 100 BC
Companies award to Andean in October 2004 for the second highest revenue growth
and the tenth highest employment growth by a BC company.
THE COMPANY
Andean is listed as a mining company on the TSE Venture Exchange. The Company’s
head office is in Vancouver.
PERU AND GOLD
Gold is important to Peru. It is the largest gold producing country in Latin
America and the second largest silver producer in the world.
In 2003, Peru’s gold exports ($ 2 billion worth) accounted for 23% of its total
exports. In 2005, Peru expects to become the fifth largest producer of gold in
the world, according to the National Society of Mining, Oil, and Energy of
Peru.
There are 122 exploration projects underway in Peru, with Canada as the leading
player in that country.
Peru also has the distinction of hosting the world’s largest gold mine
(Yanacocha), operated by Newmont, the largest gold company in the world.
Another world class mine, Pierina, is operated by Barrick Gold, Canada’s
largest gold miner. These two mines are among the lowest cost producers of gold
in the world, due to the nature of the geology in Peru which makes production
easy relative to other regions.
THE ASSETS
Santa Rosa Property:
The Santa Rosa property consists of 3 open pits, the open pit zone (structures 1
thru 6), and two under development zones - the Souther Structure and Carelo
Zone. These latter two pits are to come online in 2005.
While the only available resource estimate is the historic estimate of one
million tonnes of oxides at 3.22 g/t gold and 65.13 g/t silver, the company has
retained an industry leading services company, AMEC, to produce a new resource
reserve estimate following last year’s successful diamond drilling program.
This is expected to produce a new estimate in conformity with NI 43-101.
Ore is excavated from the open pit mine, crushed as necessary and then
agglomerated and cured before being placed on heap leach pads, which cover
72,000 square meters (17.6 acres). A cyanide solution is used to separate the
gold and silver from the ore placed on the leach pads. The solution is then
treated at an ADR plant, where the gold and silver are processed and turned
into concentrate form, before being shipped to be made into dore bars.
For a detailed description of this process, click here.
In the quarter ending Dec 31, 2004, fresh ore mined, crushed, agglomerated and
placed on the five heap leach pads (a sixth is under construction) in the
quarter was 108,269 metric tones, up
26%
from the same quarter last year.
Gold stacked on leach pads was 6,760 ounces in the quarter, up
22%
over the same period last year. Average gold grade was 1.94 g/t for the last
quarter.
Gold sales for the quarter were 4,730 ounces, up
108%
over the same quarter last year and a 29% improvement over the previous record
for quarterly sales (September 30, 2004).
Over 140,000 ounces of silver was stacked on leach pads, up more than 21% from
the same quarter last year. Silver grade averaged 40.3 ounces per tonne.
Silver sales set a new record at 16,270 ounces in the quarter, up
225%
from the same quarter a year earlier.
A substantial capital expansion program was undertaken in the last two quarters
to improve metallurgical processing and production methodology, allowing for an
increase in capacity in 2005-2006 and beyond.
In addition to the mine, Andean has plans to continue exploration work in the
open pit mine zone and other areas, to enhance its resources. Costs will be met
through internal cash flow generated from operations.
Sinchao Property:
Sinchao lies approximately 30 km northwest of the Yanacocha mine, which is
currently producing 1.5 million ounces of gold per year and is the largest and
one of the lowest cost producing gold mines in South America. In addition,
Sinchao is immediately beside the Tantahuatay deposit, which has reported
resources consisting of 25 million tonnes of oxide mineralization grading 0.8
g/t Au and 350 million tonnes of gold-copper mineralization grading 0.85 % Cu
and 0.3 g/t Au. Thus, it lies in a prolific mining belt.
Sinchao had exploration work done in the period 1996-1998, and four distinct
types of mineralisation have been identified. Based on past technical reports,
management believes that the combined mineralization systems at Sinchao have
the potential to host 500 million tonnes of mineralisation, based on their
strike lengths, depths and widths.
However, the potential quality and grade are conceptual in nature and there has
been insufficient exploration to define the actual tonnage at this time, Andean
has stated it will renew exploration and metallurgical work in 2005 at Sinchao.
Obvious associated risks for exploration are still present.
OPERATING SETBACK AND RECOVERY
In 2003, things were going wonderfully well for Andean. They signed a letter of
intent with Newmont, the largest gold miner in the world. Newmont had committed
to explore their Santa Rosa property under an option agreement, and agreed to
spend $ 7 million over 4 years in exploration costs. Raymond James, a Canadian
brokerage house, discussed the possibility of raising Andean $ 10 million to
finance the expansion of their mining operation at Santa Rosa and aggressively
expand exploration at Sinchao.
Then the roof caved in.
Newmont pulled out of their agreement in March 2004, and the Company cancelled
the financing.
Faced with a major disruption of their future plans and a cash
crunch, the Company reacted by refocusing its efforts solely on production at
Santa Rose and has steadily improved operations, reaching record levels of
production.
This is borne out by the terrific operating results reported in the
last two quarters. In the latest quarter ended Dec 31, gold ounces sould jumped
by 108% from the same quarter last year.
Why did Newmont pull out? Newmont spent 10 months on due diligence, signed a
Definitive Agreement in late September 2003 and pulled out in March 2004. While
the Company has no specific information on Newmont’s reasons, management
believes that perhaps it negotiated a deal that was just too lucrative for the
Company. Newmont had severe conditions to meet: they had to spend $ 7 million
and add at least one million ounces to have earn-in rights to 51% of the
property. Then they still had to buy the Santa Rosa Mine for a market price
based on life of mine costs and mineable reserves.
FINANCIAL INFORMATION
In the quarter ended December 2004, the Company sold 4,730 ounces of gold and
16,270 ounces of silver. While the Company has announced its production
results, its quarterly financial results are not due until the end of February
2005.
In the quarter ended September 2004, net income jumped
from $ 0.011 million to $ 0.445 million.
As at September 30, 2004, the Company was in a very tight cash-flow position, as
a result of spending an additional $ 850,000 on two new heap leach pads, and
the improvement and expansion of the ADR plant and other processes. Another $
450,000 was expended dealing with a carbon related problem, which slowed
production, but which has been resolved.
However, production in the last quarter of 2004 has set yet another record,
ameliorating cash-flow issues.
At September 30, 2004 Andean had total assets of $ 41.5 million, represented by
$ 7.6 million in liabilities and $ 33.9 million in shareholder equity. It had a
negative working capital position, reflecting the additional spending
highlighted above.
At the end of the quarter, the Company states that it has 35,000 ounces of gold
and more than 1,000,000 ounces of silver on the heap-leach pads, in the process
of being recovered and sold. While the total book value of this inventory is
shown as $ 4.5 million, its market value (at the 69.7% recovery rate achieved
in the last quarter) would be about $ 18 million.
BOARD OF DIRECTORS/MANAGEMENT
John Huguet (Chairman and President): Mr. Huguet
has over 35 years in natural resource development, including North, Central and
South America and South East Asia. Many joint ventures and unique financing
structures highlighted his career with the Atkinson Companies. He started his
career in 1963 with Atkinson and left Atkinson in April 1997 where he had
served 8 years as President and Managing Director of Atkinson Holdings and
Commonwealth Construction.
Mr. Huguet joined Andean American in April 1997 and took operational control in
September 1998. Mr. Huguet is a Chartered Management Accountant.
Oscar Rolando Davilam (General Manager, Peru): Mr.
Davila holds degrees in Engineering and graduate studies in Business
Administration. He has over 35 years experience in operations and project
management in the natural resource industries in Peru, the Americas and Asia.
Hector Campos (Mine Manager, Mine Engineer): Mr.
Campos brings 17 years mine management to Andean, having recently returned to
Peru from his successful assignment at kilometer 88 in Venezuela. Mine planning
and Development are Campos strong suits, skills in strong demand as the mine
site now employs close to 300 engineers, miners and contractors.
Jose Antonio Rado (Mine Engineer, Pit Superintendent): Mr.
Rado brings 14 years experience to the Santa Rosa mine, having worked
extensively in the Peruvian Andes, most recently in the same position for
Comarsa.
Jorge Alejo (Mine and Chemical Engineer, Plant Superintendent): Mr.
Alejos brings 20 years of metallurgical Processing experience to the Santa Rosa
Mine. Importantly he also heads up a 7 man committee for scientific
investigation and development, which is dedicated to continuous process
improvement.
Javier Carnero Rodriguez (Quality Control and Exploration, Santa Rosa Mine):Mr.
Rodriguez is a professional engineering geologist. He received his degree from
the National University of Saint Agustin in Arequipa, Peru. Mr. Rodriguez had
worked in a variety of roles in exploration, ore control, drilling with a
number of companies including Minera Antamina, Cominco (Peru), Buenaventura and
Fresnillo S.A.
Orlando Zavalos, P. Geo. (Superintendent of Geology): Mr.
Zavalos brings 14 years of Gold Exploration and Operations experience from his
years at SIPAN Gold mines in Northern Peru where he held positions of ever
increasing responsibility, his last 4 years as Chief of Geology, Operacions.
Hai Van Le (Director of Corporate Development): Mr.
Le brings corporate development, financial analysis and investor relations
capability to Andean American. He was most recently with Vannessa Ventures, an
emerging producer with operations in Latin America ,where he managed Vannessa's
investor relations program and assisted management with finance-related matters
including, but not limited to, cash flows forecast and NPV analysis of advanced
projects. He has a Bachelor’s degree from Simon Fraser University and is a
consultant to a publicly traded investment bank.
Gregg Thompson (Director): Mr. Thompson is the
President and Chief Operating Officer of the Tom Peters Company. He has
extensive experience as a business leader, executive coach, trainer and
management consultant, with clients such as Microsoft, Wal-Mart, Intel and Coca
Cola. Mr. Thompson holds a Master of Organization Development degree from
Pepperdine University in Malibu, California.
Nick DeMare, CA (Director and Corporate Secretary): Mr.
DeMare has over 20 years experience in a broad range of administrative,
management and financial services to private and public companies including his
own, Chase Management. He is a member of the Institute of Chartered Accountants
of British Columbia and has his Bachelor of Commerce from the University of
British Columbia.
Shafiq Gulamani, (Director): Mr. Gulamani is the
President and director of Comnav Marine Ltd. and SD1 Capital Corp. Mr. Gulamani
is also a board member of a private investment corporation. Mr.Gulamani is a
member of the Association of Professional Engineers of BC.
Advisory Board
J. Peter Davies, P.Eng.: Mr. Davies has spent
over 45 years in the mining industry including 8 years with Getty Mining
Company where he was responsible for minerals developments including their 50%
share of Escondida in Chile. He spent 6 years as Chief Mining Engineer with
Bechtel Corporation; 5 years with Kaiser Mining and Exploration, including
evaluation of the Bayovar phospate project in Peru; and 15 years in operations.
Peter is a mining engineer from the Royal School of Mines, University of
London, where he was awarded the Brough medal for achievement.
Fred Warnaars, Ph.D.: Mr. Warnaars has 28 years
of world wide economic geology experience including many major precious and
base metal discoveries in North, Central and South America. His experience
includes 5 years with Cyprus Minerals, 2 years with Behre Dolbear, 9 years with
Exxon Minerals, and 7 years with Kennecott Copper. Dr. Warnaars has a Ph.D in
Petrology from Leyden, the Netherlands, 10 publications to his name, and is
credited with advancing quantitative chemical analysis with a newly designed
electron microprobe.
Lindsay Bottomer, P.Geo.: Mr. Bottomer has over
29 years of worldwide exploration experience and is currently President of
Southern Rio Resources Ltd. In 1999 through 2001 Mr. Bottomer acted as third
party verification for Andean American and reported directly to the Company's
president.
Edwilde Yoplac, Chief Metallurgical Consultant: Mr.
Yoplac has over 25 years of experience with deposits in the Peruvian Andes. He
is also retained as a consultant by both Yanacocha and Pierina.
Dieter Luescher: Mr. Luescher is a graduate of
University Zurich (FH Business Economist SEBA/UAS) and holds degree of
Certified European Financial Analyst and Portfolio Manager (CEFA/AZEK). He has
over 21 years experience in private banking.
SUMMARY
Andean American is a profitable mining company with excellent growth prospects.
It has no analyst coverage and represents a potentially undervalued situation,
if it is able to deliver in accordance with its production plan. It has
exploration potential within both its properties, with one of them lying in a
prolific mining district which includes the largest gold mine in the world.
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