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1/27/10

Minera Andes (MAI.to): A thought on its last quarter

This is the kind of stuff that goes on in the Weekly sometimes, but as we dropped Minera Andes (MAI.to) from coverage a few weeks ago (at about the same time the Zeds over at the can of corn started pumping it, in fact) here's a little blog rundown of MAI's latest set of production numbers for San José, out last week. It should be remembered that MAI holds 49% of San José (the other 51% held by Hochchild (HOC.L)) so apart from the last chart, all the numbers are pro-rata for Minera.

This chart shows the evolution of throughput tonnages at San José, and as we can see the quarter well sucked.

The plant is built to run at 1,500 tonnes per day (tpd) which would mean that in a perfect world, the 92 days of the last quarter would have seen 138,000t crushed and processed and what-have-you. In the end, throughput totalled just 100,460t. San José was on strike for 15 days in 4q09 and that explains quite a lot of the underperformance, but the company also suffered a reported 8 day strike in 3q09. So if you do the math you find that on the days San José wasn't on strike in 3q09, it ran the machine at 1,456tpd but on the days San José wasn't on strike in 4q09 the average thoughput was much lower at 1,304tpd. That's not so good and therefore there must be other reasons (as yet undisclosed by MAI) as to why tonnage throughput was so low in 4q09.

This chart shows production and sales of silver in the four quarters of 2009. Unsurprisingly after noting throughput tonnages, Ag production sucked.
But also, you'll note that in the last couple of reported quarters silver sales were higher than production, this because San José had a whole chunk of unsold inventory that helped boost sales. It doesn't have that luxury any longer and so the drop in sales between 3q09 and 4q09 is a very hefty 794,000oz

This chart shows production and sales of gold in the four quarters of 2009. Again, that production drop is one thing, but the drop in sales is even heavier and in 4q09 San José sold 8,910oz less than in 3q09 due to the end of the inventory sales.

However on a comparative basis gold production held up better than silver in the last quarter because the ore was better grading, as this chart shows.

As for financial results, MAI is going to get away with a lot of this production disappointment because both gold and silver spot prices were much higher in 4q09 compared to the previous qtr. This chart shows how revenues have been and makes a forecast for the reveneus from San José that are due to MAI. Be clear that this is not predicting the MAI profit, but the amount of cash MAI will receive from San José. MAi has all its own operations to pay for as well.

So this quick, dirty and patchy analysis of San José is done. It had a bad quarter and the results are very unlikely to impress the market, folks. All in all (and even though it went higher after we dropped the stock) I'm happy that it's not part of the 'Stocks to Follow' list any longer. Once the debt is paid down at San José and the opertaion is running more smoothly, it might be worth a revisit. Not until then, though.