Jaguar Mining Management Discusses Q2 2012 Results - Earnings Call Transcript

Jaguar Mining (JAG)

Q2 2012 Earnings Call

August 15, 2012 12:00 pm ET

Executives

Roger S. Hendriksen - Vice President of Investor Relations

John Edward Andrews - Interim Chief Executive Officer, Director, Chairman of Health, Safety & Environmental Committee and Member of Compensation Committee

James M. Roller - Chief Financial Officer and Treasurer

Analysts

David Epstein - CRT Capital Group LLC, Research Division

Steven J. Green - TD Securities Equity Research

George Caffrey - GMP Securities, LLC

Tara Hassan - National Bank Financial, Inc., Research Division

James O'Malley

Presentation

Operator

Good afternoon, and welcome to the Jaguar Mining Second Quarter 2012 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Roger Hendriksen. Please go ahead, sir.

Roger S. Hendriksen

Thanks, Rocco, and good morning, everyone. Thank you for taking the time to participate in our call today. We appreciate your continuing interest in Jaguar Mining. As you know, we distributed our second quarter earnings press release and filed our second quarter 2012 financial package last evening. If any of you have not had a chance to view these materials, they are available through the Investor Relations page of our website and on SEDAR and EDGAR.

The members of our management team who are participating on the call this morning are John Andrews, our interim Chief Executive Officer; and Jim Roller, our Chief Financial Officer.

Before we begin, I need to remind you that the statements made in this presentation which are not historical in nature are forward-looking statements made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and are based on current factual information and certain assumptions which management currently believes to be reasonable.

Financial assumptions which management currently -- financial and operational results for future periods may differ materially from current management projections as a result of factors outside the company's control.

Information concerning those factors is available on the company's annual report and other periodic public filings on SEDAR and EDGAR. With those formalities out of the way, I'll now turn the call over to John Andrews. John?

John Edward Andrews

Thanks, Roger. Good afternoon, everybody. Thank you for joining us today. As most of you probably already know, I first became involved with Jaguar when I was appointed as a director in November of last year. I have to tell you that my time here has been somewhat different than I had anticipated, and certainly, there was no expectation on my part of taking on the CEO role, interim though it be, when I first joined.

In January this year, I visited our operations in Brazil and was asked to begin an evaluation of the operational challenges we were facing at all the mines. Let me talk about safety first.

The best indicator of the effectiveness of operating management is the company's safety performance, and one of the metrics that can be used to measure that performance is the lost time incident rate. While every operation should commit itself to the objective of 0 harm, a lost time incident rate of 2 per million man-hours is typical for operations of this type. The incident rate at the Jaguar mines has been in the range 4 to 5 with 1 exception, 2009, when it was 2.6.

The major issue with such a high lost time incident rate is the message that this sends to the workforce, that being management is not concerned about your personal safety. This message is understood by the workforce and is reflected in poor productivity. Productivity at the Jaguar mines has declined at a compound rate of 14% per year for the past 3 years. All other things being equal, we would normally expect productivity's gains of 2% to 3% per year. So we are falling behind our competitors at the rate of nearly 20% per year.

During the January visits, I identified a number of serious concerns that impacted employee safety as well as productivity and profitability. Of most critical importance were ground control issues that were creating a hazardous work environment and greatly hampering productivity because of the need to support and then resupport the same excavation 2 or 3 times over. Accordingly, we engaged the best practical geo-mechanical expert I know to assist in developing a remediation plan, and together, we established the systematic geo-mechanical and support programs that we began to implement in May.

The next issue was the size and shape of the excavations. Ore -- the ore bodies tend to be on the order of 2 to 3 meters in width, but the development ends in the ore horizon were being driven 5 meters wide. The size of the development headings is being reduced from 5 meters to 3.5 meters, and thereby we will reduce our dilution in these ends from 100% to 40%. Additionally, the shape of the development ends in the ore horizon has been changed from square insection to trapezoidal to conform with the depth of the ore bodies, thereby eliminating the past practice of compromising the integrity of the hanging wall of the ore body during stope development. Compromising the hanging wall during the development phase leads in turn to ground control and support issues throughout the stoping phase.

In summary, the remediation plan begins with a focus on employee safety. The roof and ground support issues were creating a hazardous work environment, which, in my judgment, makes it difficult to motivate a productive workforce. This was the first issue we had to resolve.

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