Update: Jaguar Mining CEO resigns, company cuts guidance

Shares of Jaguar Mining (TSX: JAG) lost a third of their value during the Aug. 13-17 trading week after the abrupt resignation of the company's CEO Rod Lamond, along with news that the junior gold miner was cutting its 2018 production guidance to 80,000-85,000 ounces of gold from 90,000-105,000 ounces of gold.

"Rod's resignation is bad news-he must have felt it was getting hopeless," says an industry observor familiar with the company.

Lamond joined Jaguar in late 2015 and became CEO the following year.

Jaguar conveyed the news, along with the company's second-quarter results, in a press release on Aug. 15.

Replacing Lamond as interim CEO is Benjamin Guenther, who was appointed to the company's board in November 2017 and is the chairman of its technical committee.

Jaguar's main troubles stem from geo-technical issues at its Turmalina mine in the state of Minas Gerais.

"We had some geotechnical issues in the stoping area that has higher grade and because we didn't have a good inventory of developed reserves in front of us we had to change our schedule and start mining areas where we really weren't fully prepared, and in a lower grade area of the mine, and hence the grade has been lower than we planned and performance has been lower than we planned," Guenther says of its Turmalina mine in Brazil.

Specifically, the company had to back out of the high-grade stope due to rock mechanics. "We were seeing stress on the ground support and some movement and we decided that it required us to change our mining sequence and mining plan so it caused us problems in the second quarter," he says.

To help sort things out, the company has appointed Kevin Weston as vice president of operations. The mine engineer has helped turn around a number of operations over the course of his forty years in the business, the company says, including the Kemess open-pit mine, which he helped move from receivership into a viable operation.

Weston's turnaround plan for Turmalina is to modify the mining approach by minimizing the number of unfilled open stopes. The company plans to convert from blind back stopes to cut-and-fill stoping below sill pillars to ensure minimal exposure from unfilled stope walls and strict adherence to backfilling in the stoping cycle to reduce unfilled open stopes, it says.

Other near-term priorities include utilizing top-down drilling to ensure better quality control, reducing dilution, improving mining recovery, and allowing backfilling with waste rock. (The paste backfill plant has been commissioned and paste backfilling has begun in the upper levels of the mine.)

The game-plan also involves the use of better blasting techniques to reduce vibration into the rock mass and improving ore control drilling, planning and execution.

"We've got a detailed plan for the remainder of the year that we believe will get us to about 80,000 to 85,000 oz. gold guidance and over the period of the next few quarters we should be able then to start improving the mine inventories to give the mine more flexibility," Guenther says. "It's not gloom and doom, we're optimistic about our future."

Meanwhile, at its other mine in Brazil, called Pilar, the company continues to perform well and is on track to meet the high end production guidance of the year of around 30,000 to 45,000 ounces of gold, Guenther says.

"It's improving as the year has gone on," Guenther says of Pilar. "The team and operations are performing very well. It not only has a good production rate, but it also has a good inventory of developed reserves in front of itself to sustain production."

During the second quarter, Jaguar produced a total of 18,819 ounces of gold, down from 19,769 ounces in the same period a year ago.

Consolidated all-in sustaining costs increased 1% year-on-year to US$1,277 per ounce.

The company posted a gross profit of US$6.1 million (up 139% from the year-earlier quarter) on revenue of US$22.9 million, down a year-on-year 2%.

At the end of June, Jaguar's had US$9.2 million in cash on its balance sheet, compared with US$18.6 million at the end of December 2017.

The Turmalina and Pilar underground mines (along with its Roca Grande underground mine, now on care and maintenance, and the Caete plant) are situated in Brazil's Iron Quadrangle, a prolific greenstone belt in Minas Gerais.

Pilar is about 50 km east of Belo Horizonte and Turmalina sits about 130 km to the northwest of the city.

The company has just over 25,000 hectares in the Iron Quadrangle - an area of mineral exploration dating back to the sixteenth century.

Guenther notes that while neither Pilar nor Turmalina have a long mine life based on reserves, their location is a major plus. "The trends in the Iron Quadrangle tend to be very continuous at depth so my feeling is they have a long life in front of them," he says confidently.

Jaguar also owns the Paciencia gold mine, which has been on care and maintenance since 2012. Jaguar purchased the mine, about 50 km southwest of Belo Horizonte, from Anglo American (LON: AAL) in 2005.

The company's Roca Grande Mine, part of the Caete mining complex, has been on temporary care and maintenance since April 2018. (The problems at Roca Grande have to do with a 4- to 8-metre oxide cap that sits on the orebody and is saturated with water.)

Barry Allan of Laurentian Bank Securities cut his target price on the company from 65 ? per share to 35 ? per share after Jaguar cut its 2018 guidance.

In a research note released on Aug. 15 entitled: "Ship Has not Turned, and the Captain is Gone," the mining analyst noted that the Turmalina mine "continues to be problematic" and that he has "materially lowered" his expectations.

"Mine dilution at the Turmalina mine remains a problem," he comments. "While there is an expectation that better control over the mining method (labour) should help alleviate the amount of mine dilution, we have materially lowered our grade expectations for future production - preferring to take a 'show me' approach given the duration that this problem has existed."

At press time in Toronto Jaguar's shares were trading at 20 ? within a 52-week high of 41 ? per share in March and a 52-week low of 18 ? on August 17.

Workers underground at Jaguar's Caete complex in Brazil:. Credit: Jaguar Mining.