Initial capital costs are expected to be below $400 million and operating costs are expected to be below $450 per ounce.
The Company is committed to developing its future based on its exploration successes and organic growth with programs targeting mineral reserve growth and mineral resource discovery in addition to development projects and discoveries at existing operations.
The 2013 exploration program is focused on increasing the Company's mineral reserves and mineral resources, accelerating the development of new discoveries such as Jordino and Maria Lazarus at Pilar, the extension of Pampa Augusta Victoria and the definition of a new discovery at El Penon, the expansion of high grade mineral resources at Jacobina, the delineation and expansion of Corpo Sul at Chapada, the delineation and expansion of QDD Lower West at Gualcamayo and the development of several greenfield projects with the potential to be brought into the Company's project pipeline, enhancing present and future asset values. The Company also continues its exploration and evaluation activities at Cerro Moro, the advanced exploration stage project obtained through the acquisition of Extorre Gold Mines Limited in August 2012.
OUTLOOK AND STRATEGY
The Company continues on a steady path of organic growth. Consistent with the Company's goal in prior years, the Company continues to strive to become a more prudent precious metal company. In doing so, the Company remains focused on cost control, operational performance and sustainable volume growth always with a "simple to understand" objective of performing financially and maximizing cash flows. Emphasis remains on comparatively low costs to drive margins and cash flow, delivery of high quality ounces and projects while maintaining disciplined capital spending, along with our commitment to adhere to the best practices for health, safety and environmental protection.
Production in 2013 is expected to exceed 1.44 million GEO. This will represent an increase from 2012 production of at least 20%, most of which will come from a full year of production at Mercedes, the ramp-up of the expansion project at Minera Florida, the ramp-up of production at new mines, primarily from C1 Santa Luz and Pilar.
Following the recent significant decline in gold prices, the Company is evaluating its production targets for future years although at the present time is pursuing its targets. However, all pending projects are being evaluated to reflect the risk of a period in which metal prices remain at or below these levels. This particularly affects Cerro Moro, Suruca and Corpo Sul. Again, while it is anticipated that all of these projects will continue, as they present significant value at or below current metal prices, the Company believes it is prudent to evaluate its ongoing capital investments to ensure a disciplined approach is taken which reflects, among other reasons, the risk of continuing erosion to metal prices.
A similar approach is being taken to producing mines whose all-in cost exceeds the average cost structure. The objective is to produce quality ounces with sustainable margins and maximize profitability and as such, the emphasis will be on reducing costs rather than maximizing production. Both Jacobina and Ernesto/Pau-a-Pique are being evaluated in this way.
The Company has already initiated a plan to reclaim the potential loss of margin that is likely to result in the short term from the lower prices. This proactive program is targeted to reduce all-in co-product costs by approximately $150 plus per GEO by the end of 2013, of which approximately $100 per GEO reduction should be achievable by mid-year. This may or may not have an impact on all-in by-product costs which include copper metal sales as a by-product credit and impacted by the market price of copper. These cost savings will be realized through reductions in operating costs, capital expenditures, exploration and general and administrative costs. The Company believes this proactive approach is prudent given the recent reality of market conditions and commodity price levels despite the general belief that over time this price drop would result in a decline to inputs and the industry's overall cost structure.
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