Orvana - MD&A OutlookHere is what I took out of the recent (Feb 11th ) MD&A
During the first quarter of fiscal 2008, the mill treated 66,581 tonnes of ore in the production of
21,083 ounces of gold. Head grades of ore treated averaged 10.54 g/t, as the Company
continued to mine the higher-grade areas of the LMZ.
In the remainder of fiscal 2008, it is expected that head grades may decline somewhat.
However, barring unforeseen events, management expects the Don Mario Mine will produce
between 75,000 and 80,000 ounces in fiscal 2008.
At the current rate of mining the LMZ, the Company will continue to produce gold until the end of
2009. As discussed later on in this MD&A, drilling results to date on the Las Tojas concession of
the Don Mario Property suggest that it is possible that the life of the current Don Mario gold
mining operation may be extended to about the end of 2010. The Company intends to acquire a
ball mill and additional power generating equipment to process the ore from the Las Tojas
concession. The UMZ project, if implemented, would further extend the expected life of the Don
Mario Mine operation by about seven years, to the end of 2017.
As part of its diversification strategy, the Company intends to increase its exploration efforts in
Bolivia and elsewhere in the Americas and to increase exploration spending.
On November 23, 2007, the Bolivian Congress approved legislation amending the country’s
mining and corporate income tax laws. Under Bolivia’s constitution, the tax changes become
effective on a prospective basis from the date of their enactment, which was December 14,
2007. The tax increases take two forms:
• An income tax rate increase from 25% to 37.5%.
• Effective December 14, 2007, a new mining royalty tax (“Regalia Minera”), calculated as
a percentage of the gross invoice value of metals exported is payable in addition to
income tax. The mining royalty tax rate will be a function of the particular metal and its
market price. For gold, the rate will range from a minimum of 4%, at a gold price of
$400, to a maximum of 7%, at a gold price of $700 or more. The new mining royalty tax
is deductible in determining income taxes. This new mining royalty tax applied to two of
the Company’s ten shipments of gold bullion in the first quarter of fiscal 2008 and
amounted to $117.
• The combined effect of the increase in the income tax rate and the new mining royalty
tax was a reduction in net income of $456 for the first quarter of fiscal 2008.
The combined impact in fiscal 2008 of the anticipated reduction in production, increased
exploration expenditures and the increase in taxes will reduce the Company’s free cash flow
from its Bolivian operation. The adverse impact of the above items will be offset to the extent
that the average price of gold is higher than the fiscal 2007 average price of $648 per ounce
and gold production continues at current levels.
On November 24, 2007, the Constituent Assembly of Bolivia approved the new constitutional
draft in principle. The proposed new constitution, if implemented as currently drafted, could
have adverse implications for the Company due to, among other things, increased powers that
the Bolivian government would have to control the commercialization of minerals.