Rapidly expanding gold exposure

As Members may recall, Jaguar Mining (TSE, JAG) is a comparatively small gold miner with big ambitions. The company has several projects within a highly prospective region of Brazil, which offer the potential for strong production growth in the years ahead. And following their fourth quarter result, Jaguar remains on track to become a mid-tier gold producer in the years ahead.

"Moreover, the miner's impressive growth profile looks set to continue with management targeting annual production of some 300,000 ounces as early as 2009."

From a charting perspective, the outlook for Jaguar is encouraging with the share price rallying 160 percent in the past six months. Following such rapid gains, the upward trend of any stock would be at risk of pausing for consolidation and Jaguar is no exception.

However, we believe that any such pause will present limited downside risks. As marked on the daily chart, initial support lies at C$10.75 with the December low of C$8.80 underpinning the upward trend.

Turning to the latest result, the miner produced 70,114 ounces of gold at an average cash cost of $346 per ounce for the full year to 31 December 2007. Although slightly below original estimates, production was almost twice the 37,876 ounces produced at an average cost of $370 in 2006.

Moreover, the miner's impressive growth profile looks set to continue with management targeting annual production of more than 300,000 ounces in the years ahead. Jaguar has two major projects that are central to achieving this goal. Of these, the Turmalina project came on line in January 2007 and overcame early teething problems to contribute 45,000 ounces.

Moving forward, management ultimately intend to ramp up the Turmalina operation to annual production of 100,000 ounces. In respect of which, a feasibility study is currently underway and work to expand the site's processing plant should begin before 30 June 2008.

In terms of the year ahead, the table below shows management's 2008 production and cost forecasts.

[[Operation]] [[2007 (oz)]] [[2008 (oz)]] [[Cash Cost ($/oz)]]

[Turmalina] [45,527] [88,000] [$275-285]

[Paciencia] [0] [49,000] [$335-340]

[Sabara] [24,587] [23,000] [$495-505]

[Total] [70,114] [160,000] [$325-330]

Source: Jaguar Mining

The other major project, Sabara, began processing a lower grade of ore during 2007 - the reason behind the operation's reduced production forecast. Furthermore, per ounce production costs will rise as fixed costs are absorbed over a lower production base. Nevertheless, the pace of growth at the other operations will more than offset any negative impact from Sabara.

With regards to this, the addition of Paciencia is the next major step in the group's high-growth production profile. The project is currently in the final stages of construction and expectations are for production to begin by March 2008.

Looking further ahead, Jaguar's other major project is Caete, which currently has a measured and indicated gold resource of 661,200 ounces. Completion of the project's feasibility study had been expected last year, however, delays have pushed this back to the current quarter. Even so, management remain confident of delivering annual production of 90,000 ounces from the project in 2009.

Furthermore, Caete offers the potential for strong growth in the years following its initiation. Indeed, management are targeting annual production of 150,000 ounces from the operation by 2012.

Turning to the balance sheet, the company's rapid expansion and associated capital expenditure has increased the level of debt. Despite this however, gearing (on a net debt to equity basis) stood at a comfortable 23% as at 30 September 2007.

In relation to Jaguar's ongoing expansion projects, the total capital expenditure budget for the 18 months through to 30 December 2008 is $131.5 million. However, the miner's current cash balance and operational cash flows are more than sufficient to meet this requirement. We therefore do not expect management to materially increase debt or engage in a capital raising this year.

In terms of the miner's hedging structure, their debt arrangements have required an element of hedging. However, this equates to only around 32,000 ounces over the year ahead, meaning that some 80 percent of production will be fully exposed to potentially higher gold prices.

From a technical perspective, given the stocks trading history we cannot rule out further volatility in the coming months. However, with the upward trend very much intact and gold prices remaining firm, we anticipate a continuation of the trend to new highs in the months ahead.

Overall, although the company's projects haven't all proceeded perfectly in 2007, we remain confident that management are on track to achieve their ambitious goals. In doing so, the miner is set to capitalize on our view of long-term gold price strength. As such, Fat Prophets recommend Jaguar Mining as a buy to all Members around C$13.45.