---Adds share price and broker comment---
Orosur Mining (LON:OMI) (TSE:OMI) shares advanced on Thursday after the company revealed gold production was just above its target for the 12 months to May 31.
The firm saw 64,997 ounces being produced from its San Gregorio mine in Uruguay compared with guidance of 63,000.
This represents an improvement in recent years, with 55,458 and 55,817 ounces produced in the two preceding years.
Operations had been affected by the development work to bring online the Arenal Deeps underground project, but stoping began within the higher grade underground area at the end of the period, and in May both tonnage and grade was better than the company had anticipated.
Orosur has also recently instigated a program to improve operating efficiency and cut costs.
As part of this, the mining and processing operation has been reshaped and headcount has been reduced by 20%.
London City broker Canaccord, which rates Orosur a 'buy' targeting a price of 42 pence, welcomed the firm's progress underground.
"Arenal Deeps’ performance is very encouraging and provides a needed reassurance of the company’s ability to deliver on this project," said analyst Dmitry Kalachev.
"Delivery of the Arenal Deeps ramp up, combined with continuing cost cutting measures, are key to the company’s re-rating from the current very depressed share price levels," he added.
Kalachev believes these production results should see cash operating costs below the broker's current estimate of US$1,095 per ounce for full year 2013.
"Although the reduction in the gold price used in the reserves optimisation has a negative effect on the mine life, the company is confident it will be able to maintain a rolling approximate 3-year mine life. Orosur has a good reserve replenishment history," he said.
Earlier, Ignacio Salazar, the interim managing director of the company, said: "I am delighted that the company has delivered the production target as originally announced at the beginning of the financial year.
“Whilst the implementation of cost reductions is always difficult, we are encouraged by operational improvements achieved during the past few months and we believe that the company is now more resilient to gold price fluctuations.
“The strong performance of the stoping at Arenal Deeps in May is a particularly encouraging sign for the coming year when Arenal will be the key source of ore for Orosur.”
Orosur also told investors that it has taken the decision to reduce the assumed gold price in its mine plans to US$1,100 from US$1,300. It says this move will safeguard reserves from any unexpected changes to the gold price.
It explained that reserves will consequently be reduced, but costs will be lower due to the removal of higher cost ounces from the mine plan. The company intends to cut costs whilst also maintaining production of 50,000 to 55,000 ounces over the next three years.
Orosur shares rose 6.5 per cent to 16.5 cents each in Toronto.
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