High River getting over production hiccups

While High River Gold Mines (HRG-T) is getting a handle on operational issues at its two key projects, the financial cost of the delays made a mark on its first quarter financials.

On the positive side, the company reported increased gold revenues of $45 million, up 47% from the same period last year.

A key factor in the uptick was higher prices for gold. Unhedged High River managed an average selling price of US$898 per oz. for the quarter up from US$651 per oz. last year.

And while total ounces sold increased by 24%, to 49,991 ounces –due largely to ounces sold from production at the newly commissioned Taparko-Bouroum Mine the higher revenues were offset largely by higher mining cost, interest charges, amortization, and exploration costs.

The key culprit — higher mining costs which grew $9 million from last year were due to wage and material inflation, as well as a stronger Russian rouble, High River says.

The company also reported a net loss of $2.3 million compared to net income of $266,000 for the same quarter last year.

And while attributable gold production increased 37% to 40,248 ounces, cash costs per ounce climbed as well by 43% to US $557 per ounce.

But the key to High River is production. It is aiming to be the next significant mid-tier producer, and it would seem to now have a handle on the impediments to that goal mainly technical problems in Burkina Faso in Russia.

Despite such operational problems the company issued a solid production guidance of 280,000 oz. for 2008.

As for what it has produced thus far: first quarter production came mainly from three mines, Zun-Holba underground mine in Russia which gave 17,316 ounces at a cash cost of US $554 per ounce; the nearby Irokinda gold mine, which is also an underground mine, and yielded 16,678 ounces at a cash cost of US $471 per ounce and Taparko-Bouroum in Burkina Faso which produced 12,637 ounces at a cash cost of US$679 per oz.

Production at Taparko was lower and more costly than anticipated due to mill drive-train alignment problem, which, High River says, has now been resolved.

As for its other key project, the Berezitovy gold mine in Russia, which was meant to go into commercial production late last year.

The company says the problems with the tailings filter plant that held up production have been addressed and now expects commercial production in the second quarter of this year.

Attributable production for Taparko for the year is expected to come in at 80,000 oz. while Berezitovy is slated to put out 75,000 oz. with cash costs of just US$351 per oz.

High River also owns the Prognoz silver in Russia. The project has an indicated resource of 71.5 million oz. grading 636 grams silver per tonne with inferred coming in at 39.2 million oz grading 551 grams per tonne.

High River expects an updated up-dated resource estimate to be ready for the second quarter and it says plans to spin-out the project into a separate silver play will also be released in the near future.

As for exploration, the company’s key project is the Bissa gold project in Burkina Faso. It is currently drilling the site to determine whether or no tit will go ahead with a prefeasibility study on it.

As the company moves into mid-tier production status, its need for experienced personnel is being addressed in part with the hiring of Michael Kelly as its new executive vice president and chief operating officer. Kelly, who has 33 years in the business, had been vice president of operations at the Diavik Diamond Mine.

In Toronto on May 16, the day the financial results were released, High River shares were up a penny to $1.82 on 1.3 million shares traded. The company has roughly 308 million shares outstanding.