Heap-leach recovery problems have contributed to a production shortfall of 20,000 oz. at
Production during the first nine months of 1999 totalled 34,682 oz. at a cash cost of US$289 per oz., compared with 52,638 oz. at US$205 in the corresponding period of 1998. The mine is now expected to produce 55,000 oz. for the current year at a cash operating cost of US$250 per oz., well below an earlier forecast of 74,000 oz. at US$212 per oz.
Viceroy says a good portion of the shortfall is related to longer-than-estimated leach cycles for higher-grade sedimentary ore that was placed on the leach pads earlier this year, combined with a lower recovery from some of the intrusive ore. Although the sediments have a grade in excess of 2 grams per tonne, the company is finding that they are not giving up their gold as easily as the intrusive rocks.
“We are disappointed in the performance of the Brewery Creek mine this season,” Viceroy President Clynton Nauman says. “The decision to mine new ore in 2000 will require a gold price above US$280 per oz. and confidence regarding the leach dynamics of the new ore.” He adds that Viceroy will continue to monitor and test the leach performance over the winter before making a decision regarding the mine’s future.
While approximately 85% of the reserve and resource at Brewery Creek is intrusive-hosted, the higher-grade material is contained in the sedimentary rocks. At the end of 1998, minable reserves were estimated at 11.8 million tonnes grading 1.13 grams, or 426,000 contained ounces. Mine pit reserves were based on a gold price of US$375 per oz. Over the 9-month period ended Sept. 30, Viceroy mined a further 1.9 million tonnes.
The company spent $6.2 million on expansion of the leach pads at Brewery Creek in 1999. There are currently at least 3.5 million tonnes of additional capacity available on the pads — more than enough to sustain another 18 months of mining.
However, any further expansion of the leach pads would require an additional capital investment in the $4-to-6-million range, which, given the current price of gold, is unlikely.
In mid-1999, when the gold price was in the US$260-per-oz. range, Viceroy undertook a review of its operations. It concluded that certain changes were required in order to ensure its mines generated continual cash flow. Mine plans were reviewed and pits redesigned using a series of long-term price assumptions of between US$280 and US$300 per oz., and analysts were told that an additional 300,000-oz. resource was viable at prices of US$300-375 per oz.
In the third quarter, Viceroy took a $39.1-million writedown in the carrying value of Brewery Creek, of which $9.3 million is attributed to the flattening of the leach curve. In addition, the company wrote down the carrying value of the Paredones Amarillos property in Baja California Sur, Mexico, by $10.1 million and its interest in Channel Resources (chu-t) by $1.7 million.
“These balance sheet adjustments will better position Viceroy to take advantage of market price improvements and show earnings that more closely reflect the financial health of the company in the future,” says Nauman.
Before the writedown, Viceroy recorded a loss of $1.3 million (or 2 cents per share) on sales of $19.5 million for the third quarter, compared with a loss of $509,000 (1 cents per share) on sales of $26.1 million a year ago. For the nine months ended Sept. 30, the company lost $669,000 (1 cents per share) on sales of $48.2 million, versus a loss of $709,000 on $61 million in sales for the corresponding period of 1998.
After the writedown, Viceroy showed a loss of $52.1 million (99 cents per share) for the quarter and a loss of $51.5 million (97 cents per share) for the first nine months.
Operations used up $2.6 million in cash (5 cents per share) during the third quarter, whereas, in the year-ago period, they generated cash flow of $9.2 million (17 cents per share). During the recent 9-month period, cash from operations totalled $31.8 million (60 cents per share), including a gain of $33.2 million realized from the closing of the company’s former hedge position in mid-year.
At Sept. 30, working capital stood at $46.8 million, including $25.1 million cash.
On a consolidated basis, Viceroy produced 81,867 oz. at cash cost of US$282 per oz. during the first nine months of 1999, and 33,952 oz. at US$252 per oz. in the third quarter.
The Castle Mountain mine in southern California produced 62,913 oz. in the nine months; of that amount, 47,200 oz. are attributable to Viceroy at a cash operating cost of US$281 per oz., or a total cash cost of US$287 per oz. Third-quarter production totalled 21,218 oz., of which Viceroy’s share is 15,900 oz. at a cash cost of US$254 per oz. Viceroy owns a 75% stake in Castle Mountain, with the remainder held by
Under an accelerated plan, Castle Mountain will have completed mining by mid-2000, though crushing and milling will continue through the second quarter of 2001. The revised forecast has Castle Mountain producing 98,000 oz. for the year at a cash cost of US$254 per oz.
Viceroy recently acquired the Bounty gold mine in Western Australia from
Bounty is an underground operation, supplemented by smaller lower-grade open-pit deposits, with a carbon-in-leach plant capable of processing 750,000 tonnes per year. In 1998, the mine produced 117,251 oz. at a cash operating cost of US$254 per oz. During the first six months of 1999, the mine produced 51,576 oz. at about US$276 per oz.
“The acquisition of the Bounty mine doubles our gold production in the short term and adds approximately 800,000 oz. of gold reserves and resources to our inventory,” says Nauman. “Obviously, the mine also provides the base from which Viceroy can capitalize on business development opportunities in the Australasian region.”
Meanwhile, Viceroy has agreed to assume management of the Illinois Creek gold mine in west-central Alaska. The deal calls for the company to confirm mineral reserves and develop a reclamation plan. Viceroy is currently conducting reverse-circulation drilling to confirm the reserve base, which, based on a gold price of US$330 per oz., was last estimated at 1.7 million tonnes grading 2.6 grams per tonne (144,200 contained ounces).
Viceroy believes there is potential to add “significant low-cost ounces” to the production profile in the short term. In 2000, the company will decide whether to mine or reclaim the project, or simply discontinue its interest and hand it back to the state.
In October, Viceroy entered into an agreement with
Elsewhere in Latin America, Viceroy has completed the US$5 million in expenditures required to earn a majority 60% interest from Mincorp Exploraciones in the Gualcamayo gold project. Mincorp has the option of re-acquiring a 9% interest in the Argentine deposit (which would raise its stake to 49%) or selling its 40% interest to Viceroy and retaining a 5% net profits interest.
In order to meet the requirements t
o support debt financing related to the acquisition of the Bounty mine, Viceroy has hedged 30,000 oz. of the Australian production at US$294 per oz. for 1999 and 230,000 oz. to be delivered from 2000 to 2002 at prices starting from US$277 per oz.
The company intends to restructure its North American hedge position to increase its exposure to improving gold prices. Viceroy currently has 70,000 oz. of its North American operations under spot deferred contracts at US$280 per oz.
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