Bema’s losses up, despite higher gold output

Vancouver — Record quarterly revenue and gold production was not enough to quell the red ink for Bema Gold (BGO-T, BGO-X, BAU-L), which posted a first-quarter loss of US$35.5 million, or 8 per share — more than double last year’s shortfall of US$14.6 million for the same period.

With record first-quarter gold sales of US$47.1 million from 87,095 oz., Bema posted its highest-ever quarterly revenues, aided by soaring bullion prices and the resumption of production at its 50%-owned Refugio mine in northern Chile. However, an expensed US$30.4-million unrealized non-hedge derivative loss wiped away all the upside and composed most of the company’s quarterly shortfall.

The company is required to use a derivative instrument under certain project loan specifications to manage exposure to gold and silver price volatility. Bema’s entire committed gold contracts are reported at about 4.5% of estimated reserves plus measured and indicated resources.

Bema’s gold sales for the quarter (87,095 oz. at total cash costs of US$371 per oz.) came from its half-interest in the Refugio mine (31,877 oz.), the 90%-owned Julietta mine in eastern Russia (21,576 oz.) and its wholly owned Petrex mine in South Africa (33,632 oz.). The company realized an average price of US$540 per oz. for the period, up US$125 from 2005’s first quarter.

Gold production from Julietta was up 54% over last year’s comparative quarter due to 41% higher gold grades and improved mill recoveries. In the latest quarter, almost 42,000 tonnes of ore was processed averaging 20.6 grams gold per tonne.

A new, high-grade vein system (Evgenia zone) discovered at Julietta is undergoing extensive drilling in preparation for a resource estimate, which could lead to development by year-end.

Petrex production dropped 17% from last year’s first quarter, with 505,411 tonnes of ore grading 2.2 grams gold processed. Operating costs are under pressure from the appreciating rand, although higher gold prices have more than offset the exchange factor.

Bema recently entered into an agreement allowing Pamodzi Resources to earn up to 51% of its South African subsidiary by investing at least US$8.3 million in it and adding assets. The move will advance Bema’s subsidiary towards Black Economic Empowerment classification in addition to funding an underground development initiative.

Refugio, a 50/50 joint venture with Kinross Gold (K-T, KGC-N), produced 64,300 oz. gold in the first quarter at total cash operating costs of US$328 per oz. Just over 3.1 million tonnes of ore grading 0.7 gram gold was crushed and placed on the leach pads.

With all permits and government approvals in hand, Bema has begun building surface infrastructure at its 75%-owned Kupol gold-silver deposit in northeastern Russia, as well as the excavation of an underground portal. The mine is projected to produce at least 550,000 oz. gold annually over an initial 6.5-year mine life, at total projected cash costs of US$88 per oz. Production is expected to start in mid-2008.

The Cerro Casale gold-copper project in Chile is in flux while Bema (with a 24% interest) and 25% joint-venture partner Arizona Star (AZS-V, AZS-X) move to acquire the 51% interest held by Barrick Gold (ABX-T, ABX-N), following the major’s takeover of Placer Dome. The duo will be looking for a senior partner with the treasury to advance the project towards production. Estimates on getting Cerro Casale into operation are about US$1.6 billion. The deposit hosts over 1 billion tonnes of ore grading 0.7 gram gold and 0.26% copper.

A feasibility study conducted in 2004 by Placer Dome projected a mine producing about 975,000 oz. gold annually for 18 years at an operating cost of US$115 per oz., net copper and silver credits of 95 per lb. and US$5.50 per oz., respectively.