Damp Q2 prompts GlobeStar to cut 2009 guidance

Rainy conditions in the Dominican Republic have been causing some ore handling problems during the first six months of commercial production at Globestar Mining‘s (GMI-T) Cerro de Maimon copper mine and the company has had to lower its 2009 production guidance as a result.

During GlobeStar’s second quarter conference call today CEO David Brace said that the lower ore tonnage going through the plant during the second quarter was due to the higher moisture content in the ore.

“We can confirm that it rains at lot in the Dominican Republic, even during the dry season,” Brace said.

GlobeStar put 98,000 tonnes grading 3.2% copper through the sulphide plant in the second quarter, down from 103,000 tonnes grading 3.9% copper in the first quarter. Gold grades were the same at 1 gram per tonne and silver a bit lower at 59 grams per tonne from 87 grams.

Recoveries were also lower in the second period and the end result was the production of 5.9 million lbs. of copper in concentrate, plus 1,000 oz. gold and 93,000 oz. silver. In the first quarter the company produced 7.6 million lbs. of copper in concentrate plus 1,600 oz. gold and 192,000 oz. silver.

Things were a little better over in the oxide plant where the company was able to increase tonnage during the second quarter to 50,000 tonnes from 34,000 tonnes, but the grades and recoveries fell. GlobeStar produced 1,460 oz. gold, and 14,400 oz. silver compared to the previous period of 1,200 oz. gold and 25,000 oz. silver.

The company brought in revenues of US$17.1 million, operating earnings of US$4.8 million and cash flows from operating activities were US$4.6 million during the quarter.

But a US$7.1 million unrealized loss on the fair value of GlobeStar’s copper, gold and silver hedges during the second quarter left the company with a net loss of US$4.2 million. The value in hedges declined due to the rising copper price.

GlobeStar also made its first payment toward its long-term debt, of US$2.9 million.

Brace says that the first six months of production has given the company a better handle on what to expect from the mine.

“We’ve got a lot more experience now at running the plant and seeing how it operates so we are changing our guidance for this year,” he said.

The company expects to produce 400,000 tonnes grading 3.4% copper totaling 25 million lbs. copper, down from 475,000 tonnes grading 3.3% copper totaling 29 million lbs.

Gold and silver, contained in the copper concentrate will also be lower than expected at 5,000 oz. and 440,000 oz., respectively, down from 7,300 oz. and 368,000 oz.

Production from the oxide plant will drop to 200,000 tonnes throughput amounting to 7,000 oz. gold and 113,000 oz. silver, from an earlier estimate of 14,000 oz. gold and 280,000 oz. silver in dore.

But Brace says the company will be trying to improve operations and shared some good news that could affect the GlobeStar’s reserve estimate at the end of the year.

He says the company is getting positive ore reconciliation on each bench as they work down through the mine verses what we the company calculated in its ore reserves and block model.

“We are finding 30% more ore on each bench than we had predicated, which is a good result obviously,” Brace said. “But I wouldn’t jump to the conclusion that our ore reserves are going to be 30% greater, but we have consistently, right from the start from the first reconciliations, had positive reconciliations in the pit and that will show up in the reserves at the end of the year.”