Bema moves to trim operating losses

Vancouver — The challenges of operating a far-flung roster of mines pushed Bema Gold (BGO-T) into the red during the first quarter.

The Vancouver-based company posted a net loss of US$14.2 million on revenue of US$19.7 million for the period, compared with net earnings of US$8.1 million on revenue of US$11.5 million a year earlier. The first-quarter losses include a US$8.5-million writedown of the Yarnell gold project in Arizona, a non-core asset sold for about US$2.2 million.

Bema Chairman Clive Johnson attributed the first-quarter loss to a fire at the Julietta mine in Russia’s Far East region, and to the combined effects of a strong rand and operating problems at the Petrex mines in South Africa.

Petrex and Julietta together produced 52,497 oz. gold during the quarter at a cash cost of US$331 per oz. and a total cost of US$346 per oz. This compares with 42,946 oz. gold produced in the first quarter of 2003 at a cash cost of US$255 per oz. and a total cost of US$279 per oz.

“Obviously these are higher operating costs than we’d like,” Johnson recently told analysts, adding that numerous measures have since been taken to cut costs and improve mining efficiencies.

The February fire, caused by a short circuit in a warehouse heater, destroyed spare-parts inventory, thereby curtailing mining and milling rates for the remainder of the quarter. Nonetheless, Julietta managed to contribute operating income of about US$746,000 for the quarter.

Dennis Stansbury, vice-president of production and development, noted that Julietta is now exceeding its budgeted production and should make up the production shortfall in the next quarter. In April, cash costs fell to US$121 per oz., while total costs averaged US$168 per oz.

Bema is also taking steps to improve the performance of the Petrex open-pit and underground operations, which generated an operating loss of US$2.8 million in the latest quarter.

The losses were attributed to various factors, including high rainfall that resulted in 10 lost days of open-pit production, as well as lower mining rates. Grades were lower than planned, too, in part because drilling to evaluate resources took place at the same time as mining. To remedy this, Bema brought in nine drill rigs to accelerate the drilling program, as well as technical staff to assist with open-pit mine planning.

Bema also hired underground managers and supervisors to improve the “sub-standard” performance of the contract mining force, which reduced head grades in the past quarter.

Refugio

In the coming years, Bema is looking to advance three major projects into production. Together with equal partner Kinross (K-T), Bema plans to re-start production late this year at the Refugio open-pit mine in Chile’s Maricunga district.

The company says the decision to revive the past-producer was based on a recent drilling program that outlined sufficient reserves for at least 10 years of production.

Bema estimates it will cost US$70 million to place Refugio into production at the daily rate of 40,000 tonnes. The high-altitude operation is expected to produce at an annual rate of 225,000-260,000 oz. and at a total cash cost of US$225 per oz. over 10 years. Bema’s share of production will have no associated debt as the company funded its share of capital costs from a convertible note offering completed in the first quarter of this year.

The re-engineered Refugio project is on schedule to start producing late this year, and on budget. Capital items include upgrades of the conveyor and crushers, and a new power line.

Bema is looking to a 2008 production start at its 75%-held Kupol deposit in Russia. The project has a preliminary indicated mineral resource of 2.5 million tonnes grading 22.3 grams gold and 232 grams silver, or 1.8 million oz. gold and 19 million oz. silver. The project also hosts an inferred resource of 7.1 million tonnes averaging 18.4 grams gold and 243 grams silver.

Bema plans to carry out at least 57,000 metres of drilling at Kupol this year, with a view to expanding and upgrading resources and testing new high-grade targets.

“We are confident Kupol will become a large, low-cost gold mine,” Johnson said, adding that the company expects to release the results of a preliminary economic assessment shortly. “We believe it will demonstrate a project that is robust economically.”

Bema also holds a 24% interest in the Cerro Casale project in Chile. Senior partner Placer Dome (PDG-T) is engaged in discussions with lenders to finance the US$1.65-billion project. The major must inform Bema and 25%-owner Arizona Star Resource (AZS-V) whether the project is “financiable” under the terms of their joint-venture agreement by late June of this year.