Vancouver — Plagued by continued operational problems,
The northeastern Nevada producer reported decreased gold output of 54,156 oz. in its latest quarter, versus 61,247 oz. in the corresponding period of 2004.
Underground mining at the Jerritt Canyon complex was impeded by labour shortages and flooding. Heavy spring runoff flooded large sections of the Smith mine and contributed to a stope failure in Zone 6 at the SSX mine. As a result, further underground development and expansion efforts have been hampered.
Ore mined in the latest second quarter fell about 18% short of the production levels from the second quarter of 2004. Although average grades remained essentially the same at 7.1 grams gold per tonne, recovery rates dropped to 87.3%, from 91%.
Without forward sales contracts, the company sells its gold at spot prices. A higher realized gold price of US$427 per oz., versus US$395 per oz. in last year’s second quarter, was not enough to offset limited production from Jerritt Canyon. Lower production levels inflated cash operating costs in the second quarter to US$372 per oz., up 10% from last year.
Acknowledging lacklustre performance, Queenstake president and CEO Dorian Nicol said: “Jerritt Canyon continued to underperform through the first half of 2005. During the first quarter, we deferred development in order to conserve capital, and in the second quarter we had the unforeseen weather related issues exacerbated by the shortage of underground miners.”
The company spent US$4.1 million on Jerritt Canyon during the first half of this year, principally for underground mine development, diamond drilling and equipment purchases. Queenstake plans to invest another US$10-11 million throughout the rest of 2005, with about half of that going towards underground development.
Given its poor performance, the company has tabled a number of initiatives to bring costs at Jerritt Canyon under control. Queenstake ultimately wants to ramp up mining rates to match mill capacity. In the meantime, it plans to process higher grade ore, averaging 0.25 oz. gold per ton, but at a reduced throughput rate of 2,500 tons per day from 2,700 tons, to allow for more selective mining. The drop in mill throughput will lessen the demands on underground mining, further decreasing costs.
What’s more, cutbacks on the scheduled US$2.5-million district exploration program will be directed towards increasing underground development, with an emphasis on shorter-term reserve replacement.
Without enough ore from the underground mines to feed the 3,800-tonne-per-day twin-roaster mill, the company will scale back and use only a single roaster by cycling their usage. The measure could produce energy savings of up to $180,000 per month.
Meanwhile, connection of the SSX and Steer underground workings, essentially unifying the operations, is on track for completion by the end of September. Commercial production from the Mahala and Steer deposits remains on schedule for the second half of 2005.
Projected gold output for 2005 now stands at about 200,000 oz. gold.
Following the announcement of its quarterly loss, shares of Queenstake slid to a new low of 20 per share on trading of almost 6 million shares in mid-August.
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