Great Basin sees stronger future for troubled Burnstone mine

Vancouver – Struggling miner Great Basin Gold (GBG-T) got a much needed share price boost after releasing production and exploration updates on its two operating gold mines.

At the Burnstone mine in South Africa, where unmineralized faults have caused significant delays in production ramp up, the company expects it could produce between 90,000 and 100,000 oz. gold at between US$900 and US$1000 per oz. gold this year. At its Hollister mine in Nevada, Great Basin expects to produce roughly the same amount of gold as at Burnstone but at US$700 to US$750 per oz. gold.

The numbers show a much brighter future than what the company experienced last year at Burnstone, where Great Basin spent US$1,780 per oz. on the 23,400 oz. gold it managed to extract from the mine. At Hollister the outlook is more in line with 2011 production of 96,000 oz. gold, though costs are expected to go up from the US$674 per oz. cash costs it had last year.  

On the day Great Basin released its production outlook its share price climbed 9¢ or 11.3% to 89¢ on 1.5 million shares traded. The slight rebound came after the company hit a 52-week low of 78¢ the day before as it fell along with much of the market. With 475.7 million shares out the company’s market capitalization stands at $423.4 million despite having 26.34 million gold equivalent oz in situ. That works out to a valuation of about US$16 per in situ oz., easily one of the lowest out there for a producing company.

The company has been hit hard by setbacks at its Burnstone mine that started production in early 2011. First was the unpleasant discovery of an 80-metre graben fault that threw off its mine plan and required additional development work to access mining blocks. The company is now conducting a 3-D seismic survey on the graben but it’s expected to take 15 to 18 months so the company is also looking at faster alternatives. Burnstone was then hit with flooding later in the year, which only further delayed any production ramp-up. Add in the general challenges of operating in South Africa such as sharply rising power costs and the threat of nationalisation, and it’s not too hard to see how the company’s share price has declined from a high of $2.72 a year ago to its current lows.

But the company maintains that the situation is turning around at Burnstone, as evident by its 2012 production outlook and its target of being cash flow positive at the mine by the third quarter. Longer term Great Basin is still working to achieve optimum production rates of 220,000 to 250,000 oz. per year at the mine, which, combined with Hollister could see the miner producing 320,000 to 350,000 gold equivalent oz. per year.

The company reports that water issues have been resolved, with reef development ends up from 32 in December to 38 by the end of February, and 12 remaining flooded ends should be available in the quarter. Reef development rates are at planned levels of 40 metres per end per month, and the sq. metres available for stoping is now at 12,400 sq. metres with 6,000 sq. metres more partially developed.

Exploration has been limited at both operations as the company works to ramp up production at Burnstone, but Great Basin has maintained delineation drilling both properties. At Hollister underground drilling in the last six months of 2011 returned an average grade of 14.17 grams gold over one metre in the 327 intersections it hit. Infill surface drilling at Burnstone returned a mean grade of 6.45 grams gold and channel width of 51 cm, while 18,000 underground channel samples returned a weighted average of 6.91 grams gold over a channel reef width of 76 cm. The Burnstone feasibility study was based on an average reef width of 45 cm.

Mine reserves at Burnstone stand at 44.2 million tonnes grading 4.47 grams gold per tonne for 6.36 million oz. gold. As of an October 2011 update, the mine hosts measured and indicated resources of 66.9 million tonnes grading 5.87 grams gold per tonne for 12.6 million contained oz. gold. Inferred resources add 72.8 million tonnes averaging 4.3 grams gold for a further 10.1 million oz. gold, with all estimates based on a 300 cm per gram tonne cut-off. The company reports that the faulting has had limited impact on the resource.

Great Basin was scheduled to put out an updated Hollister resource as well but discrepancies on the silver assays delayed the resource. The company now expects to have that resource out in the second quarter.