Harte Gold cuts 2019 production guidance, ups cost estimate

A delay in the start-up of the paste fill plant and lowerthan-expected underground development rates plagued Harte Gold’s (TSX: HRT; US-OTC: HRTFF) Sugar Zone mine in the third quarter.

The company has cut its yearly production guidance to between 24,000 and 26,000 oz. gold from its previous guidance of 39,200 oz. gold. All-in sustaining costs (AISCs) are forecast to jump to between US$2,000 and US$2,200 per oz., surpassing earlier guidance of US$1,300 to US$1,350 per ounce.

Mining rates have been below  targets since the start of commercial production in January, and the company has had to supplement run-of-mine mill feed from surface stockpiles, all of which were drawn down by the end of July.

Grades milled have been lower than expected due to planned dilution, as the rate of decline development is behind schedule, which has delayed access to the higher-grade portions of the orebody. As a result, the company is mining too much development ore relative to stoping.

Studying rock underground at Harte Gold’s Sugar project in northern Ontario. Credit: Harte Gold.

In an interview with The Northern Miner, Sam Coetzer, the company’s new president and CEO, emphasized that his focus is on “breaking [the operation] down to levels of short-term interval management to focus on getting the right approach to the mine.”

He also noted that the paste plant was not “operating efficiently enough to support the requirement of generating cash flow,” and that the company is using backfill in the stopes to increase productivity.

The medium- to long-term plan is to incorporate paste fill, he said, but using backfill in the short-term reduces the amount of material that needs to move to surface.

During a conference call on Nov. 4, Coetzer and his management team said they expect the paste plant will operate by 2020, and that the mine plan will be updated before year-end.

In the short-term, the company is aiming for the 800-tonne-per-day design run rate outlined in its 2019 feasibility study, at the reserve grade of 7.1 grams gold per tonne. It may then consider increasing throughput as the orebody is opened up, and the number of available working faces increases.

Gold production in the third quarter reached 6,069 oz., bringing the total for the first nine months of the year to 19,138 ounces. Third-quarter all-in sustaining costs came in at US$2,304 per ounce. The company forecasts production in the fourth quarter will total anywhere from 5,000 to 7,000 ounces.

Despite the challenges, Coetzer told analysts and investors on the conference call that he was confident about the operation.

“My sense is that … lots of the heavy lifting has been completed last year. From now on we need to untangle some of the challenges.”

Martin Raffield, the company’s new chief operating officer, added that “the stoping methods are good, I don’t think that [unplanned] dilution is the issue … the ground conditions in the stopes … give me a lot of confidence.”

Cutting the ribbon at Harte Gold’s Sugar Zone gold mine in Ontario, from left: Timothy Campbell, Harte Gold VP and corporate secretary; Greg Rickford, Ontario Minister of Energy, Mines, Northern Development and Indigenous Affairs; Doug Ford, Premier of Ontario; Jeff Desmoulin, former chief of Pic Mobert First Nation; Stephen Roman, Harte Gold president and CEO; Angelo Bazzoni, mayor of White River; Louis Kwissiwa, acting chief of Pic Mobert First Nation; and Roger Emdin, Harte Gold VP of operations. Credit: Harte Gold.

Coetzer and Raffield were appointed on Nov. 4. Both men previously worked at Golden Star Resources (TSX: GSC; NYSE-AM: GSS), where they were involved with the redesign and transition of the operation from open-pit to underground production.

Coetzer added that he and Raffield “like to untangle complex issues together,” having also worked together at Placer Dome.

The management team appointments follow additions in October to Harte Gold’s board of directors, including James Gallagher and Joseph Conway. Conway’s past roles include president and CEO of Primero Mining before its acquisition by First Majestic Silver (TSX: FR; NYSE:AG) in January 2018, and president and CEO of Iamgold (TSX: IMG, NYSE: IAG). Gallagher played a key role in North American Palladium’s (TSX: PDL) operational turnaround at the Lac des Îles mine before the acquisition by Impala Platinum announced in October.

While full production is likely delayed into 2020, Pierre Vaillancourt, who covers Harte Gold for Haywood Capital Markets, echoed management’s positive view of the mine. “While we have concerns about execution, we remain positive about the quality of the asset for the long-term,” he wrote in a research note.

Current exploration efforts are testing targets on the north end of the property and assay results are pending.

The Sugar deposit, 68 km east of the Hemlo gold camp, was discovered in 1991.

Harte acquired the asset and associated claims in 1995 and consolidated its interest to 100% in 2012.

Mineralization, found within three parallel zones, has been traced over 1.5 km of strike and to a depth of 1,200 metres. It remains open on strike and at depth.

A feasibility study on the Sugar zone mine was completed by P&E Mining Consultants in May 2019. It outlined an 800-tonne-per-day underground longhole-stoping operation with paste backfill. The study outlined an average diluted head grade of 7.1 grams gold per tonne and a 95.5% recovery rate for average production of 62,000 oz. gold per year, at life-of-mine AISCs of US$845 per ounce.

The deposit is accessed by ramp and mining operations run at Sugar Zone North and South.

Indicated resources stand at 4.2 million tonnes grading 8.12 grams gold for 1.11 million contained oz. gold. Inferred resources measure 2.95 million tonnes grading 5.88 grams gold for 558,000 oz. gold.

Most of the current mineral resource is contained within the Sugar and Middle zones. All of the current resource zones are open at depth and on strike.

At press time, the company had an $81-million market capitalization based on a 12¢ share price. Over the last year it has traded in a range of 12¢ to 44¢ per share.