High River sees Q2 cash costs rise 67%

A jump in cash costs have left High River Gold Mines (HRG-T) with a negative second quarter even with a 61%-increase in gold production.

High River shares dropped 17% today, or 19, to 92 apiece on a trading volume of 2 million shares for a new 52-week low. At the same time the price of gold plunged to US$785 per oz., an eight-month low.

The company reported a net loss of $4.7 million compared to a net income of $896,000 for the same period in 2007.

Gold production was nearly 52,000 oz. for the period while revenue was $43.4 million but cash costs increased 67% to US$616 per oz., (excluding production from the Berezitovy gold mine in Russia). The average gold price realized on sales was US$897 per oz.

The Taparko-Bouroum gold mine in Burkina Faso had the highest cash costs due to ongoing mechanical problems with the ball mill drive train, which resulted in a lot of downtime during the quarter. The mine produced about 10,000 oz. of gold at a cost of US$916 per oz.

The Zun-Holba and Irokinda gold mines in Russia produced about 37,000 oz. gold at an average cost of US$532 per oz. Costs there rose due to wage and material cost inflation as well as lower grades being mined.

Meanwhile, the company has been working on commissioning its Berezitovy mine in Russia. Plant capacity has reached 63% and the company produced 12,000 oz. of gold there over the period.

High River released a new resource estimate for its Prognoz silver project, also in Russia. Indicated resources now stand at 4.5 million tonnes grading 704 grams silver per tonne for a total of 102 million oz. silver.

Inferred resources are about 4.9 million tones grading 659 grams silver per tonne for 103 million oz.

The company entered an agreement to acquire the remaining 50% of the project for 34.1 million High River shares.

At the beginning of August, High River announced a strategic investment with a subsidiary of a large Russian privately-owned financial company, Alpha Group Consortium. Under the deal, High River will issue up to 160 million shares at $1.79 apiece through a non-brokered private placement of up to $286.4 million. Once the transaction is complete, Alpha would own about 32% of High River.