Historic Q2 can’t lift Etruscan’s shares

Although its second quarter represented a historic time for Etruscan Resources, (EET-T, ETRUF-O), the company has failed to gain any market traction from second-quarter results that saw its Youga gold mine in Burkina Faso swing into production, bringing in more cash flow to company coffers.

The company reported net income of $13.9 million or 11 per share compared with $800,000 or a penny a share for the same period last year.

But Etruscan incurred a net loss of $22.6 million or 18 per share for the six months ending May 31, compared with a loss of $16 million or 16 per share for the six months ended May 31, 2007.

A significant chunk of that loss came from non-cash expenses of $14.9 million related to the unrealized loss on financial derivative instruments and $1.5 million related to stock-based compensation.

Looking ahead, production from Youga should be the key driver to the company’s market cap.

Youga sits roughly 180 km southeast of the capital, Ouagadougou. Roughly 7,800 oz. gold were recovered in the second quarter with 6,200 oz. poured into dor bars.

At capacity, the mine will process 83,000 tonnes per month for an average of 6,700 oz. gold.

In all, 4,756 oz. gold were sold during the quarter for gross sales of $3.35 million.

Commercial production came in early July with the gold recovery plant operating at projected efficiency and gold recoveries averaging over 93%.

Current minable reserves at Youga are 6.6 million tonnes averaging 2.7 grams per tonne containing 580,000 oz. gold. That resource comes from five separate pits.

Etruscan spent roughly $17 million in development activities related to the Youga mine during the quarter.

Etruscan is also hopeful that one of the five satellite gold deposits it has found within a 3-km radius of the plant can be included in its resources and reserves in the near future.

Beyond those close confines, the company is exploring 35 km northeast of the mill at an area known as Bitou. Bitou lies on the northeastern section of the Youga gold belt and the company says it has identified mineralization with a resource potential extending over a strike length of 2 km.

Highlights from second-quarter drilling there included 22 metres grading 2.8 grams gold per tonne, 14 metres grading 2.6 grams gold and 2 metres grading 41.6 grams gold.

If the company can prove up a resource at Bitou, the ore would provide additional mill feed for Youga.

But Etruscan isn’t only about gold. The company’s Blue Gum diamond project, in South Africa, has also seen some action lately.

During the first quarter, mining and processing operations restarted at the Tirisano mine, located on the Blue Gum property.

The objective is to achieve a monthly throughput of 100,000 cubic metres of gravel per month from two facilities.

The company managed to recover 5,465 carats from 209,230 cubic metres of gravel with an average value of US$613 per carat for an aggregate diamond value of US$3.35 million.

Etruscan invested $4.3 million in developing the project and another $200,000 in exploration there for the quarter.

The company has other exploration projects in Burkina Faso, as well as Mali and Ghana, but perhaps its most interesting exploration play is in Cte d’Ivoire.

The Agbaou gold project there is undergoing a feasibility study to determine the economics of developing a 1-million-tonne-per-year operation.

Despite its recent social and political problems, Etruscan says Cte d’Ivoire is “one of the most prospective countries for new discoveries in West Africa.”

In all, Etruscan put roughly $9.2 million into exploring its African projects so far this year.

The company’s shares recently traded at $1.28 in a 12-month window of $1.25-3.48. Etruscan has roughly 125 million shares outstanding.