Queenstake Q3 disappoints

Vancouver — Reduced gold production coupled with higher commodity and labour costs pushed Queenstake Resources (QRL-T, QEE-X) to its worst quarterly performance since acquiring the Jerritt Canyon mining complex in northeastern Nevada three years ago.

The mid-tier gold producer lost US$8.1 million in its latest third quarter compared to a US$4.3-million loss in last year’s corresponding period. Gold sales of 43,781 oz. in this year’s third quarter generated revenue of US$26.6 million for the company, however cash operating costs of US$643 per oz. greatly overshadowed the average realized sale price of US$617 per oz.

A significant drop in grade was also reported in the latest quarter, falling to about 6.2 grams gold per tonne (0.18 oz. per ton) from the recent average of about 7.2 grams gold (0.21 oz. per ton), due to increased processing of lower-grade ore sourced from Newmont Mining (NMC-T, NEM-N). About one-sixth (6,892 oz.) of the quarter’s gold production came from Newmont’s refractory ore feed, which is trucked to Jerritt Canyon from the major’s open-pit operations in the area.

Queenstake recently initiated a major cost reduction plan (T.N.M., Oct. 27-Nov. 2/06) to stem ongoing losses at Jerritt Canyon. The company immediately deferred production from higher-cost areas of the underground operations. The company also reduced underground contract development, streamlined maintenance and discontinued use of higher-cost mining equipment. Additionally, about 10% of the workforce (47 employees) at the mine was let go. The overall plan is expected to reap annual savings of about US$12 million in operating costs plus another US$4 million in development contractor costs.

Another contributing factor was ongoing reduced operating capacity of the mill. Bull gear was refurbished and pinion gear replaced in the second quarter but began to show a high degree of wear and pitting in the third quarter, presenting a major risk of failure. Accordingly, the mill was scaled back to run at 75% capacity until a new bull gear is installed, anticipated in early 2007.

Queenstake’s financial advisors, Blackmont Capital, continue to assist in evaluating strategic alternatives to enhance the value of the Jerritt Canyon assets. The company reports “a high level of interest in Queenstake” and says “a due diligence process is under way.”