Severe winter frustrates Queenstake

As it enters its seventh month as owner and operator of the Jerritt Canyon gold mine in northeastern Nevada, Queenstake Resources (QRL-T) says the “unusually early and severe” onset of winter has hampered output and driven up cash costs.

Situated in the Independence Mountains, the mine produced 81,590 oz. gold in the third quarter of 2003 but only 68,411 oz. in the fourth. Reflecting the production shortfall, cash operating costs jumped US$51, or 21%, to US$298 per oz. between the third and fourth quarters, averaging US$270 per oz. in the second half.

Queenstake notes that December’s snowfall at the minesite, which lies at an elevation of 7,500 ft. (2,300 metres), was three times the average and that strong winds created “severe drifting” at the mine and on the haulage roads. The snow also added unwanted moisture to the ore, causing dryer constraints and grade-control problems.

For all of 2003, Jerritt Canyon produced 302,096 oz. gold, divided almost equally between Queenstake and the former owners, AngloGold (AU-N) (which, as operator, had a 70% stake) and Meridian Gold (MNG-T) (30%).

Queenstake acquired the mine on June 30, 2003, by issuing 32 million shares, paying US$1.5 million upfront, and agreeing to pay an additional US$6 million in cash. The two vendors also retain various royalties.

On the plus side, Queenstake’s average realized gold price climbed to US$377 per oz. in the fourth quarter, up from US$365 per oz. in the third.

The strong cashflow has allowed the company to chop its US$20-million senior debt in half by making US$5 million in scheduled payments and US$5 million in additional payments.

In 2004, the company anticipates being able to maintain Jerritt Cayon’s production rate at around 300,000 oz., with cash operating costs averaging US$250 per oz.

The Jerritt Canyon property comprises four operating underground mines and stockpiles that feed a 1.5-million-ton-per-year processing facility.

Queenstake continues to explore the property and intends to produce a new reserve estimate in early February.

Drill results released in mid-December showed more than a dozen high-grade gold intercepts outside the mid-2003 resource envelope but still near three of the four mines.

Highlights include the following:

— 0.736 oz. gold per ton (25 grams per tonne) over 60 ft. in hole C30081 in zone 3, near the Murray mine;

— 0.551 oz. gold (19 grams) over 95 ft. in hole C30082, also in zone 3;

— 0.582 oz. gold (20 grams) over 70 ft. in hole LX430 in zone 2, near the Smith mine;

— 0.846 oz. gold (29 grams) over 50 ft. in hole E3 in zone 5, near the SSX mine.

This spring, Queenstake intends to carry out district-wide exploration on its 100-sq.-mile land package, and has already identified 30 potential drill targets, many of them derived from work by previous owners.

Queenstake closed 2003 by agreeing to sell its Magistral gold mine in Mexico’s Sinaloa state to Nevada Pacific Gold (NPG-V) for US$7 million in cash and 2 million Nevada Pacific shares, which last traded at $1.15 apiece (T.N.M., Jan. 5-11/04).

Queenstake shareholders, meanwhile, took the December output shortfall in stride, and shares continued to trade in the low 80 range.