Viceroy looks to recovery in second half

Although it slipped into the red during the second quarter, Viceroy Resource (VOY-T) hopes to return to profitability in the second half of the year by increasing production and cutting costs.

Viceroy tabled a quarterly loss of $5.6 million (or 10 per share), before extraordinary charges, on sales of $23.9 million, compared with earnings of $797,000 (2 per share) on sales of $17.3 million in the corresponding period last year.

The company attributes $2.3 million in extraordinary charges to its decision not to participate in the Bouroum joint venture in West Africa with Channel Resources (CHU-T), as well as to a mark-to-market adjustment of its current investments.

Viceroy cranked out 56,304 oz. gold during the recent quarter, bringing the year-to-date total to 115,657 oz. — more than double what it produced in the first half of 1999. Average cash operating costs during the quarter amounted to US$242 per oz. gold, and the same figure was posted for year-to-date cash operating costs. This represents a 20% decrease in costs when compared with the corresponding period last year.

Viceroy tabled an operating cash flow loss of $1 million (2 per share) during the quarter, though it expects to push cash flow into positive territory in the second half of 2000 by increasing mill throughput at two mines — Castle Mountain, in southeastern California, and Brewery Creek, in the Yukon.

The company finished the second quarter with $19 million in its till.

Second-quarter gold production at the Bounty mine, east of Perth, Australia, amounted to 24,581 oz., with the cash operating cost pegged at US$271 per oz. Production during the 3-month period was lower than anticipated owing to a crown pillar failure above the southern high-grade ore blocks. The mine cranked out 58,089 oz. during the first half of the year, an increase of 11% over the first half of 1999, at a cash operating cost of US$248 per oz.

The Castle Mountain mine poured its one-millionth ounce of gold in late April. Viceroy’s share of gold production during the second quarter hit 22,975 oz. at a cash operating cost of US$195 per oz. “That’s a 21% increase in production and a 26% decrease in costs relative to the same period in 1999,” says Viceroy’s president, Clynton Nauman. Viceroy owns a 75% stake in Castle Mountain, with the remainder held by MK Gold (MKAU-Q).

For the first six months of the year, Viceroy’s share of production from the mine was 42,847 oz., a 37% improvement over year-ago figures, at a cash cost of US$212 per oz.

The Brewery Creek mine cranked out 8,748 oz. gold during the recent quarter at an operating cash cost of US$286 per oz., or 9% less than in the year-ago period. Production during the first six months hit 14,721 oz., 12% less than a year ago, at a cash operating cost of US$307 per oz. Viceroy attributes the shortfall to a late start to the seasonal operation and to the fact that less ore was placed on the pad as a result of a change in mining schedules. Cash costs are expected to decline over the balance of the year, with higher forecast gold production.

Meanwhile, surface exploration is being accelerated at the Gualcamayo project in Argentina’s San Juan province. Viceroy acquired the remaining 40% interest in the project from Mincorp Exploraciones in July. According to the agreement, Viceroy will pay Mincorp a total of US$3 million to acquire the interest.

Exploration has extended the mineralized system to a total length of about 3 km. Assay results from 518 bedrock chip samples, collected over the entire length of the mineralized system, averaged 1.95 grams gold per tonne.

Systematic sampling and mapping of a 1-km interval between the Quebrada del Diablo resource and the Amelia Ines skarn-hosted resource indicate continuity of mineralized structures. Highlights of continuous chip sampling include: 2.05 grams gold over 163 metres; 11.48 grams gold over 9 metres; and 6.52 grams gold over 19.7 metres.

These positive results have pushed back the start of the next drill program until sometime in October in order that the extent of mineralization can be defined, according to Viceroy Chairman Ronald Netolizky.

The upcoming drill program will attempt to expand the existing resource base, which stands at 1.35 million oz. gold based on limited core and reverse-circulation drilling.

Metallurgical tests on both core and reverse-circulation chips from Gualcamayo intercepts indicate that the oxidized breccia material has recoveries in excess of 80% in 24-hour bottle-roll tests, with low cyanide and lime consumption. To date, more than 270 standard bottle-roll tests have been completed on most of the 42 holes Viceroy has drilled.

The company is assessing the leaching kinetics of the ore through column-leach tests in order to provide a better initial estimate of heap-leach recoveries.