[miningmx.com] -- THE reasons for the 30% plunge in the Great Basin Gold (GBG) share price since early October were revealed in the September quarterly report released on Wednesday, which made grim reading.
The Burnstone mine, which was officially opened in February, is battling to ramp up production because of "the unavailability of sufficient stopes to meet the targeted ore tonnes".
Burnstone’s operations are also being affected by low grade because of the high volumes of low grade development material which are diluting the ore mined from the actual stopes.
Gold production is running way below plan as Burnstone produced 6,519oz of gold in the September quarter (June quarter: 5,619oz) which was less than half the 14,000oz of gold that was supposed to be produced.
As a result, operating costs are running sky-high with the gold cash production cost jumping 58%
to $2,283/oz, compared with $1,447/oz in the June quarter.
The mine has also been forced to scale back its ramp-up production schedule which originally called for full output of 254,000oz/year to be reached within two years of start-up - effective by early 2013.
That has been revised to 135,000oz to be achieved during 2012 and 175,000oz during 2013. CEO Ferdi Dippenaar said during a conference call on the results that this revised programme "put a bit of realism into the current build-up profile".
Dippenaar denied market speculation that the mining method chosen for Burnstone - long-hole stoping - was not working.
"We don’t believe the rumours in the market that the mining method is failing," he said.
GBG’s share price has been sliding throughout the year from a high of R22.50 in February, but it plunged from R16 in early October to a 12-month low of R10.60 before recovering marginally to current levels around R11.
overall financial position has suffered accordingly, and the company has had to restructure its debt.
The company plunged to a net working capital deficit of $5.4m at end-September from a positive working capital balance of $30.3m at end-June.
GBG has also been hit by negative foreign exchange adjustments while a “net fair value liability of $27m” has been recorded on the gold hedge programmes entered into as a condition of the previous loan agreements.
Dippenaar commented in the GBG management discussion and analysis (MDA) document that "the slower-than-planned build-up at Burnstone has a consequential impact on cash resources of the company which remains a constant concern with investors as evidenced by our share price performance".
Dippenaar added the company's debt and loan facilities had been restructured into a $150m term facility loan which added $80m to GBG’s available cash resources.
"The restructured term facility provides
the company with the required cash resources to fund the current production build-up profile at Burnstone," he said.
"Delivering on planned production from both the Nevada and South African operations remains essential to the company’s ability to fund its operations and debt repayment obligations in the short-term."
Dippenaar expected improved stope availability at Burnstone in the current December quarter for which he has forecast gold production at between 12,500oz and 15,000oz.
He estimated production cash costs for the December quarter at between $1,500/oz and $1,700/oz.