Gold One to miss production forecast

[miningmx.com] — GOLD One International would not be able to make its revised production target of 85,000 ounces for the calendar year, with actual output likely to be less than 70,000oz.

The group reported third-quarter production of 19,470oz on Thursday – in line with previous guidance – which still left the group 40,000oz short of its last issued annual forecast in May of 85,000oz.

Production figures for the first quarter was 13,208oz, followed by 12,287oz in the June quarter on the back of a month-long strike at its flagship Modder East mine.

“After due consideration for the disruptive December festive season, production for the fourth quarter is estimated at between 20,000 and 22,000 ounces,’ the group said in commentary accompanying its third-quarter results.

The combined figures add up to full-year estimated production of between 65 000oz and 67 000oz.

However, investors can take heart from the fact that shallow depth Modder East is starting to live up to its promise. Ore mined increased 59% to almost 86,000 tonnes, while grade improved from 7.57 grams per tonne to 7.67g/t. Output totalled 18,185oz, up 57%.

Costs amounted to $483/oz for the facility, compared to the targeted $400/oz. Gold One said at the budgeted exchange rate of R8.41/$, cash costs would have been $419/oz.

Gold One managed to secure a $65m loan from Absa Capital and BNP Paribas for the refinancing of its convertible bonds in December 2010, should bondholders exercise their once-off put option.

During the quarter Gold One also made significant headway in spinning off a major prospecting asset, Megamine, into a separate entity.

Goliath Gold will be created in 2011 through the reverse acquisition of White Water Resources, in which Gold One will hold 74%.

Located in the east of Johannesburg, Megamine comprises the Sub Nigel mine and the Vlakfontein, West Vlakfontein and Spaarwater prospecting areas, totalling 16,056 hectares. The asset holds audited resources of 12.65 million oz.

“Goliath Gold represents a vehicle through which Gold One will continue to develop its medium-depth resources without detracting from the group’s stated strategy of developing shallow projects,’ the group said. “It will ensure that the future strong cash flow status from Modder East remains ring fenced for Gold One shareholders.’

Gold One’s shares remained flat around the 240c level on the JSE on Thursday. The counter has enjoyed a roller-coaster ride of late, with the share fluctuating between 170c in August and 260c earlier in October.

According to Imara SP Reid analyst Percy Takunda, Gold One’s share price might come under pressure should the debt facility carry unfavourable terms.

“Modder East will in our view be a very lucrative mine and will likely be cash positive this year, but the $65m facility will all be carried by Modder East alone in the meantime,’ he stated in earlier research.

“We do not know what the full terms of the facility will be but if at a minimum it is R40m per year and add to that a possible 20% hedge on production, we are inclined to sit on the side of caution.’