Great Basin Gold shares tumble

[] — THE rollercoaster ride for shareholders in Great Basin Gold (GBG) continued on Friday when the shares slumped 13% on the JSE after the company dropped this year’s gold production forecast from the Burnstone mine.

In the past 12 months GBG shares have plunged 50% from a high of R22.50 to hit a low of R11.57 in mid-June, from which they recovered to around R15 by mid-July.

The shares closed on Friday at R12,73, but recovered some 2% during trading on Monday to levels around R13.

The Burnstone mine near Balfour was officially opened on February 22 this year by Minister of Mineral Resources Susan Shabangu and is currently ramping up production.

On Friday, GBG CEO Ferdi Dippenaar said in an operational update that there would be a three month delay in ore development and he dropped estimated production for 2011 to between 50,000oz and 60,000oz of gold from the original forecast of between 85,000oz to 100,000oz.

Reason for the delay was the need to mine increased volumes of waste material because the development teams had encountered higher-than-expected geological faulting.

Dippenaar said: “Although experiencing the usual challenges with bringing a new mine into production, Burnstone is settling into a production rhythm and although the progress made by the team on a monthly basis is reassuring, it is not yet at planned levels.

“The need for additional waste development to access the mining blocks impacted negatively on ore development which, in turn, impacts on stopes available for mining.’

RBC Capital Markets analyst Leon Esterhuizen said “most ramp-ups experience setbacks and one has to look through this and sometimes more than once, unfortunately.

“Doing this, we still hold the view that Burnstone could be a viable mine and we maintain our positive view on GBG.

“However, we believe the market may wait for better delivery from Burnstone before buying this story. Such delivery should see the share re-rate, in our view.”

The other problem that inevitably results from delays in production build-up concerns the availability of cash with revenues not being earned as anticipated.

Dippenaar pointed out GBG had $38m in cash at end-June and had also negotiated a $40m standby debt facility with Credit Suisse.

He said: “The current performance from our Nevada operations and the standby debt facility provides the company with adequate cash resources to fund the delayed production build-up at Burnstone.”

Esterhuizen concurred, stating that GBG’s funding was “still okay and should be enough to deliver Burnstone”.