Norseman Gold (LON:NGL, ASX:NGX) will be in a much stronger position by the end of June, according to research by Seymour Pierce analyst Mathew McDonald.
The stock dropped 7.5 percent today after Norseman posted an increased operating loss in the quarter ended December.
NGL reported a loss before interest and tax of A$5.4 million compared with a A$1.1 million shortfall in the same period last year.
Production in the period fell to 11.162 ounces of gold from 12,229 previously as the cash costs of the operation at the historic mine in Western Australia rose 28 per cent to A$1,342.
In a note to clients McDonald stressed that while second quarter gold production was disappointing, the company remains on track to execute its 'fill the mill' strategy in the coming months.
“While throughput at the mill was close to the all time quarterly record, the high proportion of development work underground, as opposed to ore stoping, lowered the gold head grade at the plant.”
“However, this work should pay off in the future and there are strong indications in the statement that the company remains on track to execute its 'fill the mill' strategy in the coming months.”
He adds: “(the second half) should bring a significantly improved performance, driven by the start of significant stoping at the OK decline and the re-commissioning of the North Royal open pit, where mining started as scheduled last month.”
McDonald retains his 180 pence per share valuation because he reckons that future earnings upgrades - resulting from the new mine developments – in 2012 and 2013 will balance out this year's production and earnings downgrades.
The analyst adds: “While the first half performance confirms our previous comments about production ramp ups not being without risk, we believe that by the end of June the Norseman operation and the company will be in a much stronger position.”