Norseman Gold PLC (LON:NGL, ASX:NGX) has cut its production forecast for the current financial year to end-June 2011 because the underground workings at the Norseman mine in Western Australia are making slower progress than forecast.
While the North Royal open pit has continued to ramp up and produce ore broadly in line with schedule, the OK Decline has continued to make slow progress in its ramp up, and the existing underground mines, Bullen and Harlequin, have continued to struggle to lift production to acceptable and forecast levels with treated tonnage and grade below expectations, it said in a statement released in London.
The underperformance of the underground mines has had a doubled effect of producing lower tonnes and consequently poured gold, as well as reduced volumes of hard-rock ore with which softer oxide ore from North Royal can be blended.
As a result, as at the end of March 2011, Norseman currently has a stockpile of lower grade ore, approximately 12,000 tonnes at 1.7 grams per tonne gold, from the North Royal Open Pit awaiting blending material to allow it to be treated.
As a results of the latest developments, Norseman is lowering its full-year gold production forecast to between 55,000 and 60,000 ounces from a previously flagged figure of 65,000 ounces.
The fact that production has not achieved anticipated levels, and is now unlikely to in the remaining months of this financial year, means that profitability will be impacted. The company now forecasts that it will post an operating loss of between A$5 million and A$8million before exceptional items, compared to last year's operating profit of A$200,000.
“The company is currently undertaking a major review of the mining operations, including resourcing and mining schedules and programs, in order to mitigate these anticipated losses to the fullest extent possible until performance at the underground mines begins returning to acceptable levels. This review is likely to include a reduction in manpower,” Norseman said.
“The board and management have also made a number of other decisions which are intended to immediately minimise the costs incurred at the operation in the short term and preserve cash resources,” it added.
It plans to update the market in its March 2011 quarterly report, to be released before the end of April.
As at 31 December 2010 the group remained in a positive cash position with A$15.6 million on hand. Once the current issues with the slow ramp-up of the underground workings are overcome, the group should see a significant increase in gold production from the extensive capital investment program undertaken in the past 20 months.
The current treatment plant capacity is 720,000 tonnes per annum and, at capacity, the treatment plant can produce up to 140,000 ounces of recovered gold.
Norseman has fifteen advanced resource projects under review of which three have pre-development work being undertaken on them. It is anticipated that at least one if not all the pre-development projects will develop into mining propositions.