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Crunch time for Croesus

JOHN PHACEAS

Kalgoorlie gold icon Croesus Mining was fighting for survival last night after calling crisis talks with its bankers and launching a strategic business review after a disastrous first half.

Croesus called a trading halt before revealing a $27 million loss in the December half in the wake of a massive blowout in production costs and hedging liabilities.

At the same time, former Kalgoorlie Consolidated Gold Mines chief Bob Crew and former Joondalup City Council chairman Campbell Ansell stepped down as non-executive directors.

Chairman Michael Kiernan, who joined the company in early November, said the halt had been called to give the company time to review its operations and map out a sustainable business plan.

"What we can say is that we intend to make a release by Monday morning about the future direction of Croesus," he said.

"We need to review the current operations and future operations of Croesus, we need to review the mine plan and exploration - we've just come off a $27 million loss - and felt it was appropriate to put a trading halt on so that we're able to put a release out that talks about the total future and the way forward.

"I didn't want things coming out in dribs and drabs."

Mr Kiernan declined to comment further, but Croesus is understood to have started talks with its bankers, most notably key hedging counterparty Macquarie Bank, to defer its forward sales commitments and allow the company to sell gold on to the spot market.

A $25 million loss on the mark-to-market value of its hedgebook was the biggest contributor to its first half loss, wiping out $9.6 million in related tax benefits.

At the end of December, Croesus' hedgebook commitments stood at 159,570 ounces at an average delivery price of $582/oz, and 60,000oz in sold call options at a strike price of $623/oz, representing about 35 per cent of its ore reserves.

Revenue also plunged 40 per cent to $40.3 million in the half as production slumped to 62,710oz and costs blew out to $604/oz, reflecting the forced closure of the tired Davyhurst operation near Kalgoorlie in August and declining grades at its core Norseman operations.

In the same half of the previous year, Croesus - then WA's biggest home-grown gold miner after the collapse of Gwalia - produced 112,000oz at $372/oz for first half profit of $5 million.

While Croesus then boasted cash reserves of $19 million, it only had $2.6 million left in the tin at the end of December - despite banking $5 million from the sale of Davyhurst to Kiernan-chaired junior Monarch Resources in December - before raising $8.6 million in a rights issue in January.

Management is believed to have already determined that insufficient mine planning and underground development has been completed at Norseman to keep Croesus' head above water.

Norseman is understood to be producing only 7000oz a month versus the 10,000oz needed to remain profitable, resulting in operating losses of more than $1 million a month as costs have ballooned above $800/oz.

In what was already shaping as its worst ever year, Croesus warned in late November that it expected to book a pre-tax loss of $28 million, including an $18 million paper loss on the value of its hedgebook under new accounting rules.