bad news

FROM THE AUSTRALIAN

MONARCH Gold's dreams of becoming a 500,000 ounce a year producer have unravelled as the Western Australia-based miner has become the latest to fail in a plan to revive an historic operation.

Following in the footsteps of Sons of Gwalia, Bendigo Mining, View Resources and Croesus Mining -- all fell short in similar quests to reinvigorate historic workings -- Monarch announced over the weekend that it had put its flagship Davyhurst operations on care and maintenance.

However, unlike the abovementioned companies, Monarch has not gone into administration because of the failure. Its Mt Ida operation near Menzies keeps it afloat.

Mt Ida ore, which had been treated at the Davyhurst mill and was much higher grade than that pulled from the Davyhurst open pit, will now be treated at an unknown mill at Kalgoorlie-Boulder.

Monarch expects Mt Ida will yield 45,000 ounces in the next financial year at an average cost of $480 per produced ounce of gold.

It appears that Monarch erred at Davyhurst by its insistence on getting into production as early as possible despite the tricky nature of the geology at the project, which is about 100km northwest of the WA goldfields capital of Kalgoorlie-Boulder.

Monarch picked up the asset from Croesus Mining at a time when Michael Kiernan was chairman of both companies. Croesus ultimately failed because of problems at its Norseman operations.

The Davyhurst operation also included the separate purchase of the Siberia project once held by Siberia Mining under the stewardship of Andrew Forrest.

Monarch indicated it would examine the data inherited from both Croesus and Siberia before taking another stab at Davyhurst.

Monarch had hoped Davyhurst would be the prime mover in its vision of becoming a 500,000oz a year gold producer. But cost blowouts meant the operation was not breaking even.

Monarch was forced to borrow millions from Territory Resources -- also run by Mr Kiernan -- to keep the operation afloat. This resulted in Territory, a Northern Territory-focused iron ore miner, ending up as the biggest shareholder in the company, with a 19.96 per cent stake.

Mr Kiernan controlled 4.52 per cent through his private company Crawley Investments. He said in May that the company was "three to four months" behind in its development and that the company would become "cash-neutral" during May if it could hit a production target of 7200oz at Davyhurst.

Monarch had a June production target of 8000oz with latest figures in March revealing it was lagging with production at just 6500oz.

A spokesman said yesterday that all creditors for the Davyhurst operation would be paid and there was no suggestion Territory would not be eventually refunded.

"All creditors will be paid in full in the normal course of business," the company said.

Monarch had asked Harmony Gold for extra time to pay $10 million associated with Monarch's purchase of the Mt Magnet Gold project, which contains the historic Hill 50 operation.

The payment, which was to be a mix of cash and scrip in Monarch Gold, was due on June 30. Monarch took over the Mt Magnet gold project, which has a resource base of 2.7 million ounces, in April.