pressure on perseverance

Pressure on Perseverance as production falls, costs rise
By Barry FitzGerald
July 3, 2007

ANOTHER Victorian gold project is on the nose with investors. This time it is Perseverance Corp's Fosterville mine near Bendigo.

The problems are bad enough for the company to warn that it was deferring non-essential expenditure as its cash position would remain under pressure during the September quarter.

Shares in Perseverance tumbled 9.5¢, or 31 per cent, to 21¢, continuing the bad news for investors, who had pinned their hopes on a revival of Victoria's gold industry.

Bendigo Mining lost close to $1 billion in market value after a serious overestimation of gold grades at its Bendigo project forced it to suspend production. Ballarat Goldfields was absorbed by Lihir after it stopped production at its Ballarat East project.

Perseverance is Victoria's biggest gold producer from the Fosterville mine and its operation at Stawell.

On a combined basis, the two mines should produce gold at a quarterly rate of more than 50,000 ounces.

But Perseverance's woes at Fosterville means total production in the just-completed June quarter was only 42,000 ounces. When taken with the weakening gold price against a stronger Australian dollar and industry-wide pressure on costs, the group's financial position has been "adversely impacted".

The market was awake to the problems at Fosterville based on the previously released March quarter report, although it is now clear that the problems are more severe than first thought.

The March quarter report (the June quarter report has yet to be released) disclosed quarterly production of 18,000 ounces at Fosterville against forecasts of 25,000 ounces due to the slower ramp-up of the mine's new underground operation, equipment delays and shortages in skilled miners.

March quarter cash costs were uncomfortably high at $A610 an ounce. At the end of the March quarter the company was holding cash of $16.2 million — most of which was earmarked for an aggressive exploration program on the group's extensive Victorian tenements.

The Stawell mine has been performing much better and has helped Perseverance keep its head above water. The group could be exposed to a low-ball takeover bid on the assumption that Fosterville's underground problems can be fixed.

http://www.theage.com.au/news/business/pressure-on-perseverance-as-production-falls-costs-rise/2007/07/02/1183351124235.html