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Croesus calls in doctors

JOHN PHACEAS


Embattled WA gold producer Croesus Mining has called in external advisers to review its financial position as it battles to survive under the weight of crippling production costs and onerous hedging commitments.

The Kalgoorlie miner founded by gold veteran Ron Manners yesterday formally confirmed it had begun a "thorough" review of its business and Norseman operations following a disastrous first half loss of $27 million and difficulties meeting its gold hedging commitments.

One of WA's biggest home-grown gold miners, Croesus said the review would take at least two weeks and would cover "all aspects" of its business, including the hedgebook structure, production forecasts and planning, and capital requirements.

Trading in the company's shares, which was halted on Thursday, would remain suspended until the company was able to make a "comprehensive announcement as to the current state and further direction of the group".

Croesus is understood to have begun talks with its main hedging counterparty, Macquarie Bank, to restructure its hedgebook and defer much of its near-term commitments in a bid to get the company back on its feet.

Chairman Michael Kiernan, who was appointed in November in a bid to help revive the company, also confirmed Croesus had appointed external advisers to examine its finances.

"Together with the operational review, we are also reviewing the financial position of the company and as such have external people helping us," Mr Kiernan said.

Until the review was complete, Mr Kiernan said he would not know whether Croesus' fortunes could be restored.

"I don't know, I believe so, but that's certainly my number one priority, to pull the company out of the poo," he said. "It's tough from here but . . . I believe we should be able to pull it out of the fire."

As WestBusiness revealed yesterday, Croesus' problems stem from inadequate mine planning and development at Norseman, where it operates the Bullen and Harlequin mines.

Mr Kiernan said from a cost point of view, Norseman had "simply gone off the rails even in this time of high gold prices".

"The mining plan could not supply the amount of hedging ounces required," he said. "Clearly we had a mine plan that was rubbish."

Mr Kiernan said the plan prepared by the previous management was based on mechanised mining methods to deliver the 10,000 ounces a month needed to fill the hedgebook.

But the quartz-vein hosted mineralisation was far too narrow to support mechanised mining, resulting in a massive blow-out in production costs and falling production levels.

Production has subsequently slipped to about 7000oz a month, while costs are believed to have topped $800/oz so far this year.

That comes after output virtually halved in the December half to 62,700oz, and costs almost doubled to $604/oz. Croesus is committed to deliver almost 160,000oz at $582/oz in flat forward sales, with another 60,000oz covered by sold call options at a strike price of $623/oz.

Mr Kiernan said the Bullen mine, which was producing about 4000oz a month, was in good shape but productivity at the nearby Harlequin mine was "absolutely abysmal".

Mr Manners could not be reached for comment yesterday.