August 06, 2009
Norseman Gold Announces Record Production Rates And Record Low Costs, For The Third Quarter In A Row
By Charles Wyatt
When Norseman Gold listed on AIM early in 2007 after a reverse deal between Davos Resources and Central Norseman, which was in the hands of administrators at the time, there were niggles that it did not have sufficient resources for a long mine life. Fair enough, but it is a shame some people do not think before they speak. Barry Cahill, who had been brought it to sort matters out while Central Norseman was still in the hands of administrators has massive experience of underground mining having been involved with Western Mining’s nickel operations, the Fortnum gold mine, the Tarmoola gold project, the Yilgarn Star gold mine, the Mount Pleasant gold project, the Broken Hill base metals operations and the Blair nickel project. Ask any Aussie rock monkey if he has heard of Cahill and the reply will be that he stands out as one of the top specialists in narrow vein mining.
Mind you, he was faced by a very difficult task as a self-opinionated man called Michael Ivey had made a dog’s breakfast of mining it previously. When Cahill took his first look at Norseman’s Harlequin mine he was horrified. The mine plan was based on fairly inaccurate exploration drilling, and on mechanised mining in a narrow vein environment. No use going over the past history any further, but it helps to demonstrate why the detractors had a point at the time. Soon after the company listed there were indications that it expected to produce 100,000 ounces in 2008, 125,000 ounces in 2009 and 150,000 ounces in 2010. That took Harlequin out to the end of its mine life as far as could be anticipated at the time. As director David Steinepreis pointed out, however, “that may take it to the end of its current mine life, but like many another operation that doesn’t mean too much. The company has had three year’s reserves for the past 65 years”.
Barry Cahill was too busy sorting things out underground to comment much about anything back then, but if he had been available he would have demonstrated just how wasteful it can be to prove up reserves by drilling a narrow vein, poddy mine. The two things that detractors should have taken on board at the time was that Norseman Gold had the right man at the helm and the new company had shed its hedging programme. It was just bad luck for him, and many, that the market slipped over a precipice in the second half of 2008. Things were coming right at Central Norseman, albeit slowly, but no one was listening. In April of this year, however, David Steinepreis gave an excellent presentation at our 58th Minesite Forum. Barry would have come, but he had a flow of good news ahead of him and did not want to be away from the shop.
By that time Norseman was free of debt and production was on the increase, with a cash operating cost of A$773 per ounce compared with an average gold price of A$1,112 per ounce. The production figures weren’t as good as had been hoped for back in 2007, but the company had nonetheless been transformed. The resource base had been increased by 80 per cent to 3.6 million ounces and significant progress made on the identification and development of a third source of ore. Operating cost were expected to fall too, as production rose throughout the year. Just to give an idea of what the company had been through, the shares hit a low point of 2.5p at the beginning of January. Lucky the investors who caught them at that time, as Barry had to pay the equivalent of 8p when converting his A$500,000 director loan into shares at the end of February. Now they are standing at 35p and Simon Gardner-Bond, mining analyst at Ocean Equities which engineered the deal between Davos and Central Norseman, thinks there is still plenty to go for.
Last month the company announced an operating update for the June quarter which confirmed that production has been building up since the operational review last October. Indeed both production at 22,013 ounces of gold, and cash costs of A$636 (US$530) made it three quarters of records in a row. The original guidance had been 19,500 ounces per quarter and cash costs between A$720 and A$780 per ounce, so this was quite a performance. In fact net direct cash costs of A$636 per ounce were the lowest full quarter operating cash costs returned since Norseman acquired the project. But Barry Cahill reckons that costs can fall still further, especially when ore coming in from a third mine will mean that the plant can operate up to full capacity.
This third mine is key to the future, as it adds both flexibility and reserves to the operation. More will be known about the progress of development at the end of this quarter, but in the meantime Bullen and Harlequin are performing well. The fleet has recently been upgraded and items of underground equipment have been purchased which will enable the company to increase the rate at which it can develop its resources and reserves and commence development on the third mine. It is worth noting that cash and gold held at the end of June amounted to A$35.3 million, which is close to one third of the market capitalisation. The shares are also trading, according to Ocean Equities, at only 2.7 times annualised EBIT, based on the results for the June quarter. There are a good few more furlongs left in this horse before it starts to get tired.
http://www.minesite.com/nc/minews/singlenews/article/norseman-gold-announces-record-production-rates-and-record-low-costs-for-the-third-quarter-in-a-row/1.html
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