Not Bad....And unhedged.. :)
Press Release Source: Queenstake Resources Ltd.
Queenstake's First Quarter Results
Wednesday May 10, 8:00 am ET
DENVER, May 10 /PRNewswire-FirstCall/ -- Queenstake Resources Ltd. (TSX: QRL, Amex: QEE) reported gold production of 29,873 ounces of gold at cash operating costs of $558 per ounce from its Jerritt Canyon operations in northeastern Nevada in the first quarter of 2006. The higher than expected cash operating costs per ounce were due principally to lower than expected gold production caused by mechanical issues at the mill.
The mill is now operating at near capacity. Higher rates of gold production at significantly lower cash operating costs per ounce are expected in subsequent quarters. The Company maintains its guidance of 200,000-220,000 ounces of gold production from Jerritt Canyon in 2006.
Highlights from the operating and financial results during the first quarter of 2006 included:
- Mining rate and mined ore tonnage were in line with the Company's 2006
operating plan, resulting in an accumulation of an estimated 22,000
ounces contained in an ore stockpile, adjacent to the mill, at the end
of March 2006;
- Mine development footage was on target;
- The near-mine exploration program began and has continued to identify
additional high-grade gold mineralization;
- Year-end gold resource and reserve estimations were completed, showing
that Jerritt Canyon replaced reserves net of depletion in 2005;
- Cash and cash equivalents on March 31, 2006 totaled $3.5 million,
despite lower gold production; and
- The Company entered into a transaction with Newmont Canada Limited,
which included closing of a $10 million private placement on April 13,
2006.
Gold production at Jerritt Canyon was negatively affected by mechanical issues related to the ball mill pinion gear causing temporary mill shutdowns, as described in the Company's news releases of March 30 and April 13, 2006. However, the mines continued to deliver ore to an increasing stockpile for future mill processing.
Commenting on the results, Queenstake President and Chief Executive Officer Dorian L. (Dusty) Nicol said, "We expect a much improved performance in the second and third quarters as the mill processes the ore stockpile. We are operating at near capacity since having completed the mill repair and annual maintenance during a 12-day mill shutdown in mid-April. With the mill running well and current strong gold prices, we expect improved cash flow from operations for the rest of 2006. We remain unhedged in gold to allow maximum leverage to the gold price."
Operating Highlights 1Q 2006 1Q 2005
Gold ounces produced 29,873 54,767
Gold ounces sold 28,488 50,850
Average realized gold price ($/oz) $553 $427
Cash operating costs per ounce $558 $365
Operating Statistics 1Q 2006 1Q 2005
Ore tons mined 289,643 280,635
Tons processed 150,228 311,434
Grade processed (opt) 0.25 0.21
Process recovery 86.4% 85.8%
Note: During the third quarter of 2005, the Company implemented a redevelopment plan designed to match mill processing with optimal mining and underground development, resulting in a scaled back throughput rate of between 2,500-2,700 tons per day of mined ore. The redevelopment plan was a substantial change from historical mining and processing practices. Comparison to operating results from previous periods should be viewed in that context.
Financial Review
For the first quarter of 2006, the Company reported a net loss of $5.8 million, compared with a net loss of $7.1 million in the year ago quarter. Compared to the first quarter of 2005, the 2006 results were impacted by lower gold production. Cash operating costs were impacted by mechanical issues at the mill, additional labor and overtime (principally related to the mill issues), increased contractor costs, and higher energy and commodity prices. Increased costs were offset by a higher realized gold price, lower depletion and decreased corporate general and administrative costs.
The depletion reduction was the result of lower gold production, partially offset by a higher unit-of-production depletion rate in 2006, reflecting increased capital development costs. Corporate restructuring costs of approximately $1 million were included in corporate general and administrative costs in the first quarter of 2005 while ongoing general and administrative costs were $0.2 million lower than in the 2005 first quarter from a reduction in corporate personnel.
Revenues totaled $15.8 million on 28,488 gold ounces sold at an average realized price of $553 per ounce during the quarter, compared with $427 per ounce realized in the year ago quarter. Lower gold sales offset the stronger gold price in the 2006 first quarter.
Cash operating costs per ounce of $558 for the first quarter of 2006 reflected lower ounces produced as a result of the mill mechanical issues and materials handling issues and constraints in the ore dryer. With the exception of costs associated with the mill issues, energy and certain commodity costs, operating costs were largely in line with the Company's 2006 operating plan.
The Company had a working capital deficiency of $2.3 million at March 31, 2006, which is expected to turn positive during the second quarter. The working capital deficiency was the result of conserving cash necessitated by the significantly lower gold production and sales. A $5.6 million increase in inventories, representing a significant build up in the ore stockpile, was countered by a $6.4 million increase in accrued liabilities and trade payables, including the costs of repairs, manpower and capital required to address the mill mechanical issues late in the quarter.
Cash used in operating activities, before changes in working capital, was $2.4 million. Changes in the principal non-cash working capital items were impacted for the reasons described above.
The Company invested $8.2 million in capital expenditures during the first quarter, principally in underground mine development, refurbishing equipment and the purchase of a road grader.
2006 Outlook
The quarterly fluctuations in production and cash operating costs per ounce are expected to even out over the full year. For 2006, the Company expects to produce between 200,000 and 220,000 ounces of gold, unchanged from prior guidance. Cash operating costs per ounce for 2006 are adversely affected by increases in basic commodity prices. The operations are sensitive to increases in diesel, propane and electric power, all of which have experienced significant increases through the first quarter of 2006. At current energy prices, cash operating costs per ounce are estimated to be $395-$435 for 2006. This cash operating cost per ounce estimate excludes the benefit expected from processing the purchased ore and concentrates from Newmont's Nevada operations.
In view of the stronger gold prices and proceeds from the recently completed private placement, the Company's estimated district exploration budget in 2006 has been increased to $8 million from $6 million. The Company may increase exploration spending further, subject to results in the second half of the year. Capital expenditures in 2006 are unchanged and expected to be approximately $17 million, 14% lower than 2005. Ongoing corporate general and administrative costs are estimated at $3.5 million-$4.0 million in 2006. The Company expects to fund the balance of these 2006 estimated expenditures from existing cash and expected cash flow from operations.
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