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Operations Review & Loan Facility

21st Oct 2008 09:47

RNS Number : 3069G
Norseman Gold PLC
21 October 2008
 



Norseman Gold plc / Epic: NGL / Index: AIM / Sector: Mining & Exploration

21st October 2008

Norseman Gold Plc

('Norseman Gold' or 'the Company')

Operations Review & Loan Facility

 

Overview

 

Ø 19,007 ounces of gold produced in the quarter to 30th September 2008
Ø Operations have been restructured to support a target production level of 6,500 ounces per month pending third source of ore
Ø Cost pressures continue to be felt, although the business has benefited from the recent improvement in the gold price with September quarter sales ranging between A$914 per ounce and A$1,126 per ounce.
Ø Loan facility agreed for up to A$1.5m with companies associated with three Norseman directors.

 

Production

 

The Norseman operation in Western Australia recovered 19,007 ounces of gold during the last quarter.  This result is within 2% of the average quarterly production from the previous financial year.  Production was marginally lower than the previous quarter due to a reduction in grade, however the Board does not expect these grade levels to continue and anticipates a return to higher grade ore in the coming months.

The Company has continued to face increasing cost pressure, particularly in the areas of labour, diesel fuel (which directly impacts the cost of power generation), steel products (which have increased over 60%) and reagents consumption. In the first twelve months, these were offset by cost reductions and improved efficiencies that the management team were able to introduce. However, in more recent months, the upward pressure has become more difficult to combat. 

Strategic Review and Restructuring

Since the acquisition of the Central Norseman Gold mine, the Company has managed its operations based on target production levels of 8,000 ounces per month. In recent months, it has become apparent that this target production level is unrealistic without a third source of ore, particularly in the context of the cost inflation that has been experienced, and as such management has undertaken a strategic review of the operation with a view to maximising efficiency and cash flow.

The resultant restructuring plan which includes the following measures;

Manage the operation based on a revised target production level of 6,500 ounces per month based on an operation of approximately 450,000 tonnes per annum.

Focus on mining method, particularly greater use of mechanisation, to improve productivity and reduce costs

Restructure milling campaign rosters to more closely match the ore production profile

Restructure work rosters to more fully utilise available equipment

Reduce mine & corporate overheads by the combining functions where possible

Rationalise maintenance manpower to reflect the new structure

Dispose of under-utilised surplus equipment following the commissioning of the new fleet

Overall, the restructure will see a reduction in total company manpower, by circa 20 personnel, thus reducing labour costs, as well as reductions in the monthly power consumption (and consequently diesel fuel costs) and reagents usage. It is important to note that despite this, gold production is expected to be maintained at or above average historical levels.  

It is anticipated that immediate changes to the operations structure will deliver savings in excess of A$500,000 per month, while the disposal of surplus equipment will net circa A$400,000.  

Development Programme

The Company continues to focus on the development of the Norseman Project and in particular increasing the life of the mine through exploration as well as optimising the processing plant and improving efficiencies.

The Board remains committed to continuing its capital investment programme, on which it has already spent more than A$21m since the acquisition of the Norseman operations which includes property, plant, equipment and infrastructure as well as capitalised mine development and exploration. The Company will continue to progress with its surface drilling, albeit at a reduced rate, whilst continuing with its underground drilling programmes and its underground capital development programme. This investment is aimed at increasing the life of mine by increasing the reserves and the consequent value of the operation.

The Company is in the process of completing its latest round of surface drilling programmes at North Royal and at Lady Miller. It is expected to receive results of these programmes during the current December quarter, at which point the next round of drilling will be planned and carried out. Concurrently the initial Government approvals required for open pit mining at these prospects are being sought. 

As well as continuing its programmes to define and develop an open pit resource, the Company is also progressing the definition and development of a third underground mine that is currently focussing on the definition of near surface structures that extend the previously mined ore bodies at the historic OK Mine.

Ultimately the Company is seeking to introduce a third source of ore and increase the plant utilisation which is currently running at 60% capacity to its full capacity of 700,000 tonnes per annum. At this level, the Board is confident that the operations will generate significant profits and cashflows.

Loan Facility

To supplement the Company's funding and to allow it to continue on with its capital programmes, the Company and Central Norseman Gold Corporation Limited ("CNGC"), the principal operating subsidiary of the Company, have entered into loan facility agreements with Wildpark Nominees Pty Ltd ("Wildpark") and Ascent Capital Holdings Pty Ltd ("Ascent Capital"), companies associated with three directors of the Company, being Barry Cahill, David Steinepreis and Gary Steinepreis, whereby these companies (the "Lenders') will make available a $1,500,000 loan facility to CNGC (the "Loan Facility"). The Loan Facility has been entered into to provide CNGC with additional working capital as a result of the lower than anticipated gold production in the September quarter and in advance of the Company's dual listing on the Australian Stock Exchange ("ASX") ("IPO"), which is anticipated pending completion of the 2008 June audit and associated documentation.

Each director's interest in the Loan Facility, through their respective associated companies, are as follows:

Barry Cahill (through Wildpark) $ 500,000

David Steinepreis and Gary Steinepreis (through Ascent Capital) $1,000,000

The key terms of the Loan Facility are as follows:

the loan facility is repayable on the earlier of 10 April 2009, the date upon which the Company is admitted to the ASX, or the date upon which the Company undertakes a separate fundraising ("Secondary Raising").

The loan facility has an interest rate of 8% per annum payable monthly in arrears.

Should the IPO or Secondary Raising occur prior to 10 April 2009, the Lenders may elect to transfer all or part of the $1,500,000 to the Company in consideration for the issue by the Company of new ordinary shares in the Company. The issue price per share shall be the same as the offer price in the IPO or Secondary Raising.

The Lenders have indicated that it is their intention to participate in the IPO or Secondary Raising.

The Loan Facility is being entered into with associated companies of three directors of the Company and, owing to the amount involvedis classified as a related party transaction under the AIM rules. The independent directors of the Company, being Vince Pendal and Michael de Villiers, having consulted with their nominated adviser, Blue Oar Securities Plc, consider the terms of the Loan Facility to be fair and reasonable insofar as its shareholders are concerned.

Cash Bonds

The Company has cashed backed bonds over its Norseman operations totalling approximately A$6m which has impacted on the Company's capital programmes. It has been the intention of the Board to obtain bond-guarantees to free this cash for operations however this has not been possible in current credit markets, although negotiations with a major international bank are ongoing.

Newsflow

The Company's Preliminary Results for the 12 months to 30 June 2008 are expected to be released by end of October and the Quarterly Report for the three months ended 30 September 2008 in November. Despite current economic conditions, the Company remains confident its dual listing on the ASX will take place by the end of the year.

Forward-Looking Statements

This regulatory news release contains certain forward looking statements, which include assumptions with respect to future plans, results and capital expenditures.  The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect.  All such forward looking statements involve substantial known and unknown risks and uncertainties, certain of which are beyond the Company's control. Please refer to the Company's Admission Document available from the Company's web site for a list of risk factors.  The Company's actual results could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits the Company will derive there from.  All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements.  Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release.

* * ENDS * *

 

For further information visit www.norsemangoldplc.com or contact:

 

David Steinepreis Norseman Gold Plc Tel: 44 7913 402 727

Guy Wilkes Ocean Equities Ltd Tel: 020 7786 4370

Olly Cairns Blue Oar Securities Plc Tel: +61 (0) 8 6430 1631

Romil Patel  Blue Oar Securities Plc Tel: 020 7448 4400 

Hugo de Salis St Brides Media & Finance Ltd Tel: 020 7236 1177

Victoria Thomas St Brides Media & Finance Ltd Tel: 020 7236 1177

Note to editors:

Norseman Gold plc is an AIM listed Australian gold production company, which acquired the Norseman Gold Project in May 2007, Australia's longest continually running gold operation. The Norseman Gold Project is located in the Eastern Goldfields of Western Australia in the highly prospective Norseman-Wiluna greenstone belt, 725km east of Perth and 186km from Kalgoorlie.

 

Gold was first found on the Norseman field in 1894 and over the last 65 years it has produced over 5.5 million ounces of gold. The mine is currently producing from two high-grade narrow-vein underground mines - the Bullen and the Harlequin. Currently, it has a total resource inventory of 1.9 million ounces of gold at an average grade of 4.1 g/t.

 

The tenements cover a 745 sq km area centred on the Norseman Township. The landholding comprises 179 contiguous tenements consisting of 13 Exploration Licences, 106 Mining Licences, 45 Prospecting Licences, 15 Miscellaneous Licences and 29 Mining Lease Applications.

 

The Company's strategy is focused on extending the mine life through the conversion of resources into reserves and identifying additional resources and obtaining additional ore for the operating mill through re-treatment of tailings or acquisitions of alternative sources of ore.

This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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