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Norseman Gold expects a steady increase in production in second half

Australia operating Norseman Gold (AIM, ASX: NGL) said it expects to increase production steadily in the second half of the financial year and reported that during the second quarter to 31 December 2009, production totalled 15,721 ounces at a cost of A$933 (approx US$840) per ounce, generating a profit of A$1.2 million in Q2.

Of the total, 7,442 ounces were extracted from the Bullen mine and 8,251 ounces from the Harlequin mine.

Norseman also began the development of its OK Decline mine during the period, with the first development ore delivered to the surface stockpile and treated this month. 

The company said that production continued in lower grade areas, with the focus remaining on capital development to open up areas for future stoping.  The un-hedged gold mining operation achieved prices between A$1,136 and A$1,308 per ounce during the quarter, with an average price of A$1,203 per ounce.

Norseman expects the production profile to improve steadily for the next two quarters until Bullen and Harlequin are at the planned levels by June 2010, the end of the current financial year. At which point the company expects production will proceed in a steady state.

At the OK Decline, the delivery of the first development gold from its third mine under the ‘fill the mill’ programme, demonstrates the company's ability to find and develop gold assets within the project area, Norseman said.

The development ore was mined from the Star of Erin orebody. The initial schedule forecasts 5,000 ounces being mined in the current 2009/10 financial year and 30,000 ounces being mined in the 2010/11 financial year. Norseman expects that the OK Decline will be ramped up and operating in steady state by June 2010. Furthermore the company believes that the three mines feeding into the Phoenix treatment plant will offset some of the Norseman project’s production fluctuations.

As a result of the lower-grade production profile during the quarter, net direct cash operating costs increased to A$933 per ounce, which was above previous forecasts of between A$720 to A$780. However the company expects  full year costs for the Bullen, OK and Harlequin Declines to reduce to between A$800 and A$850 per ounce as the production profile returns to required levels.

Forecasts for the 2010/11 financial year remain unchanged at 105,000 to 110,000 ounces recovered at cash costs of between A$670 and A$730 per ounce of gold. Norseman said that total operating costs were close to budgeted levels.

Norseman Gold invested A$11.5 million during the quarter, a major part of the capital expenditure was on equipment and infrastructure for the OK Decline mine development. Significant capital expenditures were made on mobile equipment (A$6.8 million), exploration (A$2.0 million) and capitalised mine development (A$2.7million). The company completed the camp expansion during the quarter.  Forty new self contained rooms were placed on-site in the main accommodation camp, which were occupied by the end of the quarter.

At the end of the period, cash balances totalled A$24.9 million, with approximately A$5.5 million of this balance committed to environmental bonds. Additionally the company paid its first income tax payment of A$2.9 million during the quarter.

The company continues to make progress on its exploration programme. De-watering at the North Royal Open Pit has commenced, 21% of the water was pumped out by the end of the quarter.  Elsewhere the first stage drilling programme was completed at the southern end of the open pit. A preliminary resource estimate for the Perch Reef deposit at the Harlequin Decline, returned an inferred resource of 48,000 tonnes at 41.0 g/t gold for 63,000 ounces.  Norseman Gold expects a further improvement in the confidence level, once further drilling and development is undertaken.



Disclosure: The author holds no positions in the company