Norseman Gold has disappointed the market with lower than expected gold production and weak cash flow.
Norseman says that it produced 19,007 ounces of gold in the three months to September 2008. It produced 21,116 ounces of gold in the previous quarter and the latest figure was lower than expected. Norseman recovered 71,000 ounces of gold in the 11 months to March 2008 at a cash cost of A$785/ounce. It is thought that the latest production cost could be in excess of A$1,000/ ounce in the quarter to September 2008.
Norseman Gold owns the Central Norseman gold mine in Western Australia. Sales in the quarter were made at between A$914/ounce and A$1,126/ounce. The price currently stands at A$1,131/ounce, which is down from a peak of A$1,365/ounce and still doesn’t leave much head room if these cost levels continue.
Norseman has had to borrow A$1.5m from directors to provide working capital for the business. There is also the additional cost of the secondary quotation on the ASX which should happen after the results for the year to June 2008 are released.
Broker Ocean Equities reckons that Norseman may have had free cash of A$1m at the end of September 2008. The company has to repay A$5m of convertible loan notes by April 2009. Norseman may have to raise cash when it joins the ASX.
Cost savings are being implemented – based on monthly production of 6,500 ounces of gold. They could save up to A$500,000 a month and A$400,000 could be raised from the sale of surplus equipment.
The cost savings will give Norseman more head room if there is a further fall in the gold price.
Figures for the year to June 2008 will be published before the end of October and first quarter figures for 2008-09 in November.
Investors are wary and the shares fell 1.75p to 3p each – although that is above their low for the day. That values Norseman at £2.42m.
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