Glencairn falls hard on Q2 results

Troubles continue for Glencairn Gold (GGG-T,GLE-X) as its shares took a pounding after releasing second quarter results showing a decrease in mining income to US$1.5 million from US$3.8 million for the same period last year.

The news sent Glencairn shares down 45% or 17 to 21 on 5.1 million shares traded.

While a net income of US$3.3 million or 1 per share for the quarter might seem respectable, the company was only able to get the number into the positive by virtue of a one-time sale of some nickel royalties it held.

In June it sold its sliding scale 1-3% net smelter royalty on Victory Nickel‘s (NI-T) Minago nickel deposit, as well as the 2% net smelter royalty on the Lynn Lake property to Independent Nickel (INI-V) for a US$6.5 million gain.

In the previous quarter, Glencairn reported a net income loss of US$1.2 million in the first quarter.

While Glencairn president and chief executive Peter Tagliamonte touted the companys forward momentum, he said the progress was overshadowed by the ground movement situation at our Bellavista Mine in Costa Rica subsequent to our second quarter.”

“We have suspended mining operations and application of cyanide at Bellavista and are expending every effort to find a permanent solution and get the company back on track. While this solution is sought, Bellavista will have a significant negative impact on the company, he said in a statement.

The suspension meant Glencairn produced 20,340 oz. during the second quarter, compared with 21,127 ounces during the second quarter of 2006, and 31,801 ounces during the first quarter of 2007.

That took an obvious toll on income from mining operation, lowering it to US$1.5 million compared to US$3.8 million for same period in 2006.

Cash operating cost per ounce sold was US$451 during the quarter, up from $320 during the same quarter of 2006 but lower than the $470 during the first quarter of 2007.

Over at the Bellavista mine, a review determined the ground movement to be, in part, caused by water saturation due to abnormally high rainfall during the past several years.

To deal with the problem the company is de-watering wells, implementing surface water controls and redistributing of the weight load.

Glencairn says there isnt a risk of sudden earth movement at this time.

But since small movements could compromise the sub-liner, liner and drain system under the leach pad, all cyanide application was suspended and rinsing of the leach pads started on July 25.

The mine could stay closed indefinitely if the company cant find a cost-efficient solution.

Over at the Libertad Mine — acquired in July 2006 profits continue to be hard to come by.

Mining operations were suspended in March so a feasibility study could be done on converting the project to a conventional mill operation from its current configuration as a heap-leach project.

The results from the study are expected in early 2008.

Glencairn bought a used mill facility for the project for US$7.6 million.

Despite the suspension of operations some production has continued from residual amounts of gold from the heap leach pad.

The second quarter saw some 2,000 oz. of gold sold at an average realized price of US$673 per ounce, producing revenues of US$1.5 million.

Still the mine ran a loss from operations of US$490,000 for the second quarter of 2007.

And the 2,000 oz. produced was far below normal rates. Worse still, that figure will continue to decline until residual leaching ceases near the end of the third quarter.

The lone bright spot for the quarter was the Limon Mine, which saw a increase in sales of US$1.4 million or 24% to $7.3 compared to US$5.9 million in 2006.

Those gains, however, were mitigated by costs of sales increasing by US$1.3 million or 36% and cash operating costs per oz. increasing by US$67 to US$463 compared to the same period in 2006.

The company says those higher cost were due to more expensive haulage, fuel and electricity charges.

But its the situation at Bellavista that hangs most ominously over the company.

The suspension of mining operations at the Bellavista mine has created an immediate and serious negative effect on the cash flow of the company and, accordingly, it has initiated an aggressive program to conserve cash, Tagliamonte said in a statement.

Towards that end all discretionary spending — including the exploration program has been stopped and the company is cutting back on staff and eliminating capital expenditures where possible.

The roughly US$5 million cash in hand it had at the end of July will not be enough, the company says, to meet its needs over the next 12 months and it is considering issuing equity or debt financing, as well as selling assets to meet those needs.