Rea Gold writes down value of Mt. Hamilton gold mine in Nevada

Persistently poor operating results from the NES pits are forcing Rea Gold (REO-T) to write down the value of the Mt. Hamilton gold mine in Nevada.

The company will take a third-quarter writedown of $27.4 million, representing the deferred costs associated with developing and stripping the NES deposit.

As a result, the company’s loss for the nine months ended Sept. 30 is estimated at $31.8 million (or 52 cents per share).

Pre-production stripping at the Centennial deposit, south of NES, was to begin in January 1997 but will now be deferred until next summer.

Mining at Mt. Hamilton began in late 1994, based on what is now believed to be a faulty mine plan. Tonnage and grade proved lower than expected, and the stripping ratio was much higher than forecast.

The company has decided to delay stripping at Centennial pending additional core drilling and metallurgical tests.

“We’re deferring it so we can get more drilling done to get a better idea of the Centennial deposit,” says Rea spokesman Rodney Shier. “We know it’s a different animal from the NES deposit.”

Centennial’s proven and probable reserves stand at 7 million tonnes grading 1.2 grams gold per tonne. Full production is envisaged for 1998.

For the first half of the year, Rea recorded a loss of $1.9 million (4 cents per share), with cash costs of $373 per oz.

Production for the current year is projected at 30,000 oz. gold.