Gammon shares fall on Q3 results

Gammon Gold Resources (GAM-T, GRS-X) was right when it predicted that financial problems stemming from its Mexican operations would persist into the third quarter, but management is now predicting visible results for the future.

Gammon posted a net loss of US$44.8 million, or US8 per share, compared to a loss of US$25.5 million, or US23 per share, during the second quarter.

A US$21.6-million non-cash income tax expense was included in the results due to the new single rate income tax law in Mexico, announced in September.

At its Ocampo and El Cubo gold operations in Chihuahua state, production was about 26,000 oz. gold and 1.12 million oz. silver, or 47,000 gold equivalent oz., which is a drop from the 59,000 gold equivalent oz. sold during the second quarter. Gammon is aiming to eventually produce 400,000 oz. gold equivalent oz. per year, according to the original feasibility study projection.

Cash costs per oz. were US$601 for the third quarter, but increased to US$764 per oz. after an US$800,000-cash expense was included to reflect the Ocampo operations performance, which was less than 70%, and a $6.5 million cash write down of leach pad and mill inventory to lower the cost and net realizable value. A severance charge of US$22 per oz. was also added to cash costs due to an employee severance charge in reducing 30%, or 600 positions, of the Ocampo workforce.

Gammon expects the reduction of the workforce will save the company US$6 million annually. The positons were deemed redundant and are not expected to reduce workplace safety.

Crushing and heap leach productivity decreased to 53% from 65% in the third quarter.

Gammon blamed the decrease on the delayed delivery of a new conveyor belt and plugged chutes and screens as a result of especially heavy rains in July and August, which combined resulted in 17 days worth of down time.

A production rate of 67,900 tonnes of ore per day for the quarter was lower than the feasibility target of 80,000 tonnes per day but Octobers daily average increased to 89,600 tonnes per day.

In a conference call today, Gammon chief executive Rene Marion said he expects production to increase 10% to 15% over the next few quarters, as it tries to bring costs down and increase production.

Gammon shares fell 11%, or 94, to $7.33 per share on a trading volume of 3.5 million shares.