Great Basin likes Burnstone’s future

Struggling miner Great Basin Gold (GBG-T, GBG-N) got a much-needed share-price boost after releasing production and exploration updates on its two operating gold mines.

At the Burnstone mine in South Africa, where unmineralized faults have delayed production ramp-up, the company expects it could produce up to 100,000 oz. gold at US$1,000 per oz. gold this year. 

At its Hollister mine in Nevada, Great Basin expects to produce the same amount of gold as at Burnstone, but at US$750 per oz. gold.

The numbers show a much brighter future than what the company experienced last year at Burnstone, where Great Basin spent US$1,780 per oz. on 23,400 oz. gold extracted from the mine. 

At Hollister the outlook is more in-line with 2011’s 96,000-oz.-gold production, though cash costs are expected to go up from the US$674-per-oz. seen last year.  

On the day Great Basin released its production outlook its share price climbed 9¢, or 11%, to 89¢ on 1.5 million shares traded. The slight rebound came after the company hit a 52-week low of 78¢ the day before as it fell along with much of the market. With 475.7 million shares out, the company’s market capitalization stands at $423.4 million, despite having 26.3 million equivalent oz. gold in situ. That works out to a valuation of US$16 per in-situ oz., which is low for a producing company.

The company has been hit hard by setbacks at its Burnstone mine, which has been producing since early 2011. First was the unpleasant discovery of an 80-metre graben fault that threw off its mine plan and required extra development work to access mining blocks. The company is conducting a 3-D seismic survey on the graben but it’s expected to take 18 months, so the company is also looking at faster alternatives. Burnstone was hit with flooding later in the year, which delayed production ramp-up. Add in the general challenges of operating in South Africa — such as sharply rising power costs and the threat of nationalization — and it’s not hard to see how the company’s share price has declined from a $2.72 high a year ago to its current lows.

But the company maintains that the situation is turning around at Burnstone, evident by its 2012 production outlook and a cash-flow-positive goal by September. Longer-term, Great Basin is working to achieve 250,000 oz. per year at the mine. Combined with Hollister, this could see the miner producing 350,000 equivalent oz. gold per year.

The company reports that water issues have been resolved, with reef development ends up from 32 in December to 38 by the end of February. Twelve available flooded ends are expected before April. Reef-development rates are  planned at 40 metres per end each month, and stoping has reached 12,400 sq. metres, with 6,000 more square metres partially developed.

Exploration has been limited at both operations as the company works to ramp up production at Burnstone, but Great Basin has maintained delineation drilling at both properties. At Hollister underground drilling in the last six months of 2011 returned an average 14.17-gram-gold grade over 1 metre in 327 intersections. Infill surface drilling at Burnstone returned a mean grade of 6.45 grams gold and a 1-metre channel width, while 18,000 underground channel samples returned a weighted average of 6.91 grams gold over a 1-metre channel reef width. The Burnstone feasibility study was based on an average 1-metre reef width.

Reserves at Burnstone stand at 44.2 million tonnes grading 4.47 grams gold per tonne for 6.36 million oz. gold. As of an October 2011 update, the mine hosts measured and indicated resources of 66.9 million tonnes grading 5.87 grams gold per tonne for 12.6 million contained oz. gold. Inferred resources add 72.8 million tonnes averaging 4.3 grams gold for a further 10.1 million oz. gold, with all estimates based on a gram-per-tonne cut-off over 3 metres. The company reports that the faulting has had limited impact on the resource figures.

Great Basin was scheduled to put out an updated Hollister resource as well, but discrepancies on the silver assays delayed the resource. The company expects to have the resource out my mid-year.