Mesquite gold mine back in the saddle

Western Goldfields (WGI-T, WGW-X) has just marked one year of production at the past-producing Mesquite gold mine, in California, with production for the year totalling 110,410 oz. gold, slightly lower than guidance issued in November at 117,000 oz. gold.

During last year’s final quarter, the open-pit, heap-leach operation churned out 30,465 oz. gold. The company received an average of US$799 per oz. sold during the quarter, compared with an average of US$855 per oz. for the year.

The cost of sales per oz. of gold was US$515 for the quarter and US$508 for the full year. But with production expected to reach 175,000 oz. in 2010, the Toronto-based company says the cost of sales per oz. should decline to about US$400.

The company closed out 2008 with US$18.8 million in the kitty. During the year, it paid down US$17.7 million in outstanding debt, leaving US$68.6 million remaining on its credit facility. As its capital spending program is behind it, Western Goldfields expects to incur only about US$1.5 million on capital expenditures in 2009, and US$500,000 per year subsequently.

As for quarterly operating costs, the company expects them to remain steady at US$16.5 to US$18.5 million this year.

Complete fourth-quarter and year-end financial results will be released on Mar. 6.

In the meantime, the company has provided guidance for 2009. Western Goldfields expects a dip in production for the first three quarters of the year due to higher anticipated stripping ratios and lower grades.

The company forecasts total production at 140,000-150,000 oz. gold, but anticipates that roughly half of those ounces will be recovered in the final quarter. The cost of sales is expected to ring in at around US$530-540.

Mesquite, which is situated about 80 km from the Mexican border, holds proven and probable reserves of 150 million short tons at an average grade of 0.017 oz. per ton (0.54 gram gold per tonne) for 2.8 million oz. gold. It has a mine life of 11.5 years.

Western Goldfields’ only property and a past-producer, Mesquite restarted production in January 2008 after seven years of dormancy.

The company bought the mine from Newmont Mining (NMC-T, NEM-N) in 2003. Mesquite had operated from 1985-2001, when it was closed because of depressed gold prices.

Western Goldfields shares recently traded at $2.30 in Toronto in a 52-week range of 50¢-$3.97. The company has 134.8 million shares outstanding.