Queenstake disappoints with US$8.1-million Q3 loss

Vancouver – Reduced gold output coupled with higher commodity and labour costs pushed Queenstake Resources (QRL-T, QEE-X) to its worst quarterly performance since acquiring the Jerritt Canyon mining complex in northeastern Nevada.

The mid-tier gold producer lost US$8.1 million in its latest third quarter compared to a US$4.3 million loss in last year’s corresponding period. Gold sales of 43,781 ozs. in this year’s Q3 generated revenues of US$26.6 million for the company, however cash operating costs of US$643 an oz. greatly overshadowed the average realized sale price of US$617 per oz.

A significant drop in grade was also reported in the latest quarter, falling to about 6.2 grams gold per tonne (0.18 oz. per ton) from the recent average of about 7.2 grams gold (0.21 oz. per ton), due to increased processing of lower-grade ore sourced from Newmont Mining (NMC-T, NEM-N). About one-sixth (6,892 ozs.) of the quarter’s gold production came from Newmont’s refractory ore feed, which is trucked to Jerritt Canyon from the major’s open pit operations in the region.

Queenstake recently initiated a major cost reduction plan (TNM, October 30) to stem ongoing losses at Jerritt Canyon. It immediately deferred production from higher cost areas of the underground operations. The company also reduced underground contract development, streamlined maintenance and discontinued use of higher-cost mining equipment. Additionally, about 10% off the workforce at the mine, about 47 employees, were let go. The overall plan is expected to reap annual savings of about US$12 million in operating costs plus a further US$4 million in development contractor costs.

Another contributing factor was ongoing reduced operating capacity of the mill. Bull gear refurbishment and pinion gear replacement was undertaken in the second quarter but began to show a high degree of wear and pitting in Q3, presenting a major risk of failure. Accordingly, the mill was scaled back to run at 75% capacity until a new bull gear is installed, anticipated in early-2007.

Queenstake’s financial advisors, Blackmont Capital, continue to assist in evaluating strategic alternatives to enhance the value of the Jerritt Canyon assets. The company reports, “a high level of interest in Queenstake and a due diligence process is underway.”

Shares of the gold company closed down a nickel on high volume in TSX trading at 27 apiece. The company posts a $157-million market capitalization based on its 582.5 million shares outstanding. The stock has seen a 52-week trading range of 19-to-60.