Queenstake rationalizes Jerritt Canyon operations

Vancouver – Following a long string of quarterly losses, Queenstake Resources (QRL-T, QEE-X) has delivered a new development plan for its Jerritt Canyon gold mine complex in northeastern Nevada.

The redevelopment plan, implemented in mid-August, would see the company becoming cash flow positive in early-2006, after capital expenditures, exploration and corporate expenses. Queenstake’s projections assume at least a US$425 per oz. gold price.

This year’s total gold output from Jerritt Canyon is expected in the 200,000 oz. to 220,000 oz. range with cash operating costs of about US$385 per oz. Third quarter cash costs are expected to swell to about US$400 per oz., but are then anticipated to fall to the US$375 per oz. level in the final quarter as operational improvements begin to bear fruit.

Operations in the first half of 2005 were negatively affected by labour shortages and flooding-rock stability issues, both contributing to decreased ore mining rates. As such, Queenstake decided that instead of having the tail wag the dog, by trying to match underground mining rates to a mill designed to be fed by multiple open pits, it would reduce its processing facility to match a realistic mining rate. Citing continued inability to deliver enough ore to feed the 3,800-tonne-per-day twin roaster mill, it has scaled back to a single roaster, now cycling their usage.

To further bring cost in line, the company has also deferred a large portion of its district exploration effort, to instead focus on underground development and shorter term reserve replacement.

Production for 2006 is expected in the same range as 2005, about 210,000 oz. gold, but cash operating cost are anticipated to fall in line at about US$340 per oz., largely due to more selective mining of higher grade ore blocks.

Overall reductions in energy consumption, surface labour, supplies and maintenance, plus closure of the higher cost Murray mine in the second quarter of 2006, are all expected to net Queenstake annual saving of US$10-12 million from 2006 onwards.

Deployment of the plan seems to be meeting with some success with average ore grades increasing from 6 grams gold per tonne in July to the 8.8 grams gold level in September, the average grade anticipated for 2006.

The highly-leveraged gold producer appears to have bounced off a recent low of 19 per share, now trading in the 23 range on the TSX board.