Queenstake shares plunge on Jerritt Canyon termination

Shares in Queenstake Resources (QRL-T) plummeted 17 or nearly 45% in early trade in Toronto on April 8 after the company said it was unable to settle on a new deal to acquire the Jerritt Canyon gold mine in northern Nevada from Meridian Gold (MNG-T) and AngloGold (AU-N).

In late March, the three agreed to postpone the closing of an earlier deal by a week until April 7. That deal would have seen Queenstake fork over US$14 million for the 4,000-tonne-per-day underground mining operation and mill. Also under the deal, Queenstake would have assumed the operation’s closure and reclamation liabilities, including a new US$32 million bond.

Meridian and AngloGold would have retained a sliding-scale production royalty topping out at 4% based on the price of gold.

In a press release, Queenstake president Chris Davie cited the effect of current geopolitical uncertainties on the equity and gold markets for his company’s decision.

While the death of the deal is a blow to Queenstake’s quest for mid-tier producer status, the company vows to continue shopping around for other assets.

AnlgoGold operates the mine and has a 70% stake; Meridian holds the remaining 30%. The operation is expected to churn out 300,000 oz. of gold at US$270 per oz. in 2003.

At the end of 2002, the mine’s proven and probable reserves stood at 2.2 million tonnes grading 8.09 grams gold per tonne, equivalent to 581,000 contained ounces, enough to keep the operation running for less than 2 years. Queenstake’s plan was to extend the mine’s life until late 2007 by converting some of the additional 2.3 million oz. of resources into reserves.

Production during the extension period was pegged at 225,000 oz. per year at a cash operating costs around US$250 per oz. The capital cost to convert the resources was estimated at about US$20-US$25 per oz.

Queenstake shares ended the April 8 trading session 14 poorer at 24 on a volume of 1.2 million shares. For their part, Meridian shares gained 7 to make $1370. In New York Phelps Dodge shares were off US13 at US$32.92