River slows to a trickle (September 21, 2005)

River Gold Mines (RIV-T) plans to scale back its operations and workforce, and halve production to 36,000 oz. per year in 2006 owing to soaring costs and unfavourable exchange rates.

River Gold says the "defensive strategy" will remain in place until economic conditions improve. The company originally warned of the possible measures in its second-quarter financial results, which were released in mid-August.

At the time, River suggested that some solace could be taken in that the dramatic surge in costs facing the gold mining industry would eventually reduce global supply and create upward pressure on the price.

The scaling down of operations also calls for reserves and resources to be re-estimated based on higher cutoff grades, with new mining and development plans to follow.

The scheme is expected to extend the life of the Eagle River mine, 50 km west of Wawa, Ont., and buy time for development, capital projects and exploration drilling. River expects a marginal level of profitability during the campaign.

In 2004, the mine produced 66,000 oz. of gold from 246,000 tonnes of ore averaging 8.3 grams gold per tonne. Production for 2005 was forecast at up to 65,000 oz. It produced 27,400 oz. at a cash cost of US$460 per oz. during the first half of the year. The company realized US$427 for each ounce sold.

On the financial front, the company’s second-half loss more than tripled from the year-earlier period to $5.4 million (or 13 per share), while revenue increased by about $4 million to $16.2 million. Meanwhile, cash consumed by operations more than quadrupled to $1.8 million.

At the end of 2004, River Gold’s reserves and resources stood at 1.4 million tonnes running 9.1 grams gold per tonne, down from 1.5 million tonnes at 9.5 grams at the end of 2003. The Eagle River deposit remains open at depth.

”We take this defensive step reluctantly to deal with current challenging economic conditions,” said River president Murray Pollitt in a prepared statement.

”We continue to believe the Canadian dollar gold price will improve vis-a-vis the operating cost environment and these measures will put us in position to benefit as this happens. But with the prospect of very high and uncertain fuel and electricity prices, the Bank of Canada still pursuing a strong dollar policy and no apparent let-up in western governments’ sales of the gold price, it’s time to hunker down.”

The company figures the exchange rate for the Canadian dollar has cost it around $15 million over the past three years.

Shares in River Gold were off 18, or nearly 14%, at $1.12 in late afternoon trading in Toronto on Sept. 20. The shares are off 38, or more than 25% since the plan was unveiled after the markets closed on Sept. 20.