William tightens belt in Europe, South America

Mid-tier gold producer William Resources (WIM-T) is implementing an operating plan designed to trim its European output and suspend South American production.

At its flagship Bjorkdal open-pit mine in northern Sweden, the company is cutting annual mining rates in half, to 5 million tonnes. The decision is partly a reflection of positive metallurgical tests on low-grade material which has been stockpiled since the mine’s opening, a decade ago.

The material, which currently represents 30% of the 1.8 million tonnes delivered to the plant, was being screened off to upgrade the ore entering the mill. However, William says the tests show that the material’s grade is actually higher than originally estimated, and accordingly the company plans to eliminate the process in the new year following treatment of the stockpile.

This, combined with the lower mining rate, is expected to reduce the mine’s cash costs to US$206 per oz., or US$283 per oz. when waste-stripping, capital costs, refining and bank interest are considered. If achieved, the reduction would represent a significant improvement over the mine’s second-quarter performance of US$330 per oz. on production of 35,765 oz. gold. Production has been encumbered by spring flooding that prevented access to higher-grade zones.

Production at Bjorkdal is expected to top 70,000 oz. this year and 80,000 oz. in 1999.

As part of its cost-cutting efforts, William will confine exploration in Sweden to the mine concession. Also, the company’s office in Stockholm will be closed next April.

In neighboring Finland, the company’s Pahtavaara mine will continue operating till year-end. The mine was originally scheduled to close last June, but exploration success, cost reductions and improved productivity generated enough resources to produce what is expected to be an additional 15,000 oz.

Pahtavaara yielded 12,782 oz. gold in the first half of the year at a cash cost of US$296 per oz. Cash costs in the remainder of the year are anticipated to fall below US$200 per oz.

Meanwhile, a Finnish investment bank has been retained to arrange a private offering in Terra Mining Oy (the subsidiary in which all the company’s Finnish assets are held) of between US$3 million and $5 million. Proceeds will go toward exploration at the mine, with future funding expected to be arranged by way of a anticipated listing on the Finnish Stock Exchange.

With the problem-plagued Jacobina mine in Brazil continuing to yield disappointing results, William has decided to wind down that operation over the next 10 months. Although the mine has been meeting tonnage production targets throughout the year, grades are low and operating costs are high. Also, one of two semi-autogenous grinding mills has suffered structural damage.

During the wind-down phase, the mine is expected to produce 50,000 oz. gold at a cash cost of US$265 per oz. If the cost proves to be greater, the operation will be suspended sooner.

William recently raised US$7.7 million in proceeds by liquidating the remainder of its 1998 and its entire 1999 gold hedging position. The company had 159,929 oz. sold forward in 1998 at an average price of US$373 per oz. and 152,370 oz. in 1999 at US$349 per oz.

Future production will be sold at the prevailing spot price. More than two-thirds of the proceeds will go toward reducing the company’s secured bank debt of US$47 million, with the remainder slated for general and administrative purposes. William also has various short-term financial obligations, including semi-annual interest payments, starting next May, on $97.7 million in convertible debentures issued in late 1996.