16/07/2008 - 22:00

Gold companies losing their shine

16/07/2008 - 22:00

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West Perth-based Monarch Gold Mining Company Ltd is the latest in a series of casualties in the gold sector as the historically lucrative industry continues its fall from grace.

West Perth-based Monarch Gold Mining Company Ltd is the latest in a series of casualties in the gold sector as the historically lucrative industry continues its fall from grace.

In a July 10 statement, Monarch told investors it had appointed Pitcher Partners as voluntary administrators.

The company follows Perth-based View Resources, which slid into receivership in February and was subsequently de-listed from the Australian Securities Exchange.

Just days before its announcement, Monarch managing director Michael Kiernan said the company was clear to move ahead with a $25 million capital raising program for its Mount Ida and Mount Magnet gold projects.

Mr Kiernan's family was to hand over $15 million through an interest free loan and $10 million was to be underwritten by the Kiernan family at no cost.

"Recent times have proved to be difficult for Monarch, and on behalf of the board I'd like to express our thanks and gratitude for the people who have supported our company," Mr Kiernan said at the time.

Seventy-two hours later, Monarch became the latest victim of an industry becoming increasingly snubbed by investors.

Skyrocketing operational costs and dwindling gold prospects in Australia have created an uneasy market, despite the price of gold fast-approaching $US1,000 an ounce.

Many companies are struggling to find investors to fund gold projects which, in recent times, particularly in Australia, have been plagued by a lack of due diligence and ore grades falling well short of projected models.

Poor reconciliation of ore grades to modelled projections led to the demise of View Resources, with similar scenarios from Sydney-based BMA Gold in January 2007 and Subiaco-based Gleneagle Gold in April 2007.

Crescent Gold, also headquartered in Subiaco, recently suspended operations at its Laverton project and sacked a number of workers following a series of operational problems at the mine.

Victoria's Bendigo Mining last year reduced its workforce from 250 to 80 "because of lower than expected yields".

St Barbara Mines this month joined the expanding list of gold companies to be snubbed by investors, with Macquarie Capital left to pick up an 89 per cent shortfall in a $120 million equity raising.

Beadell Resources abandoned plans to buy Newcrest Mining's Cracow gold project in Queensland after a $235 million equity raising to fund the purchase was unsuccessful.

With Australia's goldmine production at its lowest in almost 20 years and WA's gold production reaching a five-year low, some companies are heading overseas where gold is a relatively untapped resource and production costs are much lower.

There has not been a major gold discovery in Australia since 2005 when the Tropicana deposit was found west of Laverton.

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