Shares in junior miner Excelsior Gold were pummelled today after the company's new board revealed the full extent of operational issues at its flagship Kalgoorlie North mine.
Shares in junior miner Excelsior Gold were pummelled today after the company's new board revealed the full extent of operational issues at its flagship Kalgoorlie North mine.
Fremantle-based Excelsior told the market this morning that corrupted resource definition modelling data had resulted in a “markedly different” distribution of gold mineralisation at its Zoroastrian pit to what original geological interpretations had implied.
“Since open-pit mining commenced in November, there has been increasing evidence that mine production has been below the production estimates from the open-pit diluted resource models on which the pit designs were based,” the company said.
“The resultant significant shortfall in actual ounces mined and recovered has placed significant pressure on the company’s cash position and its share price.”
Excelsior said the magnitude of the issues at the Zoroastrian pit came to light in June when mining had generated about 105,453 tonnes of ore containing 4,745 ounces of gold, compared with a predicted 198,600t of ore for 9,490oz of contained gold.
The news today sent Excelsior shares tumbling this morning. At midday, they were 31.8 per cent lower to 3 cents each.
In July Excelsior brought in Cube Consulting to reinterpret the Zoroastrian geological and open-pit resource model.
That study has reduced the estimate resource grade by 21 per cent, and the contained ounces by 24 per cent at Zoroastrian.
“The reality of the gold distribution in the central pit has adversely impacted upon a number of areas, including the company’s ore tonnage forecasts to the Paddington toll treatment facility, gold production and cash flow, fundraising initiatives and general confidence in the company’s operations,” it said.
“The tighter pit design and resultant smaller volumes has enabled some mining equipment to be demobilised with a reduction in mining costs now forecast from October onwards.”
Excelsior said the new ore reserve represented a reduction of almost 50 per cent in mined ounces, driven mostly by lower resource grades.
“Clearly, the downgrade is material, however it will take several months of actual mining and milling before the company can advise how well the new geological and ore reserve models are reconciling with actual mine and mill production,” the company said.
“Utilising the new design, the Zoroastrian pit will be completed by June 2017.
“In light of outcomes from the Zoroastrian resource and reserve remodelling, it is logical to review the resource and reserve estimations for all of the other prospects within the company’s leases.”
Adding fuel to the fire, Excelsior also said it had experienced a small-to-medium sized pit wall failure at Zoroastrian last month, which affected the pit ramp and needed a week to remedy.
The company said it wasn’t prepared for the outcomes and had to pursue various sources of funding “largely from a position of weakness”.
Excelsior has a $4.5 million loan facility with Macquarie Bank, which includes a forward sales hedging contract.
It is currently in discussions with Macquarie to reschedule its contracted forward sales obligations.
It also has a $2.25 million convertible loan facility with local resources company GWR Group, which was announced in July.
“The company’s cash reserves are considered to be less than ideal,” Excelsior continued.
“Dialogue between Excelsior’s management and Macquarie will be ongoing as the new Zoroastrian mine plan is implemented and production outcomes are measured against the mine plan forecast.
“At present and for the foreseeable future, the most critical priority for the current board is to stabilise production and start to build positive cashflows to create a prosperous future for the company.”
Excelsior restructured its board last month with the appointment of David Hatch as interim chairman, Rowan Johnston as acting managing director, and Jonathan West as non-executive director.
They replaced Peter Bird, David Hamlyn and Nicholas Ong.
