27/02/2014 - 15:31

Silver Lake to put Murchison on ice

27/02/2014 - 15:31

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Silver Lake Resources will place its Murchison gold operations on care and maintenance later this year, saying the project is no longer sustainable at the current gold price.

Silver Lake to put Murchison on ice
Silver Lake Resources managing director Les Davis.

Silver Lake Resources will place its Murchison gold operations on care and maintenance later this year, saying the project is no longer sustainable at the current gold price.

Silver Lake said it would cease open pit mining and ore processing at the Murchison project in the June quarter, with 127 workers to lose their jobs.

The affected workers include 42 Silver Lake employees and 85 contractor workers.

In an announcement to the market after the close of trade, Silver Lake said it had come to the conclusion it could no longer afford to continue production at Murchison after undertaking a strategic review of the project.

Production and unit costs from the project had been disappointing, the company said.

It said the decision to mothball the Murchison project will allow it to focus attention on its "higher value, lower risk" Mount Monger operations.

This will include relocating power station infrastructure to the Mount Monger operations, which it says will generate reliability and cost improvements. 

However the company said it would retain the option of recommencing operations at Murchison in the event of a pick-up in the gold price.

"Continuing production at the Murchison gold operations is unsustainable at the current gold price, so we are taking decisive action by placing it on care and maintenance in the June 2014 quarter," Silver Lake managing director Les Davis said.

"The company intends to focus capital on further optimising and funding growth projects at the low cost Mount Monger operations."

The cost of redundancy payments and contract restructuring expenses is expected to come in at about $12 million.

Silver Lake will cover this cost through a $39 million share placement to professional and sophisticated investors, with the remainder of the funds going towards investment in the Mount Monger operations and general working capital.

The company will issue 65.6 million new shares at an issue price of 60 cents per share, representing a 15.3 per cent discount to the company's 10-day volume weighted average price.

The placement will be fully underwritten by UBS, who is also acting as sole bookrunner and global lead manager to the placement.

Ongoing care and maintenance costs at Murchison are estimated at about $120,000 per month.

The company's full-year production guidance remains unchanged at 205,000 ounces to 220,000oz.

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