Gold miner St Barbara has confirmed it will stop open pit mining work at its Southern Cross mine in Western Australia by the end of the month as it looks at options to fund the redemption of $77 million of convertible notes.
Gold miner St Barbara has confirmed it will stop open pit mining work at its Southern Cross mine in Western Australia by the end of the month as it looks at options to fund the redemption of $77 million of convertible notes.
The company today outlined its three-year plan that features lower cost, higher margin operations from 2011 onwards, driven by strengthened operational capacity and strong cash flows.
As part of those plans, St Barbara said it will cease all open pit mining operations at the small, low-grade gold deposits at Southern Cross.
As a result, the treatment plant at the operation will be operated on the same timetable as the Leonora treatment plan, which is on a week-on, week-off basis.
Southern Cross also includes the underground Marvel Loch mine.
Over the six months to the end of June, Southern Cross produced 79,099 ounces of gold, just below the targeted range of between 80,000 and 82,000 ounces.
Cash operating costs were in line within the targeted range at $A947 an ounce.
Meanwhile, St Barbara's Leonora operations, including the Gwalia mine, performed above expectations however cash operating costs were slightly higher at $A730 an ounce.
St Barbara company secretary Ross Kennedy told WA Business News that around 700 employees and contractors worked at both the Southern Cross and Leonora operations.
He said a relatively small portion of employees will be affected by the decision to stop open pit mining at Southern Cross however the employees will be redeployed where possible at the expense of contractors.
Mr Kennedy said that overall, the total staff, including contractors, at both Southern Cross and Leonora will be reduced by 10 per cent.
In a statement, St Barbara said the three-year plan will be underpinned by the Gwalia and Marvel Loch underground mines
The miner's priority is to drive the Gwalia decline towards the richer and wider part of the ore body with production slated to start later in 2010.
St Barbara said it had enough funds to meet the additional planned investment in Gwalia, and other operations, for fiscal 2010, however its current cash position does not cover the full redemption of $77.1 million of convertible notes on June 4 next year.
Earlier this year, St Barbara raised $75 million to partially buy back $22.5 million from convertible notes, less than the targeted amount due to a strengthening note price.
The company said it is investigating a range of options to cover the potential shortfall from the redemption of the convertible notes, including a full or partial restructure of the notes, refinancing a bank facility or the divestment of non-core assets.
St Barbara managing director Tim Lehany's letter to shareholders is below:
June 2009 Half Production Achieves Forecast
Gold production for the June 2009 Half year of 134,321 ounces was within guidance of 130,000 - 135,000 ounces.
Leonora Operations outperformed expectations, reflecting improved operating performance and access to higher grade ore.
Strategic Direction
Stronger emphasis on lower cost, higher margin gold production replaces previous pursuit of higher levels of production based on full utilisation of treatment plant capacity.
Gwalia Mine is a long term, high grade mine, open at depth, and remains the cornerstone of St Barbara's future. Significant development expenditure is planned for fiscal year 2010 to develop the richer and wider part of the ore body as soon as practicable. This is forecast to underpin optimal sustainable cash flows in fiscal years 2011, 2012 and beyond.
Open pit mining operations at Southern Cross to cease at the end of July 2009.
Proposed projects to be rigorously assessed against more stringent criteria for risk and financial return, before proceeding.
Strategic target set of achieving an annual production rate of 500,000 ounces per annum from three operations by 2014.
Company growth during the Three Year Plan is forecast to be driven by strengthened operational capacity and strong cash flows from lower cost, higher margin operations from fiscal year 2011 onwards.
Finance
Fiscal year 2010 operating cash flows are impacted by the planned investment in Gwalia mine development and lower than previously anticipated gold production.
The Company's forecast cash flow is sufficient to meet its forecast operating and capital expenditure requirements for fiscal year 2010. However, the forecast cash position does not support the potential full redemption of the Convertible Notes (A$77.1 million) on 4 June 2010.
The Company is pursuing a range of options to fund the potential redemption of the Convertible Notes in June 2010.
The Three Year Plan is forecast to be self funding from fiscal year 2011 onwards.
