Last week, the World Gold Council reported that the bottom 10% of gold mines around the world were in trouble with negative cash flows because of the falling gold price and rising costs.
Yesterday, Gascoyne Resources confirmed it was one of those when it pulled the plug for the time being on its WA gold mining business centred on the Dalgaranga mine in the Murchison.
The company first suspended trading in its shares on Monday ahead of a promised announcement which yesterday came with the news that the mine was halting production because of rising costs and that the company could not afford to transition to higher grades in a number of highly promising finds nearby.
That will need more funds in a capital raising or issue to come, according to yesterday’s statement.
When trading was suspended on Monday the shares were at 19.5 cents which valued it at just over $83 million.
“As outlined in the Company’s September 2022 Quarterly Report gold production at Dalgaranga has been negatively impacted in recent months by abnormally high rainfall, labour shortages and COVID-19 impacts,” the company told the ASX in a statement early yesterday afternoon..
“These factors have continued through October and into November, leading to reduced production levels, higher production costs and negative cash-flow from operations, which the Board has determined is not sustainable.
“Furthermore, it is clear that despite the significant potential of the Company’s assets such as Yalgoo, Gilbey’s North and Never Never, the transition to mining this higher-grade ore is not affordable and cannot be optimised at the current time given Gascoyne’s liquidity position,” the company said.
In response to this rapidly changing situation, the Gascoyne said its board had started a review of the Company’s operating strategy and will implement the following steps with immediate effect:
Open pit mining and ore processing operations at Dalgaranga will be suspended immediately and the 2.5 million tonnes a year Dalgaranga mill will be placed on a care and maintenance basis over the next 2-3 weeks and maintained in a state ready for a rapid resumption of production, the company said yesterday.
The majority of the workforce currently at Dalgaranga “will be demobilised over the next 1-2 days” and employees not required during the period of care and maintenance will be offered redundancy packages.
“Discussions have commenced with the Company’s contractors and creditors to allow the Company to restructure its financial position to enable Dalgaranga to remain on care and maintenance in the medium term.
“During this period, the Company’s management team will work with its advisors and key stakeholders to develop a new strategic operating plan and implement a financial restructure.
“A key part of this will be to pivot to an exploration/resource growth focus in the short term while preserving the value of the existing assets and securing additional strategic funding to:
“Complete the drill-out of the near-surface high-grade Never Never and Gilbey’s North discoveries (located at the northern edge of the main Gilbey’s open pit) to bring them to reserve status; establish an underground portal and exploration decline from Gilbey’s Pit northward toward Never Never to facilitate continued reserve drilling of this very high-grade discovery as well as other identified near-mine targets; evaluate and progress other near-mine surface opportunities, including the Gilbey’s Eastern footwall area and 40koz Archie Rose gold deposit toward reserve status, progress the approval of the Mining Lease and complete the Feasibility Study on the satellite 244koz Melville Gold Project at Yalgoo.”
Gascoyne said in Tuesday’s statement that “preparation of the new strategic operating plan (including a new mine plan) and implementing a financial restructure is expected to take several months to complete.”
Gascoyne said it is committed to maintaining the processing infrastructure at Dalgaranga in good working order and at a high state of readiness to facilitate the rapid resumption of production, pending the outcomes of the financial review, mining studies and exploration success.
