Even though gold is trading at its headiest highs in history, mine startups are still proving mortal.
Cases in point:
•on September 25, Great Basin Gold (TSX: GBG) was delisted by the stock exchange as it seeks creditor protection for its South African mine;
•on September 28, Yukon Nevada Gold (TSX: YNG) held a special meeting to consolidate its bloated one-billion share float and adopt a new name to, in part, distance itself from its troubled past as it aims for consistent positive cash flow; and
•earlier in September, Lake Shore Gold (TSX: LSG) closed a $90 million equity financing to complement credit facilities and loans as it struggles to fund the expansion of its Timmins, Ontario mine.
One key theme for these struggling companies is they're advancing capital-intensive underground operations rather than less-pricey open-pit mines, said Andrew Breichmanas, vice-president of equity research, mining, for BMO Capital Markets.
"When you're doing development underground at a relatively large scale it amplifies a lot of the startup issues that other companies are dealing with."
Great Basin, which has an administration and investor relations office in Vancouver, had its stock suspended from trading and later delisted by the TSX for failing to meet listing requirements.
The falling stock, which traded steadily north of $2 for most of the first half of last year, was left frozen at $0.08.
Lower than anticipated gold grades resulting in fewer mined ounces and ongoing development costs at both its early stage Burnstone mine in South Africa and "trial" Hollister mine in Nevada forced the company into a liquidity crisis. The company's South African subsidiary filed for creditor protection in mid-September, which gave it breathing time to secure a $35 million loan from existing bank lenders.
Great Basin declined requests for interview.
However, Breichmanas has covered the company's downfall. He said it was initially mining lesser-grade material before getting to the main higher-grade and more profitable areas of the underground operation.
With gold prices hovering well over $1,700 per ounce, Great Basin reported underwater cash costs of $2,325 per ounce for the last quarter. It expected the mine to produce up to 100,000 ounces of gold in 2012 at a cost of no more than $1,000 per ounce. It aimed to have the mine cash-flow positive by year-end. Unfortunately, the company's balance sheet couldn't cushion any startup hiccups.
Operational challenges have also plagued Yukon Nevada's Jerritt Canyon mine in Nevada. Over the last four years, the company's story has included more challenges than the Book of Job, including:
•closing its uneconomic 400-person operation and later re-opening with a leaner, 100-person operation;
•firing its mill contractor;
•enduring a variety of legal suits;
•overcoming environmental troubles with mercury emissions; and
•making substantial capital expenditures for refurbishment of old mill equipment.
Following the initial 2008 closing of Jerritt Canyon, Yukon Nevada's stock fell from near $2 territory to pennies. The company then printed tens of millions of shares through a string of equity financings at $0.05 to $0.10 to survive.
Yukon Nevada, which also has a 10-person office in Vancouver and exploration property in the Yukon, is now looking to consolidate its shares 10-for-1 so that it can list on the NYSE MKT and meet the exchange's $2 per share floor minimum.
The company's consolidated float of 99.6 million shares will also carry the new name of Veris Gold Corp. after shareholders approved the name change on October 2.
The name change comes at a time when Yukon Nevada expects to decrease operating costs from $1,445 per ounce in 2011 to $750 in 2012.
Breichmanas pointed out that many companies have engineered successful startups to date, including New Gold Inc.'s (TSX: NGD) Kamloops-area New Afton mine. But he added that high gold prices are spurring some projects to run before they can walk.
