Great Basin Gold’s production ramp up gathers pace

Great Basin Gold (TSE: GBG, AMEX: GBG, JSE: GBG) is a emerging mid tier gold producer that is in the early stages of  gold production from the Hollister Mine, located on the Carlin Trend in Nevada, USA  and the Burnstone Mine, located in the Witwatersrand goldfield in South Africa. Annualized production is expected to reach 364 ,000 ounces of gold in 2013 from both mines, drawing from a total resource base of 23.4 million ounces of gold, with 7.3 million ounces currently in reserve status.

The Company has just reported its March quarter results for 2011, reporting record first quarter revenues of $26.4 million, from the sale of 17,324 gold equivalent ounces from the Hollister Mine, as well as 2,794 ounces from the Burnstone Mine. These 20,188 gold equivalent ounces were sold at an average price of US$1,328 per ounce. Approximately 11,000 gold equivalent ounces worth an estimated $15 million were also delivered to refiners and will be accounted for in the next quarter.

The Company also completed a successful equity raise of $86.3 million, issuing 33.8 million shares at C$2.55, and holds $68 million in cash that will be sufficient to fund development of the Burnstone Mine, which is the first new mine to open in the Witwatersrand basin for more than 30 years. This low-cost, long life, shallow mine has a targeted average annual production rate of 254,000 gold ounces over 25 years at a life of mine cash cost of US$450 per ounce.

The Burnstone metallurgical plant and other capital projects were commissioned in January, allowing the recovery of 5,511 gold ounces and sold 2,794 ounces to record maiden revenue of $3.8 million. Cash cost was $68 per tonne of ore, which is in line with estimated production start up costs that included substantial amounts of barren development ore, with only 26% of contained ounces extracted from stoping. This dilution reduced gold recoveries to 83% on a head grade of 0.03 oz/t Au / 1.03 g/t Au, and is reflected in a cash production cost of $1,344 per ounce for the quarter.

Gold recoveries are expected to improve to 95% as head grade increases and the quantities of development ore diminish substantially, with forecasts that head grades will reach 4.5 g/t Au by the end of calendar 2011, milling of 375,000 tonnes of ore that will drive cash operating costs below $487 per ounce of gold produced.

The Project is heavily mechanized with 3,288 meters developed against a planned 3,600 meters for the quarter for a total of 12,402 meters, of which 6,855 meters are on reef. Team efficiencies are improving on a monthly basis and development rates are expected to increase from a monthly average of 1,000 meters in the first quarter of 2011 to 3,000 meters by the end of calendar 2011. Additional travel ways and material handling systems are being developed around shaft bottom to maximize hoisting of ore through the vertical shaft on the 40 to 41 levels.

The Burnstone Mine has significantly increased reserves of total proven and probable reserves by 55% from 4.1 million ounces to 6.4 million ounces of gold, based around further underground development and drilling as well as inclusion of additional reserves from Area 2. The adoption of long hole stoping to extract ore has also had a positive impact on reserves due to the reduced dilution that increased the average grade of proven and probable reserves from 4.25 g/t to 4.47 g/t Au.

The Hollister Mine produced 17,324 equivalent gold ounces along with an additional 11,000 gold equivalent ounces delivered to the refiner for processing. Gold recoveries have increased with the continued installation of an acid regeneration plant at the Esmeralda Mill, where loaded carbon is shipped to the refiner in the place of doré bars, and has created a delay in recognizing revenue from gold sales. The interim plan to continuously introduce new carbon has boosted gold recoveries to 88% and 70% for silver, and has now exceeded 90%. Gold recoveries during 2010 ran between 77% to 80%.

The Hollister Mill processed 21,634 tonnes during quarter, with an average head grade of 32.15 g/t gold ounce equivalent. Cash production costs of $670 per ounce were impacted by lower recoveries and cost of replacing carbon, but these should drop in the next quarter.  The acid regeneration system should be completed in the third quarter of 2011.

Total proven and probable reserves at Hollister increased to 832,100 ounces of gold and 5 million ounces of silver or 907,000 gold equivalent ounces, at a grade of 0.8 oz/t which is an increase of 13% from reserves of 803,000 ounces announced in 2009. This is sufficient for an annualized production rate of 110,000 ounces for 8 years, at a cash cost of US$527 per ounce. Hollister has exceptional production and exploration growth with conceptual target zones identified over an 8,000 meter long strike line, with a width of 1,000 meters, and open at depth.

Raymond James noted this transformational year, with production increasing from 88,500 gold equivalent ounces in 2010 to more than 200,000 gold equivalent ounces in 2011, placing an outperform rating with a 6 to 12 month price target of US$4.30 on Great Basin Gold. Analysts at MLV are even more bullish, placing a price target of $5.50 based on the very significant increase of 2 million ounces of gold reserves at Burnstone.

Regardless of which analyst you believe, if Great Basin Gold delivers on its production forecasts, the company will be in for a significant re-rating.