Great Basin Gold – strongly positioned with increasing gold production in Nevada and South Africa

Great Basin Gold (TSE:GBG, AMEX:GBG, JSE:GBG) is an emerging gold producer that is increasing gold output from the Hollister Mine, located on the Carlin Trend in Nevada, USA  and the Burnstone Mine, located in the Witwatersrand goldfield in South Africa. The total gold equivalent ounces sold from both mines increased in the June quarter by 100% to 40,141 ounces, from 20,118 ounces in the prior quarter.

Revenues for the June quarter were $56.74 million, an increase of 115% over the $26.34 million reported in the prior quarter, and resulted in an operating profit of $6.28 million. The company realized a gold price of $1,413 per ounce during the quarter, and is expected to improve further as gold continues to soar higher.

The Hollister Mine recorded $49 million in revenue in the June quarter, on the sale of 34,522 ounces of gold. This included approximately 5,000 ounces of gold held by the refiner that was produced in the prior quarter.

The Esmeralda Mill treated 22,237 tonnes of ore, an increase from 21,634 tonnes in the prior quarter, and reported gold recoveries of 95%, and silver recoveries of 75%, which was a significant improvement.  This caused a drop of 9% in production costs to $611 per gold equivalent ounce. Hollister increased production of ore by 16% to 25,297 tonnes, and increased gold production by 39% to 28,075 ounces.

Drilling focused on the bonanza grades at the Blanket Zone and targets at southeast Gwenivere, which will be included in an updated mineral resource statement that is expected to be released soon. The company also identified a significant new style of broad mineralization called “spider web” breccias.

The Blanket Zone contains bonanza gold grade zones of over 5 ounces per ton (oz/t) that are linked to mineralized vein structures and tuffaceous stratigraphic horizons within the Tertiary volcanics. A circular ramp to fully access the Blanket Zone will be completed in the fourth quarter of 2011, allowing the completion of evaluation drilling, bulk sampling, and commencement of mining. 

The Esmeralda Mill, which is currently rated at 320 tons per day, processed ore with an average head grade of 1.35 oz/t or 43.40 g/t Au, reporting a 31% increase in grade over the prior quarter. Hollister is expected to produce a total of 110,000 gold equivalent ounces in 2011, at a cash cost of US$600 - $650 per ounce. An acid wash and carbon regeneration system should be completed shortly, and will assist with gold recovery and cost reduction.

The Hollister Mine is currently restricted to an annualized production rate of 275,000 tonnes, or 750 tonnes per day by its operating permit. The company is in the final stages of completing the processing of an Environmental Impact Statement that requests an increase in processing rates, with a decision expected by April of 2012.

The Burnstone Mine is now fully permitted, with the vertical shaft, metallurgical plant, decline, ventilation shaft, and surface and underground infrastructure fully operational. Capital requirements will now mainly involve development into mineralized ore zones.

Development of mineralized ore for the first stage of underground mining at Blocks B and C were hindered by geological faulting encountered in the mining area. This issue was not revealed by closely spaced drilling around the mining area and led to a 66% increase of waste rock.

This issue has now been largely addressed with mineralized ore from stopes expected to reach 77% of total material extracted from underground workings over the remainder of the calendar year. Currently, over 25 development ends are on reef, which now provides sufficient stoping areas to reach planned production levels.

The grade extracted from development material during the June quarter averaged 0.02 oz/t or 0.64 g/t Au, and the grade extracted from stoping material was 0.08 oz/t or 2.57 g/t Au, resulting in the recovery of 4,894 ounces of gold, at a cash cost of $1,447 per ounce. As development issues fade away, cash costs and grades are expected to improve significantly. 

Gold mineralization within the currently accessible stopes include 8 g/t Au in stope B2, 3.0 g/t Au in stope B3, 18.1 g/t Au in stope C, and 13.9 g/t Au in stope at Upper C. The mineralization within these stopes runs horizontally over widths of approximately 60 centimetres or 23.6 inches, which requires the deployment of a long-hole stoping method that extracts a width of approximately 60 – 70 centimetres or 27.6 – 31.5 inches over each stope, resulting in low dilution of mineralization.

The company had earlier forecast that head grades should settle at 0.14 oz/t or 4.5 g/t Au by the end of 2012, and currently predicts cash operating costs of $524 per ounce for a grade of 0.12 oz/t or 3.86 g/t Au, which indicates that cash operating costs should decline considerably over the coming quarters. 

Management is now forecasting the recovery of 16,500 ounces in the third quarter and 33,500 ounces in the fourth quarter, for a total of 60,000 of gold equivalent ounces for calendar 2011. The first quarter of calendar 2012 is expected to produce 52,000 of gold equivalent ounces.

Great Basin Gold also has two gold hedging programs in place as part of its financing arrangements, with the first program requiring the delivery of 1,250 ounces per month over the course of calendar 2011. This will be followed by the delivery of 90,000 ounces in 24 equal monthly installments of 3,750 gold ounces starting in January of 2012.  The program includes put options priced at US$850 and call options priced at US$1,705 per gold ounce.

The second hedging program will require the delivery of 117,500 gold ounces over a period of four years, commencing in January 2012. The company will be required to deliver 875 gold ounces per month, over a 12 month period. This will be followed by 3,000 gold ounces per month, over a 24 month period. The remaining 35,000 gold ounces will be delivered in 12 equal monthly deliveries of 2,916 gold ounces, starting January 30, 2015. The program includes put options priced at US$1,050 and call options priced at US$1,930 per gold ounce.

Both hedging programs have been structured in a way that allows the company the option of paying off the debt in full or part, at anytime and without penalty.

As Great Basin Gold has operating mines in both the United States and South Africa, the value of the US$, C$ and South African Rand will impact the company’s cash flow. The company carries working capital of $38 million and has a stand-by facility of $40 million, which is more than sufficient to meet the completion of development needs at Burnstone and Hollister. Total outstanding liabilities are $326.1 million, with $57.5 million of that amount due within the next 12 months.

The previous development issues that affected gold production at the Burnstone Mine can now be viewed as a positive, as those deferred production ounces are now being sold at much higher gold prices. The Company has also appointed Dana Roets as Chief Operating Officer. Roets was instrumental in developing and applying the Long Hole Stoping method that is being successfully applied at Burnstone that will underwrite the future profitability of the mine.

According to TD Ameritrade and Yahoo Finance, the average one year analyst price target for Great Basin Gold is $4.55 – triple the current share price…

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.