Friday, August 13, 2010

Great Basin Gold Breaks Out


Finally after a season of consolidation and the stock prices reflecting the uncertainty about the contruction progress at their South African Burnstone mine, Great Basin (GBG) broke out of the indecisive wedge pattern in anticpation of good results for the 2nd Quarter to be reported on August 11, 2010.

See the chart below for the wedge and the breakout from the wedge.

Figure 1 - GBG Chart for 2010: Note the break out from the wedge formation. Also note that the money flow subchart has been positive all this year. Big money (read institutions) are accumulating.

This breakout may mean a positive decision by the institutions that have been accumulating this stock all year. See the CMF subchart above indicating the money flows of accumulation. Management indicate that 80% of GBG stock is held by institutions.

GBG Results on August 11th

Great Basin reported great results …

Net revenue improved significantly to a quarterly record of CDN$34 million; 39,418 gold equivalent ounces(1) (Au eqv oz) were sold during the quarter (compared with 6,108 Au eqv oz in the quarter ended March 31, 2010). Revenue is net of toll milling charges.

and were upbeat about their future prospects.

President and CEO Ferdi Dippenaar commented:

The second quarter was marked as a milestone quarter in the existance of Great Basin with record revenue and cash flow from our Hollister project and construction at our Burnstone project nearing completion. Our Esmeralda mill is now ready to treat all of the ore recovered at Hollister and at Burnstone, we are about to see the commissioning of the mill and vertical shaft, which are part of the final steps in the successful delivery of this long life quality gold project.

The full news release is here “Great Basin Reports Much Improved Second Quarter”. A copy of the Management Discussion and Analysis is here. A copy of the quarterly financials is here. A copy of the presentation used during the conference call is here. For your own due diligence the author recommends listening to the August 11th , 2010 conference call. Here is the link to a replay of their webcast.

For previous articles about Great Basin by this author see the following links:

· Great Basin – A Golden Opportunity, June, 2010

· Great Basin – Jump to Mid-Tier Gold Producer , Nov, 2009

· Great Basin – Production Poised for Profit, Feb, 2010

Hollister Progress

The major portion, 30 K tons of the Hollister ore stockpile was trucked to the Midas mine and sold to Newmont (NMT) prior to June 30, 2010. Agreement was reached with Queenstake Resources ((TSX:YNG)) to mill 10 K tons with the revenue to be counted in the third quarter. A further 19K tons with 18 K gold ounces remains on the stockpile, with 15 K tons to be monetized in the third quarter and the residual as feed for the mill.

Following is a summary chart displaying mining statistics for the performance at Hollister.

Figure 2 – GBG Hollister Mining Statistics. Note the 16 K oz of Gold contained within the processes.

Note that there is 16 K ounces of gold equivalents that are contained in the milling processes.

The Esmeralda mill is now fully running and is capable of milling 350 tons per day. The recoveries are now optimized for over 90% with gold and 85% with silver. The author in projecting forward, estimates that the mill is capable of 20 K to 25 K tons per quarter and with grades around 1 ounce of gold per ton the expectation is possibly a further 40 to 45 K ounces produced by Esmeralda in the next six months.

Cash production costs from the Esmeralda mill for the quarter were $741 per ounce equivalent. Management expects the costs to decline to $600 to $650 range with increasing thoughput and optimized metals recovery.

Burnstone Progress

The delayed Eskom electrical tie to the power grid was performed on August 8, 2010. Then a serial list of electrical start ups through out the mining comlex will be completed by August end. The numbers of contractors on site now numbers 1425 people and the 388 staff will increase to 650 by the end of September 2010.

Following is a layout of the mining plan at Burnstone.

Figure 3 - GBG Burnstone Mine layout. Note the 145 K tons of ore stockpile.

Note that there is a stockpile of 145 k tons of ore to be used for commissioning the mill. The ore is mostly development low grade of about 1 gram of gold per ton. The production ore when used is in the range of 5 to 7 grams of gold per ton.

GBG expects the first gold pour to be in September 2010.

Providing the start up runs smoothly, management is expecting the production of 40 K to 50 K ounces of gold from the Burnstone mill in the next four months.

Company Outlook

Great Basin is now just on the cusp of bringing in their second and larger Burnstone gold mine into milling production. Their Hollister, Nevada mine is now competently mining (trial in name only) with their Esmeralda mill working to design.

This company is just becoming a mid-tier gold producer with a gold price that is now at $1215 as I am typing. The financial assumptions and forecasts used by Great Basin are based upon a $1000 USD gold price. There appears to be a 20% financial buffer presently, that may not be fully recognized by the market.

With the increasing production, Great Basin Gold will turn to profitability within the next half year. The breakout from the chart wedge pattern would seem to indicate this. The author anticipates serious upside for this stock as their Burnstone mine ramps up to design capacities of over 200 K ounces of gold production per year by 2012.

Disclosure: Author long GBG

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