TSX: GAM / AMEX: GRS / BSX: GL7
HALIFAX, Feb. 19 /PRNewswire/ -- Highlights - During January the Company announced the appointment of Scott Perry as
Chief Financial Officer and Russell Tremayne as Chief Operating
Officer. Both Mr. Perry and Mr. Tremayne had previously worked with
Gammon's Chief Executive Officer, Rene Marion at Highland Gold where
Mr. Marion and Mr. Perry were seconded from Barrick Gold. Their proven
success as a team in turning around Highland's operations, as well as
the recapitalization of Highland, will benefit Gammon tremendously. Gammon now has in place a proven senior management team that possesses
the requisite mining experience needed to successfully execute the
Company's growth strategy. - Ongoing operating improvement initiatives resulted in a significant
positive operating cash flow contribution of $1.9 million which was
further reflected in a 14.3% reduction in January consolidated total
cash costs from Q4 and a 33.9% reduction over Q3. Ocampo posted a 7.4%
total cash costs per ounce reduction in January from Q4 and a 39.5%
reduction over Q3 Cash Costs. - The Company (inclusive of Gammon Gold's El Cubo mine) remains on target
to produce at the low end of the target range of 56,000 to 62,000 gold
equivalent ounces during Q1 at a total cash cost that is consistent
with estimated cash costs for Q4 2007. - The Company strengthened its liquidity position when the Company's
lenders, subject to the Company providing a satisfactory mine plan and
updated reserve statements by March 31, 2008, agreed to remove all
restrictions that limit access to the final $12.5 million portion of
this facility such that the Company will now have access to the full
$60 million facility. The ongoing operational improvements combined
with the strong market prices for gold and silver are expected to
underpin the Company's turnaround phase into the later part of 2008, at
which point the Company's business model is anticipated to generate
positive net cash flow. Gammon views the lender's willingness to lift
these facility access restrictions as a vote of confidence in the
group's assets and the strengthened management team.
Consolidated Production & Cost Overview
--------------------------------------- The Company, including both Ocampo and El Cubo, achieved production in January as planned, similar to December. In January, the Company produced a total of 9,246 ounces of gold and 400,075 ounces of silver or 16,429 gold equivalent ounces. Of this production, El Cubo contributed 3,353 ounces of gold and 155,889 ounces of silver or 6,150 gold equivalent ounces an increase of 22% over December at a cash cost of $518.80 per ounce a 36% decrease over December. During January, the Company sold a total of 9,173 ounces of gold and 393,417 ounces of silver or 16,236 gold equivalent ounces and realized an average gold price of $873/oz and an average silver price of $15.63/oz. Of the ounces sold, El Cubo contributed 3,353 ounces of gold and 155,889 ounces of silver or 6,150 gold equivalent ounces, an increase of 22% over December.
Operating and Free Cash Flow (unaudited)
http://files.newswire.ca/258/Operating.doc Financial indicators clearly demonstrate that the Company is continuing to advance its turnaround. Operating cash flow in January improved by $2.2 million to $1.9 million or by 112% as compared to ($0.240 million) in Q4 and clearly shows that productivity efficiencies achieved at Ocampo, coupled with aggressive cost management strategies, are continuing to positively impact costs. Free cash flow improved to ($0.9 million) or by 94% in January as compared to ($14.7 million) in Q4. As the Company completes its investment in capital expansion projects, expected to be by mid-2008, the Company anticipates being free cash flow positive in the later part of 2008.
Additional improvements are anticipated in Q1 2008 as many production and cost savings initiatives gain additional traction and we leverage strong metal prices. Capital costs during January were in line with internal expansion capital projections at $2.8 million. Consolidated cash costs for January decreased by 14.3% to $505 per ounce (net of any year end adjustments) over Q4 cash costs and was a 33.9% reduction over Q3 cash costs. Continued improvements in total cash costs will be driven by the Company's focus on increased production and cost optimization efforts.
The Company (inclusive of Gammon Gold's El Cubo mine) remains on target to produce at the low end of the target range of 56,000 to 62,000 gold equivalent ounces during Q1 at a total cash cost that is consistent with anticipated cash costs for Q4 2007.
Total capital expenditures at Ocampo and El Cubo in Q1 are anticipated to range from $16 to $20 million in Q1 2008. As of February 1, the Company had effectively drawn $31.4 million of its $60 million revolving facility which is less than the budgeted amount anticipated for this time period with no further facility draw downs taken to date in February.
Mr. Scott Perry, CFO of Gammon Gold stated, "Our operating and cost management initiatives are progressing well which should result in stronger financial results. There is a clear turnaround in progress and momentum is strong and positive. Our operating assets are steadily improving and together with the Company's strengthened liquidity position we now have the financial and operational base from which we can continue to grow our cornerstone operations positioning Gammon for the value opportunities that lie ahead." Mr. Rene Marion, CEO of Gammon Gold stated, "There is a clear and positive trend emerging from the key performance indicators that is very encouraging and clearly underscores the significant advancement in our turnaround at Ocampo since October. Overall productivity continues to improve throughout Ocampo and there are many areas where we can expect to achieve ongoing improvement in both productivity as well as costs. Russell Tremayne and his entire operational team are doing a great job in implementing best mining practices and creating a safe working environment. I am very pleased to have both Russell Tremayne and Scott Perry back on my team so together we can accelerate the turnaround at Ocampo. I am also encouraged by the improvement in productivity that we have achieved at our El Cubo mine and anticipate ongoing positive results to continue in the months ahead." Mr. Marion continued, "We are encouraged by significant improvements in both operating and free cash flow as well as in overall productivity and therefore, remain confident that we will continue to maintain this positive momentum and achieve our Q1 2008 targets. Additionally, with unrestricted access to the full $60 million revolving line of credit that is anticipated, the Company should have sufficient liquidity and funding to fully execute its growth strategy through this turnaround period." Ocampo - January 2008
--------------------- Gammon Gold is pleased to advise that overall improvements achieved at its Ocampo mine are continuing into Q1 2008. January production at Ocampo was 5,893 ounces of gold and 244,188 ounces of silver for a gold equivalent production of 10,279 ounces. A total of 5,820 ounces of gold and 237,528 ounces of silver were sold during the month or 10,086 gold equivalent ounces. During January, the Company realized an average gold price of $886/oz and an average silver price of $16.05/oz. The planned monthly production contribution was lower than what we are planning in February and March which is due to fewer tonnes being placed on the Heap Leach Pad during November and December as well as areas of the pad that are currently not under leach due to the expansion of the leach pad. As a result of these construction activities that are expected to be completed in Q2, approximately 120,000 tonnes placed on the pad are not currently under leach. Also impacting productivity was the unavailability of open pit excavators due to a scheduled maintenance program. Leased equipment is currently supplementing the fleet and the Open Pit is expected to be fully operational in March. For Ocampo, total cash costs (prior to the recording of any potential quarter end adjustments occurring in the normal course of events) for January was $498 per gold equivalent ounce, a decrease of 7.4% over Q4 2007 and 39.5% decrease over Q3 2007 despite one-off costs of $35 per ounce for severances, parts for the open pit excavators and leasing costs for loaders while the excavators are down.
Ocampo Average Monthly Au(e) Production vs Cash Costs
http://files.newswire.ca/258/Ocampo.doc - During January additional improvements in cash costs were clearly
evident. These cost reduction efforts throughout the operation continue
to gain traction and these incremental improvements will continue into
2008. Capital expansionary project initiatives that will be implemented
in 2008 will enhance productivity and reduce operating costs in all
areas. Most particularly, the optimization of our processing
facilities, access to 20 megawatts of grid power and the delivery of
underground equipment will provide significant costs savings and
enhance overall capacity. - An additional 5 megawatts of main grid power was operational in the
last week of January and this has reduced both our reliance on diesel
generated power and will positively impact costs going forward. The
access to grid power also minimizes exposure to business interruption
should there be problems with one of our generators. The additional 5
megawatts will increase main grid power to a total of 7 megawatts. The
Company anticipates access to 20 megawatts of main grid power in early
2009 that will eliminate the reliance on the diesel generated power and
provide additional costs savings of approximately $24/ounce. - We have recently recruited and continue to recruit for several key
management positions. Most notably is Chris Campbell-Hicks as Process
and Heap Leach Manager. Chris has worked with Rene for the past 3 years
and was recently recruited from Highland Gold where he was instrumental
in increasing processing performance by over 35% in 6 months at
Highland's MNV operation. - The Santa Eduviges decline has intercepted the main mineralized
structure and we have begun to deliver the development ore to the Mill
for processing. - The Company has implemented a bonus incentive plan for exemplary
performance for all operating departments at Ocampo. Early indicators
are that this incentive program is resulting in increased productivity
throughout the Ocampo operation, but in particular development, as
indicated by the KPI charts in this press release. As the impact of the
productivity bonuses begins to be internalized by the workforce we
anticipate that there will be additional productivity gains achieved. - By month end in January stockpiles stood at 11,612 tonnes ahead of the
mill and 136,968 tonnes ahead of the crushing plant. These will
continue to serve the operation to minimize the possibility of
production interruption due to possible feed variability from the
underground or the open pit. The focus going forward will remain on
maintaining stockpiles ahead of both processing facilities to ensure
ongoing production during any period of downtime.
Russell Tremayne, COO of Gammon Gold stated, "There are many initiatives currently being implemented at Ocampo to increase productivity and I am encouraged by the continued gains we are achieving in all areas of the mine. The re-introduction of longhole mining and the appointment of 2 longhole specialists will help continue to minimize dilution and improve productivity. As well, we have continued our focus on introducing mining methods that will enhance productivity, the deployment of equipment, as well as overall improved mine planning and development and equipment availability. During the rest of Q1 we will continue to work through outstanding maintenance and equipment productivity issues particularly relating to open pit equipment. To supplement the existing fleet while we undertake scheduled maintenance, we have leased loaders to replace the excavators while they are rebuilt. We expect to have one excavator commissioned in mid-February and the second in March at which time the Open Pit will return to full production. We have accelerated development in the underground to provide greater flexibility and enhanced mine planning. Increased production in the underground has been achieved as a result with continued benefits expected to be achieved through the balance of the year. January's dilution underground remained consistent with December's levels, and is an improvement of over 45% from November. In addition new equipment for the underground operation is currently arriving with one jumbo drill and front end loader already on site and additional loaders and trucks scheduled to arrive in late Q1 or early Q2. We continue to focus on decreasing dilution by providing additional training to our operators that will be supported by the recent implementation of a Quality Assurance / Quality Control program and an operating team that has the skills to execute the strategy." Mr. Tremayne went on to say, "As the following KPI charts demonstrate, there is a positive trend of ongoing productivity enhancements that are very encouraging and demonstrate that the turnaround at Ocampo is advancing as planned. Overall we are seeing productivity improvements in all areas of the mine and we will continue to demonstrate ongoing improvements throughout the first quarter. Particularly encouraging is the progress we are making in the development of the underground mine." Underground
----------- Meters Developed - Underground http://files.newswire.ca/258/Meters.doc
Dilution - Underground http://files.newswire.ca/258/Dilution.doc
Average Tonnes per Day - Underground http://files.newswire.ca/258/Average_tonnes.doc
Average Au(e) Grade - Underground http://files.newswire.ca/258/Au(e).doc
Cost per Tonne - Underground http://files.newswire.ca/258/Cost.doc Open Pit Operations
------------------- Average Tonnes Per Day - Open Pit http://files.newswire.ca/258/Average.doc
Tonnes per Month to the Mill - Open Pit http://files.newswire.ca/258/Tonnes_per_month.doc
Average Tonnes per Day - Heap Leach http://files.newswire.ca/258/Heap_Leach.doc
Strip Ratio http://files.newswire.ca/258/Strip_Ratio.doc
Stock Pile - Heap Leach http://files.newswire.ca/258/Stock_Pile.doc
Cost per Tonne - Open Pit http://files.newswire.ca/258/Open_Pit.doc Mill
---- Tonnes per Day - Mill http://files.newswire.ca/258/Mill.doc
Mill Availability http://files.newswire.ca/258/Mill_Availability.doc
Average Grade Au(e) Open Pit & Underground http://files.newswire.ca/258/mill.graph.doc
Cost per Tonne - Mill http://files.newswire.ca/258/Tonne_-_Mill.doc Heap Leach
---------- Metal Recovery Life of Mine http://files.newswire.ca/258/Life_of_Mine.doc
Head Grade - Heap Leach http://files.newswire.ca/258/Head_Grade.doc
Cost per Tonne - Heap Leach http://files.newswire.ca/258/Cost_Heap_Leach.doc
Mr. Marion stated, "In January we significantly strengthened our senior management by appointing Scott Perry as Chief Financial Officer and Russell Tremayne as Chief Operating Officer. I have worked with both Scott and Russell while seconded to Highland Gold Ltd. from Barrick Gold where as a senior team we successfully addressed ongoing operational issues and by doing so we were also able to significantly increase shareholder value. So I am confident that we can leverage our collective mining experience to accelerate the execution of our growth strategy and I know that they will be a tremendous asset to the Company." Ocampo Underground
------------------ Productivity in January improved over Q4 in the underground primarily as a result of increased development, the re-introduction of longhole mining methods and decreased dilution. Grades from the underground remained stable at 6.50 g/t gold equivalent over Q4 and grades are expected to improve as the underground operation ramps up. Additionally, ongoing development in the underground provides more flexibility and better sequencing in the underground. The Company will continue to implement strategies that will continue to reduce costs and improve productivity. We will also continue to accelerate development so as to improve access to higher grade ore and maximize flexibility. The recently implemented bonus schedule has been favourably received and is expected to continue to positively impact productivity going forward. The Company has commissioned a new jumbo and loader and expects to take delivery of additional underground equipment in March or early Q2 that will have an immediate impact on productivity and accelerate the development of the underground Ocampo Open Pit
--------------- Productivity in the Open Pit declined in January due to the ongoing scheduled maintenance programs required for the loading fleet (loaders and shovels). The Company has leased two additional loaders to supplement the existing fleet during this downtime and productivity is expected to return to feasibility study levels in the coming months. In January we delivered less high grade ore to the Mill as a result of the increased tonnage from the underground resulting in the higher grade ore from the Open Pit being directed to the Heap Leach facilities.
Ocampo Mill Circuit
------------------- During January tonnes per day remained near capacity at 1,369 tonnes per day despite the 4 day downtime experienced at the Mill. The improvement in underground productivity resulted in more high grade ore from the underground being delivered to the Mill than in previous months which impacted head grades significantly where grades improved to 6.30 g/t gold equivalent or 21% over Q4. Mill availability decreased to 79% in January due to the downtime caused by the unavailability of the diesel generators that power the Mill circuit. Availabilities remain on target to reach over 90% in the first half of 2008. Metallurgical recoveries in January were an average of 94% gold and 89% silver. Costs per tonne decreased over previous months and further production enhancements are available that should allow for additional cost reductions going forward as more traction is realized from our cost saving initiatives.
Ocampo Heap Leach Circuit
------------------------- Recoveries at the Heap leach pad were impacted by less ore being delivered to the pad in November and December as well as ore that has been placed on the pad that is currently not under leach due to the expansion of the Heap Leach pad. During January 233,888 tonnes were placed on the Heap Leach which is an increase of 5% increase over December, however 120,000 tonnes of ore is not currently under leach due to the expansion of the Heap Leach pads as described above. In January, we continued to haul 150,000 tonnes of old tailings that average 1.68 g/t gold equivalent to the Heap Leach Pad. Bottle roll tests are being done on this material and recoveries are encouraging. We believe that taking these high grade tails will significantly reduce costs for the Heap Leach over the next few months. Costs decreased in January as a result of the cost management initiatives that have been implemented as well as enhanced operational efficiencies.
Mr. Marion concluded, "As we move further into Q1 I remain confident that we will achieved our goals and I continue to reaffirm our forecast scorecard for the end of Q1 for Ocampo." - We have targeted Q1 2008 production at the lower end of between 56,000
to 62,000 gold equivalent ounces (inclusive of El Cubo)
- We have targeted total cash costs for Q1 2008 to be consistent with
those estimated for Q4, 2007
- Expansion and Sustaining Capital expenditures are anticipated to be
between $16 and $20 million
- We are committed to providing an update on 2007 year end reserves and
resources at the end Q1 2008
- We also expect to release our 2008 Operating and total cash cost
guidance together with a 3-year outlook at the end of Q1 2008
- We have already experienced positive operating cash flow in November
and January and we expect to achieve sustained positive operating cash
flow in Q1 2008. We anticipate being Net Free Cash flow positive in the
latter part of 2008 once expansion capital for the heap leach facility,
processing facility and the continued development of the Santa Eduviges
decline is concluded
- We do not expect any further accounting provisions
- Performance management systems that are aligned with the Mission and
Strategy to ensure delivery of results both operationally as well as
corporately have been introduced and will become fully implemented in
2008
- We expect to release during March results from our drilling program at
Guadalupe y Calvo, our highly prospective exploration property located
in the southwest portion of Chihuahua State in Mexico.
About Gammon Gold Gammon Gold Inc. is a Nova Scotia based mid-tier gold and silver producer with properties in Mexico. The Company's flagship Ocampo Project in Chihuahua State achieved commercial production in January 2007. Gammon Gold also operates its El Cubo operation in Guanajuato State and has the promising development Guadalupe y Calvo property in Chihuahua State. The Company remains 100% unhedged.
Cautionary Statement Cautionary Note to US Investors - The United States Securities and Exchange Commission permits US mining companies, in their filings with the SEC, to disclose only those mineral deposits that a company can economically and legally extract or produce. This press release uses certain terms, such as "measured," "indicated," and "inferred" "resources," that the SEC guidelines strictly prohibit US registered companies from including in their filings with the SEC. US Investors are urged to consider closely the disclosure in Gammon Gold's Annual Report on Form 40-F (File # 001-31739), which may be secured from Gammon Gold, or from the SEC's website at http://www.sec.gov/edgar.shtml.
No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein.
Certain statements included herein, including information as to the future financial or operating performance of the Company, its subsidiaries and its projects, constitute forward-looking statements. The words "believe", "expect", "anticipate", "contemplate", "target", "plan", "intends", "continue", "budget", "estimate", "forecast", "may", "will", "schedule" and similar expressions identify forward-looking statements. Forward-looking statements include, among other things, statements regarding targets, estimates and assumptions in respect of gold and silver production and prices, operating costs, results and capital expenditures, mineral reserves and mineral resources and anticipated grades, recovery rates, future financial or operating performance, margins, operating and exploration expenditures, costs and timing of the development of new deposits, costs and timing of construction, costs and timing of future exploration and reclamations expenses. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the Company, are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies. Many factors could cause the Company's actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, the Company. Such factors include, among others, known and unknown uncertainties and risks relating to additional funding requirements, reserve and resource estimates, commodity prices, hedging activities, exploration, development and operating risks, illegal miners, political and foreign risk, uninsurable risks, competition, limited mining operations, production risks, environmental regulation and liability, government regulation, currency fluctuations, recent losses and write-downs, restrictions in the Company's loan facility, dependence on key employees, possible variations of ore grade or recovery rates, failure of plant, equipment or process to operate as anticipated, accidents and labour disputes. Investors are cautioned that forward-looking statements are not guarantees of future performance and, accordingly, investors are cautioned not to put undue reliance on forward-looking statements due to the inherent uncertainty therein. DATASOURCE: GAMMON GOLD INC.
CONTACT: please visit the Gammon Gold website at http://www.gammongold.com/ or contact: Rene Marion, Chief Executive Officer, Gammon Gold Inc., (902) 468-0614; Anne Day, Director of Investor Relations, Gammon Gold Inc., (902) 468-0614
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