November 12, 2008 / 1:21 PM / in 9 years

UPDATE 2-Gammon Gold posts surprise Q3 loss

(Adds conference call details, analyst comments)

* Q3 adj loss/shr $0.06 vs profit estimate of $0.03

* Q3 revenue from mining ops $48.3 mln

By Arup Roychoudhury

BANGALORE, Nov 12 (Reuters) - Canadian gold and silver producer Gammon Gold Inc GAM.TOGRS.N posted a surprise third-quarter loss, hurt by higher expenses and production costs, sending its shares down 20 percent.

“The bottomline is that gold and silver prices are slightly lower and the company’s costs were significantly higher in the previous quarter,” Canaccord Adams analyst Wendell Zerb told Reuters.

Gammon Gold’s production cost for the quarter rose 21 percent to $41.2 million.

The company also said a workforce reduction of about 254 workers took place, at its El Cubo facility in the third quarter at a cost of about $600,000.

Year-to-date, workforce at El Cubo was reduced by 379 people, or 29 percent, said Gammon Gold CEO Rene Marion in a conference call.

For the quarter ended Sept. 30, the company’s net loss narrowed to $6.5 million, compared with a loss of $44.8 million a year earlier. Adjusted net loss was 6 cents a share.

Gammon Gold said a devaluation in silver price relative to gold, value adjustments for low-grade ore, adverse gold equivalency ratios and workforce restructuring costs all negatively impacted the quarterly total cash cost per gold equivalent ounce.

OUTLOOK

For 2008, Gammon Gold forecast gold production in a range of 150,000 ounces to 160,000 ounces.

Silver production was forecast at 5,900,000 ounces to 6,200,000 ounces.

The company saw total cash costs per gold equivalent ounce for 2008 in the range of $540 to $565, subject to year-end gold and silver prices.

Gammon reiterated its 2009 production outlook of 300,000 to 330,000 gold equivalent ounces.

Shares of the company fell 20 percent to C$4.14 Wednesday on the Toronto Stock Exchange. They were trading at C$4.31 in afternoon trade.

For the alerts, please double click [ID:nWNAB2186] (Editing by Jarshad Kakkrakandy) (arup.roychoudhury@thomsonreuters.com; within U.S. +1 646 223 8780; outside U.S. +91 80 4135 5800; Reuters Messaging: arup.roychoudhury.reuters.com@reuters.net))

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