August 13, 2009 / 1:28 PM / in 8 years

UPDATE 2-Gammon Gold posts Q2 loss

* Q2 loss/shr $0.06 vs EPS $0.04 year ago

* Q2 rev $43.3 mln vs $64.6 mln year ago

* Gold production drops 28 pct

* Silver production falls 25 pct

* Sees improved production in latter half of year (Adds conference call details, background and share movement)

Aug 13 (Reuters) - Canadian gold and silver producer Gammon Gold Inc GAM.TO reported a second-quarter loss, as revenue dropped by a third and it suffered foreign exchange losses, but said it sees improved production in the latter half of the year.

Gold production fell 28 percent to 31,115 ounces, while silver production dropped 25 percent to 1.1 million ounces.

Though production at its Ocampo project was in line with first-quarter levels, production at its El Cubo gold mine was hurt by a 7-week labor disruption.

In June, Mexican miners lifted the strike at El Cubo after Gammon agreed to adopt a seven-day continuous work schedule in return for an 8 percent rise in basic wages and a 3 percent increase in benefits. [ID:nN15201166]

Gammon said it expects significant cost reductions throughout the year, particularly at its Ocampo project, where it sees reduction in contracted services in the coming months.

Q2 RESULTS

For the second quarter, the company reported net loss of $7.6 million, 6 cents a share, compared with earnings of $4.8 million, or 4 cents a share, a year ago.

Earnings before items were 3 cents a share. Revenue from mining operations fell to $43.3 million from $64.6 million a year ago.

Analysts on average expected earnings of 4 cents a share, excluding items, on revenue of $43.7 million, according to Reuters Estimates.

Chief Financial Officer Scott Perry said on a conference call that revenue was hurt by the drop in production as well as lower realized silver price.

Average realized silver price fell to $13.71 per ounce from $17.44 per ounce in the prior-year period. Average realized price for gold rose to $920 per ounce from $897 per ounce.

Total cash costs per gold equivalent ounce fell to $453 from $501 a year ago.

The company also reported a $7 million foreign exchange loss from strengthening of the Mexican peso and Canadian dollar against the U.S. dollar.

Gammon shares were up 9 Canadian cents, or 1 percent, at C$6.96 Thursday afternoon on the Toronto Stock Exchange. (Reporting by Ashutosh Joshi and Isheeta Sanghi in Bangalore; Editing by Ratul Ray Chaudhuri)

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