May 3, 2010 / 2:21 PM / in 8 years

UPDATE 2-Red Back Mining Q1 profit misses estimates; shares fall

* Production falls, costs rise

* Experiencing leaks in water pipelines at Tasiast

* Expects production profile to rise in subsequent qtrs

* Shares fall as much as 13 pct (Recasts; Adds details, analyst comments, updates share movement)

By Bhaswati Mukhopadhyay

BANGALORE, May 3 (Reuters) - Canadian gold mining company Red Back Mining Inc RBI.TO posted a first-quarter profit that missed market expectations on lower production and higher costs, sending its shares down as much as 13 percent.

Red Back shares, which have gained 66 percent in value over the last three months, were down C$2.09 at C$24.59 in afternoon trade on the Toronto Stock Exchange. They touched a low of C$23.33 earlier.

The company — which competes with Centamin Egypt Ltd (CEY.L) (CEE.TO), Eldorado Gold Corp (ELD.TO) and Afican Barrick Gold ABGL.L — owns and operates the Chirano gold mine in Ghana and the Tasiast gold mine in Mauritania.

It reported first-quarter net income of $33.2 million, or 14 cents a share. Analysts on average were expecting earnings of 19 cents a share in the quarter, according to Thomson Reuters I/B/E/S.

The company’s weaker-than-expected results came amid rising prices of gold. The precious metal, which kept its lure for investors seeking safe-haven refuge, rose to a five-month high on Monday. [ID:nLDE6420QT]

Total production fell 13 percent sequentially to 96,160 ounces, while cash operating costs rose 23 percent to $475 per ounce.

In the first quarter, Chirano’s production fell to 43,940 ounces compared with 54,518 ounces in the fourth quarter of 2009, while cash costs rose to $595 per ounce from $445 per ounce.

Production was sequentially lower at Chirano due to scheduled mining of lower grade areas of both the open pit and Akwaaba underground deposits, the company said.

“Also contributing to the low production, tonnes mined at Akwaaba were below budget due to delays in receipt of additional underground haul trucks, now expected to be received in the second quarter,” it added.

Red Back is also experiencing leaks in water pipelines at the Tasiast mine.

“That is something they need to get corrected if they are going to bring their mill up to capacity while also continuing with their dump leaching component,” analyst Stuart McDougall of Jennings Capital said.

“And if they are to move ahead with heap leaching, that will require additional water.”

However, analysts said there are no major long-term issues that could hurt the company.

The company expects production profile to increase in the second and subsequent quarters with greater contributions from underground mining at the high grade Akwaaba deposit at Chirano and dump leach operations at Tasiast.

With respect to the company’s production profile in the longer term, the Tasiast mine is the more important one since it is the larger reserve base and it is the lower cost one, Jennings Capital’s McDougall said.

The Vancouver, British Columbia-based company still sees 2010 gold production of 485,000 to 525,000 ounces, at a cash cost of $390 to $420 per ounce. (Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Ratul Ray Chaudhuri)

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