September 8, 2010 / 1:34 PM / in 8 years

UPDATE 2-Crocodile Gold's costs may fall on lower haulage

* Says may be able to speed up development in Union Reefs

* Sees Q3 production of more than 25,000 oz of gold

* Says Cosmo mine development continues ahead of schedule (Recasts, adds company comments)

Sept 8 (Reuters) - Canada’s Crocodile Gold Corp CRK.TO said operating costs could fall if it started production at its projects in Australia’s Union Reefs and Pine Creek areas as their proximity to the company’s mill would bring down haulage costs.

The company, whose mines are located in the Northern Territory of Australia, said it may be able to speed up development in the Union Reefs area and begin production as early as the fourth quarter at one or more of the deposits.

Currently, the company has to truck all the ore about 80 kilometres to the Union Reefs area and the haulage cost is about $125 an ounce, said Ashleigh Clelland, manager, investor relations.

“But the advantage of these projects is that they are within 15 km of the mill. So the haulage cost will be minimal.”

Crocodile Gold is currently mining from the Howley and North Point open pit mines and the Brocks Creek underground mine.

Clelland said that when the Cosmo underground mine, which is in western Australia, goes into full production, it will be a big contributor to lower operating costs “because it is higher grade and more tonnage.”

Operating expenses were $9.4 million during the second quarter at the company, which started mining in November 2009 and announced its first gold pour a month later at its Union Reefs Mill.

Development of the Cosmo underground mine continues to be ahead of schedule, the company said in a statement.

Once in full production, Cosmo, the company’s flagship operation, is expected to contribute over 100,000 ounces of gold annually to its production.

Crocodile Gold said planned production for Cosmo is still expected to commence in mid-2011.

In August, the company lowered its 2010 production forecast to 85,000 ounces of gold, from its prior forecast of 100,000 ounces, as it was deferring the start up of its Tom Gully underground gold mine until 2011.

As a result of the lowered 2010 outlook, the company now sees third-quarter production of more than 25,000 ounces of gold. In July, it had forecast third-quarter production of over 30,000 ounces. [ID:nSGE6650GL]

Crocodile Gold shares, which have lost nearly half their value year to date, were up 1 Canadian cent at C$1.05 Wednesday afternoon on the Toronto Stock Exchange. (Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Anne Pallivathuckal, Aradhana Aravindan)

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