2013 Cash Cost
As a result of the changes being implemented under the Company's transition plan for Bjorkdal, cash cost per gold ounce produced for 2013 are anticipated to be much higher than the mine's long-term per ounce cash cost on an inflation adjusted basis. However, management expects that per ounce costs will trend lower in the latter part of 2013 and into 2014 when the full benefits of the mine's various operational improvements are realized including improved grade control practices, greater mining underground by the Company's own operating personnel and equipment, having the dedicated use of the Company's own cable bolter, better control of underground dilution through narrower mining of cable-bolted stopes and on-vein development headings, and the processing of a greater mix of lower cost stope tonnes in comparison to development tonnes in the underground mining unit.
In 2013, quarterly cash cost per ounce is expected to be higher in the first half of the year for reasons noted in the previous paragraph in addition to the normal inefficiencies encountered upon the changeover of the open pit contractor in early January 2013, which led to the processing of more stockpile tonnes than planned.
Although not directly affecting the calculation of cash cost, Sweden has reduced its corporate income tax rate from 26.3% to 22.0% effective starting in 2013. As the Bjorkdal mine is a taxable operation, the Company will benefit from reduced cash taxes as a result of this tax rate change.
Mine Expansion Potential
Should the Company's 2013 exploration programs in the underground and open pits return encouraging drill results similar to those in 2012 which would prove up and add to the resource base of the Bjorkdal deposit, management expects to initiate a mine and mill expansion study by the end of the 2013 year with the goal of expanding the operation to approximately 5,000 ore tonnes per day ("tpd") (1.8 million tonnes annually) to further increase the mine's annual gold output and lower per ounce cash costs.
The expansion will likely be phased in over two stages with the first stage having Bjorkdal continue to operate as both an underground and open pit operation but with a ramp-up in the daily mining rate for underground ore tonnes. In the final stage, all ore feed would be mined from underground with gold production potentially approaching (and perhaps exceeding) 100,000 ounces annually.
Lupin Gold Mine - Nunavut, Canada
In 2013, the Company will be conducting a work program mainly focused on confirming the condition of the underground access and mine services at the Lupin gold mine, which is currently in care and maintenance. This program will involve the purchase and mobilization of equipment to site to re-open the underground portal currently blocked by ice. Once access is secured, Lupin personnel will assess underground workings in preparation for a 2014 underground drill program and to gather pertinent information for a preliminary economic assessment on a Lupin restart. The 2013 program will build-on the 2012 activities made which involved the evaluation, testing and minor repairs of the mill building and equipment. The positive results from the 2012 activities on Lupin's key surface infrastructure further confirms that the Lupin mine was properly placed into care and maintenance when the mine last operated in 2005, and management expects that the planned 2013 activities will further de-risk the project upon a future restart of operations.
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