Work stops on gold mine's tunnels

Work has stopped at Oceana Gold's Frasers goldmine at Macraes.

Tunnelling at the multi-million-dollar Frasers underground mine, west of Palmerston, was suspended after the collapse of Australian mining contractor Henry Walker Eltin Group (HWE).

The contractor suffered an $570 million-plus collapse after a proposed $100 million cash injection from an Australian finance company was declined, the Sydney Morning Herald reported.

Oceana Gold's chief operations manager Albert Brantley said he could not make much comment on the situation because the company was "in discussions with [HWE] administration" to consider options for proceeding with the works, "which we fully intend to do".

Brantley felt he could not comment on those affected until negotiations were completed.

He also could not speculate on whether any Otago businesses would be owed money from the collapse because he did not have any information on the company's creditors.

He did, however, admit Oceana Gold was itself a creditor, but declined to say how much it was owed.

Oceana chief executive Steve Orr said the dual-listed miner was considering making a statement to the New Zealand and Australian stock exchanges this week.

The past 11 months have provided a roller-coaster ride for Oceana investors since listing in New Zealand and Australia.

Oceana's share price roughly mirrored spot gold prices until about October last year when gold began a climb from US$425, reaching more than US$455 an ounce on December 3, while the mid-October Oceana share peak of A$1.08 slipped to about 80Ac.

On December 20, Oceana's NZX price was 90c and on the ASX exchange 79Ac. They are now trading around 78Ac.

For most of the year, Oceana said it was on track to deliver a record 183,000 ounces of gold, at a cash cost of A$340 an ounce, and to deliver a forecast before-tax profit of A$26.2 million.

By comparison, its only major competitor, Newmont Mining's Martha's mine in the Coromandel, is expecting to increase its full-year production from 108,000 ounces to 120,000 ounces at a cash cost of US$120 an ounce. It is also setting aside open pit mining in favour of going underground at Favona near Waihi.

Oceana's Macraes mine has operated for 13 years, having on several occasions surpassed original estimates and its present mine-life forecast now appears to be in excess of another 12 years. Last month, it notched up a record 185,175 ounces of gold production for 2004.

Last September, Orr said the next two years ahead were "critical" for Oceana, saying a recapitalisation, a small loan facility and hedge-book sell-down would all contribute towards financing expenditure.

However, after last week's news that debt-laden HWE was voluntarily placed in the hands of administrators, Oceana will want to move quickly to maintain traction and its forecast targets, having repeatedly achieved most during the past year.

HWE started blasting the 6km of underground tunnels at the Frasers mine in early August and had a right to extend its contract another 12 months after the tunnels begin producing.

Oceana may have to find another tunnel contractor then later decide if it will take over as an owner-miner operation, which it did two years ago with its open caste Macraes pits.

Oceana has already signalled it is eager to consider acquisitions of mining companies in politically stable areas, refurbish its ore production sulphur oxidation plant at Macraes and potentially raise more cash in the market place.

The company has been highlighting recent positive test drilling results around Frasers.

- NZPA