Winnipeg Free Press - PRINT EDITION

Lower costs and less gold

Struggling company restructures

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Plenty of different companies have been mining gold in the Bissett area since the 1940s, and the current technical analysis by officials at San Gold Corp. indicates there is plenty of gold left to mine.

The trick is to be able to get at it and be profitable.

Lately, that has been a significant challenge for the company.

It is in the process of a significant restructuring of its operations. Gestur Kristjansson, San Gold's CEO, said its latest review is going to lead to fewer tonnes of ore removed from the mine, fewer ounces of gold produced and significantly lower costs.

Among other things, that led to the decision to reduce its workforce, laying off 48 workers over the last month.

"As part of that review, there was 48 souls that are not going to be part of it," Kristjansson said.

The company is under pressure to perform by investors and debt holders.

"We are very much looking at the mine plan to ensure profitability," Kristjansson said. "There has been a 30 per cent drop in gold prices over the last year. We recently closed a $24-million secured-debt facility... There is a real sense of urgency to get to profitability sooner rather than later."

Kristjansson said there are no plans for further layoffs. The company workforce now stands at about 375.

Kristjansson also said despite the challenges it's had in operating profitably, there is plenty of gold yet to mine.

"There is strong indication that there is mine life for years to come," he said. "We just renewed our lease for another 21 years."

San Gold has been struggling to become more profitable for some time.

In 2010, when gold prices were sky-high, it raised about $80 million in a share offering at $4.00 per share.

Since then, the company's share price has fallen steadily to around 14 cents on Friday.

Earlier this month, the company reported a $7.7-million loss for the first quarter, with a 30 per cent decline in the ounces of gold produced to 12,083.

A couple of days later, the company announced a postponement of its annual meeting to Aug. 19 while it reviews its entire operation.

In a statement it said, "As part of this review, the company is also considering strategic alternatives that could result in the necessity for a shareholder vote before they could be implemented."

When prices were sky-high, investors sought gold production in safe jurisdictions like Canada, but San Gold was not able to meet the production guidance of 100,000 ounces-plus after it had invested heavily in ramping up production at the beginning of the decade, when it was flush with cash.

It fell short of its production guidance in 2012 at 85,506 ounces and 75,218 ounces in 2013.

This year, it made a number of management changes, including the appointment of Kristjansson as CEO in March that was preceded by the appointment of veteran mining-industry executive, Greg Gibson to the board last fall.

Gibson is chairing the board's technical committee, which is spearheading the review.

"We are putting the pieces together as we speak to correct this," Kristjansson said in a recent conference call with analysts. "I know we have been down this road before. But the level and depth of change underway today is of a completely different scale than at any point in the company's short history."

martin.cash@freepress.mb.ca

Republished from the Winnipeg Free Press print edition May 24, 2014 B6

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