TSX: GAM / AMEX: GRS / BSX: GL7
Gammon Gold reports improvements on several Ocampo Key Operational
Indicators in October and November as well as a greater than 30%
reduction in Ocampo's Total Cash Costs per ounce from Q3 and positive
operating cash flow in November.
HALIFAX, Dec. 17 /CNW/ - Gammon Gold Inc. ("Gammon Gold") (TSX:GAM and AMEX:GRS): Gammon Gold is pleased to advise that the turnaround at its Ocampo mine seen during October is continuing and the company feels comfortable in advising that results should remain in line with the Q4 guidance of an increase of 10% to 15% in gold equivalent ounce (Au (eq)) production at Ocampo. Importantly, Ocampo had positive operating cash flow in November of $11.4 million and combined October and November operating cash flow of $3.27 million.
Production at Ocampo continues to increase with October and November production of 12,751 ounces of gold and 494,988 ounces of silver for a gold equivalent production of 21,794 ounces. A total of 12,253 ounces of gold and 475,151 ounces of silver were sold during the two months or 20,943 gold equivalent ounces. During October and November, the company realized an average gold price of $792.56/oz and an average silver price of $14.49/oz. Total cash costs in October and November decreased by $276 (34%) from Q3 to an average of $546 per ounce Au (eq) in October and November, prior to recording of any potential quarter end adjustments occurring in the normal course of events. Capital costs over the two months were in line with internal expansion capital projections at $13.2 million. Operating cash flow for November was $11.4 million driven by positive earnings and strong management of working capital.
Average Monthly Gold & Silver (Au eq) Production vs Total Cash Costs per
Ounces per 200 hours (Man Mth) Worked
The Company (inclusive of Gammon Gold's El Cubo mine) remains on target to produce from 51,500 to 54,000 gold equivalent ounces during Q4 at a total cash cost from $580/oz to $600/oz gold equivalent. Total capital expenditures at Ocampo and El Cubo is anticipated to range from $9.0 to $11.0 million in December for a total capital forecast for 2007 of approximately $80 million. As of December 1, the Company has drawn $25.2 million of its $60 million revolving facility. As the Company is presently operating cash flow positive, the revolving facility is expected to be only used to fund a portion of 2008 capital expenditures.
Mr. Glenn Hynes, CFO of Gammon Gold stated, "We are pleased with the results of our strategy to accelerate IVA (Mexico Value Added Tax) recoveries which have decreased by over $13 million in Q4 from a high of approximately $20 million. It is expected that another $2.4 million will be received in late December. Additionally, I am encouraged by the operational improvements gaining traction at Ocampo as this has positively impacted cash flows, particularly in November. The Company will aggressively manage expenditures in the months ahead in order to optimize liquidity during this turnaround period."
Rene Marion, CEO of Gammon Gold stated, "I am encouraged to see how the operating team has focused on quality production in the past few months, starting a hard fought turn-around at Ocampo. The 25% reduction in underground dilution, continued strengthening of key operational indicators such as daily mill tonnage, recovery, equipment availability and strong open pit production all contributed to the improved performance in November." Mr. Marion went on to say "The open pit continues to perform well. In October and November 10-15% of the ore mined in the pit went as mill feed, representing 35% of the contained metal from the pit. It is anticipated that with the planned mill expansion, the percentage of ounces from the Open Pit will increase. These results continue to demonstrate that the Ocampo operation is starting to gain traction in the turnaround."
Mr. Marion went on to say, "As we look to Q1, 2008, I would like to highlight the following guidance targeted for El Cubo and Ocampo:"
------------------------------------------------------------------------- Q1 2008 Forecasted Highlights Ocampo & El Cubo ------------------------------------------------------------------------- Production (oz Au (eq)) From 56,000 to 62,000 ------------------------------------------------------------------------- Total Cash Costs In line with Q4 2007 ------------------------------------------------------------------------- Expansion and Sustaining Capital $16-20 Million ------------------------------------------------------------------------- "Based on these projections, the Company is satisfied that it has access to sufficient liquidity to fully execute its growth strategy through this turnaround period. I am confident that with the new management team on board, the exceptional ore bodies we have and the support of our Board of Directors, we will meet or exceed these indicators." Dave Keough, COO of Gammon Gold, added "During Q1 2008 the Company will update its reserve and resource model and finalize its 2008 Budget, Life of Mine and mill expansion plans. Access to this more comprehensive and relevant data will provide management with the necessary data to provide more specific and longer term cost and production guidance. The Company intends to release this guidance late in the first quarter of 2008." Mr. Keough went on to say, "I am pleased that our efforts in achieving cost reductions, restructuring and improving productivity are now allowing us to tangibly realize the benefits from those initiatives as depicted in the following Ocampo key operational indicators. Additionally, we continue to target areas where we can target further cost reductions, particularly in processing, heap leaching and production improvements, particularly in the Underground and mill." Underground Operations ---------------------- Average Grade - Underground g/t (http://files.newswire.ca/258/G3.doc) Tonnes per Day - Underground Production (http://files.newswire.ca/258/GG4.doc) Underground Cost per Tonne (http://files.newswire.ca/258/GG5.doc) Open Pit Operations ------------------- Average Tonnes per day - Open Pit (http://files.newswire.ca/258/GG6.doc) Feed to the Mill from Open Pit per Month (http://files.newswire.ca/258/GG7.doc) Average Open Pit Tonnes per Day - Heap Leach (http://files.newswire.ca/258/GG8.doc) Open Pit Cost per Tonne (http://files.newswire.ca/258/GG9.doc) Mill ---- Mill Tonnes per Day - Underground and Open Pit (http://files.newswire.ca/258/10.doc) Mill Availability (http://files.newswire.ca/258/11.doc) Mill Cost per Tonne (http://files.newswire.ca/258/GG12.doc) Heap Leach ---------- Gold and Silver Recovery Heap Leach (http://files.newswire.ca/258/GG13.doc) Head Grade Heap Leach (http://files.newswire.ca/258/GG14.doc) Heap Leach Cost per Tonne (http://files.newswire.ca/258/G15.doc) Mr. Marion added, "I operate with a results oriented philosophy and it is encouraging to see the traction that the management team has gained in the past few months. I believe that the team is aligned and committed and will continue to deliver increasingly improved results in the months ahead." The Company has achieved a number of milestones in recent months that have evidenced the positive trend of the Company's performance. The collective efforts of the new mine management and executive teams has brought about this forward momentum and the Company will continue to focus on executing the Company's growth strategy in the coming quarters. Ocampo Highlights ----------------- During October and November the Company began to realize positive impact from many of the strategies initiated at Ocampo. Cost reduction efforts throughout the Ocampo operation began to gain traction and improvements will continue to be derived from these initiatives in the coming quarters. The optimization of the Ocampo workforce as well as the reduction of contractors has provided significant costs savings as well as improved productivity per man hour and as production increases the project will be targeting lower costs. Management controls have been strengthened, allowing the Company better cost management going forward. As a result of the overall improvement in productivity and costs throughout Ocampo, the Company achieved positive operational cash flow in November. In October, a $60 million revolving loan facility was completed in order to finance the Company's growth strategy. The Company has also enhanced its mine management team to include a new Manager of Maintenance as well as a Mexican Director of Sustainability (Health, Safety, and Environmental). Ocampo Underground ------------------ During recent weeks the Company has taken delivery of additional underground equipment that, combined with better mining practices and the implementation of an incentive based compensation schedule for underground miners, has and will continue to, improve productivity in the Underground and subsequently reduce costs. Additional Underground equipment will be utilized as more mining areas are available. Since July, the Company has achieved significant reduction in costs per tonne mined and will continue to implement strategies aimed at further reducing costs. The Company also continued to develop the Underground that will result in improved access to higher grade ore in the months to come. This development along with better mine planning will result in more consistent grades and tonnage being available to the mill. Ocampo Open Pit --------------- The Open Pit continued to benefit from productivity initiatives implemented in Q3 that resulted in improved productivity where on occasion the Company mined more than 100,000 tonnes per day. The Company continues to direct high grade Open Pit ore to the mill in order to take advantage of the better recoveries and economics of the mill circuit. The Company has achieved significant improvements in cost per tonne in the Open Pit primarily as a result of the implementation of improved mining practices and the optimization of Open Pit equipment. Ocampo Mill Circuit ------------------- Mill capacity improved significantly in October and November and has exceeded current capacity of 1,500 tonnes per day, achieving 1,800 tonnes per day on occasion, augmented by the additional high grade ore delivered from the Open Pit. High grade Open Pit Ore will continue to be directed to the mill to maximize throughput and take advantage of the better economics. Mill availability improved to over 87% in November and is targeted to reach over 90% in early 2008. Metallurgical recoveries have not been impacted by the higher throughout and have improved to an average of 96% gold and 89% silver which further underscores the rationale of sending both high grade Open Pit as well as Underground ore to the mill to take advantage of the improved recoveries. Costs per tonne improved significantly and further production enhancements are available that should allow for additional cost reductions. Ocampo Heap Leach Circuit ------------------------- Recoveries at the Heap Leach facility continued to improve for both gold and silver but it is anticipated that as more high grade Open Pit ore is re-directed to the mill, average Heap Leach recoveries will decline accordingly. The Company has been able to achieve significant cost reductions at the Heap Leach facility and continued focus on further reducing costs will be a priority. Mr. Marion continued, "My confidence in the sustainability of our initiatives over the next 3 months is such that I feel comfortable in forecasting the following scorecard for the end of Q1 for Ocampo. My goal in communicating these objectives is to provide shareholders with benchmarks to measure my performance as CEO as well as that of the Senior Management team." - We have targeted Q1 2008 production of between 56,000 to 62,000 gold equivalent ounces (inclusive of El Cubo) - We have targeted Total Cash Costs for Q1 2008 to be consistent with Q4, 2007 - Expansion and Sustaining Capital expenditures is anticipated to be between $16 and $20 million - We are committed to providing an update on 2007 year end reserves and resources at the end Q1 2008 - We also expect to release our 2008 Operating and Total Cash Cost guidance together with a 3-year outlook at the end of Q1 2008 - We have already experienced positive operating cash flow in November and we expect to achieve sustained positive operating cash flow in Q1 2008. We anticipate being Net Free Cash flow positive in the latter part of 2008 once expansion capital for the heap leach facility, processing facility and the continued development of the Santa Eduviges decline is concluded - Along with the Senior Management team, the Company will endeavor not to take any further accounting provisions in Q1 2008 - Along with the Board and the Senior Management team, we will develop a clear Corporate Mission. Under the Board's guidance, Management will execute that strategy in 2008 and beyond. - Performance management systems that are aligned with the Mission and Strategy to ensure delivery of results both operationally as well as corporately have been introduced and will become fully implemented in 2008. About Gammon Gold Gammon Gold Inc. is a Nova Scotia based mid-tier gold and silver producer with properties in Mexico. The Company's flagship Ocampo Project in Chihuahua State achieved commercial production in January 2007. Gammon Gold also operates its El Cubo operation in Guanajuato State and has the promising development Guadalupe y Calvo property in Chihuahua State. The company remains 100% unhedged. Cautionary Statement Cautionary Note to US Investors - The United States Securities and Exchange Commission permits US mining companies, in their filings with the SEC, to disclose only those mineral deposits that a company can economically and legally extract or produce. This press release uses certain terms, such as "measured," "indicated," and "inferred" "resources," that the SEC guidelines strictly prohibit US registered companies from including in their filings with the SEC. US Investors are urged to consider closely the disclosure in Gammon Gold's Annual Report on Form 40-F (File No. 001-31739), which may be secured from Gammon Gold, or from the SEC's website at http://www.sec.gov/edgar.shtml. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Certain statements included herein, including information as to the future financial or operating performance of the Company, its subsidiaries and its projects, constitute forward-looking statements. The words "believe", "expect", "anticipate", "contemplate", "target", "plan", "intends", "continue", "budget", "estimate", "may", "will", "schedule" and similar expressions identify forward-looking statements. Forward-looking statements include, among other things, statements regarding targets, estimates and assumptions in respect of gold and silver production and prices, operating costs, results and capital expenditures, mineral reserves and mineral resources and anticipated grades, recovery rates, future financial or operating performance, margins, operating and exploration expenditures, costs and timing of the development of new deposits, costs and timing of construction, costs and timing of future exploration and reclamations expenses. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the Company, are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies. Many factors could cause the Company's actual results to differ materially from those expressed or implied in any forward-looking statements made by, or on behalf of, the Company. Such factors include, among others, known and unknown uncertainties and risks relating to additional funding requirements, reserve and resource estimates, commodity prices, hedging activities, exploration, development and operating risks, illegal miners, political and foreign risk, uninsurable risks, competition, limited mining operations, production risks, environmental regulation and liability, government regulation, currency fluctuations, recent losses and write-downs, restrictions in the Company's loan facility, dependence on key employees, possible variations of ore grade or recovery rates, failure of plant, equipment or process to operate as anticipated, accidents and labour disputes. Investors are cautioned that forward-looking statements are not guarantees of future performance and, accordingly, investors are cautioned not to put undue reliance on forward-looking statements due to the inherent uncertainty therein.