Glass Earth Gold, the country's largest gold explorer, has a "make or break" 18 months ahead, as it moves from explorer to gold producer in the Ida Valley in Otago to generate much-needed cash flow.
With resource consent applications pending, Glass Earth ideally wanted to begin tandem mining operations with 16-20 staff at two of four Ida Valley sites, targeting both alluvial gold and also operating a small "boutique" hard-rock extraction programme, chief executive Simon Henderson said in an interview with the Otago Daily Times in Dunedin yesterday.
Alluvial (placer) gold is accumulated particles eroded from hard-rock (trapped gold) formations and now found in river systems' sediment around Otago. Placer gold formed the backbone of the province's gold-rush era from the mid 1800s, accounting for about 8 million of a total 11 million ounces extracted to date.
Depending on the outcome during the year after a start between July and October, 3000oz of alluvial gold would be the break-even target, and could be boosted by a further 6000oz from small hard-rock production.
That cash flow may enable Glass Earth to finance and continue drill-testing at its five other "Macraes-type" hard-rock sites around Otago, identified from 20 prospects from a 14,000sq km aerial survey in mid 2008. Drill-testing at present employs a geology team of seven.
With the mining sector trying to raise cash in tough times, "greenfield" exploration companies have been hardest hit; 80%-90% are now out of business or deferring work. The sector was in for a "three- to five-year hiatus", Mr Henderson said.
"I'd say it [the next 18 months] is a make or break time for us. The bottom line is we won't run out of money; we could raise more or look at a merger."
Mr Henderson said the Ida Valley production could be funded by the remaining $2.4 million cash in hand, as Glass Earth had access to existing equipment; and he remained adamant Glass Earth was funded through to July next year.
Toronto-listed Glass Earth has completed a $4 million aerial survey of Otago, and subsequently committed a further $3 million to the five-site hard-rock drilling programme around Otago, but has no cash flow other than successfully raising venture capital of about $NZ24 million to date since mid 2006.
However, since June last year, Glass Earth's cash in hand had steadily diminished from $4 million to $3.6 million, and was yesterday reported at $C1.6 million ($NZ2.4 million).
Mr Henderson confirmed in January it was conserving cash through "circumspect spending" focused on drilling around Otago.
Glass Earth released its full-year to December results on the TSX yesterday, having spent $4.1 million on exploration overall during the year and booked an unsurprising $NZ1.33 million loss, following last year's $NZ2.68 million loss.
Mr Henderson said in January Glass Earth would be looking at recapitalisation this year. However, with its Canadian share price languishing around 1.5c-2c, Mr Henderson yesterday ruled out going back to the market as "the share dilution would be too severe".
If production targets from the Ida Valley are met, he would expect the subsequent cash-flow and the "show of survival" to the market to boost Glass Earth's share price to 7c, which would trigger recapitalisation options, he said.
He highlighted two other North Island-based projects, in separate joint ventures, which were going ahead with drilling programmes worth several million dollars. However, he conceded even positive drilling results did not add any immediate cash flow.
An existing private alluvial gold production operation in the Ida Valley may smooth the way for resource consents. Glass Earth has recently drilled 122 test holes to an average depth of 4.5m at four sites around the Ida Valley with "encouraging" results, but grades have yet to be announced.
• What the stats say
Glass Earth capital raising ($NZD)
Oct 2006: $10 million in TSX/NZX float.
Aug 2007: $6.3 million further issue.
Jan 2008: $7.5 million, private Canadian placement.
Dec 2008: $2.4 million cash in hand.
