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Crew Gold Corporation (OSL:CRU) Corporate news announcement processed and transmitted by Hugin AS. The issuer is solely responsible for the content of this announcement. ---------------------------------------------------------------------- --------------
DATE: November 10, 2008
TRADING SYMBOLS; TORONTO AND OSLO - CRU FRANKFURT - KNC OTC, BB, OTHER - CRUGF NEWS RELEASE Crew Gold Provides Operational ANd FINANCIAL Update highlights * OVERVIEW - Group wide third quarter gold production of 66,996 ounces, 73,554 ounces poured and 71,769 ounces sold at average realized gold price of $871 per ounce. - Upgrade and rectification program progressing at LEFA despite unexpected challenges encountered in Q3. - Operations at Nalunaq to be suspended by end of year and mine to placed on care and maintenance. - The Company intends to launch a rights issue on or about November 24, 2008 subject to the receipt of necessary regulatory approvals. - RBC Capital Markets retained as financial advisor to assist in the review and potential implementation of strategic alternatives. * LEFA - Third quarter gold production of 46,078 ounces, 53,276 ounces poured and gold sales of 51,437 ounces. - Positive operating cash flow in spite of the effects of the rainy season and necessary shutdowns for the rectification program. - Upgrade and rectification program progressed well during the quarter with significant items of the rectification plan being completed. The schedule for relining and realignment of both SAG mills was accelerated due to diagnostics revealing a potential bearing failure on SAG Mill 02. - Take over of mining activities at LEFA from the mining contractor completed within the scope of the contract with minimal disruption to mining production and no increase in cost. - Processing capacity reduced in Q3 due primarily to the expected impact of the rainy season, the unscheduled repair required to the Ball Mill 01 drive motor and scheduled stoppages necessary to complete rectification items. - Additional downtime was averted by bringing forward the bearing replacement and realignment for SAG Mill 02 originally scheduled for late Q4, although this impacted production in October as the reline of SAG Mill 01 was already underway. The bearings of SAG Mill 01 were also replaced directly after the reline as scheduled. - SAG Mill 01 and Ball Mill 02 were restarted in late October and are currently running above expectations at approximately 575 tonnes per hour with 80% availability of the mills. - Revised production guidance for 2009 of 310,000 ounces at an average operating cash cost of $488 per ounce, including royalties, due to delay of completion of repairs to the Ball Mill 01 motor until mid February. Beyond 2009, annual production is expected to increase from 320,000 to 360,000 ounces with operating cash costs in the range of $390 to $440 per ounces, including royalties. * Maco - Third quarter gold production of 5,053 ounces, 5,013 ounces poured and 4,080 ounces sold. - Continued review of ore resources, mine plan and ongoing evaluation of expansion opportunities. - Exploration of strategic alternatives with potential partners. * Nalunaq - Third quarter gold production of 15,865 ounces, 15,265 ounces poured and 16,252 ounces sold. - Review of ore resources and expenditures to delineate ore body resulting in decision to suspend operations and move to care and maintenance once the available stope ore is removed. * Financial - Third quarter results to be released on November 14, 2008. - Third quarter results will provide for a full write down of the carrying value of the Nalunaq property and assets of approximately $46 million and accordingly a write down of the Nugget Pond asset carrying value of approximately $9 million is anticipated. The results will include a full or partial write down of the goodwill relating to the LEFA reporting unit to a maximum of $105 million. - The evaluation of the carrying value of Maco is likely to be completed during the fourth quarter. - Cash of $27.9 million at the end of the quarter with a further erosion of the cash position in October due to advancing the timing of the SAG Mill 02 rectification while SAG Mill 01 was being repaired. - The Company expects to have sufficient cash on hand to meet interest payment obligations to bondholders in December. * Corporate - Chief Executive Officer search continuing, an independent third party retained to assist in search. OPERATIONS The Company will make further disclosure with respect to its financial and operating performance in its quarterly unaudited financial statements and management discussion and analysis to be released on November 14, 2008. Quarterly production and approximate cash costs were as follows: For table, please see attached pdf file. LEFA Plant and Infrastructure The LEFA CIP plant rectification and upgrade projects progressed during the quarter with significant items on the rectification plan being completed. The critical work remains on schedule to be completed by year end with the exception of Ball Mill 01 which is scheduled for completion and restart in mid February, 2009. The remaining major items to be completed before December 31 are the repairs to SAG Mill 02 and the completion of the HFO (Heavy Fuel Oil) delivery system. During the first half of 2009 there are scheduled upgrades planned to improve the reliability of the plant through all weather conditions and to reduce operating cash costs. The items to be upgraded are the tailings pumps, return water system, crushing systems, cyclone feed system, gold elution circuit and the gear system on both SAG mills. In addition, scheduled overhauls of the mining fleet will commence in the latter part of 2009. During Q3, the apron feeder at the Lero crusher was replaced. The belt and belt tracking system on CV04 (main overland conveyor from Lero Crusher) were also replaced and repaired. In addition, repairs to the conveying system from the emergency stockpile at the plant were completed on schedule. The replacement of the apron feeder at Fayalala completed during Q2 has resulted in excellent reliability in the feed to the process plant.
The HFO delivery system for the power plant was installed per OEM standards and the test run has been completed. Results indicated that the system was operating correctly, but there was insufficient relief bellows inline to handle thermal expansion and commissioning and remedial work will now be completed by December 31, 2008
The drive motor for Ball Mill 01 failed in mid August. Replacement of the bearings, rework of the shaft and rewinding of the motor are being carried out. It is expected to be running by mid February 2009. The scheduled repairs to of Ball Mill 02 were completed during the quarter and it has recently been returned to production.
As scheduled, SAG Mill 01 was taken offline in late September for reline, bearing replacement and realignment. This work was completed ahead of schedule in late October. In mid October an inspection of SAG Mill 02 following high bearing temperatures, revealed that the repairs could not be delayed without risking major damage. As a result, the work to carry out the bearing replacement and realignment of SAG Mill 02 originally scheduled for mid November was accelerated and is scheduled to be completed by the end of November which is four weeks ahead of the original schedule. However production in October was impacted by the shutdown as both SAG mills were down at the same time.
SAG Mill 01 and Ball Mill 02 were restarted in late October and are currently running above expectations at approximately 575 tonnes per hour with 80% availability of the mills.
Mining On September 26, the Company announced that its operating subsidiary had taken over the works being performed under its third party mining contract. The takeover was considered necessary to protect the serviceability of the open pit mining fleet. The transition has been smooth with minimal disruption to mining operations and no increase to costs. As the Company noted in its press release of September 26, the take-over was, in the Company's opinion, carried out fully within the scope of the contract. A court hearing has been scheduled in the Republic of Guinea for November 20, 2008 to deal with certain of the matters at issue between the parties to the dispute. Mining operations continued uninterrupted while the plant was shut down in mid-October and a significant tonnage of high grade ore was stockpiled. Processing of that ore commenced in late October. Operations Mining production for the quarter ended September 30, 2008 totalled 1.1 million tonnes at an average grade of 2.3 grams per tonne and containing 81,310 ounces of gold. The third quarter is the rainy season in Guinea and notwithstanding this, the previously announced river diversion project undertaken by the Company allowed it to continue mining at a rate substantially in excess of that achieved during the 2007 rainy season. Ore throughput at the plant for the quarter ended September 30, 2008 was approximately 850,000 tonnes at a head grade of 1.9 grams per tonne. Gold produced in the quarter was 46,078 ounces at a cash cost of $687 per ounce. The major issues resulting in downtime in processing capacity in Q3 were the impact of the rainy season, the unexpected failure of the drive motor for Ball Mill 01, the scheduled repairs to the trunnion of Ball Mill 02, and stoppages necessary to complete rectification items. The Company is providing revised production guidance for 2009 of 310,000 ounces for the year at an average cash cost of approximately $488 per ounce. The lower production guidance is due to the lack of availability of Ball Mill 01 until mid February 2009 and the ramp up of plant capacity that will follow to mid year. During the first half of 2009 the mining rate will be higher than the milling rate due to the reduced plant capacity and stockpiling will be required. However higher grades will be fed during the first six months of the year to achieve budgeted production levels. During the second half of the year, higher volumes will be fed through at lower average grades as softer saprolite is blended with fresh rock. The average grade expected for 2009 is 1.75grammes per tonne. With the blending of ore continuously in the years following 2009, the expectation is that the plant will reach its stated target of 320,000 to 360,000 ounces per year. The estimated cash costs are impacted by a large expatriate workforce retained to complete the rectification and upgrade programs, the use of diesel and the lower production rate assumed until mid-2009. The Company believes it has significant opportunities to reduce its cash costs through continued improvements in mining efficiencies, lower fuel prices and a considerable reduction in the expatriate work force as Guinea nationals are trained and the process plant settles into a steady state. The estimates of cash costs for the latter part of 2009 and into the future are between $390 and $440 per ounce. MACO Maco continued to operate on a self sustaining basis. Ore mined in the quarter ended September 30, 2008 was 39,260 tonnes at an average grade of 4.8 grams per tonne. During the quarter, the plant processed 38,980 tonnes at 4.6 grams per tonne. Costs and revenues at Maco will continue to be capitalized until the mine is declared to be in commercial production which under Philippine law will be January 1, 2009. The Company continues to evaluate strategic alternatives relating to Maco including developing arrangements with strategic partners and has had a number of discussions with parties in this regard. The ongoing technical review of the Maco mill expansion and mine plan continued during the quarter albeit at a slower pace in order to conserve cash resources. In light of current market conditions the carrying value of Maco is also being reviewed. NALUNAQ The Company undertook a comprehensive review of the ore resources as the ore strike lengths have not been meeting management's expectations. As a result of the review and the economics of current mining, the Company has made the decision to suspend mining operations at Nalunaq. Upon completion of the extraction of the currently developed ore body, Nalunaq will be placed on care and maintenance. It is anticipated that this will occur prior to December 31, 2008. The processing of the remaining ore will continue at the Nugget Pond facility in Newfoundland, Canada and upon completion of this processing the Nugget Pond facility may also be placed on care and maintenance unless profitable toll milling contracts are successfully concluded. Crew believes that the high operating costs of the operation and the requirement to spend further significant amounts on exploration to obtain delineation of the ore body justifies the decision to place the mine on care and maintenance. While there remains a significant gold resource at Nalunaq the current cost of mining, shipping and processing renders the mine uneconomic for the Company to pursue at this time. Interim CEO, Bill LeClair comments: "While this is clearly a disappointing result for Nalunaq and the Company, it is an action that must be taken as a result of Nalunaq's economic performance. Nalunaq will be placed on care and maintenance while we search for other parties or partners who may be interested in the Nalunaq operation before making any final closure decisions. We have already received a number of expressions of interest in the Nugget Pond operation that we will continue to investigate. Additionally, any significant upward movement in the price of gold that appears to be sustainable will allow us to re-evaluate this decision." Nalunaq produced 16,110 ore tonnes during the quarter ended September 30, 2008 and six ore shipments totalling 52,184 tonnes were shipped to Nugget Pond bringing the year to date ore shipped to 96,059 tonnes. The Nugget Pond plant processed a total of 40,653 dry metric tonnes of ore at an average grade of 13.2 grams per tonne during the quarter. Gold produced from the plant during the quarter was 15,865 ounces and gold sold during the quarter was 16,252 ounces at an average realized gold price of $857 per ounce. The cash cost per ounce was $937 per ounce. FINANCIAL The third quarter results will provide for a full write-down of the carrying value of the Nalunaq property and assets of approximately $46 million and accordingly a write-down of the Nugget Pond asset carrying value of approximately $9 million is anticipated. The results will also include a full or partial write down of the goodwill relating to the LEFA reporting unit to a maximum of $105 million. The evaluation of the carrying value of Maco is likely to be completed during the fourth quarter. The Company had cash of $27.9 million at the end of the quarter. However, a further erosion of the Company's cash position occurred in October due to changes in timing of the refurbishment and re-alignment of the SAG and Ball mills. The Company expects to have sufficient cash to fund interest payment obligations to bondholders in December. The Company remains in full compliance with all of its covenants under its agreements with bondholders. To bolster its working capital position, the Company intends to undertake a rights issue to all European resident shareholders. The Company is in the process of retaining a financial advisor to manage the rights offering. Management expects that the rights issue will be launched on or around November 24, 2008 following the release of the Company's quarterly results. It is anticipated that each existing eligible shareholder will have a pre-emptive right to subscribe for new shares in the same ratio as their existing holdings. The Company intends to issue one subscription right for every one common share that is outstanding, which right will entitle the holder to purchase one Crew share. It is expected that if the subscription rights are not fully exercised, those shareholders who have exercised their subscription rights and have over-subscribed will have the right to be allocated the remaining new shares not subscribed for on a pro rata basis. The subscription rights will be fully transferrable, and are expected to be listed on the Oslo Stock Exchange during the subscription period. The commencement of the rights issue is subject to the Company filing a prospectus with the Oslo Stock Exchange and receipt of all necessary regulatory approvals. Management anticipates that subscription in the rights offering will be open only to European resident shareholders, and that non-European resident shareholders will be legally prohibited from subscribing for the Company's shares under the offering. Provided that the subscription rights have an economic value exceeding the estimated sales costs, the Company's advisor will be authorized to sell the subscription rights on behalf of those non-European resident shareholders, and to distribute the proceeds of such sale to those shareholders. The Company remains confident in the sustainability and prospects relating to the price of gold and believes that LEFA has considerable value which can be realized for shareholders. The Company will continue to explore alternatives to ensure that the value is realized. CORPORATE The company continues in its search for a Chief Executive Officer and in this regard has retained an independent third party to assist in its search efforts. The Company has also retained RBC Capital Markets as financial advisor to assist in the review and potential implementation of strategic alternatives. William LeClair Interim CEO
Safe Harbour Statement Certain statements contained herein that are not statements of historical fact, may constitute forward-looking statements and are made pursuant to applicable and relevant national legislation (including the Safe-Harbour provisions of the United States Private Securities Litigation Reform Act of 1995) in countries where Crew is conducting business and/or investor relations. Forward-looking statements, include, but are not limited to those with respect to (1) the price of gold, (2) the estimation of mineral reserves and resources, (3) the realization of mineral reserves estimates, (4) the timing and amount of estimated future success of exploration activities, (5) the timing and amount of production estimates, (6) targeted production cash costs and forecasted cash reserves, (7) Crews hedging practices, (8) currency fluctuations, (9) requirements for additional capital, (10) government regulation of mining operations, (11) environmental risk, (12) title disputes or claims limitations on insurance coverage and (13) the timing and possible outcome of pending litigation. Often, but not always, forward-looking statements can be identified by the use of words such as plans, expects, does not expect, is expected, targets, budget, estimates, forecasts, intends, anticipates or does not anticipate, or believes, or equivalents or variation, including negative variation, of such words and phrases, or state that certain actions, events or results, may, could, would, might or will be taken, occur or be achieved.
Forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to be materially different from the historical results or from any future results expressed or implied by such forward-looking statements. Such risks and uncertainties include, among others, (1) the actual results of current exploration activities, conclusions of economic evaluations, (2) changes in project parameters as plans continue to be refined, (3) possible variations in grade and ore densities or recovery rates, (4) failure of plant, equipment or processes to operate as anticipated, (5) accidents, labour disputes and other risks of the mining industry, (6) delays in obtaining government approvals or financing or in completion of development or construction activities. Although Crew has attempted to identify important factors that could cause actual actions, events or cause actions events or results not to be anticipated, estimated or intended, there can be no assurance that forward looking statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements.
The material factors and assumptions used to develop forward-looking statements which may be incorrect, include, but are not limited to, (1) there being no significant disruptions affecting operations, whether due to labour disruptions, supply disruptions, damage to equipment or otherwise, (2) continued development, operation and production at LEFA, Nalunaq and Maco consistent with our current expectations, (3) foreign exchange rates among the currencies the Crew does business in being approximately consistent with current levels, (4) certain price assumptions for gold, (5) prices for electricity, fuel oil and other key supplies remaining consistent with current levels, (6) production forecasts meeting expectations, (7) the accuracy of our current mineral reserve and mineral resource estimates, and (8) materials and labour costs increasing on a basis consistent with Crews expectations.
Except as may be required by applicable law or stock exchange regulation, the Company undertakes no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events. Accordingly, readers should not place undue reliance on forward-looking statements.
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. We use certain terms in this document, such as measured, indicated, and inferred resources, which 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 from the SECs website at http://www.sec.gov/edgar.shtml.
NON-GAAP MEASURES "Cash cost" is a non-GAAP measure calculated in accordance with the gold institute production cost standard and includes site costs for all mining (excluding deferred stripping cost), processing administration, royalties and production taxes but exclusive of depletion, depreciation, reclamation, financing costs, capital costs and expiration costs. Cash cost is presented as we believe it represents an industry standard of comparison.
"Cash cost per ounce" is a non-GAAP measure derived from the cash cost of ounces produced as a measure of total ounces produced.
"Sales price per ounce" is a non-GAAP measure derived by dividing the total cash amounts received on gold sales by the number of ounces sold in the period.
