Queenstake deal nets cash, lowered cost at Elko mine

The cash provided by a deal with Newmont Mining is important to Queenstake Resources Ltd., but increased workload at Queenstake's facilities near Elko may be even more critical.

Denver-based Queenstake, which operates the Jerritt Canyon mine about 50 miles north of Elko, last week said it sold 28.5 million of its common shares to a subsidiary of Newmont Mining.

The private placement raised about $10 million, which Queenstake will use to finance exploration and other work.

With the purchase, Newmont holds approximately a 5 percent position in Queenstake a position that can grow to 8.5 percent if it exercises warrants that were part of the deal.

But even more important in the short term is a contract between the two companies for processing of ore from Newmont's mining properties in eastern Nevada.

Queenstake will buy at least 500,000 tons of ore and concentrate from Newmont annually, enough to get its Jerritt Canyon mill running at about 95 percent of capacity.

And that, in turn, should reduce Queenstake's costs of producing gold by $15 to $20 an ounce, said Dusty Nicol, president and chief executive officer of Queenstake.

The company's operating costs last year ran $386 an ounce at the Nevada operation far higher than industry averages.

In the fourth quarter, when winter weather was lousy, the cost spiked to $413 an ounce.

With its high operating costs, Queenstake lost $2.6 million in the fourth quarter and $19.7 million for the full year, even though gold prices were at their highest level in decades.

The savings that Queenstake expects to get by running the mill more efficiently would have peeled about $900,000 from its fourth-quarter loss.

The deal also involved the sale of three Newmont-owned exploration properties to Queenstake.

Sold were the Shwin Ranch trend on the Cortez Trend, the South Carlin project between Newmont's Rain and Gold Quarry mines on the Carlin Trend and the Baxter property about 25 miles southwest of Jerritt Canyon and six miles northwest of Barrick Gold's Meikle Mine.