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Australian gold miner Sino Gold Ltd. (SGX.AU) Tuesday said gold output at its Jinfeng mine in China rose 14% in the second quarter from a year earlier to 35,412 troy ounces, in line with expectations.
But higher energy prices pushed expected costs up, the company said.
Sino left production guidance for this year unchanged at 150,000 to 160,000 ounces, after lowering expected output in April because of lower ore grades and power restrictions as a result of severe snowstorms early in the year.
"This is a solid result, and it's good to see things settling down," said Craig Campbell, analyst at Morgan Stanley.
Shares in Sino Gold rallied following the production report. At 0250 GMT, the shares were up 6.2% at A$5.80.
Still, costs at Jinfeng, Sino's only producing mine, have gone up to US$390/oz, from US$370/oz, because of an 18% hike in diesel and 6% rise in power costs.
Jinfeng's nameplate production capacity is at 190,000 ounces, and the mine will start processing ore from its underground expansion this year.
"Energy accounts for 30% of our mining costs, but the price of diesel in China is appreciating from a very low base," Sino said in a conference call with analysts. The "considerable" rise in the yuan and higher rates for land compensation also contributed to cost pressures, the company said.
Several provinces in China are facing power shortages during the summer months, and a number of aluminum and well as zinc smelters have already announced production cuts.
"We have had no indication from the power authority that they are concerned for our region. There has been no early indication as they did give during the snowy season," said Sino Chief Executive Jake Klein.
The company has closed out its gold hedge book at a cost of A$125 million and doesn't intend to hedge any further production for full exposure to gold price movements.
Gold prices hit a record $1,032.35/oz in March this year, and are currently trading at around $965/oz.
The company has US$81 million in cash following a A$204 million equity raising during the quarter, and will use the money for its development projects.
White Mountain, Sino's next project, is on target for its first gold pour this year but expected cash costs of US$300/oz are likely to go up in line with the higher price for diesel, similar to Jinfeng, Sino said.
Next in line is the Beyinhar project, where a feasibility study is in progress and heap leaching is expected to start in the spring of 2010.
Heap leaching, which needs sulfuric acid, has become considerably more expensive after sulfur prices doubled since last year.
"We have factored in higher costs from diesel, acid and power, and costs have gone up higher than we had hoped but the project is still robust," said Sino.
-By Elisabeth Behrmann, Dow Jones Newswires;
61-2-8235-2965; elisabeth.behrmann@dowjones.com
(END) Dow Jones Newswires
07-21-08 2254ET
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