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Gold miners forced to tighten belts
The West Australian

WA gold producers have begun reacting to last week's sharp falls in the bullion price, with sector heavyweight Silver Lake Resources yesterday announcing plans to slash costs to preserve margins.

It came as Northern Star Resources said it would review a $20 million exploration program while Tropicana Gold was forced to extend the offer period for its float to reach the $3.5 million target.

And question marks have arisen over the timing of Barrick Gold's planned disposal of the Granny Smith, Darlot and Lawler mines in the Goldfields, with analysts saying potential bidders may struggle to meet Barrick's price demands.

The gold price remains below $1400 an ounce, in Australian dollar terms, and mid-tier miners are preparing plans for an elongated period of lower prices, cutting back on exploration spending and re-jigging mine plans to focus on higher grade areas.

Silver Lake yesterday downgraded its full-year production forecast by 25,000 to 55,000 ounces to 140,000 to 150,000oz after taking the axe to output at its Mount Monger operation near Kalgoorlie-Boulder, and production delays at its new Murchison operations.

Mount Monger's full-year forecast has been cut to 120,000 to 125,000oz, with a 45 per cent reduction to the mine's underground operation. Instead, ore stockpiles would be used to feed its mill to preserve short-term margins while underground mining will focus on high-grade zones.

The shift in focus will cost about 30 jobs but Silver Lake managing director Les Davis said the Mount Monger shift would drop all-in mining costs at the operation by $100/oz to about $1050/oz.

Mr Davis said the company's ore stockpiles contained an estimated 87,000oz gold and the pull-back in underground mining was sustainable for at least 12 to 18 months.

He said if the gold price returned to higher levels Silver Lake would return to mining the "lower margin" ounces at its underground mine.

Other mid-tier mining companies are also preparing to pull back. Northern Star managing director Bill Beament said there were no plans to change its mining plan. But the gold price was well below its budgeted figures, and Northern Star was preparing to cut costs in other areas.

"We're looking at postponing our regional exploration program - we'll still meet mandatory spending on our tenements, but our greenfields exploration will definitely be pulled back," he said.

Earlier this year Northern Star boasted of a $20 million exploration budget for the region around its Pilbara gold mine, but Mr Beament said much of that program was now under review.

Saracen Mineral Holdings managing director Raleigh Finlayson said the company's margins were partly protected by its 188,000oz gold hedge, at an average price of $1698/oz, but the company was still looking for potential savings.

"Without the hedge we'd certainly be considering changes," he said.

Tropicana Gold admitted yesterday its initial public offering had fallen about $750,000 short of a $3.5 million target.

The company was due to begin trading last Friday.

But Tropicana managing director Paul Lloyd said yesterday it had extended its offer for another month and was hopeful the float would still get up.

Silver Lake shares closed down 4¢ yesterday to $1.31, Northern Star dropped 1.5¢ to 73¢, with Saracen down 1¢ to 16.5¢.