DENVER, Aug. 14 /PRNewswire-FirstCall/ -- Queenstake Resources Ltd.
(TSX: QRL, Amex: QEE) generated net income of $731,000 from gold
sales of 51,216 ounces in the second quarter of 2006, compared to a
net loss of $5.6 million in the second quarter of 2005. Queenstake
had record revenues of $32.2 million for the second quarter. During
the second quarter, the Company's Jerritt Canyon operations in
northeastern Nevada produced 50,421 ounces of gold at cash
operating costs per ounce of $461, a 69% increase in production and
a 17% improvement in costs per ounce from the first quarter of
2006. Second quarter production and costs were impacted by a 12-day
mill refurbishment shut down in April 2006. Since the shut down,
the mill has been operating uninterrupted at near capacity.
Highlights from the 2006 second quarter included: * Operating cash
flow, after working capital changes, was $2.6 million; * Cash and
cash equivalents at June 30, 2006 totaled $10.5 million; * Working
capital improved by $2.6 million from year-end 2005 and by $9.7
million from the end of the first quarter 2006 to $7.4 million at
June 30; * Capitalized mine development footage was significantly
ahead of plan; and * Jerritt Canyon marked its 25th anniversary as
a gold producer and its 7.5-millionth ounce of gold produced.
Commenting on the results, Queenstake President and Chief Executive
Officer Dorian L. (Dusty) Nicol said, "With an average realized
gold price of $627 per ounce and cash operating costs per ounce of
$461, our cash margin was $166 per ounce for the quarter, the best
since we acquired Jerritt Canyon in mid-2003. We remain an unhedged
US gold producer. Queenstake is one of the most leveraged gold
equities, allowing maximum investment exposure to the gold price
and to our continuing exploration success." Operating Highlights 2Q
2006 2Q 2005 1H 2006 1H 2005 Gold ounces produced 50,421 54,156
80,294 108,923 Gold ounces sold 51,216 50,560 79,704 101,410
Average realized gold price ($/oz) $627 $428 $597 $398 Cash
operating costs per ounce(1) $461 $371 $497 $372 Ore tons mined
188,283 234,625 417,246 515,260 Tons processed 271,857 316,800
422,085 628,234 Grade processed (opt) 0.22 0.21 0.23 0.21 Process
recovery 86.0% 87.3% 86.3% 86.6% (1) Cash operating costs per ounce
is a non-GAAP measure intended to complement conventional GAAP
reporting. Management believes that cash operating costs per ounce
is a useful indicator of a mine's performance. Please refer to
Table 5 of the Management Discussion and Analysis on file at
http://www.sedar.com/ and http://www.sec.gov/ for further
information. Financial Review For the second quarter of 2006, the
Company reported net income of $731,000, compared with a net loss
of $5.6 million in the year ago quarter. Revenues were $32.2
million from 51,216 ounces of gold sold at an average realized
price of $627 per ounce during the quarter, which is a 47% higher
realized gold price than in the year ago quarter. Cash operating
costs per ounce were $461 in the second quarter, 24% higher than
the 2005 second quarter due mainly to higher labor, contractor,
energy and commodity costs, mill gear repairs and lower gold
production. Over the past 12 months, cash operating costs were
impacted by $3 million in rising commodity costs, including fuel,
electric power, commodities and freight, $2.1 million in higher
labor costs from wage increases and higher than anticipated
overtime, and $4 million from increased contractor costs. These
factors accounted for increases in cash operating costs per ounce
of $52 in the past 12 months. Depletion was lower at $3.9 million
during the quarter than a year ago as a result of lower gold
production, with an additional $0.1 million expensed due to the
reduction of ore stockpiles and work-in-process inventory levels
from the first quarter. Second quarter corporate general and
administrative costs were $1.3 million compared with $0.8 million
in the year ago quarter. The increase was primarily due to
professional advisory services related to Sarbanes-Oxley compliance
and financial consulting. Cash flow from operations, after working
capital changes, was $2.6 million in the second quarter, compared
with cash used in operations of $5.3 million in the 2005 second
quarter. Net cash generated before changes in non-cash working
capital was $5.6 million, compared with $0.4 million in the year
ago quarter and negative $1.8 million in the first quarter of 2006.
During the quarter, the Company closed its equity private placement
with Newmont, raising $10 million on April 13, 2006. Cash and cash
equivalents were $10.5 million on June 30, 2006. The Company
invested $6.7 million in capital expenditures during the second
quarter, principally in underground mine development, $0.4 million
for an additional underground exploration drill and in purchasing
and refurbishing plant and equipment, including an unanticipated
$0.9 million related to the mill refurbishment. Operations Review
During the second quarter, Jerritt Canyon produced 50,421 ounces of
gold, slightly less than called for by the 2006 operating plan.
Production was negatively affected by a 12-day mill refurbishment
shut down in April, which resolved the first quarter's mechanical
issues. In the second quarter, Jerritt Canyon mined 274,961 tons,
of which 188,283 tons were ore. The mining rate and ore tons mined
were lower than expected as a result of a greater emphasis on
underground development in view of the build-up of ore stockpiles
at the mill from the first quarter, longer haul distances at the
SSX-Steer Mine and additional required dewatering at the Smith
Mine. In addition, further underground development was required to
optimize mining of stopes in the Mahala deposit at Smith in the
second half of 2006. Capitalized mine development footage of 2,868
feet for the Jerritt Canyon mines was significantly ahead of the
2006 plan. At the mill, 271,857 tons were processed with an 86%
average recovery during the second quarter of 2006. Due to first
quarter's build up of the Jerritt Canyon mined ore in stockpiles
adjacent to the mill, during the second quarter, the mill was able
to run at near capacity entirely from Jerritt Canyon mined and
stockpiled ore without the need to supplement with purchased ore
from Newmont. The 81% increase in throughput from the first quarter
of 2006 was due to increased mill availability with the seasonal
weather improvement, running two roasters simultaneously and
completion of the mill repairs and refurbishment. The temporary
mill interruptions in the first quarter and in April 2006 resulted
in the rescheduling of the processing of the stockpiled ore through
the rest of the year. At the end of the second quarter, there was
an estimated 12,000 contained ounces of Jerritt Canyon ore in
lower-grade stockpiles. Exploration Update Queenstake invested $1.1
million in exploration during the second quarter with four surface
drill rigs working at the Jerritt Canyon District, including two
rigs at Starvation Canyon project in the southern part of the
district. On August 3, the Company announced one of the best drill
intervals in the three-decade history of Jerritt Canyon exploration
of 140 feet with an average grade of 0.46 ounce of gold per ton
(opt) or 43 meters of 16 grams of gold per ton (gpt). This interval
included an intercept of 70 feet of 0.6 opt (21 meters of 22 gpt).
This discovery of high-grade gold mineralization at Starvation
Canyon is located between two known mineral resource zones and
could represent a newly identified northwest trending gold-bearing
structure. The Company is evaluating development of an exploration
drift that could more rapidly advance the Starvation Canyon project
using underground drill platforms. Preliminary designs indicate
that an 800-foot drift would reach the known boundary of the west
zone. A decision regarding the exploration drift is expected in the
fourth quarter of 2006. The near-mine exploration program,
comprising both surface and underground drilling, continues and the
Company expects to announce updated results during this quarter.
Other Business The Company's auditors Staley, Okada & Partners
of Vancouver have merged with PricewaterhouseCoopers (PwC) and
Staley Okada will operate under the PwC name, effective August 1,
2006. Following the audit firms' merger announcement, Michael Smith
resigned as a Director of Queenstake, as he feels it is appropriate
to step down from the Board of Directors to avoid any potential
conflict as he is a retired partner of PwC. Mr. Smith, who was
elected to the Board in 2004, was chairman of the Audit Committee
and a member of the Disclosure Committee of the Board. Robert L.
Zerga, Chairman of Queenstake, said, "It is with reluctance that we
accept Mike's resignation as he was a conscientious and
hard-working Board member. We will miss his valuable contribution
to Board, Audit Committee and Disclosure Committee discussions."
The Corporate Governance and Nominating Committee of the Board will
be reviewing qualified candidates to fill this vacancy. 2006
Outlook For the full year 2006, the Company has lowered its Jerritt
Canyon production estimate from 200,000-220,000 ounces of gold to
180,000-200,000 ounces, reflecting the first and second quarter
mill-related production shortfalls, delays in accessing ore at the
underground mines in the second quarter and the need to process ore
purchased from Newmont in the second half of 2006. Cash operating
costs per ounce for 2006 continue to be adversely affected by
increases in basic commodity prices. The operations are sensitive
to increases in diesel, propane and electric power, all of which
have experienced significant increases through the first half of
2006. At current energy and commodity prices, cash operating costs
per ounce are expected to continue at approximately $460.
Exploration expenditures are expected to be $8 million in 2006,
compared with $3.9 million in 2005. Capital expenditures in 2006
are estimated to be approximately $21 million, compared with $21.6
million in 2005. Estimated capital expenditures for the year
include approximately $15 million for capitalized mine development,
which has increased from higher contractor and commodity costs, $1
million for the unbudgeted new pinion gear and bull gear spares,
$2.5 million for underground exploration drilling and the remaining
for a new underground drill, a road grader and equipment
refurbishment. Ongoing corporate general and administrative costs
are estimated at approximately $4.0 million in 2006. The Company
expects to fund the balance of these estimated expenditures from
existing cash and expected cash flow from operations for 2006.
Queenstake Resources Ltd. is a gold mining and exploration company
based in Denver, Colorado. Its principal asset is the wholly owned
Jerritt Canyon gold operations in Nevada. Jerritt Canyon has
produced over seven-and-a-half million ounces of gold from open pit
and underground mines since 1981. Current production at the
property is from underground mines. The Jerritt Canyon District
comprises 119 square miles (308 square kilometers) of geologically
prospective ground controlled by Queenstake, representing one of
the largest contiguous exploration properties in Nevada. For
further information call: Wendy Yang 303-297-1557 ext. 105
800-276-6070 Email - web - http://www.queenstake.com/ Cautionary
Statement -- This news release contains "Forward-Looking
Statements" within the meaning of applicable Canadian securities
law requirements and Section 21E of the United States Securities
Exchange Act of 1934, as amended and the Private Securities
Litigation Reform Act of 1995. All statements, other than
statements of historical fact, included in this release, and
Queenstake's future plans are forward-looking statements that
involve various risks and uncertainties. Such forward-looking
statements include, without limitation, (i) estimates and
projections of future gold production, processing rates and cash
operating costs, (ii) estimates of savings or cost reductions, mill
refurbishment and maintenance costs, (iii) estimates related to
financial performance, including cash flow, capital expenditures,
exploration and administrative costs, (iv) estimates and
projections of reserves and resources, (v) estimates and opinions
regarding geologic and mineralization interpretation, (vi)
estimates of exploration investment, scope of exploration programs
and timing of project advancement, commencement of production and
availability of drills and other equipment, and (vii) estimates of
reclamation and closure costs. Forward-looking statements are
subject to risks, uncertainties and other factors, including gold
and other commodity price volatility, operational risks, mine
development, production and cost estimate risks and other risks
which are described in the Company's most recent Annual Information
Form filed on SEDAR (http://www.sedar.com/) and Annual Report on
Form 40-F on file with the Securities and Exchange Commission (SEC;
http://www.sec.gov/) as well as the Company's other regulatory
filings. Although the Company has attempted to identify important
factors that could cause actual actions, events or results to
differ materially from those described in forward-looking
statements, there may be other factors that cause actions, events
or results not to be as 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. Accordingly,
readers should not place undue reliance on forward-looking
statements. The Company undertakes no obligation to publicly update
or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. Mineral "resources" or
"resource" used in this news release are as defined in National
Instrument 43-101 of the Canadian Securities Administrators and are
not terms recognized or defined by the U.S. Securities and Exchange
Commission (SEC). Mineral resources are not reserves and do not
have demonstrated economic viability. For further information,
please refer to the risk factors and definitions of reserves and
resources in the Company's filings on SEDAR and with the SEC on the
Company's website, http://www.queenstake.com/. The Qualified Person
for the technical information contained in this news release is Mr.
Dorian L. (Dusty) Nicol, President and Chief Executive Officer of
Queenstake. The Company's technical report on reserves and
resources with respect to Canadian National Instrument 43-101 was
filed on SEDAR on May 4, 2006. This report is available under
Investor Information/Financial Information/SEDAR filings at
http://www.queenstake.com/ or at http://www.sedar.com/ under the
Company's name. INTERIM CONSOLIDATED STATEMENTS OF NET INCOME
(LOSS) Unaudited For the For the Three Months Ended Six Months
Ended (In Thousands of U.S. Dollars, June 30 June 30 except per
share amounts) 2006 2005 2006 2005 Gold sales $32,153 $21,669
$47,918 $43,375 Costs and expenses Cost of sales 24,369 19,503
40,890 39,139 Depreciation, depletion and amortization 3,931 4,866
7,201 10,353 Non-hedge derivatives 24 618 207 1,140 Exploration
1,124 861 1,324 1,385 General and administrative 1,284 843 2,356
3,200 Accretion of reclamation and mine closure liability 293 134
587 266 Stock-based compensation 838 341 914 425 31,863 27,166
53,479 55,908 Income (loss) from operations 290 (5,497) (5,561)
(12,533) Interest expense 43 278 106 325 Other income, net (275)
(209) (523) (395) Foreign exchange (gain) loss (112) 77 (158) 259
(Gain) loss on disposal of assets (97) -- (97) -- Loss on write
down of assets -- -- 166 -- (441) 146 (506) 189 Net income (loss)
$731 $(5,643) $(5,055) $(12,722) Net Income (loss) per share -
basic and diluted $0.00 ($0.01) ($0.01) ($0.03) Weighted average
number of shares outstanding (000's) - basic 576,634 563,833
563,282 467,946 INTERIM CONSOLIDATED STATEMENTS OF DEFICIT
Unaudited For the Three Months For the Six Months Ended June 30
Ended June 30 (In Thousands of U.S. Dollars) 2006 2005 2006 2005
Deficit, beginning of period - as previously reported $(88,646)
$(70,268) $(82,860) $(63,189) Net Income (loss) 731 (5,643) (5,055)
(12,722) Deficit, end of period $(87,915) $(75,911) $(87,915)
$(75,911) INTERIM CONSOLIDATED BALANCE SHEETS June 30, December 31,
(In Thousands of U.S. Dollars) 2006 2005 ASSETS Unaudited Current
assets Cash and cash equivalents $10,452 $10,225 Trade and other
receivables 983 463 Inventories 12,838 6,519 Marketable securities
13 13 Prepaid expenses 560 1,499 Total current assets 24,846 18,719
Restricted cash 26,930 27,165 Mineral property, plant and
equipment, net 50,839 45,692 Other assets 3,801 1,763 Total assets
$106,418 $93,339 LIABILITIES AND SHAREHOLDERS' EQUITY Current
liabilities Accounts payable and accrued liabilities $16,022
$11,063 Other current liabilities 1,398 2,846 Total current
liabilities 17,420 13,909 Other long-term obligations 4,469 2,117
Reclamation and mine closure 26,607 26,382 Total liabilities 48,496
42,408 Shareholders' equity Common shares, no par value, unlimited
number authorized Issued and outstanding 582,476,489 (2005 -
550,021,360) 142,952 131,804 Contributed surplus 2,871 1,973
Convertible securities 14 14 Deficit (87,915) (82,860) Total
shareholders' equity 57,922 50,931 Total liabilities and
shareholders' equity $106,418 $93,339 INTERIM CONSOLIDATED
STATEMENTS OF CASH FLOWS Unaudited For the For the Three Months Six
Months Ended June 30 Ended June 30 (In Thousands of U.S. Dollars)
2006 2005 2006 2005 OPERATING ACTIVITIES Net loss $731 $(5,643)
$(5,055) $(12,722) Non-cash items: Depreciation, depletion and
amortization 3,931 4,866 7,201 10,353 Write down of assets -- --
166 -- (Gain) on disposal of assets (97) -- (97) -- Accretion of
reclamation and mine closure liability 293 134 587 266 Amortization
of non-hedge derivatives 6 618 10 1,140 Write down of non-hedge
derivatives 18 -- 197 -- Stock-based compensation 838 340 914 424
Foreign exchange loss (112) 77 (158) 259 Loss on sale of marketable
securities -- -- -- 38 Write down of marketable securities -- 4 --
4 5,608 396 3,765 (238) Changes in non-cash working capital:
Inventories (822) (1,562) (5,637) (2,349) Accounts receivable and
prepaid accounts (76) 340 419 (306) Accounts payable and accruals
(2,071) (4,438) 7,112 (9,462) Cash provided by (used in) operating
activities 2,639 (5,264) 5,659 (12,355) INVESTING ACTIVITIES
Property, plant and equipment expenditures (6,724) (1,980) (14,959)
(7,061) Proceeds from sale of assets 21 -- 21 -- Sale of marketable
securities -- -- -- 442 Reclamation costs incurred (362) -- (362)
-- Restricted cash 506 (132) 235 (251) Cash (used in) investing
activities (6,559) (2,112) (15,065) (6,870) FINANCING ACTIVITIES
Common shares issued, net of costs 11,402 6,938 11,131 30,349 Notes
payable and leases (503) (115) (1,498) (390) Deferred financing
costs -- -- -- -- Cash provided by (used in) financing activities
10,899 6,823 9,633 29,959 Net increase (decrease) in cash and cash
equivalents 6,979 (553) 227 10,734 Cash and cash equivalents,
beginning of period 3,473 17,419 10,225 6,132 Cash and cash
equivalents, end of period $10,452 $16,866 $10,452 $16,866
DATASOURCE: Queenstake Resources Ltd. CONTACT: Wendy Yang of
Queenstake Resources Ltd., +1-303-297-1557, ext. 105, or
+1-800-276-6070, Web site: http://www.queenstake.com/
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