Bendigo Blunders Prompt Rethink

COSTLY mistakes in overestimating gold grades in its $350 million rebirth of the historic Bendigo goldfield has forced Bendigo Mining to take drastic action, including halting production and shedding 150 jobs — 60 per cent of its workers.

The mine, beneath urban Bendigo, will be put on ice while the group uses the last of its $66 million in cash for an exploration-development program aimed at finding the high-grade reefs needed to make the mine pay its way.

Company chairman Peter McCarthy said the new focus was "certainly a big and painful hiccup".

But the strategy of initially relying on two historically weak lines of mineralisation has proved to be fraught with difficulty and risk. "Changes had to be made," he said.

"We remain confident of the rich endowment of the Bendigo system (22 million ounces historically) and our ability to deliver high rates of production in the future, but we need to access more productive lines of mineralisation to be able to demonstrate this ability."

Doug Buerger, the managing director for the past 11 years, and the man credited with turning a historic relic into a modern goldmine, will not be part of the changes. He has resigned for health and personal reasons.

The groups general manager of geology, Garry Johansen, has left the company and his responsibilities shift to the new managing director, Rod Hanson. Mr Hanson is now the groups chief operating officer.

Goldmining resumed at Bendigo in July. The restart, after a 54-year hiatus, was celebrated at an official opening by Premier Steve Bracks in October. But a lousy December quarter in terms of gold grades and production forced the group to take action.

The decision to defer commercial production for up to two years, along with the mines initial underperformance, prompts the need for a major write-down in the value of the companys non-current assets — estimated to be as much as $210 million.

The market got wind of what was coming and sent Bendigo shares to a 26-month low of 73.5¢, before the stock went into a trading halt on Thursday. In the year to December 31, the company was the worst-performed among in the S&P/ASX 200.

The dramatic changes are bound to infuriate investors who pumped $50 million into the company in November in a placement of shares at 80¢ each. The placement was managed by Macquarie Equity Capital Markets and Goldman Sachs JBWere.

It got away on the basis the company would produce 50,000 ounces of gold this financial year, rising to 75,000 ounces in 2007-08. The long-term plan remains to establish Bendigo as a 600,000 ounce-a-year producer.

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