PERTH (miningweekly.com) – The share price of copper/gold miner Hillgrove Resources plummeted 50% on Thursday as the company warned of lower production during the 2016 financial year, and announced an independent review targeted at cost cutting.

Hillgrove told shareholders that since February, the company had been unable to achieve its budgeted production levels at the Kanmantoo mine, in South Australia, as a result of an independent evaluation of the Kanmantoo orebody undertaken in late 2015.

The evaluation led to a deferral of revenue, and in order to address this, the life-of-mine (LoM) plan at Kanmantoo was amended, which intensified mining in a smaller footprint.

However, following the detailed implementation, planning and analysis of recent actual performance had determined that the planned mining sequence was too aggressive, and as a result, the LoM plan had been revised to one that had a simpler sequence. Based upon currently achieved mining rates, the adjusted mine plan brought forward waste removal and, as a result, deferred copper production.

As a consequence of the lower production, Hillgrove’s current liabilities increased during the month of February, and the company found itself in breach of its month-end A$25 000 trade creditor financial covenant. The company, however, obtained a waiver from its financiers removing the month-end limit for the month of February.

However, the waiver required Hillgrove to achieve 95% of its payable copper production target, as set out in its previous LoM plan, for the three months between March and May.

Hillgrove said on Thursday that the company had determined that the copper production target would not be reached, which also necessitated a revision of the LoM to lower targets in line with recent performance.

It was expected that the Kanmantoo mine would deliver between 14 500 t and 16 500 t of copper in concentrate, as opposed to the previous estimate of between 16 500 t and 18 500 t, while gold production would be between 8 000 oz and 10 000 oz, rather than the previous estimate of 11 000 oz to 13 500 oz.

Capital costs estimates had also increased from between $1.75/oz and $2.05/oz to between $1.85/oz and $2.15/oz.

While the new LoM plan still indicated that the Kanmantoo mine would generate significant value, the anticipated near-term production levels and the need to continue the pre-strip and cut-back of the Giant pit meant that Hillgrove could face a cash shortfall in 2016 and 2017.

The miner was now undertaking an independent review of its revised plans and forecasts in an effort to address the anticipated cash flow shortfall. A range of measures would also be implemented to reduce costs and generate proceeds from asset sales.

Hillgrove told shareholders that the company had begun the process of discussions with its key stakeholders, including employees, contractors, suppliers and service providers, to seek their assistance with the process.

Hillgrove shares were trading at a low of 5.5c a share, down from an opening price of 9c a share and the previous day’s closing price of 11c a share.