Queenstake Resources Ltd.

Queenstake Resources Ltd.

September 26, 2005 09:05 ET

Queenstake's Redevelopment Plan to Revitalize Jerritt Canyon

DENVER, COLORADO--(CCNMatthews - Sept. 26, 2005) - Queenstake Resources Ltd. (TSX:QRL)(AMEX:QEE) announced its redevelopment plan to revitalize the Jerritt Canyon operations. Under the new plan, Queenstake expects to be generating positive cash flow - after capital expenditures, exploration and corporate expenses - in early 2006, assuming a gold price of $425 per ounce.

For the full year 2005, production is estimated to be 200,000 to 220,000 ounces of gold at cash operating costs of $380 to $390 per ounce. Cash operating costs during the third and fourth quarters of the year are estimated at $395 to $405 per ounce and $370 to $380 per ounce, respectively. Cost savings resulting from the redevelopment plan will be seen progressively through the second half of the year as operating improvements under the plan are implemented.

Implementation of the redevelopment plan began in mid-August. Therefore, third quarter costs still reflect about 6 weeks of operation under the old plan together with, during July, continued impact on production and costs from flooding in the Smith mine that was announced in an August 11, 2005 news release. Operating costs during the fourth quarter are expected to show continuing improvement over the third quarter, positioning Jerritt Canyon to fully realize the benefits of the redevelopment plan during 2006.

As announced in August, under the redevelopment plan, the Jerritt Canyon mill has been scaled back from two roasters to operation of a single roaster at a time. This has reduced mill throughput to 2,500 to 2,700 tons per day, a decrease of about 25% from the first half of 2005. Significantly, however, the average grade of ore being processed has increased to about 0.25 ounce of gold per ton (opt), representing an approximately 20% increase in average grade from the first half of 2005.

For 2006, Queenstake expects production comparable to 2005's estimated production, with cash operating costs of $330 to $350 per ounce. The lower cash operating costs during 2006 are expected to result from an anticipated increase in average ore grade together with a greater proportion of higher grade ore tons mined and milled compared to 2005. In addition, 2006 is expected to represent a full year of the cost saving initiatives from the redevelopment plan. More definitive estimates for 2006 are pending completion of the 2006 budget and will be announced in early 2006.

Dorian L. (Dusty) Nicol, President and Chief Executive Officer of Queenstake said, "The redevelopment plan represents a major shift in how we operate Jerritt Canyon. We are no longer trying to match underground mine production to keep up with the capacity of a mill that was designed to be fed by multiple open-pit mines. Rather, the redevelopment plan matches mill throughput to a realistic and optimal underground mine production rate. This should allow us to mine and process higher grade ore together with lowering costs from reduced energy consumption and other savings. Jerritt Canyon should be well positioned to generate positive cash flow in early 2006, based on a gold price of $425 per ounce or better."

Highlights of the redevelopment plan include:

- Annualized net savings from 2006 onward estimated at between $10 million and $12 million. These will result principally from reductions in energy consumption, surface labor, commodity consumption and maintenance, as well as from the planned shutdown of the higher-cost Murray mine expected in April 2006.

- The 2006 exploration budget is estimated at a minimum of $4 million, pending completion of the 2006 budget. Exploration next year will focus on Starvation Canyon and other high quality targets as well as continuing near-mine exploration.

- Capital expenditures are expected to be between $18 million and $20 million in 2005, decreasing to between $14 million and $16 million in 2006, pending completion of the 2006 budget.

Second Half of 2005 and Preliminary 2006 Outlook

Indications during the first six weeks of operation under the new plan are positive. For example, mill grade has been steadily improving from 0.176 opt in July to surpass the 0.250 opt target in recent weeks and is expected to average 0.257 opt in September. The effects of the redevelopment plan on decreasing costs are expected to be more gradual and will be seen progressively through the fourth quarter and into next year.

Table 1: 2005 Estimated Highlights

Six months ended
June 30, 2005 December 31, 2005E FY 2005E
Ore tons
mined (000) 515 385-435 900-950
Ore tons
processed (000) 628 420-470 1,050-1,100
Grade processed
(opt) 0.209 0.24-0.25 Approximately 0.22
Process recovery
rate 86.6% Approximately 87% Approximately 87%

Gold production
(000 ounces) 108 92-112 200-220
Total cash operating
costs ($ per ounce) $373 $385-$390 $375-$385
Capital expenditures
(millions) $8 $10-$12 $18-$20
(E denotes Estimated.)

The shortfall in underground mine development that has had a negative impact on mine production is being addressed by using a contract miner on development headings as well as by allocating a greater proportion of internal resources to development. The arrival on site of underground equipment delivered during the third quarter has had a positive impact on both underground development and production drifting.

The average grade of ore processed in 2006 is targeted at 0.25 to 0.26 opt. The expected improvement in ore grade compared to the first half of 2005 is due to the new mine plan, which targets the higher grade portions of individual ore shapes. Mined grades during 2006 will be augmented by the higher grades expected from the new Mahala and Steer mines.

Commercial production from the Mahala deposit began in mid-August, following commissioning of the ventilation and escape-way raise. Mahala is mined through the Smith mine portal. The underground connection between the SSX and Steer mines is expected to be completed within days. This connection will allow commercial production to begin from the Steer mine by providing a secondary escape-way. The connection will also allow better operational efficiency of labor, equipment, and maintenance in a combined SSX-Steer complex. Production from the SSX-Steer complex is expected to ramp up from 1,140 tons per day in the third quarter of 2005 to a steady rate of 1,950 tons per day in the first quarter of 2006.

Redevelopment Plan

The redevelopment plan represents a re-engineering of the Jerritt Canyon operations. A significant portion of the ore bodies were re-modeled using smaller blocks and more detailed geologic information. The new mine plan focuses on lower tonnage at higher grade production and underground development. Two consultants, John Ellis, a Board member and former CEO of a previous operator of Jerritt Canyon, and Gil Leathley, a well-respected underground mine consultant and former head of operations for Homestake, provided oversight during development of the new plan and continue to serve as advisers to mine management.

Operating costs reductions totaling $10 million to $12 million per year, compared to 2005 actual and estimated costs, are expected as a result of the new plan. Principal components of anticipated cost savings include:

- About $1 million per year from reduced energy consumption, derived principally by turning the mill down to a single roaster and by batch crushing ore during off-peak hours;

- About $3.5 million per year in lower costs from labor and associated benefits due to the elimination of positions and the re-assignment of some workers from mill to underground facilities;

- Between $3 million and $4 million from lower commodity consumption (e.g., fly ash, cement, ventilation pipe and other materials) as well as from improved operating efficiency;

- Between $2 million and $3 million from maintenance savings, including re-assignment of equipment from the planned closure of the Murray mine.

In addition to anticipated cost savings at the operation, Queenstake made substantial reductions in its ongoing corporate overhead costs. This was accomplished by reducing staff at the corporate office and by implementing other cost saving initiatives.

Capital Expenditures

A major benefit of the redevelopment plan will be reduction of annual capital expenditures. Mr. Nicol commented, "Capital investment in Jerritt Canyon was minimal for several years before our acquiring the property in June 2003, due to the prior owners' plans to shut down the operation. Queenstake invested $30.6 million in capital during the first 18 months of its ownership and will have invested an additional $18 million to $20 million during 2005. Under the redevelopment plan, we expect a substantial decline in capital investment requirements. During 2006, we expect capital requirements to be $14 million to $16 million (including capitalized development mining), representing about a 20% decrease compared to 2005".

Chart 1: 2003-2006E Capital Expenditures


Safety Awards

Jerritt Canyon's SSX and Smith mines won first and second place awards from the Nevada Mining Association as the safest underground mines in the state. The Murray mine narrowly missed an award, with a fourth place finish in the same category. The Jerritt Canyon mill was awarded the top prize as the safest medium-sized mill in the state.

"The unparalleled pride and professionalism of our employees are demonstrated once again in almost sweeping the top safety awards in Nevada. Jerritt Canyon's safety record is a testament to the talent and dedication of our employees and to the leadership at every level of the operation. Our employees are thoroughly committed to safely and efficiently implementing the redevelopment plan and building value for Queenstake's shareholders," Mr. Nicol said.

Queenstake Resources Ltd. is a gold mining and exploration company based in Denver, Colorado. Its principal asset is the Jerritt Canyon District in Nevada. Jerritt Canyon has produced over 7 million ounces of gold since 1981. Current production at the property is from underground mines that are among the best in the industry in terms of safety and productivity. The Jerritt Canyon District, owned 100% by Queenstake, comprises over 100 square miles of geologically prospective ground and represents one of the largest contiguous exploration properties in Nevada.

Cautionary Statement - This news release contains "Forward-Looking Statements" within the meaning of 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 and cash operating costs, (ii) estimates of future capital expenditures, (iii) estimates of savings or cost reductions, (iv) estimates related to financial performance, including cash flow, and (v) estimates of exploration investment and scope of exploration programs. There can be no assurance that such statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements, in particular the estimates do not include input cost increases that could occur in future. Forward-looking statements are based on the estimates and opinions of management on the date the statements are made, and Queenstake does not undertake any obligation to update forward-looking statements should conditions or management's estimates or opinions change. Forward-looking statements are subject to risks, uncertainties and other factors, including gold and other commodity price volatility, political and operational risks, which are described in the Company's 2004 Annual Information Form on 40-F on file with the Securities and Exchange Commission as well as the Company's other SEC filings.

SEC file number: 0-24096

The Toronto Stock Exchange has neither reviewed nor accepts responsibility for the adequacy or accuracy of this release.

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