Great Basin Gold (TSX: GBG; AMEX: GBN; JSE: GBG) says it will see the effect of the strong gold price on margins at its Hollister project in Nevada as the inflationary environment will not have a dramatic impact on its small, high grade operation here.  

Great Basin Gold CEO Ferdi Dippenaar told Mineweb today the company was revisiting costs at the Hollister operation, but it was upbeat that inflationary circumstances would not have a great effect as Hollister's energy use was very low.  

Dippenaar said this absolutely implied that gold price would boost the operation's profit margin as the Hollister feasibility study had assumed a gold price of $550/ounce.

Hollister was generating cash for Great Basin Gold while it was still spending capital to develop the mine, as the project was building up to production of 80,000 ounces by the end of the year. Dippenaar said the cashflow would give investors peace of mind in the short term as the market lacked liquidity.

Great Basin recently indicated that the company had a strong balance sheet with about $51m in cash and $57m in project funding, without hedging conditions. This excluded its revenue from production of 80,000 equivalent gold ounces expected from Hollister this year.  

Milling results released today were significant for the company in the light of generating cashflow and boded well for continuing exploration at Hollister. This comes as a gold grade of 1.2 ounces per tonne and silver grade of 9.5 ounces per tonne confirmed the feasibility study's expectations.

The CEO said it was an exciting time in the junior gold industry as very little consolidation has taken place in the sector. Hopefully the current liquidity and volatility are the events that spur more merger and acquisition activity. We have seen juniors that had planned to raise money in the market to start building projects at this point battling to get the money.

The combination of the resources boom and the financing side problem implies there is real possibility that juniors will have to postpone their projects. This will lead to lower stock prices and the expected gold not coming to the market.

It makes for a very interesting market for merger and acquisition activity.

Great Basin today said milling results showed that 5,000t of ore production at its Hollister Mine realised net revenue of $3.9m after toll treatment costs.

 The company is ramping up to production of 150,000 ounces at Hollister by the beginning of next year. The Hollister feasibility study indicated cash costs of $214/ounce that is currently being reviewed.  

At Great Basin Gold's Burnstone project in South Africa's Witwatersrand basin, bulk sampling is expected to start in the third quarter of 2008. The company is currently conducting a feasibility study investigating a higher level of underground mechanisation here.