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Great Basin Slumps After Warning on Liquidity

Great Basin Gold Ltd., a producer of the metal in South Africa and Nevada, plunged the most in more than 23 years after warning that it’s running out of cash after lower-than-expected production at the Burnstone mine.

Great Basin slid 43 percent to 25 Canadian cents at the close in Toronto, the most since at least October 1988, according to data compiled by Bloomberg.

The company cut its 2012 production forecast and is facing “near-term liquidity challenges,” Great Basin said in a statement today. The company, which is based in Johannesburg and has an office in Vancouver, said it will seek to raise at least C$60 million ($61 million) through a combination of asset sales or new shares and has formed a special committee of directors to run a strategic review process. Chief Executive Officer Ferdi Dippenaar resigned and Chief Financial Officer Lou Van Vuuren was appointed interim CEO.

“We suspect the company will be unable to meet its obligations beyond October,” Brad Humphrey, a Toronto-based analyst at Raymond James Ltd., said in a note today. “The most probable alternative is the sale of assets, likely the sale of the Hollister mine in Nevada.”

Great Basin said it had a working capital deficit of about C$23 million as of June 30. Its second-quarter loss widened to C$22 million from C$1.1 million a year earlier. The company cut its 2012 production forecast for Burnstone in South Africa to 30,000 ounces of gold from a previous range of 90,000 to 100,000 ounces.

The company also said it expects to produce 70,000 to 80,000 of so-called gold equivalent ounces at the Hollister mine in Nevada. The previous forecast for Hollister was 90,000 to 100,000 ounces.

“The window for Great Basin to demonstrate it can turn around operations has passed,” Josh Wolfson, a Toronto-based analyst at Stifel Nicolaus & Co., said in a note today. He cut his recommendation on the stock to sell from hold.

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