Battle Mountain cuts costs to battle lower gold prices

Battle Mountain Gold (BMG-N) has lowered production costs, but still took a loss in the fourth quarter and its fiscal year.

The company reported a net loss of US$20.6 million (or 9cents per share) during the fourth quarter of 1997 as a result of lower gold prices and several non-cash charges, including US$5.5 million in environmental charges, primarily at the Battle Mountain complex in Nevada. Foreign currency adjustment charges totalled US$3.5 million.

Battle Mountain changed its accounting policy for depreciation, depletion and amortization at the Kori Kollo mine in Bolivia from a tons-milled basis to an ounces-produced basis. The cumulative affect of this change was a one-time charge of US$17.2 million.

The quarter’s results were an improvement over the same period last year, when the company posted a net loss of US$39.5 million (17cents per share).

Revenues for the quarter were US$87 million, down from US$107.7 million. The decrease is the result of a drop in the average gold price the company realized when selling its production: in the fourth quarter of 1996, Battle Mountain sold its gold at an average of US$382 per oz., but by the fourth quarter of 1997, the price was down to US$324.

For the year, Battle Mountain reported a net loss of US$29.8 million (13cents per share), compared with a net loss of US$81.8 million (36cents per share) during 1996. Revenues for the year were US$344.9 million, down from US$424 million in 1996. The average realized gold price in 1997 was US$340 per oz., compared with US$391 in 1996.

On the bright side, cash production costs fell, roughly keeping pace with the falling gold price. The costs reflect operating improvements at Kori Kollo, the phasing out of two higher cost mines (Silidor in Quebec and Red Dome in Australia), as well as the startup of the Vera/Nancy mine in Australia and the Lihir mine in Papua New Guinea, two high-grade mines in which Battle Mountain holds an interest.

Cash costs fell to US$185 per oz. during the fourth quarter, compared with US$218 per oz. for the same period in 1996. For the year, cash costs were US$197 per oz., compared to US$210 in 1996. Total production costs were US$277 per oz. for the quarter, and US$288 for all of 1997.

The company produced 232,000 oz. gold during the last quarter of 1997, slightly higher than the 220,000 oz. refined in the same period last year.

For the year, it cranked out 876,000 oz.; 920,000 oz. was the 1996 total.

Proven and probable reserves at the end of the year amounted to 10.1 million oz. gold, assuming a gold price of US$325 per oz. The operator of the Lihir mine, Lihir Gold (LIHRY-Q), calculated its reserves at US$375 per oz. Battle Mountain retains an 8.7% indirect interest in the Lihir project.

In 1998, the company expects to be able to lower production costs to under US$180 per oz. while maintaining production at the same level, about 865,000 oz. Several developments are expected to lower Battle Mountain’s overall production cost this year:

* At the Golden Giant mine in Ontario, development work on the Block 5 orebody is expected to keep gold output at 330,000 oz. at a cash cost of US$140 per oz.

* At Kori Kollo, the company expects to increase production slightly at the Chuquina and San Andres tailings projects and increase throughput from the Nueva Esperanza and Llallagua pits. Production costs are targeted below US$180 per oz. Battle Mountain anticipates boosting production by 10% in 1999 and 15% in 2000 on the strength of these changes, plus it has begun a test plant for bio-oxidation of refractory ores.

* The company will work on ensuring a constant mining rate at the Holloway mine in Ontario.

* At the Battle Mountain complex in Nevada, the company is contemplating making a copper concentrate from the ore, which is intended to reduce cyanide consumption and lead to higher gold recoveries.

On the exploration front, Battle Mountain plans to spend US$25 million.

About US$10.8 million is earmarked for eight priority projects in Canada, the U.S., Mexico and the rest of Latin America and Ghana.

The company states that it is also looking for acquisition opportunities that are expected to result from the current downturn in the industry.