Homestake posts profit for quarter — Gain reflects year-long restructuring plan

Benefiting from an overhaul, Homestake Mining (HM-N) reported earnings of US$1.4 million (or 1 cents per share) for the fourth quarter of 1998, compared with a loss of US$58.4 million (28 cents per share) for the last three months of 1997.

For the past year, however, the company incurred a loss of US$218.3 million ($1.02 per share), compared with a loss of US$230.6 million ($1.10 per share) in 1997.

The quarterly gain follows several months of restructuring. Early in the year, Homestake closed its namesake mine in South Dakota, only to reopen it in the second quarter with a new plan of operation. The company then completed its acquisition of Australia’s Plutonic Resources, restructured the Mt. Charlotte mine in Australia, took over Prime Resources and wrote down nearly US$200 million in assets.

“In the fourth quarter, we started to see the benefit of this fundamental restructuring of our assets,” says Stephen Orr, vice-president of investor relations.

The only charge against fourth-quarter earnings was US$2.8 million (1 cents per share) related to suspension of operation at the 50%-held Pinson mine in Nevada.

The company’s share of gold production for the quarter was 530,300 oz., off 2.5% from the corresponding period in 1997. Cash costs were down 15%, to US$201 per oz., from the year-ago period.

For the year, Homestake’s share of production topped 2.04 million oz. gold, plus 11.7 million oz. silver from the Eskay Creek mine in British Columbia.

However, production levels slipped at the Homestake mine, the David Bell mine in Marathon, Ont., and the Mt. Morgan and Kalgoorlie mines in Australia. Cash costs were US$202 per oz.

Total output in 1997 consisted of 2.09 million oz. gold and 11.8 million oz.

silver at a cash cost of US$246 per oz.

Homestake’s proven and probable reserves totalled 19 million oz. gold and 112.8 million oz. silver at the end of 1998, compared with 19.5 million oz.

gold and 59.2 million oz. silver a year ago. The dramatic rise in silver production reflects the company’s acquisition of Eskay Creek.

Mineral resources stand at 21.9 million oz. gold and 5.5 million oz. silver, up from 20.8 million oz. gold and 2.2 million oz. silver a year ago.

Homestake expects to produce 2.3 million oz. gold in 1999 at a cash cost of US$200 per oz. and is embarking on a hedging policy to sell forward as much as 30% of gold production in each of the next 10 years, and 30% of silver production in the next five years.

Exploration spending is expected to fall to US$45 million in 1999, down from US$55.3 million in 1998. A portion of the funds will be used to finance stepout drilling at the Pinson mine in Nevada, where recent exploration outlined an interweaving system of structurally controlled oxide and sulphide zones over a strike length of 1,900 ft. and a vertical extent of 1,500 ft. Gold grades ranged from 0.2 to more than 1 oz. per ton.

In Australia, the company will test targets at the recently discovered Just-in-Case deposit at the Mt. Morgan property, and investigate near-surface oxide mineralization north of the Darlot mine.