North America’s third-largest gold mining company turned a profit in the second quarter, demonstrating an ability to adapt to lower gold prices by increasing efficiency and maintaining solid hedging practices.
Hedging enabled Placer Dome to realize an average price of US$338 per oz. during the first six months of the year. This is US$58 per oz. higher than the average London market price of US$280 per oz. The company’s hedge positions resulted in an increase in earnings of US$25 million, compared with a loss of US$24 million a year earlier.
Earnings during the first half of 1999 totalled US$37 million (11 cents per share) on sales revenue of US$557 million, compared with US$26 million (8 cents per share) on revenue of US$547 million in the year-ago period. Taking extraordinary items into account, the figures are US$11 million (3 cents per share), compared with US$2 million (1 cents per share).
“We have the benefit of sustained low-cost production and a successful hedging program,” says Placer President John Willson. “We have focused even more sharply on operating margins at our mines and have deferred a substantial amount of capital expenditures.”
Cash flow from operations for the first half of this year was US$167 million, compared with US$174 million a year ago. The decrease is attributed to merger and restructuring costs incurred in 1998.
On June 30, Placer’s consolidated cash and short-term investments totalled US$347 million, and its current and long-term debt stands at US$960 million. The company has US$780 million of unused bank lines of credit available.
Exploration expenses during the first half of the year were US$25 million, or US$12 million less than a year ago. The decrease reflects the company’s decision to cut back on exploration in response to low gold prices.
Placer’s share of gold production in the second quarter was 821,000 oz. at a total production cost of US$238 per oz. and a total cash cost of US$169 per oz. Comparative figures for 1998 were 764,000 oz. at a production cost of US$226 and a cash cost of US$159.
During the first half of 1999, the major produced 1.5 million oz. gold at a total production cost of US$237 per oz. and a cash cost of US$167 per oz., whereas the first half of 1998 saw 1.43 million oz. produced at a production cost of US$246 and a cash cost of US$175.
Placer’s share of gold production for all of 1999 is projected to total 3 million oz. at an average production cost of US$240 per oz and a cash cost of US$170 per oz.
The company’s share of copper production in the second quarter was 64.1 million lb. at an average realized price of US73 cents per lb., compared with year-ago output of 53.6 million lb. at US84 cents per lb.
Placer’s Cortez and Granny Smith mines are reportedly the lowest-cost gold mines operating in the U.S. and Australia, respectively.
The 60%-owned Cortez, situated in Nevada, produced a record 391,601 oz. gold in the first half of the year at a total cost of US$118 per oz. and a cash cost of US$48 per oz. Total production in 1999 is expected to exceed 1 million oz. for the second consecutive year.
The 60%-owned Granny Smith mine produced 157,677 oz. at a total cost of US$87 per oz. and a cash cost of US$81 per oz. in the first half. Output was 9% less than a year ago, owing to lower grades and recoveries.
Situated near Granny Smith is the Wallaby deposit, exploration of which has boosted gold resources by an estimated 65% to 3.8 million oz. The previous resource estimate was 29.7 million tonnes averaging 2.39 grams gold per tonne (2.28 million contained ounces). A feasibility study for an open-pit mine is due by the first quarter of 2000.
First-half production at the 50%-owned Porgera mine in Papua New Guinea amounted to 157,677 oz. gold at a total cost of US$313 per oz. and a cash cost of US$201 per oz. This represents a 24% decrease over figures of a year ago, when production rates were higher.
At the Campbell mine in northwestern Ontario, production decreased 25% to 120,610 oz. at a total cost of US$208 per oz. and a cash cost of US$153 per oz. over the first six months. The reduction stemmed from lower grades and higher production costs.
Placer recently suspended construction at its 70%-owned Las Cristinas mine in Venezuela.
“Proceeding to build the mine is not the best use of capital at this time, given the prevailing market uncertainty,” says Willson, who adds that construction will resume once the gold price shows signs of staying well above US$300 per oz.
In South Africa, Placer and its joint-venture partner, Western Areas, have proposed slashing their combined workforce at the South Deep project by up to 40% in order to achieve a 30% cost reduction. This would affect as many as 2,700 to 2,900 employees. Under the plan, 29 senior management positions would be eliminated by the end of August.
The US$300-million, twin-shaft development at South Deep is ahead of schedule and under budget. Placer’s 50% share of production from South Deep has so far amounted to 38,220 oz. at a total cost of US$380 per oz. and a cash cost of US$320 per oz.
Meanwhile, mining at the Turquoise Ridge mine on the Getchell property in Nevada has been halted for about a year to allow for development of infrastructure. The mill has also been shut down. However, underground operations at the adjacent Getchell mine will continue, and ore will be stockpiled for later processing.
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