Company-wide, Placer’s earnings for the period amounted to US$1 million (or nil per share), with cash flow of US$361 million (US$1.10 per share) on sales revenue of US$1.05 billion. By comparison, the first nine months of 1999 saw Placer post earnings of US$28 million (US9 per share) and cash flow of US$237 million (US72 per share) on US$847 million in revenue. Operating earnings were US$334 million, up 46% over the year-ago period.
Earnings for the year to date have been adversely affected by a US$116 million writedown of the Las Cristinas project in Venezuela and by non-hedge currency derivative losses of US$45 million.
Placer had a strong third quarter, performing better than the street was expecting. The company earned US$34 million (US10 per share) and generated US$146 million (US44 per share) in cash flow on sales of US$332 million for the 3-month period ended Sept. 30. Operating earnings were US$101 million.
In the first nine months of 2000, the Zaldivar mine produced 244.6 million lbs. copper at cash costs of US40 per lb. and total costs of US58 per lb., compared with year-ago costs of US40 and US64 per lb., respectively. Production in the recent quarter was marginally lower, owing to lower grades and recovery.
Higher copper prices benefited the operation, which realized an average price of US81 per lb. in the 9-month period, versus US71 a year ago. While copper prices have eased off somewhat, Placer’s president, Jay Taylor, expects the red metal to remain robust in the near term. “I think you will see Zaldivar contributing significantly to our earnings for some time.”
In December 1999, Placer increased its interest in the Zaldivar copper mine to 100% by acquiring the remaining half-interest from its joint-venture partner, Outokumpu, for US$251 million.
“While it may have been quietly criticized at the time, it is now clear this was a prudent business decision,” Taylor told delegates at the recent Mining Investment Forum in Denver, Colo.
The joint-venture partners brought Zaldivar into commercial production in 1995 at a capital cost of US$600 million, and, by the end of 1999, it had cranked out 1.06 billion lbs. copper. The property is 3,300 metres above sea level and roughly 175 km southeast of the port city of Antofagasta.
Last year, Zaldivar produced 331.6 million lbs. copper from the treatment of 14.3 million tonnes of ore averaging a head grade of 1.33%. The copper was produced at a cash cost of US39 per lb. and a total cost of US61 per lb.
About 97.6% of the mine’s output was in the form of copper cathodes, with the remainder in flotation concentrate. A flotation plant was commissioned in early 1998 to recover copper contained in fines generated from the tertiary crushing plant and that were previously lost to tailings.
During 1998, the installation of a 2-stage leaching circuit for both the oxide and sulphide heaps, plus the installation of aeration systems, combined with modifications to improve heat conservation, resulted in higher recoveries.
Cathode production also increased, thanks, in part, to the development of a stacking process whereby leached materials are removed from the pad and replaced with fresh ore. This development has affected the feasibility study definition of the ore types; Zaldivar has now defined a unique “mixed ore” for processing purposes.
The open pit is being developed in six stages. Last year, ore was produced from the Main zone in stages one and two. Meanwhile, a 4-year drilling campaign, initiated in 1999, is expected to be completed in the first quarter of 2001, almost two years ahead of plan.
Between 1998 and 1999, contained copper in proven and probable reserves jumped by 35%, to 6.3 billion lbs. in 376 million tonnes grading 0.76% copper. The increase resulted from the updating of the geological model.
Additional measured and indicated resources stand at 341 million tonnes grading 0.41% copper, equivalent to 3.1 billion lbs., whereas some 1.1 billion lbs. are contained in an inferred resource of 103 million tonnes grading 0.49% copper.
The deposit is centred on a northeast-striking granodiorite porphyry body that intrudes andesites and rhyolites. The porphyry system occurs at the intersection of the West Fissure and a series of northwest- and northeast-striking faults.
The orebody, which contains both sulphide and oxide copper mineralization, is divided into two zones: Main and Pinta Verde. Most of the copper occurs in a blanket of oxide and secondary sulphide ore, which overlies deeper primary sulphide mineralization of lower grade.
The economically important mineralization types are secondary sulphide (chalcocite), oxide (brochantite and chrysocolla) and a mixed type of combined sulphide and oxide copper minerals. Primary sulphides consist of pyrite, chalcopyrite, bornite and molybdenite.
With at least 15 years remaining in the mine’s lifespan, Zaldivar continues to generate what Taylor regards as encouraging exploration results.
“Gold is our focus, but I am thrilled to have an asset of this caliber in our portfolio,” he says. “And I am more than happy to cash those cheques.”
Placer’s share of gold production during the third quarter was 723,000 oz. at cash and total costs of US$162 and US$237 per oz. respectively, compared with 792,000 oz. at US$153 and US$231 per oz. in the corresponding period last year.
Production for the nine months totalled 2.2 million oz. gold at cash costs of US$158 per oz. and total costs of US$229 per oz, versus 2.3 million oz. at US$162 and US$235 per oz. in the year-ago period.
Under its hedging program, Placer realized an average gold price of US$346 per oz., a US$64 premium over the spot price of US$282 per oz. in the first nine months of 2000. At Sept. 30, the major had 8.5 million oz. committed to its hedge book for a mark-to-market value of US$430 million at current prices. Looking through to 2003, the company has about 40% of its estimated production committed to its hedging program, which is expected to realize an average price of US$412 per oz.
“Our hedge book is second to none,” says Taylor. “It offers a balance of protection against low gold prices, while affording shareholders excellent leverage to higher gold prices.” The company remains on course to reducing its committed hedge position to about 8 million oz.
In Australia, the Granny Smith joint venture has approved the development of the Wallaby deposit, starting immediately. Placer is the operator and 60%-owner of the gold mine, situated 23 km south of Laverton in Western Australia. Australian-listed
Beginning in 2002, Wallaby, which represents the 11th pit at Granny Smith, will add six years of life to the mine. Average annual production is pegged at 320,000 oz.; cash and total costs, at US$160 and US$215 per oz., respectively. The first two years are expected to see slightly higher production rates of 375,000 oz. and 340,000 oz.
Wallaby’s unoxidized ore will be treated at the rate of 3 million tonnes per year.
Capital costs are forecast to total US$90 million, which includes prestripping (US$18 million), mining equipment (US$22.2 million) and a plant upgrade (US$10.8 million).
The Wallaby deposit contains a probable reserve of 18.2 million tonnes grading 3.44 grams gold per tonne, equivalent to 2 million oz. The stripping ratio of the 230-metre deep pit is expected to be 7-to-1 if prestripping is included, or 5.7-to-1 if it is not.
The total resource at Wallaby is estimated at 58.4 million tonnes grading 2.6 grams gold, equal to almost 5 million oz.
The Granny Smith joint venture has reached an agreement-in-principal with
ortion of the deposit, which extends on to ground held by Homestake. The partners will pay Homestake a total of US$13 million over six years. Homestake retains a 3.5% net smelter return royalty on gold produced from its property.
“This robust project is a clear example of our focus on investments that meet our financial criteria,” says Taylor. “We will invest only in projects that return an appropriate premium over the cost of capital, and the Wallaby deposit, although smaller than originally envisaged, does just that.”
At present, the Wallaby project has an internal rate of return of about 23%, though Taylor is optimistic this will improve as development progresses. He says there remains a lot of ore in the basement and on the flanks of the pit.
The president is also confident of Granny Smith’s exploration potential: “After 11 pits, you’ve got to believe there is going to be more; it’s like finding raisins in porridge.”
Placer’s share of production from Granny Smith in the first nine months of this year declined by 13% to 197,581 oz., compared with the year-earlier period. The decrease is due to an 18% decline in grades. Cash and total production costs per oz. increased to US$206 and US$222, respectively, compared with US$90 and US$97 in 1999.
Production costs were negatively affected by the lower production and higher costs associated with mining of the Jubilee deposit.
Elsewhere in the Asian Pacific, Placer reports that its 70%-owned Porgera mine and wholly owned Misima mine in Papua New Guinea are both having excellent years. The company’s share of production at Porgera in the first three quarters increased by 23% to 333,260 oz. over the corresponding period in 1999. The increase is a reflection of higher grades associated with the mining of stage three. Cash costs fell US$48 to US$134 per oz., while total costs shed US$75 to US$229 per oz.
Misima increased production by 37% over the year-ago period to 183,132 oz., owing to improved grades. Cash and total costs for the nine months were US$208 and US$265 per oz., compared with US$278 and US$332 per oz. in 1999.
Among Placer Dome’s U.S. operations, the Cortez open-pit mine in Nevada continues to prove itself a star asset. Cortez is a 60-40 joint venture with London-based
Production at Cortez is expected to increase in the fourth quarter, bringing the year-end total to 1 million oz. on a 100% basis. On the exploration front, the joint venture has discovered a new zone, dubbed Crossroads, which contains an indicated resource of 550,000 oz. The deposit remains open in several directions and will, says Taylor, undoubtedly grow with additional drilling.
At Getchell, underground drilling has begun in the N zone, which will be delineated and test-mined in the coming year to facilitate completion of a reserve and mine plan. Drilling of the high-grade discovery area is to begin in the first quarter of 2001.
Since the suspension of Getchell’s operations in July 1999, Placer has focused on increasing the value of the property by combining future production from the Getchell, Turquoise Ridge and N zone deposits. The mine plan may incorporate the existing mill, which has a carrying value of US$60 million. (Placer is engaged in talks with the owner of a neighbouring property over the Getchell mill.)
In July 2000, the company announced a new global resource containing 15 million oz. gold in 36.7 million tonnes grading 12.7 grams, based on a cutoff grade of 6.9 grams per tonne. Measured resources total 7.4 million tonnes grading 11.9 grams (2.8 million oz. per ton), and indicated resources stand at 13.4 million tonnes grading 12.7 grams (5.5 million oz.). The remaining 6.7 million oz. are inferred.
Placer is budgeted to spend US$87 million at Getchell this year, of which US$45 million is reserved for capital development, US$20 million for exploration, and the remainder, for standby costs. A development mine study is scheduled for completion in 2002. “We are confident the Getchell will be a significant contributor to our earnings profile over the long term,” says Taylor. “We continue to target production to begin between 2003 and 2005.”
At the Campbell mine in northwestern Ontario, a rockburst in June and the discovery of a cracked ball mill have hampered production in the third quarter. Campbell produced 170,145 oz. in the first nine months of 2000 at cash and total costs of US$179 and US$241 per oz., respectively.
Campbell is expected to run at about 10% below mill capacity until a new gear can be installed in the ball mill late in the first quarter of 2001. Production for the year is now forecast at 225,000 oz., down from the original target of 250,000 oz.
In South Africa, the 50%-owned South Deep mine continued to reduce costs as it benefited from higher production and a weaker rand. Placer’s share of production in the third quarter was 48,256 oz., up 4% from the corresponding period last year. Output for the year to date stands at 119,869 oz., at cash costs of US$204 per oz. and total costs of US$226 per oz. Cash and total costs for the third quarter declined to US$180 and US$201 per oz., respectively, compared with US$262 and US$299 a year ago.
“Since acquiring our interest in the property nearly 18 months ago, we have made steady progress toward restructuring and improving profitability,” says Taylor. “We’ve reduced the workforce to 5,000 from 8,000, while maintaining a strong and healthy relationship with the union. In April of this year, we reached a groundbreaking agreement with the union that will allow us to begin 24-hour continuous operations.
“We are making steady progress toward ramping up production to 700,000 ounces per year by 2003 at the very attractive projected cash cost of $160 per ounce. This mine has a promising future, with the potential to generate a strong stream of cash flow and earnings for the company.”
Overall, Placer expects its share of production to be 3 million oz. for 2000, while it outperforms the forecast cash and total costs of US$160 and US$235 per oz., respectively.
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