Vancouver — Despite record production and strong operating cash flow in the third quarter,
The major earned US$21 million (or 5 per share) on gold sales of US$464 million during the 3-month period, compared with a profit of US$29 million (8 per share) on sales of US$275 million in the corresponding period of 2002.
For the first nine months of the year, Placer earned US$151 million (US37 per share) on sales of US$1.27 billion, compared with US$110 million (US33 per share) on sales of US$854 million a year earlier. Cash flow from operations fell to US$268 million (US66 per share) from US$273 million (US81 per share) between the two 9-month periods.
Quarterly earnings were reduced by a non-cash, non-hedge derivative expense of US$25 million after taxes, and also by costs related to advancing the Donlin Creek project in Alaska and performing prefeasibility work at the Pueblo Viejo project in the Dominican Republic.
The major produced more than 1 million oz. gold in the recent quarter, compared with 570,000 oz. a year earlier — a dramatic rise that largely reflects contributions from the North Mara mine in Tanzania. Placer Dome acquired the mine during its US$255-million takeover of East African Gold Mines in July.
During the first nine months, the major produced 2.8 million oz., or 49% more than in the year-earlier period. Again, the rise reflects the acquisition of East Africa Gold, and also of AurionGold in late 2002.
“Our operations performed well this quarter,” confirmed President Jay Taylor, “and we remain on-track to achieve the highest annual production in our history.”
Between the second and third quarters of 2003, operating earnings increased 72% to US$112 million, while cash flow from operations rose 116% to $125 million. In both cases, the improvement is attributed to increases in both the spot price for gold, which averaged US$363 per oz. in the recent quarter, and the realized price, which was US$392 per oz.
During the first nine months, Placer’s share of unit cash and total costs increased by 21% and 19%, respectively, to US$214 and US$270 per oz. gold, largely as a result of the inclusion of AurionGold’s assets. The appreciation of the rand and the Canadian and Australian dollars against the U.S. dollar also played a role, as did higher global energy costs.
Placer Dome’s precious metals sales program generated revenue of US$25 million in the third quarter and increased the company’s average gold sales price to US$392 per oz., for a premium of US$29 per ounce over the spot price. For the first nine months, the company realized an average price of US$371 per oz., for a premium of US$17 over the spot price.
The company managed to reduce the maximum number of committed ounces in its gold sales program during the quarter by 400,000 oz., to 10.4 million oz. (not including the remaining 800,000 oz. acquired from East African Gold Mines). At the end of the quarter, the mark-to-market value of Placer Dome’s precious metals sales program was a negative US$388 million (including the mark-to-market value of East African Gold’s hedge buck of negative US$71 million).
Placer also produced 105 million lbs. copper during the recent quarter at a total cost of US66 per lb., compared with year-earlier copper output of 104.8 million lbs. at US61 per lb. Again, the higher unit costs reflect steeper energy costs and currency appreciation, as well as unplanned maintenance costs at the Zaldivar mine in Chile.
For the first nine months, the company mined 314 million lbs. copper at a total cost of US67 per lb., compared with 319 million lbs. at US59 per lb. a year earlier.
Operating earnings related to copper mining increased to US$15 million from US$11 million between the two third quarters, thanks to higher realized copper prices.
At the end of the third quarter, Placer had US$216 million in cash and short-term investments and US$828 million in total debt outstanding. The debt included US$200 million of a 6.375% 30-year debenture raised through a private placement in the first quarter and US$164 million in short-term debt, which was applied to the cost of buying East African Gold Mines.
Meanwhile, the company is stepping up its exploration efforts by focusing on prospects on and near existing mine sites. Says Taylor: “We are drilling and evaluating new deposits at several properties, including Cortez [in Nevada], Granny Smith [Western Australia], Campbell [Ontario], and La Coipa [Chile]. At the same time, we are evaluating promising new targets in eastern Canada, Nevada, and elsewhere.”
Placer Dome expects to produce 3.7 million oz. gold this year at cash and total operating costs of US$210-215 and US$270-275 per oz., respectively. Copper production is projected at 400 million lbs. US53 and US67 per lb.
Production highlights from seven of Placer Dome’s operations are provided below:
— Golden Sunlight — At this mine, situated east of Butte, Mont., third-quarter production was 220% higher than a year earlier. Placer attributes the gain to a decrease in unit cash costs due to the fact that the mine is processing higher grade ore.
Production during the first nine months of the year tallied to 181,134 oz. at cash and total costs of US$145 and US$152 per ounce, respectively. This compares with 60,809 ounces, at cash and total costs of US$364 and US$398 per oz., respectively, during the year-earlier period.
Mining from the open pit ceased in August of this year and Golden Sunlight is expected to source its ore from underground until December 2003. Placer has approved the development of Stage 5B of the open pit. Pre-stripping of the new pit commenced in September and production is scheduled to commence in mid-2005. Stage 5B is expected to produce over 520,000 oz. of gold at estimated cash and total costs of US$252 per ounce and US$263 per ounce, respectively. Capital costs to remove the overburden is estimated at US$39 million.
— Getchell/Turquoise Ridge — Third-quarter output at the Getchell/ Turquoise Ridge operation in Nevada amounted to 39,614 oz., derived from contract mining at the Getchell underground operation and development work at the Turquoise Ridge mine.
The major is negotiating a joint-venture agreement with
The agreement is expected to reduce cash costs to US$190 from US$215 per oz. and total costs to US$230 from US$265 per oz., while slashing Placer’s life-of-mine capital investment by about US$40 million. That investment includes US$26 million to upgrade the existing mill at Turquoise Ridge. Meanwhile, the 2% net smelter return royalty Placer currently pays Newmont will be eliminated.
— Porgera — At the Porgera mine, in Papua New Guinea, Placer’s share of production during the first nine months was 465,995 oz. at a total cost of US$293 per oz., compared with 195,537 oz. at US$298 per oz. in the corresponding period of 2002. The increase is due to an additional 25% ownership following Placer’s acquisition of AurionGold.
— Granny Smith — Between the two 9-month periods, this Australian operation saw production slip to 201,704 oz. at a total cost of US$307 per oz. from 228,877 oz. at US$146. The shortfall reflects lower grades and recoveries as a result of harder ore, combined with higher fuel costs and the appreciation of the Australian dollar against the U.S. dollar. However, these setbacks were offset by Placer’s acquisition of an additional 40% stake in the mine, raising its ownership to 100%.
— South Deep — At the 50%-owned South Deep mine in South Africa, Placer’s share of production over the first nine months was 166,091 oz. at a total cost of US$321 per oz., compared with 140,990 oz. a year earlier at US$233 per oz. Again, the higher costs stem from currency appreciation and higher energy costs.
During the third quarter, the South Deep Twin Shaft project entered the final stage of development. Commissioning will be delayed from the original 2004 start date.
— North Mara — Since the takeover of East African Gold Mines, the North Mara open-pit gold mine in Tanzania has produced 37,154 oz. at a total cost of US$319 per oz. Placer Dome intends to expand annual mill throughput to 2.8 million from 2 million tonnes at a cost of US$25 million.
— Bald Mountain — At the wholly-owned Bald Mountain mine in Nevada, 9-month production fell to 73,876 oz. at a total cost of US$283 per oz. from 138,576 oz. at US$184 per oz. Costs fell because more stockpiled ore was processed.
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