Burdened with a US$116-million writedown on the Las Cristinas property in Venezuela, North America’s third-largest gold mining company posted a loss in the second quarter.
“Writing off Las Cristinas hurt our net earnings,” says Jay Taylor, president of
Placer lost US$76 million (or 23 per share) on sales of US$338 million, compared with earnings of US$1 million (nil per share) on sales of US$281 million in the second quarter of 1999. The loss is attributed to the writeoff of its 70% stake in the Venezuelan high-tonnage, low-grade gold deposit.
In June, the major announced it would be uneconomic, at current gold prices, to resume construction on the stalled US$575-million project. As a result, the company wrote off the carrying value of its investment in the second quarter and downgraded the property’s 7.4 million oz. gold reserves to the resource category.
“We believe the prudent course for us and our partner is to maintain the property until technology or market conditions improve,” says Taylor.
Besides unusual items, including the writedown, Placer earned US$86 million (US26 per share) during the first half of the year, compared with US$41 million (US13 per share) in the year-ago period.
Hedging enabled Placer Dome to realize an average price of US$349 per oz. in the first half of 2000 — US$64 per oz. higher than the average London market price of US$285 per oz. Cash flow from operations in the latest quarter hit US$103 million, compared with US$37 million in the second quarter of 1999, when merger and restructuring costs hurt the bottom line.
Placer cranked out 715,000 oz. gold in the latest quarter, at a cash cost of US$163 per oz. and a total cost of US$230 per oz. This marks a considerable drop from a year ago, when the company produced 821,000 oz. at a cash cost of US$168 per oz. and a total cost of US$237 per oz.
“We have increased the realized operating margin on each ounce of gold we produce, from US$102 per oz. in the first half of 1999 to US$124 in the first half of this year,” says Taylor.
Consolidated production during the first six months of 2000 dropped 5% to 1.5 million oz., compared with 1.6 million oz. in the first half of 1999. The major attributes the decline to the absence of production from the Getchell and Detour Lake mines (in Nevada and Ontario, respectively) and lower production from the Cortez mine (also in Nevada).
Zaldivar
The company’s share of copper production in the first half of the year soared to 216 million lbs. at an average realized price of US80 per lb., compared with year-ago output of 43 million lbs. at US71 per lb. The increase is attributed to the company’s acquisition of the outstanding 50% interest in the Zaldivar open-pit copper mine in Chile.
Zaldivar yielded 163 million lbs. copper in the first half of the year at a cash cost of U$40 per lb. and a total cost of US58 per lb. Over the 6-month period ended June 30, the mine contributed US$139 million to Placer’s total revenue, US$39 million to mine operating earnings and US$58 million to cash flow from operations.
The 60%-owned Cortez mine contributed 315,830 oz. of gold to Placer’s account during first six months at a cash cost of US$53 per oz. and a total cost of US$115 per oz. Production was 19% lower than in the first half of 1999, owing to lower mill throughput resulting from the temporary shutdown of the old Cortez mill in October 1999. Over the next few months, Placer intends to shift production to the South Pipeline deposit.
In addition, the partners in the nearby Jerritt Canyon joint venture —
Getchell
Meanwhile, at the Getchell project, Placer has completed a new resource calculation based on results from its first year of exploration. Calculations indicate a total resource of 36.7 million tonnes grading 12.7 grams gold per tonne, based on a cutoff grade of 6.9 grams gold. This translates into a contained resource of 15 million oz. Measured resources total 7.4 million tonnes grading 11.9 grams gold, or 2.8 million contained ounces. Indicated resources total 13.4 million tonnes grading 12.7 grams gold, or 5.5 million contained ounces. Placer will carry out underground development work to gain access to the N zone.
Since the suspension of operations in July of last year, Placer has focused its energy on developing and expanding the Getchell, Turquoise Ridge and N zone deposits. This year, it intends to spend US$87 million on Getchell alone, consisting of US$45 million for capital development, US$20 million for exploration, and the balance for standby costs.
The 68%-owned Musselwhite mine, north of Thunder Bay, Ont., contributed 84,843 oz. gold to Placer’s coffers during the first half of 2000, or 21% more than a year ago. Cash and total costs dropped to US$151 and US$223 per oz. gold, respectively.
At the Campbell mine, near Red Lake in northwestern Ontario, a rock burst in June caused the mill to shut down for nine days. The mine produced 120,756 oz. during the first six months, similar to year-ago levels. Cash costs rang in at US$170 per oz. (11% higher); total costs, at US$229 per oz. (10% higher).
Farther afield, in Papua New Guinea, the 50%-owned Porgera mine produced 208,732 oz. gold for Placer — a 41% increase over the first half of last year. Cash and total costs tallied to US$149 and US$255 per oz., respectively — a decrease of 26% and 19%. Placer attributes the increase to higher grades associated with mining.
Granny Smith
The 60%-owned Granny Smith mine, near Perth in Western Australia, produced 142,543 oz. gold at a cash cost of US$179 per oz. and a total cost of US$194 per oz. compared with US$81 and US$87 per oz., respectively, in the first half of 1999. The higher costs are attributed to low production caused by heavy rainfall that caused flooding in the Sunrise pit and restricted access to higher-grade ore.
In South Africa, production at the 50%-owned South Deep mine returned to normal during the second quarter, following a bout of underground flooding and equipment failures. South Deep contributed 71,613 oz. gold to Placer’s coffers during the first half at a cash cost of US$220 per oz. and a total cost of US$243 per oz. In the corresponding period of 1999, the mine yielded 38,222 oz. at cash and operating costs of US$320 and US$360 per oz., respectively.
Overall, Placer spent US$30 million on exploration during the first half of 2000, compared with US$25 million a year earlier. The major has budgeted US$60 million for exploration in 2000.
At June 30, Placer’s consolidated and long-term debt tallied to US$925 million. The company has US$842 million of undrawn bank lines of credit available.
Consolidated gold production for 2000 is expected to weigh in at 3 million oz., or about 5% less than in 1999. The projected shortfall is attributed to the absence of production from the Getchell and Detour Lake mines and lower grades at Granny Smith and Cortez.
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