Vancouver — Extraordinary items propelled
The surging profit included a US$16-million derivative gain and a US$39-million tax benefit. Excluding the special items, the major made US$11 million (US3 per share), compared with a profit of US$44 million (US13 per share) in the second quarter of 2002. Cash flow from operations fell to US$58 million (US14 per share) from US$76 million (US23 per share).
Contributing to the shortfall were higher energy costs, as well as the stronger Canadian and Australian dollars and the higher South African rand, which increased operating costs in those countries. These and other factors added a hefty US$13 to the cost of producing an ounce of gold in the quarter.
Placer produced 905,000 oz. gold in the second quarter at a cash cost of US$222 per oz. and a total production cost of US$283 per oz., whereas a year earlier it cranked out 670,000 oz. at US$175 per oz. and US$219 per oz., respectively. The 35% jump in output reflects the acquisition of Aussie miner AurionGold in late 2002.
“More than 75% of Placer Dome’s production is outside the U.S.,” says Chief Financial Officer Rex McLennan, “and we’re therefore significantly exposed to foreign currency moves. Local currencies in several of our operating jurisdictions have been strengthening faster than the U.S. dollar gold price has been rising.”
Cash production costs are now forecast to increase to US$210-215 per oz, while total production costs are expected to average US$270-275 per oz.
Placer Dome realized an average spot price of US$365 per oz. during the quarter — a US$18-per-oz. premium over the average spot price of gold.
Also, the company reduced the number of committed ounces in its gold sales and derivative program by 1.1 million oz., to 10.8 million oz. It plans to reduce its committed ounces to below 10 million (excluding hedges from the newly acquired East African Gold Mines) by the end of this year, which would represent more than a 20% reduction of its hedge book. At June 30, 2003, the mark-to-market value of the company’s hedge program was a positive US$223 million at the quarter’s closing gold price of US$$346 per oz.
Says McLennan: “Our hedge book continues to generate positive cash flow even at a time when quarterly spot prices were the highest in six and a half years, and is the only positive hedge book among the North American senior producers.”
For the quarter, Placer cranked out 108 million lbs. (49,000 tonnes) of copper at cash and total costs of US54 and US69 per lb., respectively; these output levels are little-changed from the corresponding period of 2002, when cash and total costs were US46 and US61 per lb.
Placer attributes the lower production and higher cash and total costs to several factors, including lower production at the Osborne mine in Australia, higher energy costs, the appreciation of the Australian dollar, higher acid expenditures, and unplanned maintenance costs at the Zaldivar mine in Chile.
Revenue from copper sales totalled US$73 million in the recent quarter, compared with US$64 million a year earlier, reflecting a 4% increase in Placer’s average realized price of copper to US75 per lb. The copper operations generated US$5 million in profit for the major during the quarter, compared with US$9 million a year earlier.
Production at the Golden Sunlight mine was up 194%, to 53,000 oz., mainly because last year’s mine feed was supplemented by lower-grade stockpiles. The orebody is expected to be depleted by the end of the fourth quarter.
Meanwhile, development of the Turquoise Ridge gold mine on the Getchell property is under way, and full production of 300,000 oz. per year should be reached by November 2004. Over a mine life of nine years, Turquoise Ridge is expected to produce at cash and total costs of US$215 and US$265 per oz., respectively, with capital costs ringing in at US$80 million. Between the two second quarter, output fell 9%, to 15,092 from 16,623 oz.
At the Cortez mine, a 60-40 joint venture with
At the Porgera mine, in Papua New Guinea, Placer Dome’s share of production during the first quarter was up 69% to 140,024 oz. That’s because the company increased its ownership by 25% as a result of the AurionGold acquisition, though higher grades and enhanced recoveries contributed to the production rise. However, cash costs were US$304 per oz., or 21% higher than in the year-earlier quarter, reflecting steeper fuel costs and maintenance work on the mill and mobile equipment. For 2003, the joint venture expects cash and total cost per ounce of US$255 and US$300, respectively, up from previous estimates of US$239 and US$296.
At the Granny Smith mine in Australia, Placer’s share of production was down 26%, to 128,312 oz., owing to harder ore in the Wallaby pit and the use of low-grade ore to supplement mill feed. Offsetting the shortfall was Placer’s acquisition of the remaining 40% of the mine as a result of the AurionGold deal. Cash costs increased 98% to US$212 per oz.
The newly acquired Kalgoorlie West and Kanowna Belle mines, also in Australia, performed better than expected. Kalgoorlie West cranked out 11,471 oz. at cash and total costs of US$243 and US$342 per oz., respectively, whereas Kanowna Belle produced 65,051 oz. at a cash cost of US$220 per oz.
At the 50%-owned South Deep mine, in South Africa, Placer’s share of production during the recent quarter was 55,830 oz., a 28% increase over the comparable period last year. It was the highest quarterly output at South Deep since Placer entered into the joint venture, the rise being attributed to higher throughput and grades. On the downside, cash and production costs increased by 36% and 33%, respectively.
Meanwhile, at the Campbell mine in Ontario, production in the quarter increased by 4%, hitting 48,322 oz., mainly because of increased throughput.
At the 68%-held Musselwhite mine, Placer’s share of production for the second quarter of 2003 jumped to 38,562 oz. from the 26,927 oz. tallied last year. The cash cost per ounce for the quarter was US$239, or 4% less than a year earlier.
Placer’s share of production from its 51%-held Porcupine joint venture added 62,410 oz. to the bottom line, while the Dome mine produced 58,311 oz.
Says Placer Dome President Jay Taylor: “Over the past year we have achieved success on a number of fronts: we have completed two significant acquisitions, enjoyed exploration success at several properties, consolidated joint-venture interests, and made progress at key development projects.”
Last year, Placer acquired Australia’s AurionGold, and this month it announced the purchase of Australian junior East African Gold Mines, which operates a gold mine in Tanzania.
With the latter acquisition, Placer now expects to produce 3.6 million ounces of gold in 2003. In the current exchange-rate environment, full-year cash costs are forecast to be US$210-215 per oz., while total costs are pegged at US$270-275 per oz.
The major has reduced debt by US$526 million in the first six months of the year. Total debt now stands at US$624 million. Also, the company has access to US$700 million in undrawn credit facilities.
According to Taylor, Placer is in transition as it assimilates newly acquired assets. “I look forward to better results at the back end of the year or early next year,” he says.
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