Writeoffs hurt Echo Bay despite record production

Despite record gold production from its four major mines, Echo Bay Mines (TSE) lost almost US$60 million in 1990 as writeoffs on gold mining investments took their toll on operating earnings.

Compared with net income of US$16 million (16 cents per share) on revenues of US$297 million in 1989, Echo Bay lost US$59.7 million (60 cents per share) on revenues of US$338.9 million for the 12 months ended Dec. 31. Writeoffs included a US$42.4-million investment in the Muscocho group of companies and a US$39.7-million investment in the Alta Bay joint venture.

Although total gold production rose by 14% to 817,000 oz., cash production costs increased by 11% to US$244 per oz. during the year. The average realized gold price reached US$404, up from US$400 in 1989.

At McCoy/Cove in Nevada, operation of the new tailings treatment plant has successfully prevented further bird fatalities while allowing the company to resume using a full-strength cyanide reagent. Consequently, recoveries at the mine have improved substantially.

But while Echo Bay’s Nevada mines, including McCoy/Cove and the 50% owned Round Mountain, reached new annual production records in 1990, reserves at the company’s newest gold producer, the 70% owned Kettle River in Washington, had to be reduced by 89,000 oz., or 11%.

“Eleven months of actual mining in the Overlook orebody have shown that one of the deposit’s four ore zones is discontinuous, lowering the deposit’s overall grade from what was indicated by core drilling prior to mining,” the company said in a press release.

Meanwhile, at the company’s development properties in Alaska, extensive drilling has increased proven and probable reserves substantially. At the 50% owned Kensington, expected on stream in 1993, reserves have increased to 1.9 million oz., up 40% from a year ago. At the 85% owned Alaska-Juneau, reserves were increased by nearly 50% to 3.3 million oz. while “other mineralization” increased threefold to 2.1 million oz.

In the fourth quarter, the Alta Bay writeoff resulted in a net loss of US$27.7 million (28 cents per share), compared with a loss of US$11.2 million (12 cents per share) a year ago. Quarterly gold production was 220,700 oz. in 1990 compared with 208,700 oz. in 1989.