Homestake’s mines turn in successful quarter

Gold mines belonging to Homestake Mining (HM-N) performed well in the first quarter, but not well enough to keep the company out of the red.

Homestake reported a net income from operations of US$600,000 (or 1cents per share), compared with a net loss of US$5.4 million (4cents per share).

The company says lower production costs were sufficient to offset the drop in the gold price.

However, after-tax losses and costs associated with the pending merger with Australia’s Plutonic Resources, dragged Homestake out of the black, to a net loss of US$4.6 million (3cents per share) for the quarter, compared with a net income of US$49.9 million (34cents per share) in the corresponding period last year. First-quarter earnings in 1997 benefited from the breakup fee associated with Homestake’s failed attempt to acquire Santa Fe Pacific Gold.

Gold production broke the half-million-ounce mark for the quarter, rising to 517,900 oz. from 488,500 oz. in the first quarter of 1997. The largest increases came from the Eskay Creek gold-silver mine in British Columbia and the Round Mountain gold mine in Nevada; these were sufficient to offset production drops at the Homestake mine in South Dakota, the Williams and David Bell mines in Ontario, the Snip mine in B.C. and the Super Pit mine in Western Australia. In January, the company shut down underground operations at the Homestake mine and revised the mine plan in an effort to return the mine to profitability. After a 2-month hiatus, the underground operation was restarted in March.

Under the new mine plan, Homestake is increasing the use of mechanized cut-and-fill mining methods and closing some mining areas and haulage ways to reduce infrastructure and operating costs. As a result, annual gold production is expected to drop to 150,000 oz. from 400,000 oz.

The company also began commercial production at the Ruby Hill mine in Nevada during the past quarter, cranking out 30,600 oz. gold at a cash cost of US$129 per oz.

Overall cash production costs declined to US$203 per oz. gold during the first quarter of 1998, a 17% drop from the first quarter of 1997 and an 8% drop from the fourth quarter of 1997.

The company remains financially sound, with cash and short-term investments totalling US$251 million, compared with US$236 million in the first quarter of 1997.

Homestake is now putting the finishing touches on the acquisition of Plutonic Resources. Plutonic’s operations will be accretive to earnings and cash flow before a one-time cost related to the transaction, and will add low-cost ounces to Homestake’s production. Plutonic also brings 6,000 sq.

miles of exploration properties in Western Australia.