Homestake ceases underground mining — ‘Substantial loss’ at mine prompts company to get house in order

For only the second time in its 122-year history, the Homestake gold mine near Lead, S.D., has ceased production from underground.

Homestake Mining (HM-N) stated, however, that after a dramatic restructuring operations are expected to resume at a lower cash cost.

The move is part of a long-range plan to reduce costs and position the mine for future, albeit scaled-back, production.

Only when a new plan is tabled can production resume, the company says. No date has been set for delivery of such a plan.

The mine last closed its doors during the Second World War.

Ore will be mined from the open pit at least until March, when the company plans to discontinue mining altogether, though stockpiled material will continue to be sent to the mill for some time afterwards.

“We cannot continue to operate at a substantial loss,” explains Homestake’s president, Jack Thompson. “And the alternative to restructuring is to close the mine completely.”

By cancelling its mining plans, Homestake hopes to reduce total cash costs for the underground mine to about US$280 per oz. from its current levels of US$335 per oz.

When the mine reopens, Homestake plans to close off some of the workings and concentrate on fewer production levels, using only one production shaft and reducing the number of haulageways.

By 1999, the company expects to have invested between US$20 million and US$30 million in the refurbished mine.

The operation would produce gold at just less than half its current annual rate of 400,000 oz., cranking out between 150,000 and 180,000 oz. annually under the revised plan.

The plan is also expected to reduce the total ounces in proven and probable reserves at the mine by as much as 1.5 million oz. gold. At the end of 1996, the mine contained 4.6 million oz. gold (23.8 million tons grading 0.196 oz.

per ton). Reserves are now expected to be around 2.7 million oz.

The Homestake mine began operations in 1876 and has since produced more than 38 million oz. gold. Its owner remains the oldest listed company on the New York Stock Exchange.

In other news, Homestake has signed an agreement with FX Energy for the right to earn at least a 75% interest in the Sudety gold concession in western Poland. In return, Homestake agreed to spend US$1.1 million on exploration over two years.