Echo Bay’s production costs overshadow higher revenues

Following a disastrous first quarter, Echo Bay Mines (TSE) may be on the verge of a turnaround. For the three months ended June 30, the gold producer reported earnings of US$778,000, or 1 cents per share. Although this represents a significant drop from earnings of US$7 million (0.07 cents per share) in the second quarter of 1989, it is certainly an improvement over the US$38-million loss last quarter, when Echo Bay wrote off its investment in the Muscocho group of companies. Quarterly revenues edged up to US$82.7 million this year from US$64.3 million last year, reflecting a 40% increase in production from the Round Mountain, Lupin and, McCoy/Cove mines — Echo Bay’s three major gold producers. Altogether, Echo Bay’s gold production rose by 65,376 oz. in the quarter to 212,956 oz. Silver production rose by 88,554 oz. to 344,933 oz.

Despite the production boost, however, Echo Bay has been unable to control costs at its largest gold mine, McCoy/Cove, in Nevada. Production costs at the underground mine have risen to US$302 for the quarter compared with US$253 in the second quarter of 1989, when McCoy/Cove was exclusively an open pit operation. Teething problems at McCoy/Cove’s new mill, including treatments for contaminated mill effluent, have also added to the expense.

As a result, although costs were down at many of Echo Bay’s other mines, revenues were drained by a US$24 jump in overall quarterly production costs, from US$225 to US$249. Meanwhile, the average realized price per gold-equivalent ounce fell by US$10, to US$391 from US$401.006 0600,0206,0300,0008 Echo Bay Mines (TSE) $000s except per-share items* Quarter ended June 30 1990 1989 Revenue $82,700 $64,300 Net earnings 778 7,000

per share 0.01 0.07 *US dollars004