Getchell drags down Placer (October 25, 2001)

Vancouver — A US$292-million write down on the Getchell mine in Nevada pushed North America’s fourth-largest gold miner deep into the red during the third quarter of 2001.

The one-time charge caused Placer Dome (PDG-T) to post a third-quarter loss of US$211 million, or US65 per share

“We were disappointed in our findings at Getchell,” says Placer’s CEO Jay Taylor. “While this is a very large gold system with 15 million oz. of resources identified, the mine’s economics at today’s gold prices do not meet our criteria for further investment.”

Placer picked up the project in 1999 in a $1.1-billion merger with Getchell Gold. Some two months after the deal was complete, Placer stopped production at the problem plagued Turquoise Ridge gold mine, one of two underground mines located on the project, northeast of Winnemucca in northern Nevada’s Getchell trend. Placer went on to spend US$24 million trying to put the geological picture together in hopes that a larger scale operation would prove more cost efficient. The latest work, expected to amount to another US$24 million, focused on the N zone where a prefeasibility study was being completed.

The company took the hit after “extensive analysis” of the property failed to find a mining plan that would allow it to “recover the carrying value of the asset and provide a satisfactory return for shareholders.”

Stockpiled ore at the mine will be sold over the next three months to Newmont Mining (NEM-N) for processing at the nearby Twin Creeks facility.

Excluding the one-time charge, the major recorded earnings of US$63 million, or US19 per share in the latest quarter, compared to a profit of US$49 million, or US15 per share in the corresponding period of 2000.

Placer Dome produced 658,000 oz. gold during the three-month period at a cash cost of US$160 an oz. and a total cost of US$231 per oz. In the third quarter of 2000, production totalled 723,000 oz. at US$162 and US$237 per oz., respectively.

Sales revenue hit US$288 million, a significant drop from a year ago when the major recorded US$343 million. Earnings from mine operations in the recent quarter amounted to US$74 million; cash flow from operations, US$95 million. All six countries where the company has mines contributed lower revenues during the latest quarter.

“We are managing effectively through these difficult times,” says Taylor. “We have held the line on costs despite lower production from some mines that are moving into the latter stages of their productive lives.”

Under its gold forward sales program, the company realized an average price of US$334 per oz. in the quarter, compared with an average spot price of US$274 per oz.

During the quarter, Placer Dome produced 107.1 million lbs. copper at a total cost of US57 per lb., compared with year-ago output of 105.1 million lbs. at US63 per lb.

The company realized an average price of US71 per lb in the quarter, compared with an average spot price of US67 per lb.

For 2001, Placer expects to produce 2.7 million oz. of gold and 405 million lbs. of copper.