Getchell mine pushes Placer into red

Vancouver — Placer Dome (PDG-T) posted a US$29-million profit during the fourth quarter of 2001, but US$301 million in writedowns pushed the company US$133 million into the red for the year.

Quarterly earnings totalled US$29 million (or US9 per share) on sales revenue of US$292 million, compared with a loss of US$89 million (US27 per share) on revenue of US$337 million in the final three months of 2000. The difference is due to lower gold production and a lower realized gold price.

Placer cranked out 657,000 oz. gold and 50,348 tonnes copper during the recent quarter, compared with 760,000 oz. gold and 49,441 tonnes copper in the year-earlier period.

The company’s forward sales program realized a premium of US$63 per oz. for an average price of US$342 per oz. versus the forth-quarter average spot price of US$279 per oz. At Dec. 31, Placer’s mark-to-market value of its precious metals sales was US$490 million, based on a spot price of US$277 per oz. gold.

Says Placer Dome President Jay Taylor: “We were successful on a number of fronts [in the fourth quarter], such as the development of new deposits at existing mines. However, the year’s performance was overshadowed by the decision we made to write off the carrying value of the Getchell mine. Our prudent, realistic management of this asset clears the way for a stronger financial performance in 2002.

“Our reduction in the gold price assumption used to calculate reserves shows just how robust this company is. Despite a drop from a US$300-per-ounce assumption to US$275 per ounce, our reserve base dropped by only 5% to 44.5 million quality ounces. We remain committed to generating value from every ounce. Our price assumption is not meant to be a prediction, nor does it imply that we are bearish in the outlook, rather it illustrates that we are realistic and committed to creating lasting value.”

Cash flow from operations totalled US$47 million during the quarter, up from US$29 million in the year-earlier period. The increase is attributed to investment in non-cash working capital and to increased exploration and resource development. Mine operating earnings fell to US$79 million from US$91 million between the two periods.

Net earnings

For the year, Placer tabled net earnings before unusual items of US$133 million on revenue of US$1.2 billion, compared with a loss of US$92 million on revenue of US$1.4 billion. When the writedown of the Getchell mine in the third quarter is taken into account, the company can be said to have lost US$133 million (41 per share). Cash flow for operations was pegged at US$364 million.

The company cranked out 2.7 million oz. gold last year at a cash cost of US$160 per oz. and a total cost of US$233 per oz.

“In total, we reinvested US$221 million back into our business during the year, funded entirely from internally generated cash flow,” says Taylor. “This total includes US$51 million at South Deep, US$31 million at Wallaby, US$31 million at Zaldivar and US$30 million at Porgera.”

This year, the major will sink $160 million into its operations, including:

– US$52 million for its share of development at South Deep;

– US$17 million for the development of a fifth stage of work at Porgera;

– US$16 million for new heap-leach infrastructure at Cortez; and

– US$17 million for upgrading the leach pads and electrowinning circuits at Zaldivar.

Exploration spending will remain the same at US$44 million, but resource and development costs are expected to decline to US$25 million.

Placer’s forward sales program for the year realized a US$55-per-oz. premium over the average spot price of US$271 per oz. At the end of 2001, the major committed a total of 7.9 million oz. under its gold sales program at an average price of US$400 per oz. over a 13-year period. This represents about 18% of its reserves. The mark-to-market value was pegged at US$490 million. Based on interest and lease rates at Feb. 13, 2002, the mark-to-market value of Placer’s gold sales program breaks even at a gold price of US$345 per oz.

At the 60%-owned Cortez mine in Nevada, the company’s share of production during 2001 was 18% higher than in 2000. This was attributed to the start of heap-leach production from the South Pipeline during the second quarter; also, there was a higher contribution from the sale of carbonaceous ore. Proven and probable reserves at Cortez are pegged at 104 million tonnes grading 1.5 grams gold, or 4.9 million contained ounces. Measured and indicated resources are set at 41.6 million tonnes grading 1.4 grams gold.

In October 2001, the Cortez joint venture agreed to sell 270,000 tonnes of carbonaceous material grading about 8 grams gold per tonne to the Goldstrike mine of Barrick Gold (abx-t). Barrick has the option to buy an additional 180,000 tonnes of ore.

Getchell

At the Getchell mine, Placer has restated the resources using a cutoff grade of 10.3 grams per tonne. The resource stands at 12.2 million tonnes grading 17.5 grams gold, or 6.8 million oz. Placer has closed the mine, though a crew of 37 remains on site. The stockpiles at Getchell will be processed by Newmont Mining (NEM-N) at its nearby Twin Creeks property.

At the Campbell mine in northern Ontario, Placer downgraded its 300,000 oz. of reserves to the resource category. “About a third of that was due to the lower gold price,” says Taylor, “while the remaining two-thirds is material that requires more drilling and development.” The major intends to assess those resources this year.

Reserves at Campbell now stand at 1.9 million tonnes grading 16.7 grams gold per tonne in the proven and probable category, or slightly more than 1 million contained ounces. Measured and indicated resources in the DC zone are pegged at 2.3 million tonnes grading 15.7 grams gold. Taylor expects some of this resource to be upgraded to the reserve category by mid-year.

Golden Sunlight

At the Golden Sunlight mine in Montana, Placer secured a stable power contract that will allow operators to mill stockpiled ore through to mid-2002. The pit ramp will then be mined and processed until the end of the mine’s life, now scheduled for 2003. The mine has proven and probable reserves of 3.6 million tonnes grading 2 grams gold. Measured and indicated resources are set at 28.8 million tonnes grading 1.7 grams gold.

Production from Placer’s Wallaby deposit, at its 60%-owned Granny Smith mine in Australia, began in the fourth quarter. “Wallaby is the eleventh pit on the Granny property and has given the operation a new lease on life,” says Taylor. “We believe it also holds underground potential.” The deposit remains open at depth, and work will focus on further delineating its potential. Proven and probable reserves at Granny Smith weigh in at 17.3 million tonnes grading 2.7 grams gold, or 1.5 million contained ounces. Indicated resources are set at 16.2 million tonnes grading 2.5 grams gold.

At the 50%-owned Porgera mine in Papua New Guinea, a third stage of mining was completed. Open-pit production is expected to average 675,000 oz. per year over the next four years. The company started development of the underground mine on a limited scale, and Placer expects it to add 68,000 oz. gold per year to the operation. Proven and probable reserves at Porgera stand at 29.2 million tonnes grading 3.5 grams gold, or 3.3 million contained ounces. Measured and indicated resources are pegged at 35.4 million tonnes grading 2.3 grams gold.

At the 50%-owned South Deep mine in South Africa, development of the main shaft was slowed during the year as a result of poor ground conditions. The shaft is now scheduled to be commissioned for the last half of 2003. Construction of the new mill is nearly completed and should be commissioned in the second quarter this year. Placer is developing a new life-of-mine plan, and results are expected by mid-year. Proven and probable reserves total 107 million tonnes grading 8.4 grams gold, or 28.8 million contained ounces. Measured and indicated resources are 69.3 million tonnes grading 9 grams gold.

“Tur
ning to copper, we have maintained a price assumption of US90 per pound,” says Taylor. “The copper market bottomed-out last year, along with the global economy, but it appears both have started to turn around.”

During 2001, the company produced 189,148 tonnes copper at cash and total costs of US44 and US58 per lb., respectively, compared with 195,044 tonnes at US45 and US64 per lb. in 2000.

At Zaldivar in northern Chile, proven and probable reserves are pegged at 590 million tonnes grading 0.64% copper. Placer continues to improve the recovery process at the heap-leach operation. “We’ve made a number of modifications in the leaching circuit that led to an increase of 5% in recovery over the entire year,” says Taylor. Placer anticipates an additional 5% improvement, bringing the total copper recovery to about 75%.

The major declared a semi-annual dividend of US5 per share, which is payable on March 18, 2002, to shareholders of record at the close of business on March 1.

This year, the company expects to produce in excess of 2.5 million oz. gold at cash and total costs of US$180 and US$235 per oz. gold, respectively, as well as 190,508 tonnes copper at US47 and US61 per lb.