GOLD AND PRECIOUS METALS — Philex Gold struggles with projects in the Philippines

High production costs and a low gold price have caught up with Philex Gold (PGI-T), which has posted a $3.1-million loss for the quarter ended March 31.

The company, which recorded a profit of US$2.6 million in the corresponding period of 1997, owes its weakened bottom line to a drop in gold output and a rise in production costs at its flagship operation in the Philippines, the Bulawan gold mine.

Production at that project, situated on Negros Island, slipped to 14,355 oz.

for the first three months of 1998, down from 36,400 oz. in first-quarter 1997. Cash operating costs at the mine, which consists of the Bulawan underground operation and the Korokan open-pit, rose to US$326 per oz. in the recent quarter from US$146 per oz. a year earlier.

However, cash operating costs at the mine’s carbon-in-leach (CIL) plant dropped to US$12.87 per tonne, compared with $19.28 per tonne in the first quarter of 1997. The CIL plant contributed 13,034 oz. gold in the first three months of the year. Higher-grade feed from the Korokan open-pit was used to augment the lower-grade ore from the underground portion of the mine.

The company blames decreased production at Bulawan on low head grades (the average grade processed in the first quarter of 1998 was 1.52 grams per tonne, compared with 4.7 grams per tonne a year earlier), which were predicted in the mine plan. Leaching recovery rates dropped to 81% from 94%.

The company expects grades and tonnage mined to increase as underground operations move into higher-grade ore. Reserves in the underground portion of the operation stand at 11.9 million tonnes grading 2.85 grams gold.

At the Korokan open-pit, first-quarter production shrunk to 1,321 oz. gold from 2,417 oz. a year earlier. Philex blames lower production there on a drought related to the global El Nino weather phenomenon that has led to a shortage of water for its heap-leaching facilities, as well as on shipments of higher-grade ore to the CIL plant. Reserves at Korokan are calculated at 2.1 million tonnes grading 1.18 grams gold.

The company is also experiencing teething pains at its Sibutad operation on Mindanao Island. Although the open-pit operation opened as scheduled in the first quarter of 1997, it failed to achieve full capacity as a result of additional environmental requirements and delays in building the leach pad.

Although the West and Main Lalab deposits have a known strike length of 1,100 metres and a width of up to 700 metres, drilling there last year indicated the grade distribution across the vein structures was erratic.

That development, coupled with a weak gold price, resulted in a lowering of the minable reserve estimate to 335,400 tonnes from the 1996 figure of 447,400 tonnes. Although the company took a $15-million writedown on the project for 1997, it is redrafting the mining plan and expects to be producing from the Larayan and Lalab deposits at a rate of 3,500 tonnes per day in June upon receipt of an amended mining permit. Costs are expected to be between US$190 and US$200 per oz. gold. Gold reserves at the Larayan and Lalab deposits weigh in at 16.9 million tonnes grading 1.47 grams.