Gold Fields evaluates stake in Eldorado

Based on an ongoing review of assets, Gold Fields is debating whether or not to hold on to its 40% equity interest in Eldorado Gold (ELD-T).

At presstime, Eldorado’s shares were trading at about 45 cents, well below the 52-week high of $4.36, and this weak performance has led to speculation that the company might not survive Gold Fields’ current round of house-cleaning.

The senior gold producer has retained advisors to review the Eldorado stake and provide advice on various options. During a road trip across North America, Gold Fields officials said they planned to meet with Eldorado’s management to discuss the company’s efforts to reduce production costs.

Eldorado operates three gold mines in Mexico and Brazil, while Gold Fields’ production comes from three large operations in South Africa (Beatrice, Kloof and 60%-owned Driefontein) and the Tarkwa mine in Ghana.

Having recently merged with Gencor, Gold Fields ranks as one of the world’s largest producers, with forecast production of 4.3 million oz. in 1999. Its production is second only to AngloGold, another South African giant, which recently listed on the New York Stock Exchange. Gold Fields officials say they, too, will seek a North American listing, either in New York or Toronto.

The South African producer is also waging a cost-cutting war on its own operations, aimed at reaching the US$200-per-oz. level, with the help of corporate restructuring and programs designed to train and educate its workforce of predominantly black miners.

Considerable progress was made in the quarter ended June 30. The company recorded a 4% increase in attributable output, to 758,000 oz., while core cash costs were reduced to US$223 from US$255 per oz. Operating profit increased to 207 million rand from 17 million rand.

Eldorado’s production costs in the last quarter were higher, at US$260 per oz., but US$49 per oz. lower than in the corresponding quarter in 1997. However, the company has made substantial progress in cutting costs, which might induce Gold Fields to hold onto its shares in hopes of securing a return-on-investment when gold prices improve.

Cash operating costs at Eldorado’s Sao Bento mine in Brazil were reduced to US$255 per oz., down from US$291 a year earlier. This mine hosts resources of 5.2 million tonnes at 10.93 grams gold per tonne, including reserves of 3.3 million tonnes grading 9.02 grams. It is still open at depth.

Cash costs at La Colorado in Mexico’s Sonora state were reduced to US$235 from US$307 per oz. in the second quarter. Eldorado’s current exploration program at La Colorada is aimed at determining if potential exists for an underground mine to complement existing open pits.

At La Trinidad, also in Mexico, cash costs rose to US$273 per oz. in the second quarter from US$192 per oz. a year earlier (and US$226 per oz. in the first quarter of 1998). The higher costs were attributed to lower grades and production.