Hemlo Gold seeks doubling of earnings in 5 years

A target of doubling earnings in the next five years has been set by Hemlo Gold Mines (TSE), President John Harvey told shareholders at the company’s first annual meeting since it started trading publicly in February, 1987.

“We intend to do this by increasing production with a combination of exploration and acquisition,” he said of his company, which operates the Golden Giant gold mine at the Hemlo camp in northern Ontario and which in 1987 had net earnings of $52.7 million (60 cents per share) on revenue of $201.8 million.

“Given the high prices paid in recent months for companies with potentially viable reserves, I feel we will probably concentrate on exploration at this time through grassroots and by assisting junior companies to finance highly prospective properties at a more advanced stage.”

A mineral exploration joint venture is in the works between Hemlo and its montrolling shareholder Noranda Inc. (TSE) covering precious metal properties in western Canada.

News of the deal, which will see Hemlo Gold pay Noranda $30 million to earn its interest in 145 properties, was released a few hours after the conclusion of Hemlo Gold’s May 31 annual meeting in Toronto.

Among the properties, described as “those provincial lands and federal territories west of Hemlo Gold’s present area of exclusivity, surrounding the Hemlo Gold mine site (the producing Golden Giant mine) in northwestern Ontario,” is the Tundra gold project in the Courageous Lake area of the Northwest Territories.

Noranda (51% interest) and Getty Resources (49% interest) are involved in a $33-million underground and development program which is scheduled for completion in late 1989. Possible reserves at the project stand at 26.4 million tons grading 0.18 oz gold per ton. Getty was taken over this year by Total Resources (Canada).

A Noranda affiliate, Noranda Exploration, will operate the new joint venture. Development projects will be managed jointly.

Hemlo Gold will participate equally in expenditures with Noranda Inc. to maintain a 50% interest in Noranda Inc.’s interest in all precious metal projects acquired by Noranda Exploration in the area of mutual interest. Other participants with Noranda Exploration in the area of mutual interest will remain unaffected.

Hemlo Gold, which had boosted its 1988 exploration budget by 40% to $7.5 million, now says it has increased that budget to $20 million to accommodate the joint venture.

Harvey continued that Hemlo Gold “will stay alert for opportunities to make quality investments as we did in Viceroy,” in reference to the latter company’s potential large tonnage, heap leachable gold deposit in southern California. Hemlo Gold has a 12.5% interest in Viceroy Resource (TSE), and has commitments to purchase additional shares in the company.

Of particular interest to Hemlo Gold is the Mishibishu area of northern Ontario, where two juniors, Central Crude (VSE) and Windarra Minerals (VSE), are active. Hemlo Gold currently has an 11% equity intererst in Central Crude and a 19% interest in Windarra, which has a 25% interest in the area’s Magnacon deposit which Harvey said is scheduled to begin production in early 1989 at a production rate of 80,000 oz gold per year. Investment prospects

The president said a number of larger investment opportunities were examined in 1987, but most were rejected. “The high prices being paid for undeveloped gold deposits are a measure not only of the economic value of such scarce resources but of the competition among middle-size and major gold miners like ourselves who wish to add to their reserves and production,” he said.

Hemlo Gold turned out 369,300 oz gold in 1987, 76,300 oz more than expected, at a production cost of $95(US) per oz. (The current cost is $106 per oz.) Working capital at the end of 1987 totalled $47.5 million.

Ore reserves at the end of 1987 stood at about 20.5 million tons grading 0.29 oz gold per ton. The company estimates there are almost six million ounces to be recovered.

Harvey said a production target of 359,000 oz gold has been set for 1988.

First-quarter earnings this year were $14.5 million (17 cents per share), with gold output during the quarter of 87,886 oz. Tonnage, according to the company, was lower than expected, but the grade, at 0.37 oz, was higher. Cash flow during the quarter was $31.4 million Working places Walter Segsworth, mine manager at the Golden Giant, said tonnage has been limited by the number of working places available. “As mine development advances, more working places are established, and by late 1988 production will be increased to the 3,300-ton-per-day level,” he said

An area where the company has been completing property acquisitions is the Geraldton-Beardmore area of northwestern Ontario. In the U.S.,the company has optioned gold properties in Montana, Arizona, and North and South Carolina.

“Our over-all objective is not to race with the competition in maximizing future production output in terms of ounces but to maximize our earnings potential through developing low-cost producers with high quality ore deposits,” Harvey said.

Hemlo Gold’s controlling shareholder, with a 50.1% interest, is Noranda Inc. (TSE).

Elected to Hemlo Gold’s board of directors were Harvey, W. J. Barbour, former Ontario premier William Davis, R. A. Dunford, John Gordon, Keith Hendrick (chairman), Richard Hughes, John Ivany, David Kerr and Frank Lang.