Higher gold prices help boost Homestake’s operating profit

Driven by substantially higher income from gold and base metals, Homestake Mining Co. reported a 36% increase in operating earnings during this year’s second quarter.

The giant United States mining company said, however, the gain was partially offset by an 83% or $5.3 million increase in exploration expenses. (All figures U.S. funds.)

But the over-all picture for this year’s second quarter was still bright. Net income was $19.2 million, or 19 cents per share, up slightly from last year’s second quarter earnings of $18.4 million, also 19 cents per share.

Homestake said the net income comparison also reflects a non- recurring pre-tax gain of $8.7 million ($5.7 million after-tax) in the second quarter of 1987 from the sale of minor mineral properties that did not figure in the company’s plans.

Total revenues in the quarter increased to $106.6 million from $104.2 million last year, while operating earnings rose to $39.2 million in 1988 from $28.8 million in the same period of 1987.

Operating earnings from gold increased 31% to $32.8 million from $25.1 million in the second quarter of 1987, principally due to higher gold sales which increased 17% to 203,286 oz from 173,668 oz last year.

Homestake said the average price received for gold also increased slightly to $453 per oz from $450 last year, while the average cash cost per oz produced decreased by 2% to $256 from $262.

In base metals, the Doe Run Company recorded the highest quarterly earnings since its formation as the largest integrated primary lead producer in North America in November, 1986.

Homestake’s 42.5% share of operating earnings more than doubled to $6.0 million in the second quarter of 1988 from $2.6 million in 1987, reflecting both higher prices for lead and byproducts and lower operating costs.

During the first half of 1988, higher output from domestic mines led to a 13% increase in gold production to 380,809 oz from 337,216 oz in the same period of 1987. Operating earnings posted a 43% increase in the same period to $58.2 million from $40.6 million last year.

Many of Homestake’s producing mines showed a dramatic increase in operating earnings for the first half of 1988. The Homestake Mine, for example, more than doubled its operating earnings to $31.3 million from $12.8 million in 1987.

The McLaughlin mine in northern California did even better; reporting a 69% increase in first half earnings to $12.4 million from $7.4 million in 1987. But Homestake Gold of Australia didn’t fare as well; its first half share of operating profits from Kalgoorlie Mining Assoc. decreased to $9.1 million from $16.0 million in 1987. The company is 80% owned by Homestake Mining which said the drop in earnings was due to reduced gold production resulting from lower ore grades and recovery rate.

First half earnings from oil and gas were down slightly while uranium operations continued at a reduced but profitable level, the company reports.

Base metals on the other hand, nearly quadrupled first half operating earnings from that sector to $11.5 million, compared with $2.9 million in 1987.

Total mineral exploration costs increased to $15.2 million in the first half of 1988 from $9.2 million in 1987, largely due, the company said, to accelerated precious metals exploration in the U.S., Canada and Australia.

Homestake has a 70% stake in North American Metals Corp., an equal partner with Chevron Minerals to develop the Golden Bear mine project in northwestern British Columbia.