Homestake earnings battered by higher costs

The company saw its net income decline to $7.1 million(US), or 7 cents a share, from $20 million last year, even after including $3.1 million as a one-time benefit of adopting new financial accounting standards.

While revenues from continuing operations rose marginally to $88.3 million f rom $85.2 million in 1988, quarterly income from operations declined to $5.3 million (5 cents a share) from $16.4 million in 1988.

First-quarter gold production rose 19% to 214,614 oz from 180,787 oz a year ago, however operating earnings from gold declined 53% to $11.9 million from $25.4 million in the comparable 1988 period.

The decline was attributed to a 14% drop in the average price realized for gold, and to an average cash cost per oz that rose 6% to $280 from the $264 achieved in the 1988 first quarter.

Homestake attributed the increased costs at its aging Homestake mine in South Dakota and at the Round Mountain mine in Nevada (where it has a 25% interest) to production problems caused in part by extremely cold weather conditions. Costs at Homestake averaged $319 per oz for the quarter (up from $297 in 1988) while costs averaged $276 per oz (from $221) at Round Mountain.

With weather conditions now back to normal and with the expansion phase nearing completion at Round Mountain, Homestake is expecting that costs at both operations will return to 1988 levels.

Homestake’s share of operating earnings from its 42.5% partnership interest in the Doe Run Company in Missouri rose 34% to $7.4 million from $5.5 million in the 1988 first quarter, reflecting stronger prices for base metals.

Last month the company announced plans to offer for sale the oil and gas interests of its subsidiary, Felmont Oil, in order to concentrate on its core mineral activities.

Also last month, the company’s Canadian subsidiary, North American Metals (VSE), announced it will proceed with the construction of the Golden Bear gold project in British Columbia, despite a review that indicated capital and operating costs will be considerably higher than originally anticipated.

Homestake owns and operates three U.S. gold mines, Homestake in South Dakota, McLaughlin in California and Wood Gulch in Nevada. The company also has gold mining interests in Nevada, Montana, Western Australia, British Columbia and Chile.

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