Homestake hit by Eskay shortfall

A production shortfall at the Eskay Creek mine, north of Stewart, B.C., contributed to a disappointing second quarter for Homestake Mining (HM-N).

The San Francisco-based company posted a loss of US$16.5 million (6 per share) for the period, compared with earnings of US$100,000 (nil per share) in the corresponding quarter of 1999.

Production at Eskay Creek amounted to 142,600 oz. gold-equivalent, compared with 162,900 oz. a year ago. Cash costs increased slightly to US$138 per oz.

Homestake reported a non-cash, pretax charge of US$7.8 million in foreign exchange losses for the recent quarter — a result of the weakening of the Australian and Canadian dollars. In the corresponding period of 1999, the company showed a pretax gain of US$17.4 million on foreign exchange.

The recent loss also included a US$13.9-million charge related to the closing of the Main Pass sulphur operations, in the Gulf of Mexico, in which Homestake holds a 16.7% interest.

Not including these special items, taxes and minority interests, the company incurred a profit from continuing operations of US$5.4 million — a reflection of higher gold prices and lower costs. The company’s average realized gold price rose $5 to US$288 per oz., whereas total production costs dropped $7 to US$242 per oz.

Homestake produced 589,100 oz. gold-equivalent during the recent quarter, down 38,200 oz. from a year ago. Cash operating costs dropped $10 to US$185 per oz.

For the first six months of 2000, the company produced 1.2 million oz. gold-equivalent, on par with the first half of last year, at US$189 per oz.

Higher throughput and higher grades boosted production and lowered operating costs at the David Bell and Williams mines in Hemlo, Ont. The operations, which share a mill, processed 9,050 tons per day. Homestake’s 50% share of output amounted to 82,050 oz. in the second quarter, and 167,200 oz. in the first half of the year. Average cash costs were US$188 per oz. in the second quarter and US$191 oz. in the first half.

In Australia, Homestake’s 50% share of production from the Kalgoorlie mine increased to 101,000 oz., partly as a result of an upgrade to the flotation circuit.

In Nevada, the Ruby Hill mine produced a record US$99 per oz. for at a cash operating cost of 33,100 oz. To date, the mine has contributed 61,400 oz. at an average cost of US$102 per oz.

Elsewhere in Nevada, Homestake increased its interest in the Round Mountain mine to 50%, up from 25%. The company purchased the stake from Case Pomeroy & Co. for US$42.6 million.

The company completed its first season of exploration at the 60%-owned Veladero project in northern Argentina. Homestake completed 178 holes, totalling 175,000 ft. of drilling through May of this year, working concurrently on metallurgical, hydrological, geotechnical and environmental studies.

The work boosted proven and probable reserves to 5.5 million oz. gold and 81.2 million oz. silver (within 118 million tons averaging 0.046 oz. gold and 0.69 oz. silver per ton) within two open pits — Amable and Filo Federico.

Tests indicate that higher-grade material is amenable to conventional milling, whereas lower-grade can be heap-leached. Plans call for the milling of 11,000 tons per day, with 25,300 tons loaded on to the leach pads per day. At full capacity, the operation is expected to produce 500,000 oz. gold per year for at least 10 years at cash costs (including silver credits) of less than US$160 per oz. Capital costs would be US$450 million. Production at Veladero could begin as soon as 2003, Homestake reports.