Homestake posts last earnings

Lower production cost helped Homestake Mining (HM-N) to post higher earnings for the three months ended Sept. 30, the last earnings it will post before it merges with Toronto’s Barrick Gold (ABX-T).

Third-quarter net income rang in at US$3.2 million (or 1 per share) on revenue from gold and ore sales of US$166 million, compared with a year-ago net loss of $77.4 million (29 per share) on US$161 million. Cash flow from continuing operations was US$22.9 million, up from US$14.3 million the previous year.

So far this year, Homestake’s net income amounts to US$1.4 million (1 per share) on revenue of US$520 million, compared with a loss of US$115 million (38 per share) on US$496 million a year earlier.

During the third quarter, Homestake churned out 587,600 oz. of gold at US$166 per oz., 28,700 oz. more than produced at US$173 per oz. a year earlier. The higher production and lower cash costs are attributed primarily to continued strong operating performance at the 50%-owned Round Mountain mine in central Nevada and increased gold production and lower costs at the Yilgarn mines in Western Australia.

During the recent quarter, Round Mountain produced 205,800 oz. of gold at US$184 per oz., compared with year-ago production of 160,000 oz. at about US$166 per oz. The improvement is thanks to increased recovery of gold from the dedicated pads and the processing of higher quantities of high-grade oxide stockpiles.

The wholly owned Yilgarn operations, which includes the Darlot, Plutonic, and Lawlers mines, poured 132,600 oz. at US$169 per oz., compared with the year-ago 122,200 oz. produced at US$197 per oz. The improvement is owing mostly to a 15,400-oz. increase in production from the Plutonic mine on increased ore grade and gold recovery, and a US$44-per-oz. decrease in cash costs.

The Homestake mine in South Dakota, which is slated to close at the end of the year, chipped in 45,900 oz. produced at US$193 each, up from the 40,600 oz. at US$287 per oz. the previous year. At the end of October, all abandoned mine sites near the mine had been rehabilitated and several facilities had been cleaned up and removed.

On the exploration front, Homestake focused its attention on the 60%-owned Veladero project in northwestern Argentina and the wholly-owned Cowal in New South Wales, Australia.

At Veladero, Homestake and joint venture partner, Barrick Gold, mobilized exploration crews and equipment to begin the 2001-2002 drilling campaign ahead of schedule. Engineering studies designed to establish an optimized development plan for Veladero have also advanced. At the recently acquired Cowal project, Homestake has begun its own detailed evaluation program and feasibility update. A second drill rig is on its way the project.

Homestake and Barrick have applied for U.S. Securities and Exchange Commission (SEC) approval for the proxy statement with respect to their pending merger. On approval, the proxy will be mailed to Homestake shareholders for a vote at a special shareholders meeting, which is expected to held on Dec. 14.

The SEC also ruled that the company must alter its reporting procedure for its Veladero property in northwestern Argentina, and that a full feasibility study had to be completed before any part of the project’s mineralization could be classified as reserves. As a result, Homestake restated its financial statements for the year 2000 and for the first six months of 2001 to include expenses of US$22.9 million related to Veladero.

Combined through a US$2.3-billion merger deal, the two would have a market capitalization of US$9 billion, low costs and almost US$1 billion in cash. Under the deal, Barrick is offering 0.53 of a share for each of Homestake’s 263.3 million shares outstanding. This results in the issuance of 139.5 million new shares, increasing Barrick’s total number outstanding to 535.5 million.

At the end of September, Homestake had cash and short-term investments totalling US$189.2 million and net debt of US$23.8 million. The company’s hedge book contained exclusively forward sales contracts totalling 1.9 million oz., and had a total estimated market value of about US$1.4 million.