Homestake’s gold output up by 27%

The gain reflects a 27% increase in gold production to 253,076 oz and a $14.2-million after-tax gain on the sale of a portion of its oil and gas interests, more than offsetting the adverse impact of continued low gold prices.

For the first six months of 1989, net income was $28.1 million (or 29 cents a share), a drop of 29% from prior year results of $39.4 million (or 40 cents per share). The negative variance was principally due to the sharp drop in the average realized gold price to $383 an ounce from $453 an ounce a year earlier.

Operating earnings for the first half of 1989 were $40.7 million — lower by 41% than $68.7 million in 1988’s first half.

Results for 1989 and 1988 have been reclassified to reflect the decision, announced in mid-April, to sell the oil and gas operations of Felmont Oil Corp. Felmont’s 1989 results, now reported as discontinued operations, include the sale of its 20% interest in Eugene Island Blocks 108 and 109 in the Gulf of Mexico to NERCO Oil and Gas, for an after-tax gain of $14.2 million.

In April, Homestake Gold of Australia, an 80%-owned subsidiary, closed a previously announced transaction giving it a 50% interest in the western Australia gold mining district of Kalgoorlie.

A Bond International gold affiliate controls the remaining 50%. This transaction combines various operations in the Kalgoorlie district under one management entity, Kalgoorlie Consolidated Gold Mines. The company accounts for these operations using pro rata consolidation and, accordingly, prior results of Kalgoorlie Mining Associates have been reclassified.

Second-quarter income from continuing operations declined to $6.5 million from $19.5 million in 1988, underscoring the effect of a realized gold price decline to $108.5 million, relfecting, in part, the 24% increase in sales volume to 252.3 oz.

Second-quarter operating earnings from gold declined to $17 million from $32.8 million in 1988, a drop of nearly 50%, due primarily to the gold price decline despite large production increases — most notably at McLaughlin, HGAL and El Hueso. Cash production costs for the quarter were basically unchanged from prior year’s second quarter at $255 per oz.

The Homestake mine in South Dakota produced 105,319 oz, exceeding the previous year’s second- quarter production by 2%. This was accomplished despite a minor fire in June which occurred in an unworked area of the mine. Underground production was disrupted slightly but was replaced with stockpiled open cut ores.

Cash costs at the McLaughlin mine in California were reduced to an all-time low of $188 per oz for the quarter. The completion of the oxide processing circuit effectively doubled tons of ore milled to 558.4 and resulted in a gold production increase of 42% to 74,900 oz for the quarter.

In Australia, Homestake’s 80% share of HGAL’s second-quarter gold production totaled 39,733 oz, including the newly acquired interests.

Partially offsetting these gains were equipment start-up delays at the Round Mountain mine in Nevada, which contributed to an increase in their cash costs to $279 per oz. Also, the El Hueso mine in Chile experienced higher-than- anticipated costs from lower-grade processed ore.

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