Low grade, capital cost force Placer to shelve Mt. Milligan

Fresh from hammering out a new agreement for the Eskay Creek joint venture project in British Columbia, Placer Dome (TSE) says it will not proceed with development of the huge Mount Milligan copper-gold project in that province at this time.

The company says that while prefeasibility studies indicate that a mine based on current assumptions but excluding acquisition costs would be profitable, “the return would be insufficient to justify the $500-600 million capital investment required to develop the property.”

President Tony Petrina, at a press conference in Toronto, said the company plans to write off its $266-million investment in Mount Milligan in its 1991 fiscal year.

Placer acquired the property in 1990; it purchased BP Canada’s 30% interest for $78.8 million and the balance from Continental Gold for $258 million. Petrina emphasized that Placer is not shelving the project. “We still own the property and we will continue to work on it,” he said.

Asked what would improve the viability of the project, Petrina said a reduction in the capital cost (by at least 10%) and a gold price above US$400 per oz.

At the time of acquisition, a preliminary evaluation estimated reserves of 313 million tons grading 0.2% copper and 0.017 oz. gold per ton. The current estimate, after additional drilling, is 329 million tons averaging 0.22% copper and 0.013 oz. gold.

The lower gold grade is a result of additional drilling which doubled the data available since acquisition and led to a revised interpretation. According to the company, Mount Milligan contains recoverable resources of 1.2 billion lb. copper and 3 million oz. gold. The prefeasibility studies indicate that the gold can be produced at an average cost of US$195 per oz., based on a copper price of US95 per lb.

At an average milling rate of 76,000 tons of ore per day, annual production would average 100 million lb. copper and 250,000 oz. gold during the expected 12-year mine life.

In all, Placer plans writedowns totalling $397 million for 1991 (resulting in an after-tax charge of $328 million) and the company will report a loss for that fiscal year. (Complete financial statements will be released later this month.)

Placer will write down by $50 million the $106 million carrying value of its interest in the gold and base metal Eskay Creek project, the decision reflecting a reduction in the estimated minable ounces of gold equivalent, the company said.

Under a new agreement (T.N.M., Feb. 3/91) with project partner International Corona, Placer will have a 22% direct interest in Eskay.

As well, Placer will write off the $31-million carrying value of its 64% interest in the Paymaster gold project at Timmins, Ont.; write down the $36-million carrying value of its investment in the Dona Lake gold mine in northern Ontario by $30 million; and write off the $20-million unamortized portion of a premium above book value the company paid to acquire the Sigma gold mine at Val d’Or, Que., in 1988.

Placer produced 1.68 million oz. gold in 1991 from its interests in projects around the world at an average cash production cost of less than US$230 per oz. Petrina said the company’s total gold output is not expected to decline in the next few years.