Placer Dome boosts production

Increased production rates and revenues, coupled with lower cash production costs could not offset an enormous writedown at Placer Dome (PDG-T).

During 1997, the company recorded a consolidated loss of US$249 million (or US$1.06 per share), after dividends and a US$247-million asset writedown. Last year’s loss was US$65 million (27cents per share).

The company suffered a fourth-quarter loss of US$284 million (US$1.16 per share), after writedowns, compared with a loss of US$57 million (24cents per share) a year earlier.

Placer Dome’s total revenue for 1997 was US$1.3 billion, compared with US$1.2 billion in 1996. Total revenue for the fourth quarter of 1997 was US$305 million, down from US$333 million for the same period last year.

Total cash flow from operations in 1997 was US$269 million, compared with the previous year’s US$218 million. In spite of a 15% decline in the average spot price of gold, fourth-quarter cash flow hit US$63 million, up from US$35 million during 1996.

Gold production during the last four months of the year was 705,000 oz., at a cash production cost of US$187 per oz. Production in the same period last year was posted at 476,000 oz., at a cash production cost of US$238 per oz.

Total production during 1997 was 2.6 million oz., at a cash cost of US$202 per oz. The previous year’s haul was 1.9 million oz., at a cash cost of US$235 per oz., representing a 34% increase in production and a 14% drop in cash costs.

The most significant reserve additions came from a 31% increase at the Las Cristinas property in Venezuela and a 13% increase from the Porgera mine in Papua New Guinea.

Las Cristinas was expanded by 8%, and Placer’s share now weighs in at more than 8 million oz. gold. Mine construction has been suspended, however, until the Venezuelan Supreme Court settles the ownership dispute between Crystallex International (KRY-T) and Placer Dome.

Production was up at ten of Placer Dome’s operations in 1997, and four of them set records: the Campbell and Dome mines in Ontario; the Golden Sunlight mine in Montana; and the Granny Smith mine in Australia.

Granny Smith increased production by a whopping 84%, churning out 295,802 oz. gold at a cash cost of just US$135 per oz.; production from the 60%-owned Cortez-Pipeline mine in Nevada was even cheaper, at US$128 per oz.

Total reserves were also increased as a result of an increase in the company’s share of Porgera, and the inclusion of reserves from the Mulatos property in Mexico and the 68%-owned Musselwhite mine in Ontario.

The company asserts that the Mulatos project is economically feasible, but development has been deferred pending an improved gold price forecast.

President John Willson estimates that Mulatos will cost $130 million to build, after which it will produce about 130,000 oz. per year at an average cash cost of US$170 per oz.

Assuming a gold price of US$375 per oz., Placer’s total proven and probable gold reserves, as of Dec 31, 1997, were 31 million contained ounces; additional resources in the measured and indicated category totalled 21 million oz.

The average realized price of gold was US$358 per oz., down from last year’s value of US$406 per oz. Placer’s gold hedging program enabled the company to sell 35% of its 1998 production forward at an average price of US$460 per oz. If gold prices average US$300 per oz. during 1998, the company expects to realize an average price of US$360 per oz.

In the event that the yellow metal does not recover from the US$300 level, a preliminary study indicated a possible 20% reduction in Placer’s potential life-of-mine gold production. A study to establish a new long-term benchmark price for calculating reserves is currently under way, and is expected to be tabled by mid-1998.

Placer’s exploration expenses for 1998 are estimated to run about US$115 million. Budget priorities include Aldebaran in Chile, Donlin Creek in Alaska, Cerro Crucitas in Costa Rica and Samira in Niger, as well as early-stage projects in Peru and Canada. In addition, the company has a stated goal of “identifying and acquiring mid-stage properties around the world.”

At Donlin Creek in Alaska, 24,000 metres of drilling and 4,500 metres of trenching has further delineated the mineralized system. A revised resource estimate based on last year’s work will be completed by the end of the first quarter of 1998. The measured and indicated resource stands at 45 million tonnes grading 2.5 grams gold per tonne, for 3.6 million contained ounces.

Last year 1,600 metres of drilling at Cerro Cruitas identified a new deposit, Conchudita. the company has initiated a second-phase drilling program to further investigate the deposit. Drillholes and trenches at Conchudita have intersected intervals up to 41 metres grading 2.8 grams gold per tonne. The current measured and indicated resource (excluding Conchudita) is estimated at 59 million tonnes grading 1.2 grams, for 2.2 million contained ounces.

The Chimberos silver deposit, 35 km from the company’s 50%-owned La Coipa gold-silver mine in Chile, is proceeding towards production. Reserves were posted at 30 million oz. of recoverable silver with a grade of 300 grams per tonne. Material from Chimberos will be processed at the La Coipa mill starting in the second half of 1998.