Vancouver — Increased production and a higher realized gold price enabled
The company earned US$64 million (or US16 per share) on sales of US$409 million in the 3-month period, compared with US$37 million (US11 per share) on sales of US$303 million in the first quarter of 2002.
Placer Dome benefited from unrealized non-hedge derivative gains of US$35 million after taxes, though this was offset by an after-tax charge to earnings of US$17 million due to a change in accounting policy for post-closure reclamation costs.
“Adjusting our earnings for these items would have reduced our reported net earnings per share by about [U.S] four cents, to twelve cents per share,” says Executive Vice-President Rex McLennan.
Cash flow from operations amounted to US$85 million (US$0.21 per share), which is down 11% from the comparable quarter last year. The decrease reflects higher cash operating costs, deferred stripping expenditures, and increased exploration spending.
“By any number of measures, we have a successful start to the year,” says President Jay Taylor. “We significantly reduced debt and interest expenses; we had the highest net earnings of any quarter in our history; we significantly advanced two major development properties; we are developing the Turquoise Ridge mine [in Nevada], which will add 300,000 ounces per year of production late next year; and now, we have a new discovery at the Cortez joint venture [also in Nevada].”
During the first quarter, Placer produced a total of 903,000 oz. gold at cash and total costs of US$205 and US$260 per oz., respectively, compared with year-earlier output of 666,000 oz. at US$165 and US$222 per oz.
The increase reflects the acquisition of several assets of AurionGold in late July 2002, as well as strong performances by the Golden Sunlight and Cortez mines in Nevada and the Porgera mine in Papua New Guinea. Cash costs increased because of the appreciation of the South African rand and the Canadian and Australian dollars against the U.S. dollar, an because of higher energy costs around the world. A contributing factor was higher-cost production at several of the Auriongold assets. As a result, the company has revised its 2003 cash and total production cost forecast to US$205 and US$265 per oz., respectively.
Placer Dome realized an average spot price of US$358 per oz. during the quarter — a US$6-per-oz. premium over the average spot price of gold.
The company also reduced the number of committed ounces in its gold sales and derivative program by 1.1 million oz., to 11.5 million oz., or 22% of gold reserves as of the end of 2002. The company plans to reduce its committed ounces to below 10 million by the end of this year, which would represent a total reduction of its hedge book by more than 20%. At March 31, 2003, the mark-to-market value of the company’s hedge program was a positive US$113 million at the quarter’s closing gold price of US$$336 per oz.
Says McLennan: “Our hedge book continues to generate positive cash flow even at a time when quarterly spot prices were the highest in six and a half years, and is the only positive hedge book among the North American senior producers.”
For the quarter, Placer cranked out 101.2 million lbs. (45,900 tonnes) of copper at cash and total costs of US51 and US66 per lb., respectively, compared with 106.5 million lbs. a year earlier at US41 and US55.
Placer attributes the lower production and higher cash and total costs to lower production at the Osborne mine in Australia combined with higher energy costs, the appreciation of the Australian dollar, higher acid expenditures, and unplanned maintenance costs at the Zaldivar mine in Chile.
Revenue from copper sales totalled US$77 million, compared with US$73 million in the year-earlier quarter, reflecting a 6% increase in Placer’s average realized price of copper to US75 per lb.
Earnings from mine operations totalled US$93 million, which is down 5% from last year’s first quarter, again because of higher production costs.
“The operational performance of our assets was somewhat mixed,” Taylor concedes, “but the strength of having a portfolio of quality assets across countries and continents really proves itself in spades.”
Production at the Golden Sunlight mine was up 182%, chiefly because last year’s mine feed was supplemented by lower-grade stockpiles. The orebody is expected to be depleted by the end of the fourth quarter.
Meanwhile, development of the Turquoise Ridge gold mine on the Getchell property is underway, and full production of 300,000 oz. per year should be reached 18 months from now. Over a mine life of nine years, Turquoise Ridge is expected to produce at cash and total costs of US$215 and US$265 per oz., respectively, with capital costs ringing in at US$80 million.
At the Cortez mine, a 60-40 joint venture with Kennecott Explorations (Australia), production increased 14% from a year ago, thanks to higher grades, throughput and recoveries.
Placer Dome has found a new oxidized gold mineralized zone at Cortez Hills, 12 km southeast of the Pipeline-South Pipeline deposit and 0.8 km north of the Pediment deposit. The deposit hosts a measured and indicated resource of 22.3 million tonnes averaging 2.95 grams gold per tonne, equivalent to 2.1 million oz. An additional 9.5 million tonnes averaging 3.05 grams gold are in the inferred category.
The deposit has beens defined over a strike length of 300 metres and is about 150 metres wide. It is open to the south, east, west and along strike to the northwest, starting 120 metres below the surface and continuing to a depth of 460 metres. Four drills are delineating mineralization on the property and exploration is continuing.
“Our strategy of focusing on mine exploration continues to pay off,” says Taylor. “Cortez is a world-class asset in a world-class gold camp. It will be a cornerstone asset for years to come.”
At the Porgera mine, in Papua New Guinea, Placer Dome’s share of production during the first quarter was up 69% over the corresponding period in 2002. That’s because the company increased its ownership by 25% as a result of the AurionGold acquisition, though higher grades and enhanced recoveries contributed to the production rise. However, cash costs amounted to US$241 per oz., or 20% higher than in the year-earlier quarter, reflecting steeper fuel costs and maintenance work on the mill and mobile equipment.
At the Granny Smith mine in Australia, Placer’s share of production was down 7%, owing to harder ore in the Wallaby pit and the use of low-grade ore to supplement mill feed. Offsetting that was Placer’s acquisition of the remaining 40% of the mine as a result of the AurionGold deal. Cash costs increased 87% to US$204 per oz. because of the lower gold production, higher fuel costs and the appreciation of the Australian currency. As a result of these pressures, Placer decided to decrease the mine’s 2003 forecasted production by 23,000 oz., to 260,000 oz., and increase the anticipated cash and total costs to US$230 and US$300 per oz., respectively.
At the 50%-owned South Deep mine in South Africa, Placer’s share of production during the recent quarter was 48,544 oz., a 7% increase over the comparable period last year. This is the highest quarterly output at South Deep since Placer entered into the joint venture and is due to higher throughput and grades. On the other hand, cash and production costs increased by 59% and 54%, respectively, to US$270 and US$312 per oz., reflecting the appreciation of the rand against the U.S. dollar.
Work at the South Deep twin shaft project is to be completed late this year, and the shaft should be operating fully in early 2004.
The newly acquired Kalgoorlie West and Kanowna Belle mines, in Australia, performed below expectations. Kalgoorlie West cranked out 87,168 oz. at cash and total costs of US$282 and US$374 per oz., respectively, whereas Kanowna Belle produced 63,937 oz. at US$184 and US$305 per oz. The shortfalls are attributed to production delays,
higher production costs and currency appreciation.
Closer to home, at the Campbell mine in Ontario, production for the first three months increased by 2% to 52,042 oz., compared with the first quarter of 2002, mainly because of increased throughput. Cash and total costs were US$194 and US$260 per oz.
During the recent quarter, Placer Dome repaid US$137 million of AurionGold’s debt and completed a $200-million, 30-year non-convertible debenture private placement. The company also will repay US$200 million of bonds due in May this year using existing cash balances. This debt reduction strategy is designed to save US$18 million in net interest expenses per year starting in 2004, and should reduce long-term debt by more than US$300 million.
At March 31, 2003, Placer Dome had cash and short-term investments valued at US$651 million. The company expects to produce 3.5 million oz. gold and 400 million lbs. copper in 2003 at cash and total costs of US$205 and US$265 per oz.
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