Placer Dome’s big cash position fuels rumours of acquisition

The sale by Placer Dome (TSE) of its interest in Falconbridge and McIntyre Mines in August boosted the company’s cash position to $764.5 million as of Sept 30. And that huge treasury has promoted speculation it might be in the market for an acquisition in Canada or abroad.

Nine-month earnings climbed to $215 million or 96 per share compared to $184.6 or 85 a year earlier. Earnings before other income and extraordinary items increased by 6% to $80.8 million from $76 million in 1987.

Anthony Petrina, president, noted that investment gains contributed $123.4 million to income compared to $108.6 million in 1987. The after-tax gain from the sale of its interest in Falconbridge and McIntyre Mines was $90 million and net proceeds from the sale amounted to $532.7 million, the principal source of the corporation’s consolidated cash position.

With the acquisition of Dome Petroleum by Amoco Canada on Sept 1, Placer Dome was released from a $225 million guarantee of a Dome Petroleum bank loan. As part of the transaction, Placer Dome also acquired Amoco’s 50% interest in the Detour Lake gold mine, bringing its interest to 100%. The transaction, which included the transfer of Placer Dome’s shareholding in Dome Petroleum, resulted in an after-tax gain of $32.7 million.

The company took a $20 million write-down in the carrying value of its United States oil and gas investments in the third quarter; and third quarter results also included an extraordinary tax recovery of $10.8 million from the utilization of prior years’ tax losses.

Earnings from all metals were adversely affected by the 7% decline in the value of the American dollar in Canadian dollar terms. Also, forward selling of gold has proved beneficial for the company. In the first nine months, the company received an average price of $461(US) for its gold production, compared to the London average of $444(US).

At Sept 30, forward sales amounted to 533,000 oz or 23% of Placer Dome’s share of projected production over the next 24 months. The average price was $486(US) per oz.

With three new mines coming on stream, 1989 gold output is expected to reach over 1.1 million oz. The company is still negotiating with the government of Papua New Guinea to develop the Porgera gold deposit. Production from the higher grade zone would commence 16 months after construction begins. A feasibility study is expected for the Granny Smith gold property in Western Australia by February and recent exploration work there increased reserves by approximately 85% to 1.4 million oz.