Placer Dome takes its lumps for Getchell merger

After shelling out US$1.1 billion to acquire Getchell Gold, Placer Dome (PDG-T) was on its way to increasing gold production from operations in Nevada. However, falling gold prices during the summer of 1999 ruined those plans, and the company was forced to shut down operations at the Turquoise Ridge mine, northeast of Winnemucca.

The exploration potential of the Turquoise Ridge deposit was the motivating factor behind the acquisition. However, the deposit proved difficult to place into production.

Prior to the acquisition, Getchell spent millions trying to get the Turquoise Ridge mine operating properly. The Denver-based company raised US$137 million in a 1995 initial public offering and had used nearly all of it before the buyout.

One of the initial problems was that Getchell found significant mineralization in the area where it intended to sink a shaft. This mineralization, later dubbed the Shaft zone, had the effect of complicating development plans.

Turquoise Ridge was discovered in the early 1990s, when the Getchell mine, an open-pit operation, was on its last legs. Turquoise Ridge was found about a mile east of the open pit, hosted in silty limestones more than 800 ft. below the surface.

The operation suffered several fatalities in the past two years, when poor ground conditions required considerable rockbolting.

Despite this and other setbacks, Turquoise Ridge remained a major deposit with reserves of 18.5 million tons averaging 0.35 oz. gold per ton, equivalent to 6.5 million oz. Hence Placer Dome’s decision to acquire the mine. The Vancouver-based major had vowed to spend US$230 million on varous improvements.

Getchell Gold was hoisting 640 tons of ore per day prior to the acquisition. Placer wanted to raise this to 1,800 tons by the end of 1999. Mill capacity was to grow to 2,300 tons per day. At full capacity, in 2003, the mine was to contribute 800,000 oz. gold annually at cash operating costs of US$200 per oz. However, various operation problems and infrastructure shortfalls forced Placer to shut down the mine late last summer.

Just prior to closing, cash operating costs swelled to more than US$380 per oz. at a time when the gold price plunged to its lowest level in several decades to around US$250 per oz.

Placer has invested considerably in the mine. On the 1250 level, it constructed a maintenance shop and backfill plant. A second-pass feeder system was bored to allow ore and waste to travel separately. The company is working on the ventilation and underground de-watering, as well as ground control systems.

States Placer President Jay Taylor: “Frankly, we were overly optimistic about the amount of time we would need to map out the plan for realizing the property’s potential.”

However, development of Getchell remains a priority for the company. This year, it expects to spend US$20 million on exploration at the project, representing more than a third of Placer’s annual budget. Drilling has so far found the southward extension of the N zone, more than doubling the length of the zone. Drilling in 2000 will continue development of this zone, with an updated resource estimate expected in July.

Making up for the loss of production at Getchell is Placer’s Cortez operation, in central Nevada’s Crescent Valley. The major owns a 60% interest in the open-pit operation, which it operates. Kennecott Exploration, a subsidiary of London-based Rio Tinto (RTP-N), controls the remainder.

The operation performed strongly in the first quarter of 2000, contributing 187,105 oz. to Placer’s account at cash operating costs of US$47 per oz., the lowest of any mine in North America. Total production costs were US$109 per oz.

Production in 2000 is expected to tail off slightly as mining gets into lower-grade material.

Nevada operations, including the Bald Mountain mine, north of Ely, represent nearly a third of Placer’s projected 3 million oz. of gold production in 2000. Bald Mountain’s contribution should jump nearly 50% to 150,000 oz. in 2000 at cash operating costs of US$250 per oz. (Cash costs have been falling as stripping has tailed off, allowing mining to commence at the higher-grade Mooney Basin deposit.)