Prime sets production record

Despite low gold prices, Prime Resources Group (PRU-T) continues to boast an impressive balance sheet.

The Vancouver-based company posted record production in 1997 of 532,947 gold-equivalent oz., at a total cash cost of US$169 per oz. gold-equivalent, compared with 474,106 oz. gold-equivalent in 1996 at a cash cost of US$174 per oz.

Prime reported a net income of $30.7 million (or 40cents per share) on sales revenue of $207.4 million in 1997, compared with a net income of $42.1 million (55cents per share) on sales of $198.7 million in 1996. The average realized gold price in 1997 was down by $57, to US$331 per oz., while the realized silver price slipped 22cents to US$4.89 per oz.

Cash flow decreased to $51.7 million in 1997 from $120.6 million in 1996, reflecting the drop in precious metal prices and the payment of taxes. The company paid income and mining taxes of $73.9 million in 1997, including $36.2 million for the 1996 tax year, compared with $8.8 million in 1996.

At year-end, Prime had working capital of $163.8 million, including cash and short-term investments totalling $148.2 million, and no debt.

Prime, which is 50.6%-owned by San Francisco-based Homestake Mining (HM-N), owns and operates the high-grade Eskay Creek gold-silver mine and the nearby, smaller Snip gold mine. Both are underground operations situated in northwestern British Columbia.

Construction of a new 165-ton-per-day gravity-flotation mill at Eskay Creek was completed in November 1997 at a cost of $17 million. Since startup in 1995, Eskay Creek has operated without a mill, shipping its ore directly to smelters world wide. The new mill is designed to treat lower-grade ore, while maintaining low cash costs.

Production from the mill circuit, which commenced commercial operation on Jan. 1, is projected to average 70,000 oz. gold-equivalent per year, which will result in a net increase of 30,000 oz. gold-equivalent per year from Eskay Creek.

During 1997, Eskay Creek sold 121,465 tons of ore containing 244,722 payable oz. gold and 11.8 million oz. silver, equivalent to 417,303 oz.

gold-equivalent. This represents an increase of 45,024 oz. over 1996. Silver production at Eskay Creek accounts for approximately one-third of sales revenue. Improved ore sales, a 12% increase in gold grade and a decrease in the silver-to-gold equivalency ratio are responsible for the increase in production.

Total cash costs at Eskay Creek, including third-party smelter charges, declined by 6% in 1997, to US$157 per oz. gold-equivalent.

Production for 1998 is projected at 245,000 oz. gold and 11 million oz.

silver at a total cash cost of US$161 per oz. gold-equivalent.

Surface and in-mine exploration programs at Eskay Creek added 395,000 oz.

gold and 18 million oz. silver to the mine’s reserves, before considering material mined in 1997. As of Jan. 1, the mine had a proven and probable reserve of 1.5 million tons grading 1.69 oz. gold and 78.3 million oz.

silver per ton, equivalent to 2.5 million contained ounces gold and 117 million contained ounces silver. An additional 371,000 tons of mineralized material, described as potentially economic, averages 0.59 oz. gold and 12 oz. silver.

Production at the Snip mine during 1997 was 115,644 oz. at a total cash cost of US$213 per oz., compared with 101,827 oz. at a cash cost of US$190 per oz. in 1996. The higher cash cost is a reflection of the more labor-intensive mining methods currently being used.

A $2.5-million surface and underground drilling program carried out at Snip in 1997 failed to intersect additional ore-grade mineralization. Proven and probable reserves stand at 232,000 tons grading 0.68 oz. gold, for 157,000 contained ounces, with an additional 26,000 tons of mineralized material averaging 0.75 oz. gold. A limited drilling program is scheduled for the first quarter of 1998 to test the remaining underground exploration targets.

The Snip mine has a remaining life of just 18 months.

Gold production at Snip is expected to decline to 100,000 oz. in 1998, whereas cash costs are expected to remain near the current level of US$225 per oz.

Prime spent $8.7 million on exploration during 1997, 82% of which was directed towards the Eskay Creek and Snip mines. The remainder was spent on joint-venture exploration programs with Homestake Canada in Ontario, Quebec, B.C. and the Yukon.

The company’s initial exploration budget for 1998 has been set at $6.9 million, including $4.9 million planned for the Eskay Creek area, where the company has continued to acquire land through joint ventures and staking.

In light of the company’s strong performance in 1997, it was a surprise to many when President Ronald Parker tendered his resignation on Feb. 19.

Parker also resigned as vice-president of Homestake Mining and as president of its subsidiary, Homestake Canada.

Gillyeard Leathley was immediately appointed acting president and chief executive officer of Prime.