With gold production reaching a record high and cash costs falling to a record low,
The company’s performance, in spite of the lowest gold prices in 20 years, “reflects improved profit margins at our mines, our successful gold hedging program and reduced corporate overhead,” states President John Willson.
Earnings for the year were US$105 million (or US36 cents per share, after distributions for preferred securities) on sales of US$1.3 billion, compared with a loss of US$249 million (US$1.06 per share) on sales of US$1.2 billion in 1997. The loss in 1997 was due to writedowns on the carrying value of assets.
Earnings in the fourth quarter of 1998 amounted to US$31 million (US10 cents per share).
Mine operating earnings were up 86% in 1998, to US$377 million, compared with US$203 million in 1997, despite a realized gold price that was 4% lower. Cash flow from operations rose 59%, to US$427 million (US$1.65 per share), versus US$269 million (US$1.03 per share) a year ago. Cash and short-term investments increased to US$536 million at year-end, compared with US$289 million in 1997, reflecting the company’s strong cash flow and reduced investment in property, plant and equipment.
Placer’s share of gold production in the fourth quarter was 745,000 oz., bringing production for the year to a record 2.9 million oz. — 14% higher than in 1997.
Quarterly cash costs fell to US$142 per oz., compared with US$180 per oz. in the fourth quarter of 1997. For the year, cash costs averaged a record US$149 per oz. (including royalties), with total production costs coming in at US$220 per oz., versus US$202 and US$282 per oz., respectively, in the same period of 1997.
“Every mine we operate recorded lower cash production costs,” states Willson. “Ours is the lowest cash production cost among major producers in the industry. We expect to remain very competitive.”
Forty per cent of the improvements in cash costs is attributed to mine site cost efficiencies; another 40% is due to the processing of higher grades; and 20% is said to be the result of a strong U.S. dollar.
The production gains are largely due to higher ore grades at the 60%-owned Cortez mine in Nevada and the 60%-owned Granny Smith mine in Western Australia.
Cortez produced 683,235 oz. for Placer’s account at a cash cost of US$58 per oz. and a total cost of US$147 per oz. The mine is expected to repeat this performance in 1999.
Granny Smith produced 326,450 oz. for Placer at a cash cost of US$101 per oz. and a total cost of US$112 per oz. The company notes that the Campbell and Dome mines in Ontario and the 50%-owned Porgera mine in Papua New Guinea were also strong contributors.
Placer’s share of year-end ore reserves increased for the eighth consecutive year, to an estimated 32.4 million oz., calculated at a long-term average gold price of US$350 per oz. If a price of US$300 per oz. is used, Placer’s share decreases by only 5%, to 30.8 million oz.
Most of the additional reserves came from Cortez, Bald Mountain in northeastern Nevada, Granny Smith and Porgera.
Placer’s hedging program generated additional revenue of US$153 million, versus US$82 million in 1997. The company realized gold prices of US$51 per oz. above the average London market price of US$294 per oz. A quarter of the expected gold production through 2001 has been locked in at an average price of US$475 per oz.
During the fourth quarter, Placer initiated transactions that are expected to more than double its share of reserves and result in long-term growth in cash flow and earnings. The company reached an agreement with Western Areas of South Africa to form a 50-50 joint venture and gain management control of the largest undeveloped gold deposit in the Witwatersrand goldfield.
The property contains proven and probable reserves of 235 million tonnes grading 7.8 grams gold per tonne, equivalent to 59.3 million contained ounces. The South Deep deposit alone accounts for 52 million oz.
A due diligence review has been completed and the companies have signed a definitive agreement. Placer must pay Western Areas US$235 million upfront, to be followed by additional payments over the life of the mine. The transaction remains subject to the approval of regulators and Western Areas shareholders.
In December 1998, Placer announced plans to merge with
Getchell recorded a loss of US$11.5 million (US38 cents per share) for 1998, compared with a loss of US$19.4 million (US73 cents per share) in 1997. The company produced a total of 175,302 oz. in 1998 at a cash cost of US$321 per oz., compared with 179,676 oz. at US$418 per oz. in 1997.
As a result of developing the Turquoise Ridge mine and expanding the mill to 6,000 tonnes per day, Placer expects Getchell to produce more than 800,000 oz. per year at a cash production cost below US$200 per oz. starting in the year 2003. The mine is expected to produce an average of 400,000 oz. per year from 1999 to 2002 at a cash cost of US$230 per oz.
Proven and probable reserves stand at 18 million tonnes grading 11.4 grams, equivalent to 6.6 million contained ounces. A further 9.4 million contained ounces are inferred. Placer is confident it can prove up 10 million oz. of reserves and more than 20 million oz. of resources by the end of 1999.
Financing for construction of the 70%-owned Las Cristinas project in Venezuela is being negotiated with partner Corporacion Venezolana de Guayana. Placer will fund internally the US$495 million needed to complete the project, rather than pursue external financing as previously planned.
Placer says it is a cheaper alternative to fund it itself. In addition to cash and short-term investments worth US$536 million, Placer has available to it an US$800-million line of credit. Construction is to resume following formal approval.
Las Cristinas is estimated to contain proven and probable reserves of 323 million tonnes grading 1.1 grams, equivalent to 11.7 million contained ounces of gold. Production is expected to average 530,000 oz. annually over the first decade of a 20-year mine life. Cash costs are expected to run US$155 per oz. and total US$240 per oz.
Exploration and resource development expenditures are budgeted at US$100 million for 1999, compared with US$115 million in 1998. About US$55 million is earmarked for mine site exploration and advancement of the Getchell property and the Aldebaran gold-copper porphyry project in Chile. A small number of advanced projects headed by Donlin Creek in Alaska account for US$18 million, with the remainder budgeted for acquisition work.
The 1998 program at Donlin Creek resulted in a 46% increase in the measured and indicated resource to 5.4 million oz. contained in 57 million tonnes grading 3 grams gold per tonne. The total estimated resource, including the inferred category, increased to 11.5 million oz. A potential starter pit of higher-grade mineralization was identified.
At Aldebaran, in which Placer has the right to earn a 51% interest from owners
gold and 5.5 billion lbs. copper. A new resource was discovered on the southwestern edge of the Cerro Casale deposit, but it is deep and can be mined only late in the life of the project.
John Crow, former governor of the Bank of Canada, and Graham Farquharson, president of Strathcona Mineral Services, were recently appointed t
o Placer’s board of directors.
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