Record production powers Homestake’s turnaround

Homestake Mining (HM-N) says it is on track to meet 2001 gold production targets, thanks to a record-setting second quarter.

During the three months ended June 30, the California-based company churned out a record 643,800 oz., up from 530,000 oz. in the same period of 2000. During the first half of the year, Homestake poured 1.2 million oz., up from 1.1 million oz. a year earlier.

Average total costs for the recent quarter tallied US$225 per oz. This was US$12 per oz. better than a year ago and a 24-year low. Total cash costs for the first half of the year amounted to US$233 per oz., on track for the year’s target of US$230 per oz.

The record production levels and lower costs are primarily attributed to the strong performance of two key operations.

The 50%-owned Round Mountain mine in Nevada produced 195,500 oz. at US$172 per oz., up from a year-ago 152,800 oz. at US$225 per oz. In Australia, the 100%-owned Yilgarn mines chipped in 147,900 oz. at US$162 apiece, up from 113,100 oz. US$199 per oz. a year earlier.

Overall, production for the first half of the year tallied 1.2 million oz., up from 1.1 million oz. in the same period of 2000. It is on track to meet the previous year-2001 production goal of 2.3 million oz. at US$163 per oz.

On the financial front, the company posted net income of US$20.1 million (or 8 per share) on revenue from gold and ore sales of US$188 million, compared with a year-ago loss of US$17.2 million (7 per share) on revenue of US$170 million.

Income from continuing operations grew to US$15.8 million, a US$19.1-million turnaround from the US$3.3-million loss in the second quarter of 2000. For the first half of the year, net income was US$8 million, up from a year-ago US$33.5-milion loss. Revenue between the two periods rose to US$354 million from US$335 million.

Homestake recently agreed to a US$2.3-billion, all-share merger with Barrick Gold (ABX-T). The deal stands to create the world’s second-largest gold producer with the lowest cash costs.

Recently, at the Veladero property in the Argentine Andes, further drilling by operator and 60%-owner Homestake nearly doubled gold reserves and upped silver reserves by 60%. However, engineering work and economic projections indicate only a 7% rate of return from developing the property’s gold deposits.

The new reserve figure is part of Homestake’s engineering study on the property, which is in the El Indio belt on the Chile-Argentina border. Barrick, which holds the adjoining Pascua-Lama project on the Chilean side of the border, owns the minority interest in Veladero.

The proposed Barrick-Homestake merger holds out the hope that the Veladero project can be combined with Barrick’s adjoining Pascua-Lama project, which is on hold pending improvements in the gold price, although some construction and design work is ongoing.