Wheaton River boosts output, cuts costs

A few years ago, Wheaton River Minerals (WRM-T) was a small, struggling gold producer with a high-cost mine facing its last days of production. Today the company churns out more than 500,000 gold-equivalent ounces annually at a cash cost of less than US$50 per oz., net of copper credits. By 2006, production is expected to jump again, to 900,000 gold-equivalent oz., at a cash cost of less than US$100 per oz.

Despite this remarkable growth profile, company management seems to believe that the investment community has not yet come to grips with the “new” Wheaton River.

“It’s really surprising, given the number of acquisitions we’ve made over just the past year,” says Chairman and CEO Ian Telfer.

Telfer made the comment while discussing the company’s operating and financial results for 2003, including the last quarter, which included a 325% increase in production, a 66% reduction in cash costs, and a 600% reserve increase. This performance reflects an aggressive acquisition program, launched several years ago, when metal prices and acquisition costs were low. But a side effect of that buying spree was a dramatic increase in the number of shares issued and outstanding, to more than 500 million (fully diluted) from roughly 55 million a few years ago.

Telfer acknowledged investment community concerns about the amount of paper issued in recent years to acquire key mining assets. He noted, however, that earnings per share have tripled over those years. He also pointed out that the company had cash and cash equivalents of US$151.8 million at year-end, compared with a negative balance of US$22.9 million at the end of 2002.

Wheaton River produced 450,100 gold-equivalent ounces and 113.7 million lbs. copper last year at an average cash cost of US$62 per oz., net of byproduct copper sales, compared with 106,300 oz. at US$182 apiece in 2002.

The lower cash costs reflect the company’s share of production (165,800 oz. gold and 110.8 million lbs. copper) from the Alumbrera mine in Argentina, which had cash costs of negative US$191 per oz., net of copper credits.

“Alumbrera is the Old Man River of cash, just rolling along,” Telfer quipped.

The company acquired Luismin, one of Mexico’s largest gold and silver producers, in the summer of 2002. Luismin produced 187,100 gold-equivalent ounces at a total cash cost of US$186 per oz. last year, whereas the Peak mine in Australia produced 97,200 gold-equivalent ounces and 3 million lbs. copper at US$250 per oz.

Wheaton River posted record net earnings of US$27.8 million (6 per share) for its latest quarter ended Dec. 31, and net earnings of US$57.6 million for the full year. This compares with net earnings of US$2.5 million for the third quarter of 2002, and US$5.6 million for the full year (all from Luismin operations).

Wheaton River aims to produce 540,000 gold-equivalent ounces this year at a cash cost of less than US$50 per oz. (based on current metal prices).

Telfer predicts that the Amapari project in Brazil, and the Los Filos project in Mexico, will allow the company to double gold production again by 2006.

Wheaton River’s recent acquisitions caused a substantial increase in reserves and resources by the end of 2003. Proven and probable reserves stood at 5.3 million gold-equivalent ounces, a six-fold increase over the previous year. Measured and indicated resources increased to 2.6 million gold-equivalent ounces, while total resources increased by 230% over the year.