Wheaton River sees profits jump 700%

Vancouver — Wheaton River Minerals (WRM-T) posted a 700% increase in earnings for the quarter ended March 31, marking its seventh (and last) successive quarter of record earnings.

The Vancouver-based company plans to merge with Toronto-based Iamgold (IMG-T) to create a company known as Axiom Gold. It will be one of the top 10 gold producers in the world, with operations in the Americas, West Africa and Australia. The merged entity is expected to produce 1 million equivalent ounces in 2004 at a total cash cost of less than US$50 per oz.

Shareholders of Wheaton River will vote on the proposed merger on June 8 in Toronto. If approved, the combined company will be held 68% by Wheaton River shareholders and 32% by those of Iamgold.

“We’re confident the vote is there,” says Wheaton President Ian Telfer. But he also expressed surprise, and a hint of disappointment, that some analysts have not made appropriate valuations based on the company’s strong earnings and operating performance.

Telfer says the goal is to bring together two seasoned companies — one with a strong exploration team, and the other, with a strong operating team — that would have the “financial wherewithal” to go after major acquisitions.

“The rationale for this merger is that our shareholders want us to continue to grow,” he says, noting that “the game is over” when it comes to acquiring modest-sized assets at a reasonable price.

“There’s too much competition, and prices are too high. There are still some good acquisition opportunities, but they’re [large] and involve cash.”

Telfer points out that Wheaton River expects to continue generating impressive cash flow from operations it acquired at bargain prices years ago, when metal prices were low.

For the latest quarter, the company posted net earnings of US$33.7 million, compared with US$4.1 million a year earlier. The company sold 156,500 gold-equivalent ounces and 42.9 million lbs. copper during the quarter, up from 55,600 oz. and 3.6 million lbs. a year earlier. Total cash costs were minus US$67 per gold-equivalent ounce, net of byproduct copper sales, mostly from the Alumbrera gold-copper mine in Argentina. Cash costs in the first quarter of 2003 averaged US$175 per oz.

“It was a spectacular quarter,” says Telfer. “Every operation did what it was supposed to do.”

Among the star performers was Luismin, one of Mexico’s largest gold and silver producers. Wheaton River acquired the asset in the summer of 2002. “We paid less than US$100 million for the project,” Telfer says. “Now it’s earning US$5 million in a single quarter.”

The turnaround reflects an infusion of capital that allowed Luismin to upgrade and enhance its operations. These produced 59,200 gold-equivalent ounces in the latest quarter, up from 46,100 oz. a year earlier. Total cash costs fell to US$170 from US$185 per oz. in 2003.

The Peak mine in Australia produced 33,400 oz. gold and 2.6 million oz. silver for the quarter, compared with 4,800 oz. in the 2-week period following the acquisition in March 2003. Total cash costs averaged US$217 per oz., net of byproduct copper sales. This asset was acquired for US$30 million and now generates quarterly earnings of about US$3 million.

Wheaton River holds a 37.5% stake in the Alumbrera mine, which produced 63,900 oz. gold and 40.3 million lbs. copper to the company’s account in the first quarter. Cash costs were a negative US$435 per oz., net of copper credits, compared with negative US$81 per oz. a year earlier.

Meanwhile, Wheaton River is advancing two projects that are expected to double its annual gold production to just under 1 million oz. by 2006. The Amapari project in Brazil and Los Filos in Mexico are both at the development phase.

Iamgold, meanwhile, posted a 70% increase in earnings in the first quarter. The company’s net earnings were US$5.9 million for the period, based on the production of 106,000 oz. gold at a cash cost of US$239 per oz.