Writedown dampens Battle Mountain’s results

The writedown of its interest in the Crown Jewel gold project in Washington state, combined with losses related to its interest in Niugini Mining, pushed Battle Mountain Gold (BMG-N) into the red for the year ended Dec. 31, 1999.

The loss amounted to US$126.9 million (or 55 per share), compared with a loss of US$248.8 million ($1.08 per share) in 1998.

After a Washington court revoked water rights and the water quality permit for Crown Jewel, the company, which holds a 54% interest, decided to writedown its carrying value, resulting in a US$35.9-million charge (16 per share) against year-end results.

The court based its decision on concerns that studies of the mine’s possible impact on water quality were not sufficient. The project has been in the permitting phase since 1994.

In response to continued delays and uncertainties surrounding the project, Battle Mountain has moved Crown Jewel out of the reserve category and into mineralized material.

The company is considering appealing the verdict.

Crown Resources (CRRS-Q) owns the remaining 46% interest in the project.

Battle Mountain recorded a non-cash loss for the fourth quarter, amounting to US$33.3 million (14 per share). The loss is partly a reflection of the changing market value of Papua New Guinea-based Lihir Gold (LIHRY-Q), in which Battle Mountain has an interest.

Lihir recently completed its merger with Niugini Mining, which, in turn, has decreased the value of Battle Mountain’s stake in Lihir by 33%. The company continues to look for a buyer for its stake in Lihir.

Contributing to the overall loss were the lower average realized gold price (which fell to US$278 per oz. in 1999 from US$308 in 1998) and a US$9.5-million environmental remediation charge.

On the bright side, Battle Mountain performed well in the second half of 1999, as cashflow improved to US$28.1 million, compared with only US$2.6 million in the first half of the year. This improvement was due to low cash production costs, which averaged US$164 per oz. for the year, compared with US$160 in 1998. Total production costs fell to US$251 from US$259 per oz. between the two periods.

At the Golden Giant mine, in Hemlo, Ont., the year was marked by higher grades and lower costs. The mine cranked out 356,000 oz. at US$145 per oz. for the year. Development work on Block 5 mineralization continues, and shaft-deepening should be finished by mid-year.

Farther afield, in Bolivia, the Kori Kollo mine produced 256,000 oz. in 1999, slightly more than expected. Cash costs were US$190 per oz.

The company hopes to make a production decision by the end of 2000 on the Llallagua bio-oxidation heap-leach project, adjacent to Kori Kollo. The company is drilling 20 holes in an attempt to outline the size and stripping ratio of the deposit.

Company-wide reserves stand at 9.9 million oz. gold, or 10% more than at the end of 1998.

Production for 2000 is forecast at 760,000 oz., slightly down from 1999, whereas cash operating costs are expected to drift upward to US$175 per oz.

In Argentina, Battle Mountain has started its fourth round of drilling at the Casposo gold-silver prospect. To date, 26 holes, totalling 14,000 ft., have been completed. Results from the Kamila zone include 0.66 oz. gold and 18 oz. silver per ton over 14 ft., plus 0.52 oz. gold and 10 oz. silver over 30 ft. A longer interval of 65 ft. intersected 0.29 oz. gold and 3.6 oz. silver, whereas a 30-ft. interval hit 0.27 oz. gold and 6.75 oz. silver. Mineralization remains open at depth and along strike.

Preliminary estimates suggest the deposit could contain 500,000 oz. gold and 5 million oz. silver. The company has yet to release a grade and tonnage estimate.