Echo Bay mothballs Lupin gold mine — McCoy/Cove operations scaled back

The pressure to lower operating costs to keep pace with the falling price of gold has become too much for Echo Bay Mines (ECO-T), which has announced the closing of one mine and the scaling back of operations at another.

In the Northwest Territories, Echo Bay has suspended operations at the Lupin gold mine, while in Nevada, it is scaling back mining and milling at the McCoy/Cove gold mine. The company has also reduced the staff in its Denver headquarters by 40%, despite having made cuts as recently as last July.

Taken together, these moves translate into a total of 600 layoffs.

“It’s a sad day when you have to lay off good people,” said Echo Bay’s Chief Financial Officer Peter Cheesbrough.

But, he said, the company had to look at the “economic reality” of the situation.

“It’s clearly in our best interest to make sure the company can survive these low gold prices.”

The company has placed the Lupin mine, situated 56 miles south of the Arctic Circle, on care and maintenance, with the expectation of reopening it when gold prices improve. Unfortunately, the move put 500 people out of work, 65% of whom live in the Edmonton area.

The company expects to shut down the mine over the next few months, taking the time to prepare the mine site and equipment for the cold temperatures, Cheesbrough said. Care and maintenance costs should be US$3 million annually.

In the meantime, Echo Bay plans to shut down its low-grade, heap-leach stream at the McCoy/Cove mine, laying off more than 100 workers in the process.

The company will stop mining lower-grade ore from the McCoy pit, and will no longer add tonnage to the leach pads, though residual leaching from the pad will continue. It will continue digging out higher grade material from the Cove pit, sending it to the mill at a rate of 10,000 tons per day.

Remediation work in the Cove pit to gain access to ore covered by a pit-wall slide during 1996 has been postponed until the second half of the year.

Output from McCoy/Cove is expected to drop by about 10%, to 165,000 oz. gold in the coming year. During the first nine months of 1997 the mine cranked out 143,900 oz.

Echo Bay expects to cut cash operating costs for the company’s mines to US$240 from US$250 per oz. — down from the company’s 1997 forecast of US$265 per oz. During the first nine months of the year, cash operating costs were US$256 per oz. However, falling gold prices have made further cost reductions necessary, Cheesbrough said.

Lupin and McCoy/Cove were the company’s highest-cost mines during the third quarter of 1997, at US$296 and US$270 per oz., respectively.

During the summer of 1997 Echo Bay announced plans to revamp the mine plan at Round Mountain in Nevada. The company has no plans to change the operations at Kettle River in Washington.

Exploration expenditures will be slashed to US$6 million this year, down from US$11 million. Exploration will be concentrated around mine sites, with much of the budget pinned to holding costs at the company’s properties in Nevada, Brazil, and Russia.

New project expenses will be cut to US$3 million from US$21 million this year.

The budgeted funds will be used for holding costs for the Paradones Amarillo property in Mexico and the Aquarius in Ontario. Echo Bay has also laid off head-office engineering and exploration personnel involved with Paradones Amarillo and Aquarius.

In all, the company expects to reduce cash expenditures by US$30-35 million during 1998.

Gold production for the company is expected to drop by 25%; the 1998 target is just over a half a million oz. gold and 7-8 million oz. silver.

For the first three quarters of 1997, Echo Bay produced 551,227 oz., 121,278 oz. of which came from Lupin.

Echo Bay plans to take a US$14 million writedown in the fourth quarter of 1997 related to severance and shutdown costs.

The company has hedged its entire 1998 gold production at a price of US$338 per oz. Though its silver and gold hedge plan has a cash value of US$51 million, Cheesbrough said Echo Bay has no plans to unwind the position.