The interests of stakeholders and shareholders were a study in contrasts at the recent annual meeting of
Placer Dome held a 39.9% stake in Marcopper Mining at the time of the spill but has shouldered most of the blame and borne 100% of the US$70 million spent on cleanup and compensation to date.
The incident continues to dog the company even though it sold its stake in Marcopper in early 1997. Although 80% of the cleanup is complete and the company has indicated its willingness to take part in multi-stakeholder discussions to address remaining concerns, activists are continuing to demand additional compensation for local villagers. A shareholder objected on the grounds that the Philippine partner has contributed nothing toward either compensation or remediation costs.
Placer was also urged to reject further submarine disposal of tailings from the affected river system. Placer Dome President Jay Taylor argued, although the technique is controversial, “we think it best in this situation.”
Turning his attention to the company’s share price, Taylor described the total return to shareholders as “inadequate.” He pledged to deliver a better performance based on a 3-pronged strategy aimed at optimizing existing assets, pursuing quality assets to replace mature and low-yield operations, and improving the company’s environmental and social performance.
Acquisitions
Central to these plans are three acquisitions made last year: South Deep in South Africa; Getchell in Nevada; and the remaining half of Zaldivar in Chile.
Placer Dome was the first North American major to invest in the South African mining industry when it acquired 50% of the South Deep mine, thereby doubling its reserves to nearly 66 million oz.
“The joint venture has successfully restructured the operation [and is] reducing costs and making the necessary reductions in the workforce from 8,000 to about 5,100 employees,” Taylor explained. “This is never an easy process, but I feel good about our ability to accomplish our financial goals while honouring our commitment to sustainability and to people.”
In partnership with the union, the joint venture is developing a retraining program that will return 70% of the displaced workers to the economy in two years. On the technical front, the planned development of the shaft system and expansion of the mine-and-mill complex is reported to be on schedule and on budget.
“The shaft system has a planned hoisting capacity of 2.8 million tonnes per year and is scheduled to be commissioned in mid-2002,” Taylor said. “This, combined with the completion of the mill expansion slated for late 2001 that will increase annual mill capacity to 2.6 million tonnes, makes us very optimistic about this property’s future.”
Placer Dome expects to reach its overall annual production target of 700,000 oz. gold starting in 2003, while reducing cash costs to US$160 per oz. and total costs to US$180 per oz. by the following year.
Turning to the Getchell project in Nevada, Taylor acknowledged the “controversy” surrounding the US$1-billion acquisition. “We were later than expected in concluding the transaction last year, and frankly we were overly optimistic about the amount of time we would need to map out the plan for realizing the property’s potential,” he explained. “As a result, the market has been expecting a quicker turnaround than we are providing.
“But I can tell you that we are getting some encouraging exploration results.”
Placer Dome has more than 30 rigs on the property. These are testing to depths of more than 1,000 metres in an attempt to gain a better understanding of the complex geological controls underlying the property. Based on a new geological model and the results of this drilling, the company expects to table a resource estimate in July. While rumours persist that the number may be lower than expected, Placer appears to be forging ahead by developing a mine plan that will combine production from the Getchell, Turquoise Ridge and N zone deposits to increase mill throughput and reduce future costs.
Farther afield, in Chile, Placer appears pleased with results from the Zaldivar copper mine, which, in the first quarter, produced 332 million lbs. at a cash cost of US39 per lb. and a total cost of US61 per lb. Last year’s exploration program replaced the mine’s production and added 1.4 billion lbs., raising total reserves to 6.3 billion lbs.
Taylor said the Zaldivar acquisition does not reflect a change from its gold strategy. “This mine is a tremendous cash generator, and we will use this money to fund our growth in gold.”
Technology
Placer Dome also provided details of its US$20-million program for examining new mining and recovery methods. Marilyn Hames, vice-president of research and technology, said the technology program was launched 18 months ago as “a holistic, far-sighted, program to do things better.”
The overarching goal, Hames told shareholders, is to achieve “invisible mining, or as close to it as we can get,” while lowering costs, boosting reserves and reducing the company’s footprint on the land.
The company has established a “think tank” (including such diverse members as a Nobel Prize-winning scientist, a science-fiction writer and a teen-aged, outside-the-box thinker) to come up with futuristic ways to mine and process minerals.
Some of the ideas being investigated include:
in situ mining methods;
substitutes for cyanide and recycling of cyanide;
methods to remove waste before processing (specifically, automated optical sorting, heavy media separation, and other pre-concentration methods); and
a “mini-mole” automated mining machine that can surgically mine narrow-vein deposits.
“Some [of these ideas] are in the pilot phase, while others are being implemented,” Hames said. “And because of intellectual property issues, we have to remain silent on some of our more exciting projects.”
On the financial front, Placer Dome reported improved first-quarter results, owing to efforts to increase production and slash cash costs.
The company posted consolidated net earnings of US$43 million (or 13 per share) on revenue of US$375 million for the first three months of this year (gold sales accounted for US$291 million in revenue). This compares with net earnings of US$10 million (3 per share) on revenue of US$276 million in the first quarter of 1999.
Cash flow from operations was US$112 million, compared with US$101 million a year ago, whereas mine operating earnings increased by 60% to US$128 million, compared with US$80 million in the first three months of 1999.
“Our financial results this quarter demonstrate our continued focus on improving the financial yield from all of our assets and increasing total shareholder return,” Taylor said. “Our strong operating performance and low costs of 1999 are continuing into 2000, and we are ahead of schedule in meeting our targets for the year.”
The corporation’s share of gold production during the recent first quarter weighed in at 786,000 oz. — a 7% increase over the 734,000 oz. produced a year earlier. Cash costs decreased by 8% to US$151 per oz., and total production costs fell by 6% to US$220 per oz., compared with US$164 and US$235 per oz., respectively.
Production highlights
Production highlights during the first quarter are summarized below:
Placer’s 50%-owned Porgera mine in Papua New Guinea increased production by 78% to 102,664 oz., reduced cash costs to US$157 per oz. and slashed total costs to US$265 per oz. This compares with last year’s first-quarter cash and total costs of US$291 and US$403 per oz.
Placer’s wholly owned Misima Mines in Papua New Guinea increased production by 83% to 85,145 oz. and reduced cash and total costs to US$163 and US$216 per oz. This compares with US$265 and US$341 per oz. in the first quarter of 1999.
The 60%-owned Cortez mine in Nevada produced 187,105 oz. for Placer Dome during the first quarter and reduced cash costs by 11% to US$47 per oz. Total costs tallied to US$109 per oz., compared with US$123 per oz. during the first quarter of the previous year.
The Golden Sunlight mine in southwestern Montana produced 51,310 oz. during the recent 3-month period — an increase of 36%. Cash and total costs were reduced to US$111 and US$283 per oz. from year-ago levels of US$232 and US$377 per oz.
The 68%-owned Musselwhite mine in northwestern Ontario cranked out 42,508 oz. for Placer Dome, or 23% more than a year ago. Cash and total costs decreased to US$154 and US$266 per oz. from US$191 and US$302 per oz.
In December 1999, Placer Dome acquired the remaining half-interest in the Zaldivar copper mine in Chile. During the first quarter of 2000, the mine contributed US$17 million in cash flow from operations. Production totalled 80.8 million lb. copper at a cash cost of US39 per lb. and a total cost of US58 per lb.
Placer’s production increases offset the absence of production at the Getchell mine in Nevada and the closure of the Detour Lake mine in northeastern Ontario.
Production from the company’s 50%-owned South Deep mine was lower than expected, weighing in at 31,110 oz. at a cash cost of US$252 per oz. and a total cost of US$274 per oz. The shortfall was attributed to equipment problems that have since been rectified.
Placer’s hedge position was reduced by 600,000 oz. during the recent quarter. In February, the major announced it would reduce its hedge position by 2 million oz. by year-end. The company’s remaining hedge positions helped it realize an average price of US$355 per oz. on its first-quarter sales. This represents a US$65 premium over the average London market price of US$290 per oz. At March 31, the mark-to-market value of Placer’s hedge book was US$394 million.
Placer’s copper earnings increased to US$18 million, compared with a loss of US$3 million a year earlier. The improvement is due to the company retaining full ownership in the Zaldivar mine.
This year, Placer expects its consolidated production to weigh in at 3 million oz. gold at a cash cost of US$165 per oz.
On the corporate front, Placer announced the retirement of Eliseo Gonzalez-Urien, vice-president of exploration, to take effect early next year.
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