Vancouver —
“I just can’t believe how the market has priced us,” he says, “but the market is what it is.”
Shares in Placer recently closed at $13.58 each, down from their 52-week high of $22.57.
According to Taylor, two events have hit the stock price. The first was the July deletion from the Standard & Poor’s 500 Index, which caused some major U.S. funds to sell their Placer holdings, and the second was extensive arbitrage trading activity during the company’s takeover bid for Aussie-listed AurionGold.
“Some people are a little reticent to go long on the stock while the arbs are in,” adds Taylor. “But look at the earnings we’re generating!”
The major posted a third-quarter net profit of US$28 million (or US8 per share), compared with a loss of US$211 million (US65 per share) a year earlier.
Despite the improved earnings, the company’s gold production continued to shrink during the latest quarter. For the 3-month period ended Sept. 30, Placer produced 570,000 oz. gold at a cash cost of US$195 per oz. and a total cost of US$244 per oz. This marks a significant drop from the 658,000 oz. cranked out in the third quarter of 2001, when cash and total costs hit US$195 and US$171 per oz., respectively.
In the first nine months of this year, Placer Dome produced 1.9 million oz., compared with 2.1 million oz. in the corresponding period of 2001. The shortfall is blamed on the closure of the Kidston mine in Australia in July 2001 and lower production at Golden Sunlight mine in Montana and the Misima operation in Papua New Guinea, which are both approaching the end of their mine lives.
For the first nine months of the year, Placer recorded net earnings of US$113 million (US34 per share), compared with a net loss of US$162 million (US50 per share) in the corresponding period of 2001.
Cash flow from operations between the two periods fell to US$280 million from US$317 million, and mine operating earnings followed suit, dropping to US$235 million from US$256 million. The shortfall is attributed to lower gold production and lower copper revenue. Sales revenue during the first three quarters fell to US$854 million from US$931 million.
Placer believes it is reversing its declining production through the takeover of AurionGold. The company is concluding its takeover of the Australian company, calling it a major acquisition “that everybody wanted” because it removes uncertainty about Placer’s declining production profile. At last count, Placer has acquired 60% of AurionGold’s shares.
Placer expects to begin consolidating AurionGold’s results on its financial statements at the end of October or early November.
“This region will obviously play a major role in our growth plans,” says Taylor.
Placer’s hedge program realized a US$33-per-oz. premium over the average gold spot price of US$314 per oz. in the recent quarter. At Sept. 30, Placer had 7.1 million oz. hedged, or about 16% of reserves, at an average price of US$410 per oz. over 14 years. For the first nine months of the year, Placer’s forward sales program added US$72 million to gold mine operating earnings, enabling the company to realize a premium of US$39 per oz. over the average spot price of US$306 per oz. for the period.
Copper operating earnings added US$30 million to the company’s kitty in the first three quarters of 2002, some 39% lower than 2001. The shortfall is attributed to a 7% drop in realized copper prices. Copper sales revenue for the 9-month period was US$214 million, compared with US$220 million in 2001. Consolidated copper production in the first nine months of the year hit 320 million lbs. (144,984 tonnes), up 4% from the 306 million lbs. recorded in the same period of 2001. Cash and total production costs rang in at US45 and US61 per lb, respectively, compared with US44 and US60 in 2001.
Along with the AurionGold takeover battle, the company saw signifcant progress at several of its global operations. On the back of the start of production at the Wallaby deposit in the fourth quarter of 2001, the Granny Smith operation in Australia saw a 62% increase in production. Other highlights for the latest quarter include an 11% jump in Placer’s share of production from the 50%-held South Deep mine in South Africa, and test mining got under way at the Getchell mine in Nevada, where the company is looking to expand its knowledge of the North zone. The identification of some “very high-grade zones” has the company considering putting Getchell back into production.
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