Diverse portfolio keeps Placer busy — Major is on track to produce 2.4 million oz. in ’97

Despite significantly lower gold prices, Placer Dome (PDG-T) continued to achieve positive results during the third quarter.

The major earned US$11 million (or 3 cents per share) on sales revenue of US$318 million during the 3-month period, compared with US$16 million (7 cents per share) on US$283 million in the corresponding quarter in 1996.

During the first nine months of the year, the company generated US$917 million in sales revenue, compared with US$845 million in the corresponding period last year. Cash flow between the two periods rose to US$203 million from US$183 million.

The company’s share of gold production for the third quarter was a record 690,000 oz., bringing output for the first nine months to 1.9 million oz. — a 29% increase over the first nine months of 1996. The average production cash cost in the third quarter declined to US$196 per oz, bringing the 9-month cash cost to US$207 per oz., compared with a 9-month cash cost of US$233 per oz. in 1996.

The lower cash costs are a reflection of improved operating performance and of the impact of new mine production from the Pipeline pit at the 60%-owned Cortez mine in Nevada and the new 68%-owned Musselwhite mine in Ontario.

Production costs have been reduced at nine of Placer’s gold mines this year.

Strong results continued to be reported from several existing mines, particularly the 60%-owned Granny Smith mine in Australia, the Golden Sunlight mine in Montana and the Campbell mine in Ontario, all of which had average cash costs of about US$140 per oz.

A hedging program resulted in an average realized price of US$366 per oz.

gold in the first nine months of this year, compared with an average market price of US$339 per oz. The company has locked in a third of its production at an average price of US$475 per oz. through to the year 2002.

Third-quarter gold operating earnings were US$55 million, compared with US$74 million for the similar period in 1996. Despite a 10% decline in the averaged realized gold price during the first nine months, gold operating earnings were maintained within 4% of the 1996 level at US$156 million.

Proven and probable reserves increased this year to about 30 million oz., compared with 26.5 million oz. at the end of 1996.

The company is still on target to produce 2.4 million oz. to its account in 1997, despite interruptions at the 50%-owned Porgera mine in Papua New Guinea. Porgera has again ceased milling operations, as a result of severe draught conditions, which have caused a lack of process water. Since May, the mine has lost more than 66 days of production. Mining is continuing, however, and higher-grade ore is being stockpiled.

Placer’s 9-month share of gold production from Porgera amounted to 246,000 oz. at a cash cost of US$228 per oz., compared with 114,000 oz. at a cash cost of US$259 per oz. for the same period in 1996. The increase is the result of Placer’s having doubled its ownership interest in Porgera to 50% earlier this year. Production for 1997 is expected to fall below the 1996 level of 855,000 oz.

Both the new Pipeline mine at Cortez and the Musselwhite mine are exceeding Placer’s expectations. The company’s 9-month share of production from Cortez rose to 148,000 oz. from 71,000 oz. in the year-ago period, while cash costs declined to US$152 from US$194 per oz.

Cortez will contribute about 240,000 oz. to Placer this year, which is significantly above initial expectations. Placer’s share in 1998 is expected to be 500,000 oz. at a cash cost well below US$100 per oz.

Production from the new Musselwhite mine amounted to 69,000 oz. at a cash production cost of US$194 per oz. Musselwhite is expected to contribute 100,000 oz. to Placer in 1997.

Meanwhile, an evaluation of the QK zone at the Detour Lake mine in northern Ontario has indicated that the structure will not meet the company’s investment criteria at current gold prices.

“Unless there is significant exploration success and higher gold prices, closure of that mine seems inevitable at the end of 1998, or thereabouts,” Placer President John Willson says. In the event of a closure, Placer may have to take a writedown, though Willson says the amount would not be significant.

In the first nine months of 1997, Detour Lake produced 93,000 oz. at an average cash cost of US$332 per oz., compared with 91,000 oz. at a cash cost of US$390 per oz. in the first three quarters of 1996.

Operating earnings from copper for the 9-month period were US$10 million, down from US$17 million in 1996. The drop in earnings reflects higher costs and lower gold byproduct revenue at the Osborne mine in Australia. At the 50%-owned Zaldivar mine in Chile, work is under way in an effort to improve production and reduce costs by increasing recoveries.

For the nine months, Placer’s share of production from Zaldivar was 33,742 tonnes of cathode copper at a cash cost of US65 cents per lb. The Osborne mine produced 25,305 tonnes in concentrate at a cash cost of US75 cents per lb.

While no resolution is in sight for the legal dispute related to the US$600-million Las Cristinas gold project in Venezuela, Placer has awarded contracts for the construction camp and other facilities and services. The ownership of Las Cristinas is being challenged in the Venezuelan Supreme Court by Crystallex International (KRY-T)

Willson says it would not be unreasonable to expect a decision to be handed down before year-end.

Placer recently resolved its difference with the Kazakstani government and recovered US$25 million of a US$35-million exploration payment made in 1995.

Willson says the company remains interested in the geological potential of Kazakstan and has resumed building a mutually beneficial relationship with the government there.

In Mexico’s Sonora state, a feasibility study has confirmed the economic potential of the 70%-owned Mulatos open-pit, heap-leach gold project. The study revealed that the proposed mine could contribute 100,000 oz. annually to Placer over an 8-year period at a cash cost of about US$170 per oz.

The study is being reviewed by Placer’s joint-venture partner, Kennecott, and exploration drilling has resumed. A development decision is expected to be made during the fourth quarter.

Elsewhere, drilling continues at the Cerro Crucitas project in Costa Rica, and at the Samira project in Niger, West Africa.

In Alaska, Willson says, the company is making good progress in understanding the geology of the Donlin Creek project. Exploration funding is expected to exceed US$100 million in 1997, and will likely be in a similar range in 1998.

The core of Placer’s growth strategy is exploration, says Willson. “The recent agreement with Arizona Star and Bema Gold creates precisely the type of relationship we’re seeking with successful junior mining companies, where we can add our unique exploration, project development and financing capabilities to their mineral discoveries for the benefit of our respected shareholders.”

Placer entered into a joint venture with Arizona Star Resource (AZS-V) and Bema Gold (BGO-T) for the right to acquire a 51% interest in the Aldebaran property, which hosts the low-grade Cerro Casale porphyry deposit, estimated to contain 19.5 million oz. gold and 5 billion lbs. copper.

“We believe there is a good probability that this project will fit our strategy of a large, long-life, low-cost gold mine, which could contribute about half a million ounces per year for our account,” says Willson.