The total writedown includes US$39.2 million, which reflects the company’s long-term view of the gold price and its estimated net cash flow, and US$62.6 million, which reflects the value of Eldorado’s mineral properties and deferred development projects. Several of these properties will be abandoned or placed on hold until the price of gold improves. Other writeoffs and provisions, totalling US$1.8 million, are attributed to obsolete inventory, questionable receivables, pending legal action and the revaluation of investments.
Eldorado tabled a loss of US$115.6 million (or $1.58 per share) for the nine months ended Sept. 30, compared with a loss of US$28.5 million (39 cents per share) for the corresponding period in 1997. The 1998 loss includes US$110.2 million in writedowns and reorganization charges.
On a brighter note, the company produced a positive cash flow of US$825,000 from operations during the third quarter of 1998. Also, Eldorado says operations benefitted from an 11% reduction in operating costs, a 43% reduction in administrative expenses and a 94% cut in exploration spending, compared with the first nine months of 1997.
The average realized gold price was US$353 per oz. during the first nine months of this year, compared with an average of US$358 per oz. over the year-ago period. Cash operating costs decreased to US$251 from $280 per oz. over the two periods.
During the first nine months of 1998, Eldorado produced 143,369 oz. gold.
The company has hedged all of its fourth-quarter gold production at US$338 per oz. As of Dec. 2, 1998, the company had 360,000 oz. hedged at an average price of $326 per oz.
The company has restructured its US$40-million debt with N.M. Rothschild. Eldorado will pay down US$5 million by Dec. 31, 1998, and an additional US$5 million by March 31, 1999. The rest of the loan will be amortized on an extended schedule. Eldorado intends to pay the loan by a combination of hedge book liquidation, mine cash flows and sale of non-core assets.
At the Sao Bento mine in Brazil, the No. 2 autoclave was shut down in late September for repairs, reducing processing capacity to 60%. The unit was reactivated in late November. As a result of the lost production time, the company lost US$1.4 million but hopes to reclaim the loss through insurance. The claim is currently being processed.
Also, Richard Barclay, resigned from Eldorado as president in late November. He told employees: “This is the time for a new vision that will take Eldorado Gold to the next step in its evolution as a gold mining company. I believe my departure will allow the board of directors greater flexibility in developing strategy. I am proud of the company’s achievements during my tenure. Despite the difficulties currently facing the gold industry, Eldorado has shown its ability to adapt and succeed.”
Hugh Morris, chairman, has been appointed interim president.
As of Sept. 30, Eldorado had US$3.6 million in working capital.
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