Eskay gold-silver grades keep Prime in the money

British Columbia gold producer Prime Resources Group (PRU-T) has bucked the industry trend and posted a profit for the first quarter.

With record production of 164,860 oz. gold-equivalent, Prime earned $11.3 million (or 15cents per share) on sales revenue of $56.7 million, compared with earnings of $9 million (12cents per share) on $47.3 million for the first three months of 1997.

The company generated cash flow of $19.3 million from operations during the quarter, compared with $16.7 million a year ago. At the end of March, Prime had $182.8 million in working capital and no debt.

Prime attributes the good news to higher-than-forecasted gold grades at the Eskay Creek mine combined with improved silver prices. About 42% of the company’s sales revenue in the first three months of 1998 was attributed to silver production from Eskay Creek.

Besides Eskay Creek (one of the highest-grade gold and silver mines in the world), Prime owns the Snip mine, a small high-grade gold producer. Both underground mines are in remote northwestern British Columbia.

Prime’s total production of gold and gold-equivalent during the quarter increased by 34% over the comparable period in 1997. Total cash costs, including third-party smelter charges, fell 22% to US$136 per oz.

gold-equivalent, versus US$174 per oz. gold-equivalent in the first three months of 1997.

The company realized a gold price of US$294 per oz., down US$57 per oz. from the first quarter of 1997, while the silver price was up US$1.23 per oz. to US$6.25 per oz.

Eskay Creek produced 73,440 payable ounces gold and 3.2 million payable ounces silver during the first quarter, equivalent to 141,168 gold-equivalent ounces. This compares with 94,579 oz. gold-equivalent in the previous year’s first quarter. The increase was mainly due to initial production from a newly constructed 165-ton-per-day gravity flotation mill, and to a reduction in the gold-silver equivalency ratio. Higher gold grades in direct ore sales were partially offset by a planned reduction in direct ore sales tonnage.

The $17-million mill, which entered production in the new year, is designed to improve the profitability of certain ore and to allow for treatment of material that was previously uneconomic to produce. The mill produces a high-grade gravity and flotation concentrate, which will enable Prime to process some ores more economically than if the material were shipped directly to third-party smelters.

The new plant is performing in line with design specifications, achieving slightly better-than-expected concentration ratios. The mill contributed 13,934 oz. gold and 474,238 oz. silver-in-concentrate to quarterly production.

Increased production and a decrease in the gold-silver equivalency ratio led to a 27% decline in total cash costs to US$121 per oz. gold-equivalent, compared with the same period last year.

As of Jan. 1, proven and probable reserves at Eskay Creek stood at 1.5 million tons grading 1.69 oz. gold and 78.3 oz. silver, equivalent to 2.5 million contained ounces gold and 117 million contained ounces silver. An additional 371,000 tons of mineralized material, described as potentially economic, averages 0.59 oz. gold and 12 oz. silver. The reserves were calculated using a gold price of US$350 per oz.

The mine is expected to continue operating for 10 more years.

First-quarter gold production at the nearby Snip mine totalled 23,692 oz. at a total cash cost of US$224 per oz., compared with 28,248 oz. at US$204 per oz. a year ago.

With proven and probable reserves pegged at 232,000 tons grading 0.68 oz.

gold, Snip is scheduled to shut down in the second quarter of 1999. A price of US$325 per oz. was used to calculate reserves, some of which may be uneconomic at current gold prices.

Prime spent $1.1 million on exploration during the quarter, primarily on

underground drilling programs at both mines. In the northern portion of Eskay Creek, 17,300 ft. of drilling were carried out, while some 23,600 ft.

were drilled at Snip. No significant reserves were added to Snip.

An aggressive exploration program is planned for Eskay Creek, the first phase of which is budgeted at $6.9 million.

A gold and silver hedging policy will allow Prime to hedge up to 40% of its estimated annual production for each of the next five years if forward prices exceed targeted amounts. Under this policy, Prime has hedged 2.9 million oz. silver at an average price of US$6.33 in 1999, 2.9 million oz.

silver at US$6.32 in the year 2000, and 1.2 million oz. silver at US$6.00 in 2001.

Prime expects to crank out 345,000 oz. gold and 11 million oz. silver in 1998 at an average total cash cost of US$174 per oz. gold-equivalent.

In December 1997, Prime and Homestake Canada, a wholly-owned subsidiary of San Francisco-based Homestake Mining (HM-N), terminated a US$110-million agreement to buy the Troilus gold mine in Quebec from Inmet Mining (IMN-T).

Inmet commenced legal proceedings against the two companies in February.

Prime maintains that the agreement was terminated properly and that the legal action by Inmet is without merit.

Prime is owned 50.6% by Homestake Canada.