Goldstrike grades exceed plans says American Barrick

Senior officials at American Barrick Resources (TSE) have moved quickly to quash a recent series of rumors about trouble at the company’s Goldstrike mine in Nevada. Robert Smith, president of American Barrick, said there is no truth to rumors that ore grades are declining at the gold mine.

In fact “grades are actually improving,” Smith told The Northern Miner in a recent interview.

He also said there are no serious problems with the mine’s pit walls or effluent water quality either.

“In a bear market, short sellers like to start rumors,” he said. “But if you look at the facts you’ll find American Barrick has actually outperformed most other gold stocks in recent months.”

Since the rumors began two weeks ago, American Barrick shares have dropped by more than $5 to a low of $19.50 within a 52-week range of $13.50-28.25.

“We’re at odds to explain the declining grades rumor,” said Alan Hill, executive vice-president of operations at American Barrick. According to Hill, ore grades from the benches currently being mined at Goldstrike are about 20% above forecast levels. “The total tonnage processed this year is also on target and grades are actually better than anticipated,” he added.

American Barrick originally forecast Goldstrike’s 1990 production to be 330,000 oz., but with the improved grades the company expects to exceed that target this year.

About 185,000 oz. of gold are produced at the mine by milling, while another 145,000 oz. are produced by heap leaching.

Meanwhile, another rumor making the rounds had suggested the company was experiencing problems with slope stability in its Betze open pit.

“We don’t see any significant problems with our pit walls that would affect the long-term operation of the mine,” said John Lill, vice-president of U.S. operations at American Barrick.

He acknowledged that there have been “some minor problems” with slope stability, but nothing catastrophic as the rumors had suggested.

He said the active areas where minor slides have occurred were all in waste rock, not ore-grade material. “From a geotechnical point of view, it’s actually good to experience a small slide so the company can learn before establishing its permanent pit walls,” he said.

Barry Allan, a gold analyst with Deacon Barclay de Zoete Wedd, said investors have been looking for reasons to sell down gold stocks lately and the rumors about Barrick provided fuel for a sell-off.

“People will usually sell winners like Barrick to lock in their profits,” he said. ” But fundamentally, Barrick is still one of the best gold stocks around, and there has been no erosion of their material story.”

Allan felt there was potential for weakness in the Barrick issue because of its strong past performance.

Another analyst’s report from a London-based investment firm said Barrick’s shares had been looking expensive at recent price levels. Peter Miller, a London-based analyst with Yorkton Securities, thinks American Barrick shares are fully priced at current levels and recommends switching to other similar sized operations as one option.

“With a natural bias towards politically stable North America, and preferably the U.S. rather than Canada, we currently prefer the two Newmont companies at today’s price levels,” he said in an Oct. 10 report.

According to Miller, environmental concerns have also been expressed about the deliberate lowering of the water table at Goldstrike. “However, these are unlikely to have any serious effects on mine development,” he said.

The company is currently mining about 260 ft. below the water table and has increased its pumping rate to 17,000 gallons per minute from 13,000 gallons per minute. That rate could reach as high as 30,000 gallons per minute in 1991, said Barrick. The city of Winnipeg, for example, with a population of about 600,000 consumes about 50,000 gallons per minute.

The mine’s water treatment plant produces potable water which is stored in a reservoir and will be used for the irrigation of arid lands elsewhere in the hydrogeological basin.

“I don’t understand why people are saying we have environmental problems because we’re putting the excess water from our mine to a beneficial use in irrigation,” said Smith.

Still other analysts point to the fact that more sellers than buyers are currently in the market. That’s because gold prices have fallen while fears of a recession have grown.

The price of gold bullion has fallen sharply in recent weeks to a low of US$364 per oz. on Oct. 16, down from US$390 on Oct. 3.

To help protect its earnings in a weak gold market, American Barrick has hedged 100% of its 1990 production of 565,000 oz. at an average price of US$425. Most of this hedging is through put and call options which allow the company to secure a minimum price for its gold while retaining the ability to participate in spot price increases.

“With our hedging program, we protect a minimum price while retaining the ability to participate in gold price increases,” said Gregory Wilkins, executive vice- president at American Barrick.

The company has hedged 75% of its 1991 production at an average price of US$428 per oz. and 65% of its 1992 production at US$410 per oz. “We’re very well hedged on the downside, but the market still reacts to short-term gold price movements,” said Wilkins.