Homestake makes $100,000

Higher production pushed Homestake Mining (HM-N) into the black during the second quarter of 1999, despite poor

gold prices.

The company earned US$100,000 in the 3-month period, compared with a loss of US$43.1 million (19 cents per share) in the corresponding period last year.

For the first six months of 1999, Homestake incurred a loss of US$800,000, compared with a year-ago loss of US$50.8 million (22 cents per share).

Production hit 627,300 gold-equivalent ounces in the quarter, compared with 572,900 oz. a year earlier. The higher production helped offset falling gold prices, as the company realized a gold price of only US$283 per oz. during the recent quarter, compared with US$316 a year ago.

Leading the charge was the Eskay Creek mine in British Columbia, which has been posting higher production for the company ever since Homestake gained 100% ownership of the operation in December 1998.

For the second quarter, the mine contributed 90,300 oz. gold and 3.8 million oz. silver, compared with 70,000 oz. gold and 3.1 million oz. silver in the corresponding period of 1998. The increase was due to higher throughput from the gravity and flotation mill. For the past two quarters, Homestake has maintained mill throughput at 214 tons per day, compared with 166 tons per day during the first half of 1998.

Total cash costs were US$135 per oz. during the recent quarter, and US$129 per oz. in the first six months of the year.

Homestake also reports a strong performance at the Ruby Hill mine in central Nevada, where cash costs fell 13% to US$109 per oz. during the first half of 1999. Second-quarter cash costs were US$100 per oz.

The open-pit operation produced 33,100 oz. in the quarter and 58,300 oz. in the first half of the year.

In the Hemlo district, Homestake’s 50% share in the Williams and David Bell gold mines was 73,200 oz., down from 73,800 oz. in the second quarter of 1998. Falling ore grades pulled production at David Bell down 15%; reduced dilution lifted ore grades at Williams, resulting a 6% increase in production there. In June, Homestake and its partner, Teck (TEK-T), suspended operations at the David Bell mill. The companies are now processing ore from both mines at the newly expanded Williams mill.

Farther afield, in Australia, Homestake saw quarterly production rise at the Plutonic and Lawlers gold mines. However, production was off 30% at the Kalgoorlie operations, where cracked gearing impeded throughput at the Fimiston mill.

During the second quarter, Homestake suspended operations at the Snip mine in British Columbia. Reclamation should be complete by the end of the year, with a small amount of residual production expected during final cleanup.

Earlier in the year, the company closed the Pinson mine in northern Nevada, though residual leaching amounted to 1,300 oz. at a cash cost of US$241 per oz.

In all, cash operating costs for the company averaged US$195 per oz. during the second quarter, an improvement of US$6 per oz. from the corresponding period of 1998.

Production generated US$23.1 million in cashflow — a drop of 44% from the second quarter of 1998, primarily due to lower gold prices.

During the quarter, Homestake also completed its acquisition of Argentina Gold for 21 million shares valued at US$190 million. Outstanding shares now stand at 260 million.

Drilling at the Veladero project has been suspended for the South American winter, though the company will continue with resource interpretation and metallurgical testing for the prefeasibility study. Barrick Gold (ABX-N) owns the remaining 40%.

The current resource stands at 80.6 million tons grading 0.072 oz. gold and 0.9 oz. silver per ton.

Along with the Argentina Gold acquisition, Homestake spent US$11.7 million on exploration during the second quarter.

At the Pinson mine, Homestake and partner Barrick are spending US$3 million during the year on exploration. To date, drilling has extended the recently discovered CX Deeps mineralization and tested for additional deep targets.

In South Dakota, Homestake has found additional resources in the upper levels of the Homestake mine.

At Eskay Creek, the company started drilling from the surface on the 21C resource. To date, the work has boosted the size of the HW, Mud and Rhyolite zones. Mineralization remains open to the west.

In Australia, Homestake acquired the remaining 20% interest in the Mt. Morgan joint venture for US$1.6 million. Meanwhile, reverse-circulation drilling is under way at the nearby Just-in-Case resource.

While the company remains active on the exploration front, it has scaled back its budget to US$25 million in 1999, closing field offices in Peru, Brazil and Eastern Europe.

Since the beginning of the year, the company has implemented a plan aimed at saving US$30 million per year. As a result, Homestake has cut its workforce by 300.