Placer Dome cuts exploration, outlines strategy for growth

The street-driven notion that success should be measured only in ounces has fallen out of favour in the gold business, and Placer Dome (PDG-T), like most of its peers, intends to measure success with a more traditional yardstick — cash flow and earnings. That was the message President Jay Taylor imparted to fund managers and mining analysts during a presentation in Toronto.

To achieve its goal of producing at least US$1.5 billion in cash flow from operations through 2004 at prevailing prices, the company will implement a 3-point strategy consisting of: increasing the value of core production assets; growth through exploration and acquisition; and investment in research and development.

“Our growth strategy will be very selective,” Taylor said, adding that exploration spending is down one-third from five years ago. “We have a laser-like focus on exploration, because the cost per ounce to add reserves from operations is significantly lower than through greenfields exploration. As for acquisitions, we’re looking at a lot of things, but a lot of them simply don’t make it. And we don’t intend to pay a premium on top of a premium.”

Placer hopes to find at least 10 million oz., at a cost of US$20 per oz., through exploration at or near existing mines. This strategy, combined with optimization initiatives, is expected to breathe new life into key assets.

In keeping with these objectives, mine managers from all over the world outlined plans specific to their operations. Jacques Perron, general manager of the Campbell mine in Ontario’s Red Lake camp, said his main goal was to stabilize production and reduce costs associated with last year’s seismic event in the A zone, the main production area. Gold output this year is expected to fall below 170,000 oz., from 229,000 oz. in 2000, owing to the temporary closure of the zone. Cash costs are forecast at US$225 per oz., compared with US$175 per oz. a year earlier.

A revised life-of-mine plan for Campbell is expected shortly. While its widely spaced reserves make it difficult to boost production (the famous super-stopes are largely mined out), the focus now is on optimization and cost reduction. Meanwhile, the company will continue its search for high-grade gold in the camp, including at the newly optioned Madsen mine property. “It’s still in the early stages,” Perron said, “but it has great potential.”

The 68%-owned Musselwhite mine in Ontario continues to be a solid performer. Production last year was 245,173 oz. at a cash cost of US$158 per oz., and there appears to plenty of exploration and production upside. Mine manager David Woodall says the company is “achieving its goal [of finding] 2 million new ounces through ongoing exploration.”

In Nevada, Placer sees potential to expand reserves at its 60%-owned Cortez gold mine, which, for the fifth consecutive year, has produced at or above the 1-million-oz. mark. While not yet permitted, the newly discovered Pediment project may be developed as a stand-alone, heap-leach operation. Reserves stand at 30 million tonnes grading 1.1 grams gold per tonne. Placer also intends to test other nearby targets.

Little was said about the Getchell gold project in Nevada, where a pre-feasibility study is focused on N zone development. Further work will depend on the results of the study, scheduled for completion by year-end.

Taylor said good progress is being made at the 50%-owned South Deep mine, the company’s beachhead investment in South Africa. Reserves there stand at 58 million oz. In addition to sinking the world’s deepest ventilation shaft on time and budget, Placer has reduced the workforce and introduced bulk-tonnage mining techniques and a trackless mining fleet to boost productivity and improve the mine’s safety record.

South Deep is expected to produce 380,000 oz. gold this year and reach an annualized rate of 700,000 oz. by the latter half of 2003, when the conversion to mechanized mining is complete. “The goal,” says mine manager Piet Kolbe, “is to change the way gold has been mined here for good.”

The 50%-owned Porgera mine in Papua New Guinea is expected to produce an average of 650,000 oz. annually until 2006, with milling of stockpiles likely to continue through to 2011. In nearby Australia, the Wallaby deposit is being brought on-stream at the 60%-owned Granny Smith mine. It is expected to produce a total of 2 million oz. over its 9-year life.

Mine manager George Paspalas said Wallaby is the eleventh open pit found at Granny Smith. “It will have the longest mine life we’ve ever had. We can justify doing our own mining now, instead of using contract miners.”

Wallaby’s annual production is expected to average 190,000 oz. at a cash cost of US$160 per oz.

Farther afield, in Chile, expansion plans have been placed on hold for the wholly owned Zaldivar copper mine. “It’s capital-prohibitive in this environment,” says mine manager David Newbold, “but we’re looking at optimization alternatives.” Production is expected to remain at current levels of about 300 million lbs. per year.

Two of Placer’s international operations are at or near the end of their productive lives. The Kidston mine in Australia, which recently poured its 3.5-millionth ounce, has moved into the final reclamation stages. Reserves are exhausted at the Misima mine in Papua New Guinea, though milling of stockpiled ore will continue into 2004.