Placer Dome interests extend to Papua New Guinea

Although Placer Dome (TSE) recently made two major North American acquisitions that promise to greatly increase its future gold production — the Mount Milligan property and a 45% interest in Stikine Resources — a major factor in the company’s near-term growth is the successful development of the Porgera mine in Papua New Guinea. Placer holds a 22.7% indirect interest in the mine through its 75.8% owned Australian subsidiary, Placer Pacific (Sydney).

At full production the Porgera mine will be one of the top six gold producers in the world with an average production rate over the first six years of its life of 900,000 oz. per year.

More important than the mine’s contribution to Placer’s production profile is the fact that its average cash operating cost will be less than half the average of Placer’s current operations. Cash production costs at Porgera are projected to average US$105 per oz. over the first six years of the mine’s life.

Reserves at Porgera are estimated at 56 million tons grading 0.22 oz. gold. The figure includes underground reserves of 7.3 million tons grading 0.71 oz., and open pit reserves of 48.7 million tons grading 0.15 oz.

The mine is being developed in phases with a portion of the first phase now complete. The company completed development of an underground mine and commissioned a 1,650-ton-per-day mill in August, 1990.

Hugh Leggatt, a spokesman for Placer, said the development was virtually problem-free and came on line a month ahead of schedule. The mill produces a gravity concentrate as well as a flotation concentrate which is processed through a carbon-in-pulp circuit.

A portion of the gold in the float concentrate is refractory and is not recovered in the carbon-in-pulp process. The company is now constructing an oxidation circuit in the mill in order to recover the refractory material.

The oxidation circuit consists of three autoclaves and an oxygen plant which are expected to be complete by the third quarter of 1991. Residue from the CIP process is being stockpiled until the circuit is complete.

Phase two, scheduled to begin in the fourth quarter of 1991, will include the expansion of the underground mining operation to 3,850 tons per day. The mill will be expanded to 5,000 tons per day, fed from both the underground mine and the carbon-in-pulp material stockpiled during phase one. The phase-two expansion should be complete by the first quarter of 1993.

Prestripping for the open pit operation will also begin during phase two in preparation for startup of a 1,100-ton-per-day open pit operation in the first quarter of 1993.

The open pit will be progressively expanded to 5,000 tons per day and the concentrator to 8,800 tons per day by the fourth quarter of 1993 with the addition of three more autoclaves and another oxygen plant.

When the underground reserves are depleted in 1997, open pit production will be expanded to 8,800 tons per day in order to meet mill capacity.

The total capital cost of the project to full production in the fourth quarter of 1993 is estimated at US$1 billion in 1990 dollars, considerably higher than the US$540 million cost estimate in the May, 1988, feasibility study.

The cost increase was a result of changes to the operating plan as well as higher than expected development costs because of the project’s location.

Placer Pacific’s other Papua New Guinea property is the 80% owned Misima mine on Misima Island. It is an open pit mine with proven probable reserves of 55.7 million tons grading 0.039 oz. gold and 0.60 oz. silver.

The mine was commissioned in April, 1989, and brought to full production in July, 1989. The mill uses semi-autogenous grinding and carbon-in-pulp technology for a capacity of 16,500 tons per day.

The company experienced some operating problems in 1989 when high rainfall levels damaged haul roads and ramps. The company appears to have solved the problem by using quarried rock on the roads.

For the nine months ended Sept. 30, Misima milled an average of 16,880 tons per day to produce 245,769 oz. gold and 1.7 million oz. silver.

Gold recoveries averaged 93% while silver recoveries averaged 45%. Cash operating costs at Misima for the 9-month period averaged about US$202 per oz., while total operating costs were about US$288 per oz.

Placer Pacific’s third major asset is its 70% interest in the Kidston mine in North Queensland, Australia. The mine was Placer Pacific’s first operation, commencing production in early 1985.

The Kidston mine, also an open pit operation, has proven and probable reserves as at Dec. 31, 1989, of 35 million tons grading 0.045 oz. gold and 0.054 oz. silver.

Production for the nine months ended Sept. 30, was 175,149 oz. gold and 179,400 oz. silver. The average milling rate for the nine months was about 12,500 tons per day.

Average cash operating cost for the period was US$223 per oz. while total cost was US$289 per oz. of gold produced.

Placer Pacific operates two other mines, both in Australia.

The 50% owned Big Bell mine in Western Australia has been something of a disappointment to the company after its opening in mid-1989. High operating costs prompted the company to undertake a review of the mine in order to optimize its operation.

Placer Pacific wrote down its investment in the mine by A$15 million in the second quarter of 1990, after the review resulted in a decrease in reserves to 8.7 million tons grading 0.067 oz. gold with a strip ratio of 6-to-1. The revised reserve figure compares with the Dec. 31, 1989, figure of 19 million tons grading 0.1 oz. at a strip ratio of about 11-to-1.

As a result of the changes to the mining plan, average cash operating costs came down during the third quarter from the US$440 level to about US$384 per oz. in the third quarter ended Sept. 30.

Total costs at Big Bell for the third quarter were about US$500 per oz.

The mine produced 84,378 oz. gold during the first nine months of 1990, at an average milling rate of about 6,800 tons per day.

Placer Pacific’s fifth operation is the 60% owned Granny Smith mine, also in Western Australia. The open pit mine has proven and probable reserves of about 23 million tons grading 0.05 oz. with a strip ratio of about 2.5-to-1.

The operation has proved quite successful since its startup in early 1990, producing 159,576 oz. gold during the first nine months of 1990 at an average cash operating cost of about US$160 per oz. and a total cost of about US$290 per oz.

Profits from the company’s Australian mining operations will be affected in 1991 by the introduction of a tax on mining operations.

Profits from gold mining operations were previously exempt from tax, but the Australian Government removed the tax exemption, Jan. 1. The Australian operations will therefore be subject to the corporate tax rate presently set at 39%.

In 1989, Placer Pacific reported gross income tax before deductions of A$17.2 million, of which A$13.2 million was deducted as exempt since it was derived from Australian gold mining profit.

As at Sept. 30, 1990, Placer Pacific’s forward sales totalled 1.03 million oz., 924,200 oz. at an average price of US$425 and the balance sold in Australian dollars at an average of A$604.

The company reported net earnings for the first nine months of 1990 of A$49.9 million or about 8 cents per share. Cash flow for the period before changes in working capital was A$134 million.

Placer Pacific had 622 million shares outstanding at the end of 1989, and recently traded at the A$3 level.