Low prices have forced most gold companies to focus on their bottom line rather than on top-line growth, and
At the company’s annual meeting, President Jay Taylor told shareholders that the accounting reconciliation was necessary given the steady erosion in gold prices since the assets were placed on the balance sheet. The carrying value of Las Cristinas in Venezuela was reduced by US$116 million, while a US$111-million charge was recorded against the Porgera mine in Papua New Guinea. Other writedowns included US$66 million for the Getchell gold project in Nevada, and US$32 million for the Osborne gold mine in Australia.
Looking ahead, Taylor expects to see an uptick in gold prices. “But the reality is, it will be what it will be,” he said. “If we run this business as well as we can at prevailing prices, then when the recovery comes — and I believe it will — we will be rewarded.”
The company saw some reward in the first quarter of 2001, even though gold output fell to 694,000 oz. from a record 786,000 oz. a year earlier. Cash and total production costs remained low at US$163 and US$244 per oz., respectively. And on the financial front, cash flow was up 8% over the previous year, while the bottom line was in the black to the tune of US$16 million.
“Over the next four years, we expect our existing assets to generate US$1.5 billion in cash flow from operations at prevailing commodity prices,” Taylor said, adding that cash will be used to service debt, pay dividends and reinvest in the business.
Taylor also unveiled a 3-point “value creation strategy” aimed at:
– maintaining and optimizing core production assets;
– growth through exploration and acquisition; and
– investment in research and development.
The company plans to spend US$290 million on capital projects this year, including: US$26 million for N zone development at Getchell; US$69 million for the shaft, mill and underground development at South Deep in South Africa; US$39 million for development of the Wallaby deposit at Granny Smith in Australia; US$37 million for the dynamic leach pad project at Zaldivar in Chile; and US$68 million on deferred stripping at the Cortez (Nevada) and Porgera mines.
As for growth opportunities, Placer intends to investigate “any precious metal opportunity that provides the right margin for investors,” particularly platinum group metals.
“Platinum is a niche market,” Taylor said, “but I believe it has the potential to dovetail strategically with our core gold business and mining capabilities.”
Although the company has no plans to expand its exposure to base metals, Taylor expressed satisfaction with the performance of the Zaldivar copper mine, where reserves increased by 69% last year, extending the mine life to more than 20 years.
“This is a great asset, and we promised to unlock value from the acquisition,” he said. “The team there has delivered.”
The dynamic leach-pad being installed at Zaldivar is expected to improve recoveries even further.
Taylor also expects an improved performance from the 50%-owned South Deep mine, the company’s beachhead investment in South Africa. Reserves there stand at 58 million oz.
“We felt we had to be there, because, like Chile is copper country, South Africa is gold country,” he said. “The asset has the highest grades in South Africa yet was rated the most inefficient mine in the country. That appealed to us, because we felt that with our management skills, we could turn that mine around. Our goal is to bring South Deep into the 21st century.”
Toward that end, Placer recently finished sinking the world’s deepest ventilation shaft, on time and on budget. In addition to ongoing development, the company has reduced the workforce and is introducing bulk-tonnage mining techniques and a trackless mining fleet to boost productivity and improve the mine’s safety record.
Taylor said the company has expressed interest in acquiring the other half of South Deep from its Western Areas joint-venture partner, “but only at the right price.” In the meantime, efforts are continuing to boost overall production to 700,000 oz. annually by 2003, and to improve social conditions at the mine, including HIV/Aids awareness programs.
In Nevada, a prefeasibility study is being prepared for the Getchell gold project, which now has a 9.5-million-oz. gold resource, albeit in a geologically complex setting.
“We have a lot of work to do with sub-drifting and exploration drilling to determine the shape, geometry [of the deposit] and competency of the ground,” Taylor said. Further work will depend on the results of the prefeasibility study, scheduled for completion by year-end.
Taylor said nearly 60% of the US$50-million exploration budget is going into the backyard of existing mines. “For example, we’ve got a terrific jewel of a mine up at Musselwhite in Ontario, in a huge district that has terrific potential and is lightly explored. It’s a great place to build our business.”
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