Placer’s high-cost mines at risk

Placer Dome’s (TSE) “gross strategy” in the months ahead will be to undercut worldwide average production costs of US$265 at all of its mines while maintaining gold production, President Tony Petrina told shareholders at the company’s annual meeting.

But to achieve this goal, the company may have to close some of its high-cost gold mines.

“If we see further weakness in metal prices, it may be necessary to consider curtailing certain operations,” Petrina said.

In 1991, almost half of Placer’s 17 gold operations had cash production costs greater than US$265 per oz. Most vulnerable are the Cortez mine in Nevada (US$419), where Placer holds a 60% interest, and the wholly owned Dona Lake and Detour Lake mines in northern Ontario (US$375 and US$333 respectively). Placer has already begun wielding its axe. During the first quarter, the workforce at the profitable Campbell mine at Red lake, Ont., and at the Sigma mine in Quebec was reduced by a total of 179 employees.

The layoffs, among other measures, reduced Placer’s quarterly production costs to an average of US$202, the lowest level since 1987, but infuriated United Steelworkers of America director Leo Gerard.

“Placer Dome has a history of exploitation and abuse, but the latest attacks are the worst example of what happens when workers’ rights are ignored, both by the company and the system that allows it to operate without any checks and balances,” said Gerard in a prepared statement.

Meanwhile, Placer is focusing its exploration efforts on the Pacific Rim, Eastern Europe and especially Latin America as operating in North America becomes increasingly difficult.

“La Coipa (Placer’s gold-silver mine in Chile) is the first of many new developments in Latin America,” said Petrina. Mexico, Venezuela and Chile were all mentioned as significant targets.

But the low-grade Andacollo gold-silver deposit in northern Chile may be in jeopardy. Petrina told reporters Placer would not be able to deliver a feasibility study before the July deadline. He added that the mercury content of the ore concentrate is higher than expected.

To extend its option on Andacollo without making a development decision, Placer would have to pay partner ENAMI $5 million after investing $6 million in the project to date.

In order to avoid making another investment mistake like Mount Milligan, Placer has appointed Peter Crossgrove to a new position of vice-chairman. Crossgrove is president of ITCO properties, a Placer director, and a merger and acquisitions whiz.

“He will be helping me to decide which projects to take to the board,” Petrina said.