Placer tables strong first-quarter earnings

By reducing costs and increasing production, Placer Dome (PDG-T) continues to perform strongly, as evidenced by results from the first quarter.

The company earned US$25 million (or 10 cents per share) on revenue of US$263 million during the 3-month period ended March 31, compared with US$21 million (8 cents per share) on US$254 million in the corresponding period last year.

Cash flow from operations totalled US$100 million (40 cents per share), or US$3 million less than a year ago.

“Our operating results show that the major performance improvements recorded in 1998 are continuing into 1999,” stated President John Willson. “We expect to be profitable in 1999 even if gold prices do not increase from current levels.”

Placer’s strong hedging program enabled it to realize an average price of US$355 per oz. in the recent quarter, compared with the average spot price of US$287 per oz.

“Hedging continues to provide us with a substantial cushion against the low gold prices,” Willson said.

The major produced 683,996 oz. gold in the recent quarter, or 7% more than in the first three months of 1998. Cash production costs between the two periods fell to US$154 from $184 per oz.; total cash costs, to US$224 from $259 per oz.

The company’s consolidated cash and short-term investments now total US$325 million, whereas debt is estimated at US$895 million.

Placer recorded a loss of US$5 million on investment income during the recent quarter, compared with a loss of US$20 million a year ago.

Eight of Placer’s 12 operating gold mines incurred lower costs in the first quarter, compared with figures reported a year ago. Highlights from four of these operations are as follows:

• Cortez — The major’s share of production from its 60%-owned Cortez mine in central Nevada almost tripled, to a record 189,511 oz. at a cash production cost of US$53 per oz. and a total cost of US$123 per oz. The increase is due to higher grades, which averaged 10.2 grams gold per tonne, compared with 3.2 grams in the first quarter of 1998.
• Granny Smith — The 60%-owned Granny Smith mine in Western Australia lowered its cash costs to US$91 per oz., from US$109 per oz. in the first quarter of 1998. The reduction reflects a weaker Australian dollar and improved mine efficiencies. Lower grades led to a 15% decrease in gold production, with Placer’s share amounting to 74,889 oz., compared with 87,750 oz. a year ago.
• Kidston — Production increased by 34% at the 70%-owned Kidston mine in North Queensland, Australia. The mine cranked out 57,548 oz. gold in the recent quarter, of which 40,284 oz. belongs to Placer. The increase stemmed from improved mill throughput and higher grades. Cash production costs decreased by 21%, to US$264 per oz., owing to higher production rates and improvements in the crushing circuit.
• Porgera — At the 50%-owned Porgera mine in Papua New Guinea, Placer’s share of production decreased by 45%, to 57,650 oz. The reduction was caused by lower grades and mining delays. The mine is expected to produce about 750,000 oz. over the course of the year, of which Placer’s share will be 375,000 oz.

  Placer’s revenue from copper mining fell 31% since the first quarter of last year, to US$11 million. The drop reflects a 16% decline in the company’s average realized copper price and a 18% drop in the copper spot price.

Overall exploration expenditures between the two quarters fell to US$12 million from US$15 million. In all of 1999, these expenditures are expected to total US$75 million, or 16% less than in 1998.

“We will still be heavily exploration-oriented,” Willson insists, citing the Andes, West Africa and parts of Asia as prospective areas.

Recently, Placer Dome and South African-based Western Areas formed an equal joint venture to develop the South Deep gold deposit and adjacent South Shaft operations in South Africa.

Total proven and probable reserves are estimated at 235 million tonnes grading 7.8 grams gold per tonne, equivalent to 59.3 million contained ounces. Of this, South Deep accounts for 52 million oz. The calculations are based on a gold price of US$260 per oz. and a cutoff grade of 4.2 grams. The total mine life is estimated at 79 years.

Commercial production at South Deep/South Shaft is slated for 2002. Placer’s share is expected to contribute about 375,000 oz. per year to its coffers at a cash production cost of US$185 per oz.

Late in 1998, Placer announced plans to take over Getchell Gold (GGO-X), which operates the Getchell and Turquoise Ridge mines mine in Nevada. If the deal is approved, the mines would contribute an average of 400,000 oz. gold per year to Placer’s coffers until 2003. The average production cost is expected to be less than US$230 per oz. Placer intends to boost reserves at Getchell to 20 million oz. and bring 10 million oz. into the proven and probable category by year-end.

Meanwhile, at the 70%-held Las Cristinas property in southeastern Venezuela, targeted gold production has been boosted by 21%, to 9.4 million oz., at a cash production cost of US$155 per oz. Placers share would be 6.6 million oz. Construction, now under way, is expected to last two years, and capital costs are pegged at US$495 million.

Placer’s total forecasted gold production for 1999 is 3.2 million oz., with the average cash production cost and total cost estimated at US$170 per oz. and US$240 per oz., respectively.