Weak currencies hurt Homestake’s bottom line

Denver — Weakening of the Australian and Canadian dollars (relative to the U.S. dollar) forced Homestake Mining (HM-N) to post a first-quarter net loss of US$12 million (or 5 per share).

The loss came from loans (within the company) that were denominated in Australian and Canadian currencies and resulted in an after-tax charge of US$14.5 million.

To help matters a little, the company recorded an after-tax gain of US$2.4 million through the lease of the Just-in-Case property in Western Australia to the neighbouring Granny Smith joint venture, which is operated by Placer Dome (PDG-N).

Before non-recurring items, Homestake recorded an income of US$100,000, compared with a loss of US$1.9 million in the first three months of 2000. The company posted similar foreign currency losses in the first quarter of last year, resulting in a net loss of US$$16.3 million (6 per share).

Attributable gold production was up nearly 10% to 579,200 oz., primarily due to increased ownership of the Round Mountain mine in Nevada. In 2000, the company doubled its interest in the mine to 50%.

In the first quarter, the open-pit mine produced 200,700 oz. gold, up 40% due to higher average grades and increased recovery. Homestake’s account raked in 100,350 oz., up from 36,000 oz. a year ago. Cash costs fell by a third to US$173 per oz.

In east-central Nevada, the wholly owned Ruby Hill mine remains one of the company’s lowest-cost producers. Production reached 30,200 oz. gold at cash costs of US$108 per oz., compared with 28,300 oz. at US$106 per oz. a year ago.

In Canada, Homestake’s low-cost leader was Eskay Creek, which contributed 77,100 oz. gold at cash costs (including considerable silver credits) of US$51 per oz. First-quarter 2000 production was 84,400 oz. gold at US$7 per oz. The higher costs in 2001 reflected lower silver output, decreased silver prices and higher fuel costs.

The company recently began production from the C zone, which is smaller than other active areas in the mine. As a result, full-year production is forecast at 313,700 oz. gold, down from 333,200 oz. in 2000.

Homestake saw a greater contribution from its 50%-held Kalgoorlie operation in Australia during the first quarter. Production reached 196,300 oz. gold at an average cash cost of US$199 per oz., compared with 192,100 oz. at US$211 per oz. in the first quarter of 2000.

The company says the improvements were achieved despite several power outages and a relining of the grinding mill at the sulphide treatment plant. During February, Kalgoorlie commissioned a new ultrafine grinding unit to process refractory sulphide concentrates. The unit is the first of its kind. It liberates the gold, making it amenable to conventional recovery methods.

Homestake also saw improved production from the Darlot, Plutonic and Lawler mines in western Australia.

Overall, the company’s operations averaged US$173 per oz. gold, down US$8 per oz. from the first quarter of 2000. Cash costs are expected to continue falling and finish the year at US$163 per oz., the lowest in more than two decades. Attributable production for the year should reach a new high of 2.3 million oz.

Cash flow from operations dropped to US$14.5 million, reflecting a US$21-per-oz. drop in the realized gold price. The company’s balance sheet remains strong, with cash and equivalents totalling US$193.5 million and debt of US$23.8 million.

Homestake’s hedge book consists of forward sales totalling 2.1 million oz. gold, or about 10% of the company’s reserves.

On the exploration front, drilling for the 2000-2001 field season is expected to finish up by the end of April at the 60%-owned Veladero project in northwestern Argentina. During the second quarter, work will focus on metallurgical testing and incorporating and interpreting the new results. An updated mine plan and process design should be completed by July, including new capital estimates, operating costs and financing models. Field exploration should resume by October.