from the financial post this morning:
Wednesday, October 28, 1998
Willson goes down under at Placer Dome
By JOHN SCHREINER
The Financial Post
VANCOUVER -- In the drive to cut costs in a tough gold market, Placer Dome Inc.'s chief
executive, John Willson, is passing the ball to his mine managers. And the strategy seems to be
working.
In a restructuring that is dramatic for the mining industry, Placer Dome has gone rapidly toward a
non-hierarchical management structure. The move has eliminated head office overhead and given
much more power to front-line managers at the mines.
"This is something I have believed in for a long time," Mr. Willson said yesterday in an interview.
The company's much-improved third-quarter earnings, in part the result of improved operations
under the new management structure, are "no flash in the pan," Mr. Willson said.
"The operating results are spectacular," said Manford Mallory, an analyst with Research Capital
Corp. in Toronto.
In the quarter, the Vancouver-based company earned $33-million (all figures in U.S. dollars.) on
sales of $336-million, compared with year-earlier earnings of $6-million on sales of $317-million.
For the nine months ended Sept. 30, the company has earned $74-million on sales of $942-million,
compared with year-earlier net profit of $35-million on sales of $917-million.
The shares closed yesterday at $22.50, up $2.25.
Placer Dome expects to produce between 2.8-million and three million ounces of gold this year.
The total cash cost of producing that gold was $202 an ounce in the third quarter. Costs for the
year have averaged $223, at a time when gold is trading for $300 an ounce.
Mr. Willson believes that, with help from its forward sales, Placer Dome can realize $350 an
ounce for sales this year. Even so, the push to cut costs continues because the company believes it
can't wait to be rescued by recovering prices. It expects little recovery for two years.
Mr. Willson expects Placer Dome will be able keep its cash costs below $180 an ounce through
the next three years.
"I hope in due course to convince you that we can continue this performance,' he told analysts in a
conference call.
In its third quarter last week, Placer's rival, Barrick Gold Corp., reported its cash costs for
producing gold this year has been $181 an ounce, down from $209 last year. The drop was
achieved largely by phasing out high-cost mines and increasing output from high-grade operations.
Gold began a long slide from $414 an ounce in February 1996 to a low this August of $275, the
result of selling or anticipated selling of central bank reserves and of investors preferring the US$
during the Asian currency crisis.
That slide triggered massive writedowns of reserves at Placer Dome of $110-million in 1996 and
$288-million in 1997, pushing the company into back-to-back losses and propelling the
restructuring that has devolved considerable autonomy to individual mine managers for the financial
performance of their mines.
"There is nothing that concentrates the mind like low gold prices," Mr. Willson said.
The accelerating decline led him early this year to an initiative "to try and get the typical engineer
operating our assets out of that box."
He convened a brainstorming meeting of 112 of his managers from around the world. From that
emerged the restructuring that has flattened Placer Dome's management hierarchy. About 100
people have been eliminated at the company's various headquarters as responsibility has moved to
the operators.
At the high-grade Campbell mine in Ontario, for example, engineers and geologists now meet with
miners in the underground stopes to develop mining plans.
"There's a much greater buy-in to what's going on," Willson asserts. "As a result, productivity and
costs at these mines are a lot better than they would have been on the traditional basis." |
