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Production costs are a big big problem for Echo Bay. The following was posted by Selby on Kitco earlier today.
Falling gold prices put the squeeze on
producers
Placer close to Porgera deal
Gold producers Dakota, USMX plan $33M merger
By PETER KENNEDY
Mining Reporter The Financial Post
Tumbling bullion prices are putting North American gold producers under pressure to close
marginal operations, analysts said yesterday.
The warning came after Toronto-based producer TVX Gold Inc. said it plans to take a
fourth-quarter charge of up to US$57 million, reflecting the planned shutdown of its 60%-owned
Casa Berardi mine in Quebec.
Dakota, USMX plan US$33M merger: page 10
Highlands offers Placer its Porgera stake: page 3
As bullion fell another US$3.30 in New York yesterday to a 3 1/4-year low of US$357.80,
analysts said other companies may be forced to take similar action.
In a November report, when gold was trading at more than US$380 an ounce, John Lydall of First
Marathon Securities Ltd. in Toronto warned that only three senior Canadian producers were
running their mines at total costs below that price. They were Kinross Gold Corp., Barrick Gold
Corp. and Placer Dome Inc.
When the cost of depreciation, amortization and interest on loans is tacked on to cash operating
costs, other producers would have trouble making a profit at current prices, Lydall said.
At the close of the 1996 third quarter, U.S. miners Pegasus Gold Inc. and Echo Bay Mines Ltd.
ranked among the highest-cost producers, with total costs of US$486 an ounce and US$447
respectively.
"Clearly, at current metal prices, it is virtually impossible for any mining company to generate
satisfactory levels of cash flow and earnings,'' Lydall said in his report.
Yesterday, TVX senior vice-president Cliff Davis said the company had elected to shut Casa
Berardi rather than invest the capital needed to develop new ore.
TVX operates the 75,000-ounce-per-year mine in a joint venture with Vancouver-based Golden
Knight Resources Inc., which owns the other 40%.
After the announcement, TVX shares (TVX/TSE) eased 65› to $9.75, while Golden Knight
(GKR/TSE) fell 40› to $5.90.
TVX has put Casa Berardi employees on notice that the mine will close in three months if a buyer is
not found.
"We have had a couple of fairly serious buyers approach us,'' said Davis, adding that TVX plans to
focus on lower-cost operations in Greece and Brazil.
Davis said the final amount of the charge has not been determined, but added that the carrying
value of Casa Berardi on TVX's books is US$55 million.
Meanwhile, with gold trading well below its 1996 average of US$388 an ounce, other companies
may be planning similar moves, analysts said.
"Certainly this has to prejudice the thinking about a lot of high-cost projects,'' said Manford
Mallory of Research Capital Corp. in Toronto.
In recent weeks, for example, Royal Oak Mines Inc. of Kirkland, Wash., said it plans to take a
$27-million charge against fourth-quarter earnings. The move is to reflect costs associated with
closing its Hope Brook mine in Newfoundland and to reduce the carrying value of its Colomac mine
in the Northwest Territories.
In early December, Placer Dome said it planned to sell its marginal Kiena and Sigma gold mines in
Quebec and the Endako molybdenum mine in B.C.
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