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Tuesday October 31, 8:49 pm Eastern Time
Press Release
SOURCE: Homestake Mining Company
Homestake Reports Third Quarter Loss Due Primarily to Non-Recurring Charges Related to Closure of the Homestake Mine
WALNUT CREEK, Calif., Oct. 31 /CNW/ -- Third quarter 2000 summary: (Note: All financial information is reported in US dollars unless stated otherwise)
- Net loss of $75.7 million or $0.29 per share, compared to net income of
$1.7 million or $0.01 per share for the corresponding period of 1999.
The third quarter 2000 loss included a $41.9 million charge related to
the previously announced decision to close the Homestake mine in South
Dakota.
- Net income from continuing operations of $0.5 million or $0.00 per
share before foreign exchange losses, write-downs and unusual charges,
compared to $9.4 million or $0.04 per share in the third quarter of
1999.
- Cash flow from operations of $13.9 million, compared to $60.5 million
in the third quarter of 1999. The decrease was due primarily to a
$35.0 million gain realized on the close-out of gold forward sales
contracts in the third quarter of 1999 and an increase in in-process
gold inventories in the third quarter of 2000.
- Total attributable gold production of 558,900 ounces, 19,700 ounces
more than in the third quarter of 1999.
- Average cash cost of $173 per ounce, $2 per ounce higher than in the
same quarter of 1999.
Homestake Mining Company (NYSE: HM; Australia: HSM; Toronto: HCX) today reported a net loss of $75.7 million or $0.29 per share for the third quarter of 2000, compared to net income of $1.7 million or $0.01 per share for the third quarter of 1999. The third quarter of 2000 loss was primarily due to non-recurring pre-tax charges of $67.8 million and largely non-cash pre-tax foreign exchange losses of $13.6 million, related to further weakening in the value of the Australian and Canadian dollars against the US dollar.
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The 2000 third quarter pre-tax charges included $41.9 million related to the previously announced closure of the Homestake mine in South Dakota, $16.2 million of additional reclamation accruals at non-operating properties, an $8.0 million write-down related to certain redundant assets in Australia and $1.7 million of other charges. The foreign exchange losses consisted of $4.0 million attributed to foreign currency exchange contracts and $9.6 million related to the re-valuation of inter-company loans denominated in Australian and Canadian dollars. In the third quarter of 1999, Homestake recorded pre- tax foreign exchange losses amounting to $4.2 million.
The net loss of $108.4 million or $0.42 per share for the first nine months of 2000 included $15.3 million of losses related to the discontinued operations at the 16.7%-owned Main Pass 299 sulfur joint venture. In the first nine months of 1999, Homestake's net income was $0.9 million or $0.00 per share.
Net income from continuing operations before foreign exchange losses, write-downs and unusual charges was $0.5 million or $0.00 per share, compared to $9.4 million or $0.04 per share in the third quarter of 1999. In the first nine months of 2000, Homestake's net income on that basis amounted to $1.1 million or $0.00 per share, compared to a loss of $0.5 million or $0.00 per share recorded during the same period in 1999.
Third quarter 2000 cash flow from operations amounted to $13.9 million, compared to $60.5 million in the third quarter of 1999. The decrease in cash flow was due primarily to a $35.0 million gain realized on the close-out of gold forward sales contracts in the third quarter of 1999 and an increase in in-process gold inventories in the third quarter of 2000. The average realized gold price for the third quarter of 2000 was $284 per ounce, compared to $280 per ounce in the same period in 1999. In the first nine months of 2000, Homestake generated $94.0 million of cash flow from operations and realized $290 per ounce for its gold, compared to $100.2 million and $287 per ounce in the same period of 1999.
At the end of the third quarter 2000, Homestake's gold hedge book consisted of a combination of forward sales contracts, and put and call options which provide Homestake with downside gold price protection and a mechanism for participation in the upside. In addition, by not replacing its maturing foreign currency contracts in the third quarter 2000, Homestake has reduced the size of its hedge book covering Canadian and Australian currencies. At September 30, 2000, the total market value of Homestake's hedge book was approximately $26 million.
"This has been a difficult year for Homestake," said Jack E. Thompson, Homestake's Chairman and Chief Executive Officer. "Gold prices have been low, a situation compounded more recently by reduced investor interest in the entire gold mining sector. As a result, all gold equities, Homestake included, have been under pressure. However, our company remains very strong. Our low cash operating costs, which this year have averaged less than $180 per ounce, remain Homestake's best natural hedge against low gold prices.
"Our recent decision to close the Homestake mine was a difficult one, from both the human and historical perspectives. It was, however, the right decision, since it will make Homestake a financially healthier company for the future. The Homestake mine currently contributes less than eight percent of the company's overall production. We have a strong base of long-life operating assets, located in stable geo-political environments, a particularly important factor at a time of great political and financial instability in several of the world's major gold producing regions. Homestake's developing Veladero project in Argentina continues to gain momentum. Our balance sheet is healthy with over $248 million in cash and short-term investments and only $28 million of net debt. We are confident that gold will recover its strength and when it does, Homestake will be well positioned to take full advantage of its high leverage to rising gold prices."
Operations
During the third quarter of 2000, Homestake's attributable production amounted to 558,900 ounces of gold, 19,700 ounces more than during the same period in 1999. Average cash costs of $173 per ounce were two dollars per ounce higher than during the same period last year. Total costs during the 2000 third quarter averaged $241 per ounce, $10 per ounce higher than during the same period a year ago. In the first nine months of 2000, Homestake produced 1,617,000 ounces of gold at average cash and total costs of $176 and $241 per ounce, respectively. In the first nine months of 1999, Homestake produced 1,599,600 ounces of gold at average cash and total costs of $180 and $241 per ounce, respectively.
Prior to the third quarter 2000, Homestake reported its total gold production and costs per ounce using equivalent ounces. Included in these figures was silver output expressed in terms of an equivalent amount of gold (co-product accounting) from the 100%-owned Eskay Creek mine located in northwestern British Columbia, Canada. This approach was originally selected because of the large amounts of silver produced at that mine (approximately 40%-45% of production value depending on the relative market values of gold and silver). It is now a more common practice in the industry to report gold production using by-product accounting, whereby proceeds derived from the sale of silver are credited against operating costs for cash cost reporting purposes. Homestake recently announced its decision to adopt this reporting method to ensure that its disclosure is consistent with current industry practice. The table below gives Eskay Creek's and Homestake's total attributable gold production since 1995, based on by-product accounting, as well as cash and total costs:
Period Eskay Creek Homestake Total Attributable
Cash Total Cash Total
Production Cost Cost Production Cost Cost
(000
(000 Ounces) (US$/Oz)(US$/Oz) Ounces) (US$/Oz) (US$/Oz)
1995 99.4 53 128 1,563.5 259 314
1996 106.9 (3) 72 1,652.4 253 314
1997 123.8 52 111 1,630.0 244 301
1998 156.5 5 77 2,137.0 205 246
1999-Q1 70.2 (6) 118 505.7 183 244
1999-Q2 90.3 29 158 554.8 185 246
1999-Q3 80.4 1 132 539.1 171 231
1999-Q4 68.1 33 161 540.9 188 247
1999 309.0 15 143 2,140.5 182 242
2000-Q1 84.4 7 137 528.1 181 244
2000-Q2 83.6 34 155 530.0 174 237
2000-Q3 81.9 33 160 558.9 173 241
2000-YTD 249.9 24 151 1,617.0 176 241
Canada
During the third quarter of 2000, the Eskay Creek mine produced 81,900 ounces of gold at an average cash cost of $33 per ounce. During the same period in 1999, the mine produced 80,400 ounces at approximately $1 per ounce. The higher cash costs primarily reflect lower silver by-product credits due to lower silver prices and grades in the third quarter 2000. In the first nine months of 2000, the mine produced 249,900 ounces of gold at an average cash cost of $24 per ounce, compared to 240,900 ounces of gold and an average cash cost of $9 per ounce in the same period last year. The higher cash costs were primarily due to lower silver prices and higher development and fuel costs incurred during the first nine months of 2000 compared to 1999.
Homestake's 50%-owned Hemlo operation, located in northwestern Ontario, consists of a single mill which processes ore from the David Bell and Williams underground mines. In the third quarter 2000, Hemlo produced 155,600 ounces of gold (100% basis) at an average cash cost of $187 per ounce. During the same period last year, these operations produced 157,400 ounces at an average cash cost of $183 per ounce. In the first nine months of this year, Hemlo produced 490,000 ounces of gold at an average cash cost of $190 per ounce. Last year, during the first nine months, these operations produced 467,400 ounces at an average cash cost of $200 per ounce. The increased gold production and lower cash costs reflect a higher mill throughput achieved in the first nine months of 2000 compared to 1999.
Australia
During the third quarter of 2000, Homestake's 50%-owned Kalgoorlie operation, located in Western Australia, continued to lower operating costs through the implementation of owner mining and maximization of throughput in the processing plant. During the 2000 third quarter, the Kalgoorlie operation produced 185,000 ounces of gold (100% basis) at an average cash cost of $183 per ounce. In the same quarter of 1999, when the mine was experiencing higher mining costs and operating problems at its processing facility, the Kalgoorlie operation produced 196,200 ounces of gold at an average cash cost of $231 per ounce. The lower gold production during the 2000 third quarter reflects a temporary increase in in-process inventories. This operation remains ahead of its 1999 operating performance. In the first nine months of 2000, the Kalgoorlie operation produced 579,100 ounces of gold, 71,100 ounces more than in the same period of 1999. Cash operating costs averaged $195 per ounce, $42 per ounce less than during the first nine months of 1999.
Homestake's 100%-owned Yilgarn operations, consisting of the Plutonic, Darlot and Lawlers mines, also posted a strong operating quarter. Together they produced 122,200 ounces of gold at an average cash cost of $197 per ounce. During the third quarter last year, these operations produced 114,300 ounces at an average cash cost of $191 per ounce. During the first nine months of 2000, the Yilgarn operations produced 346,200 ounces of gold at an average cash cost of $203 per ounce, compared to 334,600 ounces produced at an average cash cost of $206 per ounce in the first nine months of last year. These operations are expected to continue improving their cost structure. For example, the Darlot mine is scheduled to convert from contractor to owner mining in the first half of 2001. To complete this conversion, the company plans to invest US$7.5 million in a new fleet of haul trucks, loaders and other underground ancillary equipment. This investment is expected to yield a 24% return in the form of reduced operating and mine development costs over the life of the mine.
United States
Homestake increased its US-based gold production with the July 1, 2000 acquisition of an additional 25% interest in the Round Mountain mine in central Nevada. Round Mountain is now Homestake's largest US-based producer of gold. The company now owns 50% of this major heap-leach and mill operation, which in the third quarter 2000 produced, on a 100% basis, 160,000 ounces of gold, compared to 148,800 ounces in the same period last year. In the first nine months of this year, the mine increased production significantly, to 456,700 ounces, 47,000 ounces more than in the same period of 1999. Round Mountain's cash costs in the third quarter averaged $202 per ounce, approximately four dollars per ounce higher than a year ago. On the year-to-date basis, cash costs averaged $221 per ounce, $21 per ounce higher than in the same period last year, mainly due to processing higher cost inventories earlier this year.
The wholly-owned Ruby Hill mine, located in central Nevada, continues to deliver strong operating results. In the third quarter of 2000, it produced 35,600 ounces of gold, 2,600 more ounces than a year ago. The average cash cost of $97 per ounce was three dollars per ounce higher than in the same period last year. Year to date, the mine is also ahead of last year, having produced 97,000 ounces of gold at an average cash cost of $101 per ounce, or 5,700 ounces more at two dollars per ounce lower cost than in 1999.
On September 11, 2000, Homestake commenced closure proceedings at its namesake mine in western South Dakota. In the 2000 third quarter, this operation produced 40,600 ounces of gold as it began to "harvest" the remaining reserves from the mine.
Development
A new field season has begun at Homestake's 60%-owned Veladero project in northwestern Argentina. The program will focus initially on the Cuatro Esquinas area, located between the previously defined Amable and Filo Federico deposits. Eleven reverse circulation and four diamond drill rigs have been mobilized to the property in anticipation of at least 200,000 feet of drilling. In addition, Homestake plans to conduct further metallurgical, geotechnical and hydrological work to optimize the scope and economics of this major project.
Safety and Environment
On September 8, 2000, Homestake's Ruby Hill mine received the prestigious Nevada Mining Association Small Surface Mine Award for Safety for its record of no accidents in 1999. This award was shared with Homestake's 50%-owned Pinson operation, which in October 2000 completed six years without having a lost time accident. On September 20, 2000, Ruby Hill also received a Certificate of Achievement in Safety for its outstanding safety record in 1999 from the United States Department of Labor, Mine Safety and Health Administration, Sentinels of Safety.
On July 27, 2000, Homestake completed a $2.2 million sale of the 8,000-acre Knoxville Ranch to the California Department of Fish and Game. Located in the heart of the Blue Ridge/Berryessa district of the Napa County, this property is expected to become a new wildlife area. The Ranch originally formed a portion of Homestake's McLaughlin mine, which is currently processing residual low-grade stockpiles from earlier mining operations. The remaining 6,800 acres of land that contain the McLaughlin processing facility are expected to be added to the University of California Natural Reserve System as a study area for research and education.
"Homestake is proud of its environmental effort, which goes far beyond the letter of law and regulation," said Mr. Thompson. "Environmental protection is an intrinsic part of our culture. We are proud of our track record of being a good corporate neighbor as we constantly look for ways of providing enduring benefits to the communities where we operate." Mr. Thompson was a keynote speaker at a Symposium on Sustainable Development, which took place in Las Vegas, Nevada on October 11, 2000. The Symposium was sponsored by the Bureau of Land Management, US Forest Service and Environmental Law Institute. A complete copy of Mr. Thompson's remarks, entitled Mining Operations in the 21st Century, A Sustainable Legacy, can be obtained by visiting Homestake Mining Company on the Internet at homestake.com.
Investor Relations
On November 5, 2000, 27 analysts from North America, Australia and Europe will commence a tour of Homestake's Australian operations. The group will visit Homestake's 50%-owned Kalgoorlie and 100%-owned Yilgarn operations. The Kalgoorlie visit will be made in conjunction with Normandy Mining Limited, Homestake's joint venture partner. During the visits, Homestake will be distributing to the analysts informational material, a copy of which can be obtained on the company's web-site. Homestake is the second largest producer of gold in Australia, with full year 2000 production anticipated to reach approximately 860,000 ounces.
Homestake Mining Company is an international gold mining company with operations and exploration activities in the United States, Canada, Australia and Chile. The company also has active development and exploration programs in Argentina. Shares of the company's common stock are listed on the New York Stock Exchange, the Australian Stock Exchange and the Basel, Geneva and Zurich Stock Exchanges in Switzerland. Homestake Canada Inc. Exchangeable Shares are listed on the Toronto Stock Exchange. Homestake began gold mining operations over 120 years ago, and is one of the oldest listed companies on the New York Stock Exchange still in its original business. It has received numerous industry awards for its responsible environmental health and safety management programs. For additional corporate information, please visit Homestake Mining Company on the Internet at homestake.com.
CAUTIONARY STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT. This release contains forward-looking statements that are based on management's expectations and assumptions. They include statements preceded by the words "believe," "estimate," "expect," "intend," "will," and similar expressions; estimates of future production; cost estimates; and other estimates of future results or activity. Such statements are "forward looking statements" that involve risks and uncertainties that could cause actual results to differ materially from estimated results. Among the important factors that could cause actual results to differ materially are the following. Production may vary from estimates for particular properties and for the company as a whole because of changes in reserves, variation in ore mined from estimated grade and metallurgical characteristics, unexpected ground conditions, mining dilution, labor actions, and government restrictions. Cash costs may vary due to changes from reserve and production estimates, unexpected mining conditions, and changes in estimated costs of equipment, supplies, utilities, labor costs and exchange rates. Capital cost estimates are based on operating experience, reserve estimates and expected production rates, estimates by and contract terms with third party suppliers, expected legal requirements, feasibility reports and other factors. Factors involved in estimated time for completion of projects include the company's experience in completing capital projects, estimates by and contract terms with contractors, engineers, suppliers and others involved in design and construction of projects, and estimated time for the government to process applications, issue permits and take other actions. Changes in any factor may cause costs and time for completion to vary significantly from estimates. There is a greater likelihood of variation for properties and facilities not yet in production due to lack of actual experience.
For further information
Igor Levental, Vice President, Investor Relations, of Homestake Mining Company, 925-817-1369
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