q4: not bad ...future looks promising.
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Placer Dome earns $284-million (U.S.) in 2004
Placer Dome Inc (TSX:PDG)
Shares Issued 436,376,664
Last Close 2/23/2005 $23.48
Wednesday February 23 2005 - News Release
Mr. Greg Martin reports
Placer Dome Inc. has posted growth of 24 per cent in 2004 earnings to $284-million, or 68 cents per share, and growth of 27 per cent in cash from operations to $376-million, or 90 cents per share. Year 2004 earnings were impacted by a number of tax items resulting in a net tax recovery of $130-million. (All figures are in U.S. dollars.)
Sales revenue increased 7 per cent to $1.89-billion on gold production of 3.65 million ounces and copper production of 413 million pounds. Gold cash and total costs were $240 and $298 per ounce, respectively, while copper cash and total costs were 55 cents and 70 cents per pound, respectively. Mine operating earnings increased 19 per cent to $484-million.
For the fourth quarter, gold production totalled 927,000 ounces and copper production was 93.4 million pounds. Sales revenue in the quarter was $460-million, while mine operating earnings were $78-million. Net earnings totalled $39-million, or nine cents per share and cash from operations was $44-million, or 10 cents per share. Cash and total costs in the fourth quarter were $264 and $330 per ounce for gold and 64 cents and 82 cents per pound for copper, respectively.
Both the fourth quarter and full-year 2004 earnings were impacted by non-cash writedowns and tax items.
Commenting on the results, president and chief executive officer Peter Tomsett said: "The operating results met our expectations. Over all, our assets continue to perform well as we exceeded both our gold and copper production targets. Cost pressures on the industry remain a reality. We have taken steps to mitigate the impact on our business of further strengthening of the Canadian and Australian dollars."
Under Placer Dome's precious metals sales program, the company realized an average price of $391 per ounce of gold in 2004, $18 per ounce below the average spot price during the year. In the fourth quarter the company realized $398 per ounce compared with an average gold spot price of $434. During 2004, Placer Dome reduced the maximum committed ounces under its gold sales program by 1.5 million ounces to 9.0 million ounces or 15 per cent of 2004 year-end gold mineral reserves. To mitigate the impacts of strengthening currencies, the company has protected approximately 50 per cent of its 2005 Canadian and Australian dollar cost exposures through a purchase call program that augmented existing Australian dollar hedge positions.
HIGHLIGHTS
Three months ended Dec. 31
(millions of dollars)
2004 2003
Sales 460 492
Mine operating
earnings 78 128
Net earnings 39 81
Per share 0.09 0.20
Gold production
(thousands of ounces) 927 1,039
Cash costs
($ per ounce) 264 229
Total costs
($ per ounce) 330 284
Copper production
(millions of pounds) 93 111
Cash costs
($ per pound) 0.64 0.53
Total costs
($ per pound) 0.82 0.67
HIGHLIGHTS
Year ended Dec. 31
(millions of dollars)
2004 2003
Sales 1,888 1,763
Mine operating
earnings 484 406
Net earnings 284 229
Per share 0.68 0.56
Gold production
(thousands of ounces) 3,652 3,861
Cash costs
($ per ounce) 240 218
Total costs
($ per ounce) 298 274
Copper production
(millions of pounds) 413 425
Cash costs
($ per pound) 0.55 0.52
Total costs
($ per pound) 0.70 0.67
Consistent with its strategy of optimizing assets, the company completed development projects at a number of mines, including completion of the South Deep shaft project, the North Mara mill expansion in Tanzania and the Turquoise Ridge mine in Nevada. Additionally, production at the Golden Sunlight and Bald Mountain mines will ramp up in the year as stripping programs at each site are completed. In addition to the Pamour and Raleigh developments in progress, the company approved the $40-million development of the open pit Gokona deposit at the North Mara mine in Tanzania. The Gokona deposit hosts approximately two million ounces of gold mineral reserves. Ore from the deposit is expected to be delivered to the mill in November of this year.
Mr. Tomsett said significant progress was made in 2004 on advancing the company's development projects. "The Cortez Hills deposit in Nevada entered the feasibility stage due to successful exploration results during the year. The prefeasibility study of the Pueblo Viejo project in the Dominican Republic has been completed and we are moving ahead with a feasibility study on the mine. The Cerro Casale project in Chile has advanced to a stage where financeability is being considered. Subject to Placer Dome's internal approval processes, we expect to make a decision on whether to develop each of these projects by the end of 2005."
Placer Dome's estimated proven and probable mineral reserves at the end of 2004 were 59.9 million ounces of gold. The additions prior to allowance for depletion during the year were primarily due to additional mineral reserve discoveries and reclassification at Cortez, including Cortez Hills, and increases at other mines, including Porgera, Porcupine, North Mara and Bald Mountain. The mineral reserve increases were partially offset by mineral reserve decreases at South Deep, Turquoise Ridge and Granny Smith primarily due to increased costs and resulting higher cut-off grades and remodelling. Gold reserves were estimated at a long-term price of $350 per ounce. Proven and probable copper mineral reserves totalled 6.5 billion pounds at the end of 2004.
During the fourth quarter the company raised $452-million through a successful equity offering. Placer Dome closed the year in a strong liquidity position having over $1-billion in cash and short-term investments.
Exploration and development projects
The Cortez Hills project on the 60-per-cent-owned Cortez joint venture property in Nevada encompasses a high-grade open pit exploration discovery made in 2003, combined with an adjacent lower grade deposit known as the Pediment deposit.
Exploration activities continued throughout the year, with a feasibility study on the project commencing in the third quarter of 2004. More than 150 holes were drilled in 2004 of which about 60 per cent were targeted at resource definition, 30 per cent at resource expansion and 10 per cent at condemnation drilling to allow for planning of infrastructure sites. Exploration during the year was successful in further defining a steeply dipping high-grade deposit amenable to open pit mining and has identified a shallow dipping, high-grade mineral resource that will be investigated for mining with underground techniques. The open pit portion of the deposit is sufficiently defined to allow for feasibility study work to be completed on the deposit. The deposit remains open at depth to the west.
At Dec. 31, 2004, Placer Dome's share of the Cortez Hills proven and probable gold mineral reserve was 4.4 million ounces consisting of 3.4 million ounces proven (20.2 million tonnes at average grade of 5.25 grams per tonne) and 1.0 million ounces probable (8.5 million tonnes at average grade of 3.50 g/t), an increase of 1.2 million ounces from year-end 2003. The mineral reserve estimate is reduced slightly from midyear as geotechnical work has resulted in a flattening of some of the pit wall angles leading to a shallower open pit. A portion of the mineral reserves has been reclassified as mineral resources. Geotechnical work will continue in the first half of 2005 and will include assessing the potential for steepening pit walls. The potential to extract pit bottom mineral resources from underground will also be assessed at a later date.
The feasibility study on the deposit is scheduled for completion during the second half of the year and is examining, among other issues, optimal mining configurations, transportation of ore to the Pipeline mill and the merits of expanding the Pipeline mill.
Development and condemnation drilling will continue as part of the Cortez Hills/Pediment development. Limited exploration on the Cortez Hills deposit will occur in 2005. Placer Dome has budgeted more than $8-million in 2005 for continued feasibility study work on Cortez Hills/Pediment. As part of the exploration of the overall deposit, the joint venture is examining the merits of driving an exploration drift from a nearby existing Cortez open pit to allow for more effective exploration of underground targets. A decision on this issue is expected in the third quarter of 2005.
The Pueblo Viejo project is assessing the viability of mining a 15-million-ounce refractory gold mineral resource from a historic mining area in the Dominican Republic. Placer Dome acquired 100 per cent of the project through an agreement with the Dominican government in 2002.
Placer Dome has completed a prefeasibility study on the Pueblo Viejo property that contemplates a conventional open pit mining operation, sourcing ore from the Monte Negro and the Moore deposits. The processing circuit selected for the study consists of a standard crushing and grinding circuit followed by whole ore pressure oxidation with a conventional carbon-in-leach cyanide leach circuit to recover the gold. The processing plant capacity is anticipated at approximately 15,000 tonnes per day. Capital costs for the mine are estimated at between $800-million and $850-million, including a 15-per-cent contingency of approximately $100-million.
Production from the mine is estimated at approximately 800,000 ounces of gold annually over the first six years of the mine life, and between 600,000 and 650,000 ounces per year over a 17-year mine life. Cash costs are estimated to average approximately $200 per ounce over the life of the mine, including royalties payable to the Dominican government.
Placer Dome is moving the project to feasibility study with completion expected in the second half of 2005. Power supply is a key issue that remains to be fully addressed during the feasibility study. Power costs used in the prefeasibility study were based on an owned coal-fired power plant being constructed near existing power facilities on the South Coast of the country. The capital cost to build a 125-megawatt power plant is estimated at $175-million to $200-million and is not included in the above capital cost estimate. A number of owned and third party alternatives for power supply are being studied.
The Cerro Casale project contemplates mining a large gold-copper porphyry deposit in the Andean highlands in Chile. Cerro Casale is one of the world's largest undeveloped gold and copper deposits, owned indirectly by Placer Dome (51 per cent), Bema Gold Corp. (24 per cent) and Arizona Star Resource Corp. (25 per cent). Placer Dome acquired its interest in 1998 for a cash payment, financing of a feasibility study and the commitment to finance up to $1.3-billion for construction of the mine. Placer Dome completed a feasibility study on the project in 2000. At the time the project was not economic. The feasibility study was updated for then contemporary capital and operating cost estimates in early 2004.
Placer Dome issued a certificate to its partners in late September, 2004, indicating that it had commenced or is continuing to use reasonable efforts to arrange financing for the project on commercially reasonable and customary terms in accordance with the financing requirements of the shareholders agreement. Subject to the terms of the shareholders agreement, Placer Dome has until the end of 2005 to arrange such financing.
Since that time, the focus of efforts has been on the commercial arrangements for the project. These specifically include the above referenced financing, power supply contracts and off take arrangements. A technical review of the project is also under way, examining optimization opportunities. Additionally, the capital and operating costs for the project are being reviewed to assess any impact of continued cost inflation.
Placer Dome's share of Cerro Casale's estimated measured and indicated mineral resources is 13.0 million ounces of gold and 3.3 billion pounds of copper. The project contemplates a large-scale open pit mine that could produce (Placer Dome's share) approximately 500,000 ounces of gold and 65,000 tonnes of copper per year over an 18-year mine life.
Based on work completed in January, 2004, capital costs for the project were estimated at $1.65-billion, on a 100-per-cent basis. Assuming a copper price of 95 cents per pound, Cerro Casale's cash costs were projected at approximately $115 per ounce of gold (net of copper credits). Total costs, including amortization and depreciation of capital, were projected at approximately $225 per ounce.
The Donlin Creek project contemplates an open pit operation mining a large refractory gold deposit in southwest Alaska. Placer Dome owns 30 per cent of the project and is earning an additional 40 per cent by financing $32-million of exploration and development, completing a feasibility study, and making a decision to build a mine to produce at least 600,000 ounces of gold per year (on a 100-per-cent basis). Placer Dome's share of the project's measured and indicated gold mineral resource and inferred gold mineral resource, assuming 70-per-cent ownership, is 7.8 million ounces and 10.0 million ounces, respectively.
Work in 2004 consisted of a preliminary assessment on the viability and economics of the project. Based on this work, Placer Dome is committing $11-million to the development of the project in 2005. About half of the funds will be used for drilling to reclassify a portion of the inferred gold mineral resource to a measured and indicated gold mineral resource. Work on design concepts, infrastructure planning, power supply and geotechnical requirements is also continuing. Baseline environmental studies are being completed in order to commence the permitting process later this year.
In north-central British Columbia, a prefeasibility study is expected to commence shortly on the Mount Milligan project, a large gold-copper porphyry deposit containing estimated measured and indicated mineral resources of 5.6 million ounces of gold and 1.7 billion pounds of copper. During 2005, the focus of activities will include additional conventional metallurgical testwork and an investigation of new concentrate processing options. A decision will be made in 2005 on whether a feasibility study is warranted.
Outlook for 2005
Placer Dome's share of gold production in 2005 is expected to total approximately 3.7 million ounces, slightly above 2004 levels as the resumption of milling at Golden Sunlight and increased production from North Mara and Granny Smith are expected to offset lower production from Cortez. Cash costs for gold are forecast between $250 and $260 per ounce, and total costs are expected to be in the $315- to $325-per-ounce range, assuming prevailing foreign exchange rates, energy costs and other input costs.
Copper production for 2005 is expected to be 410 million to 420 million pounds, lower than previous 2005 production guidance of 430 million pounds, but in line with 2004 levels as higher recoveries at Zaldivar are expected to offset decreased production at Osborne. Cash costs are expected to be in the range of 60 cents to 65 cents per pound, and total costs are forecast at 75 cents to 80 cents per pound assuming prevailing foreign exchange rates and continuing high input and shipping costs.
Consolidated capital expenditures, including prestripping, are anticipated to be approximately $260-million in 2005. Major investments include $40-million at North Mara for the Gokona pit development, $24-million at Cortez for mobile equipment and further development of Cortez Hills, $15-million at Porcupine for the continued development of the Pamour open pit mine and underground development at the Hoyle Pond mine, $11-million at South Deep for underground development and infrastructure, $8-million at Kanowna Belle for mine development, and $7-million for development at Osborne. In addition, Placer Dome's share of deferred stripping expenditures in 2005 is anticipated to be approximately $35-million.
Exploration expenditures in 2005 are anticipated to be approximately $90-million, up from $77-million in 2004. About $60-million of this total will be allocated to exploration activities within an economic radius of existing mine sites, with the highest spending levels at Cortez, Campbell, Kanowna Belle, Kalgoorlie West, North Mara and Granny Smith.
Placer Dome also plans to spend approximately $55-million in 2005 on resource development, technology advancement, gold marketing and other related items. The largest component, $23-million, relates to its development project portfolio. Before allowance for non-cash stock-based compensation, expenditures on general and administrative items are forecast to be approximately $72-million in 2005, up from $64-million in 2004 due to the continued strength of currencies against the U.S. dollar and additional information technology support expenditures.
In 2005, Placer Dome expects to reduce the committed ounce position of its precious metals sales program to 7.5 million ounces of gold by delivering into maturing contracts.
CONSOLIDATED STATEMENT OF EARNINGS
Three months ended Dec. 31
(millions of U.S. dollars)
2004 2003
Sales $ 460 $ 492
Cost of sales 311 293
Depreciation
and depletion 71 71
------ ------
Mine operating
earnings 78 128
------ ------
General and
administrative 16 14
Exploration 25 22
Resource development,
technology and other 22 10
Writedown of
mining assets
and restructuring
charges 14 -
------ ------
Operating earnings 1 82
------ ------
Non-hedge derivative
gains (losses) (13) 2
Investment and
other business
income (loss) 4 (1)
Interest and
financing expense (21) (19)
------ ------
Earnings (loss)
before taxes
and other items (29) 64
------ ------
Income and resource
tax recovery 66 12
Equity earnings
of associates 2 4
Minority interests - 1
------ ------
Net earnings before the
cumulative effect
of the change in
accounting policies 39 81
------ ------
Changes in
accounting policies - -
------ ------
Net earnings $ 39 $ 81
====== ======
Per common share
Net earnings before the
cumulative effect
of the changes in
accounting policies $0.09 $0.20
Net earnings $0.09 $0.20
Dividends - -
CONSOLIDATED STATEMENT OF EARNINGS
Year ended Dec. 31
(millions of U.S. dollars)
2004 2003
Sales $1,888 $1,763
Cost of sales 1,149 1,090
Depreciation
and depletion 255 267
------ ------
Mine operating earnings 484 406
------ ------
General and
administrative 64 51
Exploration 77 76
Resource development,
technology and other 63 64
Writedown of mining
assets and
restructuring charges 20 -
------ ------
Operating earnings 260 215
------ ------
Non-hedge derivative
gains (losses) (28) 46
Investment and other
business income (loss) (11) (3)
Interest and
financing expense (77) (65)
------ ------
Earnings (loss)
before taxes
and other items 144 193
------ ------
Income and resource
tax recovery 130 44
Equity earnings
of associates 7 7
Minority interests (1) 2
------ ------
Net earnings before
the cumulative effect
of the change in
accounting policies 280 246
------ ------
Changes in
accounting policies 4 (17)
------ ------
Net earnings $ 284 $ 229
====== ======
Per common share
Net earnings before the
cumulative effect
of the changes in
accounting policies $0.67 $0.60
Net earnings $0.68 $0.56
Dividends $0.10 $0.10
© 2005 Canjex Publishing Ltd.