Homestake expects quarterly loss

A first-quarter loss of about US$3 million is expected by Homestake Mining in part because of a flagging gold price and lower gold production. In addition, the company has experienced increased costs. According to the company’s vice-president of finance, Gene Elam, who with President Harry Conger was recently in Toronto to address a gathering of financial analysts, the company’s domestic costs are up by about 5%, and international costs by about 20%, from a year ago.

For 1990, the San Francisco-based company reported net income of US$20.8 million.

Unlike many other gold producers, Homestake, founded in 1877 and with property interests in Canada, Australia and Chile augmenting its U.S. operations, does not have a hedging program for its gold output.

The company, which produced almost 1.2 million oz. of the precious metal in 1990, expects its 1991 output to be slightly less (but still greater than one million oz.). Cash production costs in 1990 averaged US$271 per oz.

Elam said total first-quarter output is expected to decrease by about 10% and cash production costs may rise by 10%.

For the quarter, the old Homestake mine in South Dakota is expected to show a 15% drop in tonnage from underground operations because of delayed development in several working stopes. The reduction should be partially offset by production from the mine’s open pit operations.

Forecast for the Round Mountain mine (in which Homestake has a 25% interest) in Nevada is a 15% quarterly decline in output because of a decrease in ore grade.

The company said both operations are expected to return to more normal operating levels by the end of the second quarter.

Layoffs have been announced by two of the company’s subsidiaries. Homestake Gold of Australia, 81.7% owned, reduced its workforce by 90 employees at its Fimiston underground operation. In British Columbia, 73.3% owned North American Metals (VSE) reduced its staff by 35%.

Homestake has budgeted about US$135 million for capital expenditures this year, up by about $23 million from 1990. On the exploration side, the company plans to spend about US$28 million in 1991, down by about $1 million from last year.

The company, Elam said, expects operating profits this year will not completely offset exploration and administrative expenses if gold prices remain at current levels. (At the time of the Homestake visit, gold was trading in the US$360-per-oz. range.) In 1990, Homestake sold its lead and zinc business and its remaining oil and gas assets, and closed its uranium operations, essentially returning the company, as Conger pointed out, to its historical role of gold miner. (Among its existing interests is a 16.7% stake in a developing sulphur deposit in the Gulf of Mexico.) Homestake, one of three North American-based million-ounce gold producers, is a major player in the changing (some analysts say a maturing) global gold market. Total world gold output, on the rise in the 1980s, is expected to peak within the next few years.

Conger is confident Homestake will survive long into the next century because, he said, the company’s reserve and production base is large and relatively stable. Referring to the old Homestake mine, he said the project has shown “great regenerative power”; 114 years old and with workings as deep as 8,000 ft., the mine, he said, has never had more than 15 years of reserves.