Lower gold prices impact on Homestake’s bottom line

Despite higher gold sales, Homestake Mining (NYSE) reported a 23% drop in operating earnings from gold mining operations in the third quarter. The company says the decline was due to lower realized prices and higher cash costs during the period.

The average gold price was $429 per oz in the quarter versus $458 a year ago, and cash costs increased slightly to $292; this increase reflects scheduled lower ore grades at the McLaughlin mine in northern California, lower processed ore grades and recoveries at Australian operations, and the stronger Australian dollar, the company points out.

For the year to date, gold earnings were up 19% to $76.6 million as gold production increased to 575,108 oz. In addition to the El Hueso mine, Homestake says the production increase reflects a more stringent grade control program, improved mill recoveries at the Homestake mine in South Dakota, and higher production levels at the 25%-owned Round Mountain mi ne in Nevada. A $139 million expansion program is nearing completion at the operation.

Total projected gold production in 1988 should be 12-15% higher than the 677,739 oz produced in 1987, the company predicts.

Net income for third quarter was $11.2 million or 12 per share compared to $10.2 million or 11 last year. Net income for the first nine months was $50.6 million or 52 , a 47% increase from a year ago. Third quarter income includes a $6.5 million after tax gain from the first installment on the sale of Homestake’s interests in two exploration properties to Galactic Resources (TSE).

Homestake expects to start production at four small mines in 1989, three of which are products of grass roots exploration. The company has aggressive precious metals exploration programs in Canada’s Northwest Territories and in Western Australia.

Base metals are also making a significant contribution to the company’s bottom line. The company has a 42.5% interest in The Doe Run Company, the largest integrated primary lead producer in North America with six mines, four mills, and two smelters, all located in Missouri. Homestake’s share of Doe Run earnings in the first nine months was $18.4 million, almost triple that of 1987.