Spokane-based Pegasus Gold Inc. reported a loss for the third quarter Thursday that was exacerbated by a large write-down for rising mine cleanup costs.
The gold producing company lost $7.8 million, or 19 cents a share, compared with a small income of $100,000 for the same quarter of 1995.
Pegasus took the write-down for an increase in the cost estimate to reclaim the Beal Mountain mine in southwestern Montana. Pegasus had already written down the $12.1 million value of the mine in 1994 because it had determined that expanding the mine would pose too great an environmental risk.
Without the $6.5 million write-down, Pegasus would have lost $1.3 million, due mostly to higher costs of mining gold. The company’s cash cost of mining increased to $296 per ounce of gold from $265 per ounce for the same quarter last year. The total costs for the third quarter averaged $411 an ounce compared with $354 per ounce.
A proposed merger between Pegasus and Vancouver-based Dayton Mining fell through when Dayton’s shareholders balked at Pegasus’ offer. The merger would have helped Pegasus’ costs because Dayton’s primary mine had substantially lower costs than Pegasus’ mines. The company spent $506,000 exploring the merger with Dayton.
Development at Pegasus’ Zortman complex in Montana pushed up the company’s costs. The Montana Department of Environmental Quality approved Pegasus’ plans to expand the gold mine there after litigation over water quality issues was settled between Pegasus, the U.S. Environmental Protection Agency, its Montana counterpart and several tribes downstream from the mine.
Low metals prices have hurt mining stocks throughout the region, and despite a successful hedging program for Pegasus, the company’s cost problems led to the losses.
Pegasus’ stock dropped 13 cents Thursday to close at $10.13. The stock was unchanged in trading Friday.