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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

Pegasus Slows Work On Project Sagging Gold Prices Blamed For Zortman Extension Delay

Eric Torbenson Staff writer

Spokane’s Pegasus Gold Inc. will delay a major mine expansion because of low gold prices, though the company predicted Thursday that it will have lower overall operating costs in coming years.

Pegasus’ Zortman Extension - tied up in protracted court battle until last year - won’t be built until spring of 1998. In earlier statements, Pegasus expected to break ground on the gold project this spring.

A three-year low in gold prices made the company re-evaluate Zortman, said John Pearson, head of investor relations. The company wants to find ways to build it cheaper and more efficient than the current design.

Environmental opponents to the mine have appealed the record of decision from Montana’s Department of Environmental Quality. Calls to the agency’s Helena, Mont., office were not returned Thursday.

The appeals of the final permitting for Zortman did not play a role in the decision, Pearson said. “We think they’re without merit.”

Pegasus had some rough spots in 1996, experiencing high costs at its mines because of lower gold grades and higher environmental expenses. In the next few years, however, Pegasus expects to see its costs decline.

The cash cost of producing an ounce of gold - everything spent on mining except depreciation and other corporate costs - will remain about $300 an ounce for Pegasus’ mines in 1997. That’s similar to the company’s 1996 costs, which are higher than some other middle-sized gold producers.

As high-cost mines drop out of Pegasus’ portfolio and high-grade reserves at the company’s large mines are processed in coming years, the total cash cost will drop to about $265 in 1998. The following year, costs will be about $270.

Pegasus’ full costs of gold production have been rising as well, but would drop if the company’s predictions bear out. Through three quarters of 1996, Pegasus averaged $396 for each ounce of gold produced, but sold each ounce for an average of $427.

Pegasus sells gold at prices higher than the spot market for gold - currently at about $354 an ounce - through a hedging strategy. Pegasus agrees to sell a certain number of ounces at a set price, usually above the spot price.

Pegasus stock, which has taken a beating after institutional investors sold off large blocks of the company late last year, closed Thursday up 19 cents at $7.25 a share.

, DataTimes