BWR CN: First Quarter Financial Results
5/2/0 9:2 (New York)
BREAKWATER RESOURCES LTD ("BWR-T;BWLRF-L")
- First Quarter Financial Results
Breakwater Resources Ltd.'s unaudited consolidated net earnings were
$4.8 million ($0.06 per share) for the first quarter ended March 31, 2000,
compared with $1.6 million ($0.02 per share) for the same period in 1999.
Cash flow from operations (net earnings before non-cash items) for the
first quarter of 2000 was $9.5 million ($0.12 per share) compared with $5.8
million ($0.08 per share) in 1999.
Gross revenue for the first quarter of 2000 increased 15% to $64.6
million from $56.2 million in 1999.
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(000's except for per share numbers) First Quarter
2000 1999 Change
(%)
Gross Revenue $64,617 $56,182 15
Earnings $4,825 $1,640 194
Earnings per share $0.06 $0.02 147
Cash Flow $9,539 $5,791 65
Cash Flow per share $0.12 $0.08 38
Average realized metal prices for the first quarter of 2000 and
1999, net of hedging activity, are shown in the following table:
2000 1999 Change (%)
Zinc (U.S.$/lb.) 0.51 0.44 16
Lead (U.S.$/lb.) 0.20 0.23 (13)
Silver (U.S.$/oz.) 5.00 5.17 (3)
//et
The increases in revenue, earnings and cash flow occurred primarily
because of a 16% increase in realized zinc prices to U.S.$0.51 per pound.
Zinc and silver production increased by 2% and 15% respectively while lead
production decreased by 5%. An 8% increase in minesite cash costs to
U.S.$0.41 per pound of payable zinc in the first quarter of 2000 from
U.S.$0.38 per pound in the 1999 first quarter was a result of a 12%
increase in treatment and marketing costs, a portion of which was due to
higher zinc prices.
Capital expenditures during the first quarter of 2000 were $3.7
million, up 14% from the $3.2 million spent during the same period in 1999.
Metal Markets
The LME cash price for zinc averaged U.S.$0.51 per pound during the
first quarter of 2000 or approximately 13% higher than the U.S.$0.45 per
pound average for the first quarter of 1999. The supply-demand fundamentals
for zinc remain strong as LME zinc inventories declined by 13,000 tonnes
during the first quarter of 2000 and closed the quarter at 266,000 tonnes
which was the lowest level in eight years. Total inventories (LME +
Producer + Consumer + Merchants) at the end of March 2000 were equivalent
to approximately 5.2 weeks of consumption, a critical level, which when
breached in the past has led to significant price increases.
With demand for zinc remaining strong and the outlook for the world
economy gaining strength the price outlook remains very positive.
The LME cash price of lead averaged U.S.$0.21 per pound during the
first quarter of 2000 compared with U.S.$0.23 per pound for the same period
in 1999.
The price of silver averaged U.S.$5.17 per ounce during the first
quarter of 2000 compared with U.S.$5.29 per ounce during the first quarter
of 1999.
Operations
Breakwater's metal production during the first quarter of 2000 was
greater than the same period of 1999 and was on target with management's
objective to produce 400 million pounds of zinc in 2000. In addition,
minesite cash costs per pound of payable zinc were also on target at
U.S.$0.41 per pound.
//st
First Quarter
2000 1999
Ore Milled (tonnes) 563,103 541,780
Zinc (%) 8.4 8.6
Lead (%) 1.3 1.4
Silver (grams/tonne) 60 52
Gold (grams/tonne) 0.6 0.9
Concentrate Production
Zinc (tonnes) 80,688 79,221
Lead (tonnes) 3,783 4,012
Gold (tonnes) 714 718
Metal in Concentrates
Zinc (tonnes) 42,930 41,906
Lead (tonnes) 2,448 2,625
Silver (ounces) 612,414 531,417
Gold (ounces) 1,089 1,087
Operating Costs
Per tonne milled (U.S.$) $28.45 $28.18
Minesite Cash Costs*
Per lb. Payable zinc (U.S.$) $0.41 $0.38
* Includes treatment charges, ocean freight and marketing costs
net of by product credits.
//et
The following table summarizes the operating profit (loss) contribution
of each mine for the first quarter of 2000 and 1999.
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Contribution
(Loss)
Gross Revenue from Mining Depreciation
Activities*
($ Millions) 2000 1999 2000 1999 2000 1999
Nanisivik 21.6 17.2 3.9 1.9 0.9 0.8
Bougrine 13.1 14.3 1.4 0.9 1.7 1.6
El Mochito 18.5 16.3 2.4 1.4 1.1 1.2
El Toqui 11.4 8.4 0.5 (0.4) 0.8 0.6
Totals 64.6 56.2 8.2 3.7 4.5 4.3
* After depreciation
//et
Nanisivik Mine
The Nanisivik mine had operating earnings of $3.9 million for the first
quarter of 2000 compared with $1.9 million for the same period in 1999.
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First Quarter
2000 1999
Ore Milled (tonnes) 203,821 198,464
Zinc (%) 7.6 7.4
Silver (grams/tonne) 28 28
Concentrate Production
Zinc (tonnes) 26,262 24,566
Metal in Concentrate
Zinc (tonnes) 15,020 14,111
Silver (ounces) 132,898 133,919
Operating Costs
Per tonne milled $38.04 $34.23
Minesite Cash Costs
per lb. payable zinc (U.S.$) $0.41 $0.36
//et
The earnings increase in 2000 compared with 1999 was due to higher zinc
prices and increased zinc production. These factors were partly offset by
an increase in minesite cash costs due to higher mining costs and increased
treatment charges.
Bougrine Mine
The Bougrine mine had operating earnings of $1.4 million for the first
quarter of 2000 compared with $0.9 million for the first quarter of 1999.
//st
First Quarter
2000 1999
Ore Milled (tonnes) 94,226 97,269
Zinc (%) 12.1 13.0
Lead (%) 1.9 1.9
Concentrate Production
Zinc (tonnes) 17,213 20,955
Lead (tonnes) 2,116 2,113
Metal in Concentrates
Zinc (tonnes) 9,076 10,603
Lead (tonnes) 1,372 1,408
Operating Costs
per tonne milled (U.S.$) $30.59 $35.43
Minesite Cash Costs
per lb. payable zinc (U.S.$) $0.38 $0.36
//et
Operating costs per tonne of ore milled were 22% lower in the first
quarter of 2000 compared with the first quarter of 1999, however minesite
cash costs per pound of payable zinc were 4% higher due to a lower mill
head grade and increased treatment charges. A change in the mill circuit
resulted in a significant improvement in the concentrate grade, which
averaged 52.7% in the first quarter of 2000 compared with 50.0% for 1999.
Further improvements in the zinc concentrate grade and metal recoveries are
expected with the commissioning of the new desalination plant in mid-2000.
El Mochito Mine
Operating earnings at El Mochito were $2.4 million for the first
quarter of 2000 compared with $1.4 million for the same period in 1999.
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First Quarter
2000 1999
Ore Milled (tonnes) 158,598 161,372
Zinc (%) 7.2 7.2
Lead (%) 0.9 1.0
Silver (grams/tonne) 100 82
Concentrate Production
Zinc (tonnes) 20,255 20,270
Lead (tonnes) 1,667 1,899
Metal in Concentrates
Zinc (tonnes) 10,573 10,596
Lead (tonnes) 1,075 1,182
Silver (ounces) 447,022 367,127
Operating Costs
per tonne milled (U.S.$) $31.95 $29.72
Minesite Cash Costs
per lb. payable zinc (U.S.$) $0.42 $0.38
//et
The improved financial results were due to higher realized zinc prices,
which were partly offset by higher operating costs and lower lead prices.
In addition, gross revenue includes $0.9 million representing insurance
proceeds for a business interruption claim related to Hurricane Mitch. Ore
production in March was negatively effected due to a mechanical problem
reducing the hoisting capacity for two weeks. The problem was corrected in
early April and operations have returned to normal.
El Toqui Mine
El Toqui reported operating earnings of $1.4 million for the first
quarter of 2000 compared with an operating loss of $0.4 million for the
same period in 1999.
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First Quarter
2000 1999
Ore Milled (tonnes) 106,458 84,675
Zinc (%) 8.5 8.9
Gold (g/t) 0.6 0.9
Concentrate Production
Zinc (tonnes) 16,958 13,430
Gold (tonnes) 714 718
Metal in Concentrates
Zinc (tonnes) 8,261 6,596
Gold (ounces) 1,089 1,087
Silver (ounces) 32,494 30,373
Operating Costs
per tonne milled (U.S.$) $25.70 $29.89
Minesite Cash Costs
per lb. payable zinc $0.43 $0.42
//et
The improvement in El Toqui's results was due to increased mill
throughput, higher zinc prices and lower operating costs. These factors
were partly offset by higher treatment charges and a slightly lower mill
head grade.
Safety performance at the mine continues to improve. There were no lost
time accidents in the first quarter and none for 216 days in succession to
April 30, 2000. This is a record for the mine.
Caribou Mine
The Caribou mine remained on care and maintenance during the first
quarter of 2000. A decision to re-open the mine awaits higher zinc prices.
Encouraging results have been obtained from additional testing that is
designed to improve the metallurgy. In addition, engineering and equipment
installation activities have begun in order to prepare the plant for
re-opening. Carrying costs of $510,000 (1999-nil) were expensed and are
reported as mineral property costs.
Financial Position
Working capital at March 31, 2000, was $56.9 million, an improvement of
$5.5 million from the December 31, 1999 level of $51.4 million. Cash and
cash equivalents increased by $1.7 million to $6.4 million. Concentrate
inventory increased by $15.0 million to $39.2 million, reflecting the
normal buildup of concentrate stocks at the Nanisivik and El Toqui mines.
In order to finance the inventory build-up, short-term debt increased by
$13.9 million to $21.9 million during the first quarter.
Total net debt (total debt less cash) to total net debt plus equity was
10% at March 31, 2000.
Risk Management
In order to mitigate the risk of declining metal prices and changes in
the U.S./Canadian dollar exchange rate from time to time the Company enters
into various hedging transactions. All transactions are used solely for
hedging purposes related to Breakwater's commodity price and currency rate
exposure, not for trading purposes.
The open foreign exchange hedging commitments at March 31, 2000 are
summarized below:
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US Dollar Exchange Rates
Period Amount / US$ Rate
2000 25,000,000 1.4654
2001 51,000,000 1.4976
Total 76,000,000 1.4870
//et
As of March 31, 2000 there were no metal hedging commitments
outstanding.
Acquisitions
Breakwater has entered into an agreement to purchase the
Bouchard-Hebert and Langlois zinc/copper mines together with related zinc
and copper hedging obligations for U.S.$48.0 million (Cdn.$70 million) from
Cambior Inc. (press release dated March 15, 2000). The purchase price
includes approximately U.S.$11.7 million (Cdn.$17.0 million) of working
capital. Breakwater has arranged bank financing to complete the purchase
that is now expected to close in early May. (Press releases dated March 15,
April 17 and May 1, 2000)
In 1999 these two mines produced concentrate containing 145 million
pounds of zinc, 18 million pounds of copper, 29,300 ounces of gold and
761,000 ounces of silver at a minesite cash cost of U.S.$0.39 per pound of
payable zinc. The two mines generated cash flow from operations of
approximately $25.0 million in 1999.
Subsequent to the end of the first quarter, Breakwater announced that
it had signed a firm letter of intent with Algeria's natural resource
agency, the Office National de la Recherche Geologique et Miniere ("ORGM")
entitling Breakwater to acquire a 90% interest in the Oued Amizour zinc
project in northern Algeria. This project comprises a 105 square kilometre
area containing a zinc/lead deposit with a total resource estimated by ORGM
at 30.2 million tonnes grading 5.5% zinc and 1.4% lead. Within this
resource there is a higher grade core estimated to contain 11.0 million
tonnes grading 10.9% zinc and 3.0% lead. Three additional prospects exist
on the property. The project is located 10 kilometres from the port city of
Bejaia on the Mediterranean coast approximately 270 kilometres east of the
capital city of Algiers and is in close proximity to an airport, highways,
railroad, power grid, natural gas and water. The agreement with ORGM
requires that Breakwater spend U.S.$600,0000 on exploration, complete a
feasibility study, arrange financing, construct and bring the project into
production and manage the operation. ORGM will retain a 10% net profit
interest in the project once Breakwater recovers its full capital
investment. A payment of U.S.$5.0 million will be paid to ORGM from the net
profits of the operation over a five-year period beginning in the first
year of production at U.S.$1.0 million per year. A five per cent net
smelter return royalty to be shared by the Algerian Government and ORGM
will be attached to the project.
A Protocole d'Accord setting out the details of the association to be
established between Breakwater and ORGM is currently being drafted. Under
Algeria's policy for establishing new business in the country, Breakwater
will enjoy a minimum five-year tax-free period as well as special
considerations for power, rail and port rates and other related
infrastructure.
Exploration
Bougrine - A diamond-drilling program commenced on the Kebbouch-Sud
property located approximately 12 kilometres from the Bougrine mill. The
drilling campaign is in follow-up to a hole (KS-25) previously drilled by
the Tunisian government, which intercepted 14.4 metres averaging 10.1% lead
and zinc combined.
Four holes have been drilled to date on Section N322955 with the
following results:
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Hole Intersection Length of Zn% Pb%
(metres) Intercept
(metres)
BEK-1 147.0 - 159.7 12.7 2.5 0.5
BEK-2 67.0 - 69.6 2.6 8.7 0.8
BEK-2 105.0 - 136.0 31.0 5.0 0.7
BEK-3 32.0 - 33.7 1.7 2.4 0.9
BEK-4No Significant Intersection - - -
//et
Work continues on Hole BEK-5 located 20 metres north of BEK-2. Hole
BEK-6 is planned 30 metres south of Hole BEK-2. El Mochito - Underground
exploration drilling during the first quarter of 2000 at the El Mochito
mine intersected new ore grade manto mineralization 488 metres southwest of
the Nacional Orebody along the historical Porvenir Trend. The best
intercept grades 8.5% zinc, 2.9% lead, 143 grams of silver per tonne and
0.7% Cu over 12.0 metres indicating a higher grade resource than has been
historically mined in the mantos.
Development drifting was advanced north on the 1,850 level to permit
future exploration drilling of the new Port Royal pipe near the Mochito
Shales, where historically, the highest tonnages have been mined.
El Toqui - Exploration drilling continued in four major areas during
the first quarter of 2000 (see attached maps).
Drilling to the southeast of the San Antonio mine has extended the ore
horizon 380 metres beyond the previously known limits with drill hole
SAE-14 intercepting 10.1% zinc over 7.1 metres. Hole DSA-03, an in-fill
drill hole in San Antonio, intercepted 13.0% zinc over a true width of 7.7
metres. This drill-hole intercept is 100 metres east/southeast of SAE-01
drilled and reported previously which averaged 10.7% zinc over 8.0 metres
and 100 metres north of SAE-14 noted above. Further work is underway on
in-fill drilling the area between SAE-14 and DTQ-263/PDT-03. These latter
two holes, drilled by previous owners, averaged 13.3% zinc and 4.5 grams of
gold per tonne over 4.1 metres and 10.5% zinc and 1.3 grams of gold per
tonne over 7.5 metres respectively.
Surface exploration work was conducted to the east and south of the
Mallin-Monica mine during the quarter in preparation for the drilling of
eight holes to confirm the extension of the favourable stratigraphic
horizon. These holes are to be completed during the second quarter.
Drilling immediately to the west of the Do$a Rosa mine has been divided
into an exploration drill program for resources and an in-fill drilling
program to prove up additional reserves. To total 15,000 metres, this
drilling will test geochemical anomalies and follow-up previous preliminary
drill results.
Four drill holes have been completed in the Estatuas area and have
outlined an area measuring 300 metres north/south by 400 metres east/west.
The results of these holes are shown in the following table.
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Hole No. Interval Zn (%)
(metres)
EST-12 7.1 5.6
EST-12 3.2 8.0
EST-13 7.1 7.4
EST-14 7.5 9.0
EST-14 2.8 5.0
EST-15 3.1 6.5
//et
Outlook
Breakwater's four operating mines are on target to produce
approximately 400 million pounds of zinc at a cash cost of U.S.$0.41 per
pound of payable zinc in 2000.
Other than achieve the aforementioned production and cost targets, two
of Breakwater's major objectives for 2000 were to increase ore reserves and
resources and to continue to grow our zinc production base through
acquisition, expansion of existing mines and the re-opening of the Caribou
mine. I am pleased to say that progress is being made on all fronts.
When finalized, the acquisition of the Bouchard-Hbert and Langlois
mines will increase Breakwater's zinc production base by approximately 38%
to 550 million pounds per annum as well as increasing the Company's silver
and gold production and adding copper to the Company's production base. In
addition, due to the exploration success at El Toqui, a decision has been
made to expand this operation by 25% by early next year.
The acquisition of the Bouchard-Hebert and Langlois mines will also
increase Breakwater's proven and probable zinc reserves by 44% to 1.8
million tonnes of contained zinc as well as significantly increasing the
Company's gold and silver reserves and adding copper to the reserve base.
The acquisition of these two mines together with the Oued Amizour
project in Algeria will increase Breakwater's total zinc resources by 84%
to 4.0 million tonnes of contained zinc as well as increasing the Company's
lead, silver and gold resources by 54%, 27% and 400% respectively. Also,
exploration results at the El Toqui mine in Chile have been very favourable
and will likely result in a significant increase in reserves and resources
at that mine by year-end.
It is important to note that the aforementioned increases in
Breakwater's ore reserves, resources and production have been accomplished
with zero dilution to our shareholders and the acquisition of the
Bouchard-Hebert and Langlois mines will be accretive to both earnings per
share and cash flow per share.
As indicated by first quarter results, Breakwater is generating good
cash flow at current zinc prices and when the positive supply-demand
fundamentals for zinc impact price, the Company is well positioned to
capitalize. When the acquisition of the Bouchard-Hebert and Langlois mines
is complete, each U.S.$0.01 per pound increase in the price of zinc will
result in a $4.8 million increase in annual earnings and cash flow.
It is somewhat frustrating to management, and we are sure to all
shareholders, that these very positive developments have not had an impact
on Breakwater's share price. Despite this, management is confident that we
are doing the right things to enhance shareholder value and it will
eventually be recognized in the price of Breakwater's shares.
This press release includes certain forward-looking statements. All
statements, other than statements of historical fact included herein, are
forward-looking statements that involve various risks and uncertainties.
There can be no assurance that such statements will prove to be accurate
and actual results and future events could differ materially from those
anticipated in such statements.
//st
Breakwater Resources Ltd.
Consolidated Balance Sheets
(Expressed in thousands of Canadian dollars)
March 31, 2000 December 31, 1999
Assets (Unaudited)
Current Assets
Cash and cash equivalents $6,380 $4,647
Accounts receivable - concentrate 13,100 13,275
Other receivables 4,361 2,752
Cash reserved for closure costs 111 110
Concentrate inventory 39,196 24,188
Materials and supplies inventory 27,126 30,515
Prepaid expenses and other current
assets 6,842 2,810
97,116 78,297
Deposits for reclamation costs 1,047 1,047
Mineral Properties and Fixed Assets 172,503 172,769
$270,666 $252,113
Liabilities
Current Liabilities
Accounts payable and accrued
liabilities $16,001 $16,894
Short-term debt including current
portion of long-term debt 21,907 8,040
Current portion of reclamation
and closure cost accruals 111 110
Income and mining taxes payable 2,215 1,819
40,234 26,863
Long-term Debt 7,994 8,660
Reclamation and Closure Cost
Accruals 12,655 12,502
Non-controlling Interest 2,691 2,693
63,574 50,718
Shareholders' Equity
Capital stock 221,692 221,446
Contributed surplus 1,485 1,485
Deficit (22,784) (27,609)
Cumulative translation adjustments 6,699 6,073
207,092 201,395
$270,666 $252,113
Breakwater Resources Ltd.
Consolidated Statements of Operations
and Deficit
For the Periods Ended March 31, 2000 and 1999
(Expressed in thousands of Canadian dollars except per share
amounts)
(Unaudited)
Three Months ended
March 31
2000 1999
Revenue
Gross revenue $64,617 $56,182
Treatment and marketing costs 28,492 25,406
Net revenue 36,125 30,776
Direct Costs
Direct operating costs 23,332 22,696
Depreciation and depletion 4,531 4,289
Reclamation and closure costs 152 55
28,015 27,040
Contribution from Mining Activities 8,110 3,736
Other Expenses (Income)
General and administrative 1,818 1,108
Interest and financing expenses 668 996
Investment and other income, net (141) (61)
Foreign exchange gain (32) (139)
2,313 1,904
Earnings Before the Following 5,797 1,832
Non-controlling interest (2) (2)
Loss (gain) on disposal, costs or
write-down of mineral properties
and fixed assets 510 (66)
Income and mining taxes 464 260
972 192
Net Earnings 4,825 1,640
Deficit - Beginning of Period (27,609) (49,480)
Deficit - End of Period $(22,784) $(47,840)
Earnings per Share - Basic $0.06 $0.02
Weighted Average Number of
Common Shares Outstanding (000s) 82,380 69,297
Fully Diluted Earnings per Common
Share $0.06 $0.02
Fully Diluted Number of Common
Shares Outstanding (000s) 86,912 73,664
Breakwater Resources Ltd.
Consolidated Statements of Cash Flows
For the Periods Ended March 31, 2000 and 1999
(Expressed in thousands of Canadian dollars)
(Unaudited)
Three Months ended
March 31
2000 1999
Cash Provided from (Used for) (Restated)
Operating Activities
Net Earnings $4,825 $1,640
Non cash items:
Depreciation and depletion 4,531 4,289
Gain on disposal or write-down
of mineral properties and fixed
assets - (66)
Other non-cash items 31 (127)
Reclamation and closure cost accruals 152 55
9,539 5,791
Payment of reclamation and closure
costs 1 (2)
Changes in non-cash working capital
items (17,542) (14,599)
(8,002) (8,810)
Financing Activities
Issue of common shares for cash 245 153
Increase in short-term debt 13,866 15,460
Decrease of long-term debt (666) (1,690)
13,445 13,923
Investing Activities
Cash reserved for closure costs (1) 15
Mineral properties and fixed assets (3,709) (3,240)
(3,710) (3,225)
Increase in Cash 1,733 1,888
Cash and Cash Equivalents -
Beginning of Period 4,647 5,376
Cash and Cash Equivalents -
End of Period $6,380 $7,264
Supplemental disclosure of Cash
Flow Information
Cash paid for:
Interest $463 $566
Income and mining taxes $67 $-
Segment Information
For the three months ended March 31, 2000
($000's)
Geographic location Latin America
Operating Segment El El Toqui Total
Monchito Mine
Mine
Net revenue 10,842 5,292 16,134
Depreciation and depletion (1,113) (771) (1,884)
Reclamation and closure costs - (15) (15)
Contribution (loss) from mining
activities 2,363 483 2,846
General and administrative - - -
Interest and financing expenses - - -
Loss on disposal, costs or write-down
of mineral properties and fixed assets - - -
Foreign exchange gain - - -
Other income, including
non-controlling interest, net - - -
Income and mining taxes - - -
Net earnings (loss) 2,363 483 2,846
Capital expenditures 1,261 931 2,192
Identifiable assets 49,749 29,374 79,123
Segment Information
For the three months ended March 31, 2000
($000's)
Geographic location Canada
Operating Segment Nanisivik Caribou Total
Mine Mine
Net revenue 12,688 - 12,688
Depreciation and depletion (949) - (949)
Reclamation and closure costs (73) - (73)
Contribution (loss) from mining
activities 3,912 - 3,912
General and administrative - - -
Interest and financing expenses - - -
Loss on disposal, costs or write-down
of mineral properties and fixed assets - (510) (510)
Foreign exchange gain - - -
Other income, including
non-controlling interest, net - - -
Income and mining taxes - - -
Net earnings (loss) 3,912 (510) 3,402
Capital expenditures 294 46 340
Identifiable assets 43,450 83,537 126,987
Segment Information
For the three months ended March 31, 2000
($000's)
Geographic location Tunisia
Operating Segment Bougrine Corporate Consolidated
Mine and Other
Net revenue 7,303 - 36,125
Depreciation and depletion (1,673) (25) (4,531)
Reclamation and closure costs (64) - (152)
Contribution (loss) from
mining activities 1,377 (25) 8,110
General and administrative - (1,818) (1,818)
Interest and financing expenses - (668) (668)
Loss on disposal, costs or write-down
of mineral properties and fixed assets - - (510)
Foreign exchange gain - 32 32
Other income, including
non-controlling interest, |
