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Gold/Mining/Energy : Breakwater Resources (T.BWR)

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To: Stephen O who wrote (833)	10/3/2000 12:46:29 AM
From: Stephen O	Read Replies (1) of 962

Breakwater Ltd. (BWR : TSE : $2.32) Greg Barnes (416) 869-3092 Recommendation: BUY Target price: $4.50 52-week price range: $4.60-1.99 Shares O/S: basic 82.4M Book value per share (P/BV) $2.59 (0.89) Working capital: $25.8M Long-term debt: $36.1M Market capitalization: $191M Enterprise value: $227M Sector: Metals & Minerals Web site address: www.breakwater.ca Shortly before Breakwater was due to close the acquisition of the Langlois and Bouchard-Hebert mines this spring, the semi-autogenous mill (or SAG mill) at Bouchard-Hebert developed a crack that forced the mill to be shut down. Attempts made to weld the crack were unsuccessful and, eventually, the mill was cut in half and shipped offsite for repair. The back half of the mill has now been re-installed and it is expected that the entire mill should be back running at full capacity within a couple of weeks Underground operations at Bouchard-Hebert have been going well with mining costs being lowered by approximately 10% this year. Some of this reduction in cost has been driven by the fact that the orebody becomes narrower higher in the mine, thereby reducing haulage costs to the shaft. This should continue to benefit the operation as it moves higher in the mining sequence over the rest of the mine life. Although Breakwater has been receiving business interruption insurance payments since the mill at Bouchard-Hebert developed problems, having the operation back at full capacity should have a positive impact on results in Q4. Breakwater also announced last week that it has signed a definitive agreement with Jascan Resources Inc. to acquire that company for approximately $30 million. Breakwater is offering a combination of cash and/or shares to Jascan shareholders on the basis of the following: 1. 0.424 Breakwater shares per Jascan share; 2. Cash on the basis of $1.15 per Jascan share; or 3. Breakwater shares and cash on the basis of 0.424 Breakwater shares for 60% of the holder's Jascan shares and $1.15 per Jascan share for the remaining 40%. Breakwater has committed $13.5 million in cash to the acquisition and will issue a maximum of 7.4 million shares. Management and directors of Jascan (holding approximately 15% of the company's issued shares) have recommended and agreed to vote in favour of the transaction. A shareholder vote for Jascan shareholders to approve the transaction is scheduled for October 24. Jascan holds a portfolio of resources stocks (mining plus oil and gas) that has a market value of approximately $40 million and that is expected to be monetized over time. Breakwater expects to use the cash raised from the portfolio to lower debt. At the end of Q2/00, Breakwater was carrying $36 million in long-term debt. With Breakwater experiencing a full quarter with the Langlois and Bouchard-Hebert operations in its control, we are expecting better results than reported in Q2/00 (EPS $0.05 and CFPS $0.12). We estimate EPS in the range of $0.10-0.12 and CFPS in the $0.15-0.20 range. We are maintaining our BUY recommendation on Breakwater and our $4.50 target price (5X 2001 CFPS).

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