Prime Resources Reports Improved Earnings for First
Quarter
Friday, April 24, 1998 09:29 AM
VANCOUVER, BRITISH COLUMBIA--(BUSINESS WIRE)--April 24, 1998--
Prime Resources Group (TSE:PRU.) (VSE:PRU.) (AMEX:PRU) Prime
Resources Group Inc. ("Prime") (TSE, VSE, AMEX:PRU), today reported net income of $11.3 million or $0.15 per share for the three months ended March 31, 1998 compared with net income of $9.0 million or $0.12 per share for the first quarter of 1997.
HIGHLIGHTS
- Production in the quarter was a record 164,860 ounces of gold
equivalent.
- Total cash costs declined to US$ 136 per gold equivalent ounce.
- The new mill at Eskay Creek commenced commercial production
January 1, 1998.
- The Company appointed a new President and Chief Executive
Officer.
CONSOLIDATED RESULTS
Prime's total production of gold and gold equivalents contained in ore, dore and concentrates increased by 34 percent to a Company record 164,860 ounces compared with 122,827 ounces reported in the first quarter of 1997. Total cash costs, which include third party smelter costs, declined 22 percent to US$136 per gold equivalent ounce compared with US $174 per ounce in the first three months of 1997.
Revenues from dore, concentrate and ore sales in the first three months of 1998 increased 20 percent to $56.7 million compared to $47.3 million in 1997. Increased gold production and higher silver prices more than offset the decline in gold prices. Prime's average realized gold price in the quarter decreased US $57 per ounce to US $294 and the average realized silver price increased US $1.23 per ounce to US $6.25 compared to the first three months of 1997. Approximately 42 percent of the Company's sales revenue in the first three months of 1998 was attributable to Eskay Creek silver production. The mine produced 3.2 million ounces of silver compared to 2.8 million ounces in the first three months of 1997.Cash flow from operating activities increased to $19.3 million in the first quarter of 1998 compared to $16.7 million for the 1997 quarter, due to increased production and higher realized silver prices, partially offset by lower gold prices
and higher non production costs. Prime paid income and mining taxes of $11.6 million during the first quarter of 1998, (including $4.7 million for the 1997 taxation year) compared to $46.3 million during the first quarter of 1997 (including $35.6 million for the 1996 taxation year). At March 31, 1998 Prime had $182.8 million in current working capital, including cash and short-term investments of $160.2 million. With no debt, the Company's financial position continues to remain strong.
OPERATIONS: Eskay Creek mine:
The Eskay Creek mine produced 73,440 payable ounces of gold and 3.2 million payable ounces of silver, equal to 141,168 ounces of gold compared to 94,579 gold equivalent ounces in the first three months of 1997. This increase was due to initial production from the new gravity/flotation mill, a reduction in the gold/silver equivalency ratio, and 20 percent higher gold grades in direct ore sales, partially offset by a planned 17 percent reduction in direct ore sale
tonnage.Commercial production from the new 165 ton per day gravity/flotation mill commenced on January 1, 1998 as scheduled. This new facility is performing in line with design specifications with slightly better than expected concentration ratios achieved to-date. Concentrate sales from this new facility contributed 13,934 ounces of gold and 474,238 ounces of silver to reported production during the first three months of 1998. Total cash costs, including third-party smelter costs, decreased 27 percent to US $121 per gold equivalent ounce at Eskay Creek for the quarter compared to 1997. Increased production and a decrease in the gold/silver equivalency ratio were the primary reasons for the decline in cash costs. Snip mine: Gold production at the Snip mine was 23,692 ounces in the first quarter of 1998 compared to 28,248 ounces in first quarter 1997. As expected, total cash costs per ounce increased to US $224 in 1998 compared to US $204 in 1997.Based on January 1, 1998 proven and probable reserves, which were calculated assuming a US$325 gold price, the Snip mine is scheduled to cease production in the second quarter of 1999. Gold prices were below US$325 during the quarter and if prices do not improve, some of the remaining reserves may not be economic. In light of this, the amortization and depreciation of the remaining capital costs were accelerated during the quarter such that all these costs will be completely recovered by the end of 1998.
EXPLORATION:
Exploration expenditures were $1.1 million during the first three months of 1998 compared to $0.4 million in 1997. Most of the increase was attributable to underground programs at the operating mines. At Eskay Creek a total of 17,300 feet of diamond drilling was completed, primarily from the extension of the #5 ramp to test the mineralized material at the north end of the mine. At Snip the majority of the planned 1998 exploration program was completed with a total of 23,600 feet of diamond drilling. In addition, a limited final surface drilling program was carried out at Snip. Neither program at Snip resulted in a significant increase in reserves.
OTHER BUSINESS
During the first quarter of 1998 Prime announced that its Board of Directors had approved a gold and silver hedging policy. This policy allows Prime to hedge up to 40 percent of its estimated annual gold and silver production for each of the next five years if forward prices exceed certain targeted amounts. During the first quarter of 1998, Prime placed the following silver hedge positions under this
new policy: 2.9 million ounces at an average price of US$6.33 in 1999, 2.9million ounces at US$6.32 in 2000, and 1.2 million ounces at US$6.00 in 2001. Effective April 13, 1998, Walter T. Segsworth was appointed President and Chief Executive Officer of the Company replacing Ronald D. Parker who resigned in February.After Prime and Homestake Canada Inc. terminated the agreement to purchase the Troilus mine from Inmet Mining Corporation in December 1997, Inmet commenced litigation in February, 1998. Prime believes the agreement was terminated properly and that the legal action by Inmet is without merit.
OUTLOOK
Prime's production target for 1998 is 345,000 ounces of gold and 11 million ounces of silver at an average total cash cost of US$174 per gold equivalent ounce. The first quarter results were considerably better than expected due to higher than forecasted gold grades at Eskay Creek and higher silver prices. Prime is aggressively exploring in Canada. Particular emphasis is being placed on the region around the Eskay Creek mine, where the Company continued to acquire land through option agreements and staking. The first phase exploration budget for 1998 has been set at $6.9 million; additional funds will be made available if success warrants.Prime is a precious metals mining company that owns the Eskay Creek and Snip gold mines located in northwestern British Columbia. Homestake Canada Inc., a wholly owned subsidiary of Homestake Mining Company of San Francisco,(NYSE:HM), owns 50.6 percent of Prime's shares and has been contracted by Prime to provide exploration, managerial and administrative services. CERTAIN STATEMENTS CONTAINED IN THIS PRESS RELEASE that are not statements of historical facts are "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on beliefs of management, as well as assumptions made by and information currently available to management. Forward looking statements include those preceded by the words "believe," "estimate," "expect," "intend," "will," and similar expressions, and include estimates of future production, costs per ounce, dates of construction completion, costs of capital projects and
commencement of operations. Forward looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from expected results. Some important factors and assumptions that could cause actual results to differ materially from expected results are discussed below. Those listed are not exclusive.
Estimates of future production for particular properties and for the Company as a whole are derived from annual mine plans that have been developed based on mining experience, reserve estimates, assumptions regarding ground conditions and physical characteristics of ore (such as hardness and metallurgical characteristics), and expected rates and costs of production. Actual production may vary for a variety of reasons, such as the factors described above, ore mined varying from estimates of grade and metallurgical and other characteristics, mining dilution, actions by labor, and government imposed restrictions. Cash cost estimates are based on such things as past experience, reserve and production estimates, anticipated mining conditions, estimated costs of materials, supplies and utilities, and estimated exchange rates. Estimates reflect assumptions about factors beyond the Company's control, such as the time government agencies take in processing applications, issuing permits and otherwise completing processes required under applicable laws and regulations.
PRIME RESOURCES GROUP INC. Production Highlights
Three Months Ended March 31,
1998 1997
Production (ounces) (1)
Eskay Creek mine
Gold 73,440 54,337
Silver 3,170,885 2,822,294
Snip mine
Gold 23,692 28,248
Total Gold and Gold Equivalent 164,860 122,827
Total Cash Costs (US$ per ounce AuE)
Eskay Creek mine $ 121 $ 165
Snip mine 224 204
Average Total Cash Costs $ 136 $ 174
(1) Gold and silver are accounted for as co-products at Eskay Creek. Silver is converted to gold equivalent, using the ratio of the silver market price to the gold market price. This ratio was 47 ounces of silver equals one ounce of gold for year-to-date March 31, 1998 (1997 - 70 ounces of silver equals one ounce of gold).
PRIME RESOURCES GROUP INC. STATEMENTS OF INCOME
(Expressed in thousands, except per share amounts) (Unaudited)
Three Months Ended March 31,
1998 1997
Revenues:
Product sales $ 56,657 $ 47,289
Interest and other 1,803 1,059
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Total revenues 58,460 48,348
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Costs and Expenses:
Production 18,983 17,319
Depreciation and amortization 9,671 8,372
Administrative and general 1,387 970
Exploration 1,068 412
Foreign exchange loss (gain) 1,679 (92)
Interest 231 131
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Total costs and expenses 33,019 27,112
---------------------------
Income before taxes 25,441 21,236
Income and mining taxes
Current (16,076) (13,239)
Deferred 1,933 999
---------------------------
Net Income For the Period $ 11,298 $ 8,996
---------------------------
Net Income Per Share $ 0.15 $ 0.12
---------------------------
Average Shares Used in
the Computation 76,074 76,074
---------------------------
PRIME RESOURCES GROUP INC. BALANCE SHEETS (Expressed in
thousands) (Unaudited)
March 31, December 31,
1998 1997
ASSETS
Cash and short-term investments $ 160,225 $ 148,236
Other current assets 40,167 31,572
Investments 1,586 1,586
Resource assets 186,297 195,699
-------------------------
TOTAL $ 388,275 $ 377,093
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 17,567 $ 16,047
Deferred taxes and other
long-term liabilities 45,875 47,511
Shareholders' equity 324,833 313,535
-------------------------
TOTAL $ 388,275 $ 377,093
-------------------------
PRIME RESOURCES GROUP INC. STATEMENTS OF CASH FLOWS
(Expressed in thousands) (Unaudited)
Three Months Ended March 31,
1998 1997
Operating Activities
Cash flows from operations $ 19,333 $ 16,674
Net increase in noncash
working capital (6,675) (38,701)
---------------------------
Cash provided by (used for)
operating activities 12,658 (22,027)
---------------------------
Investment Activities
Additions to resource
assets, net (669) (943)
---------------------------
Increase (decrease) in cash and
short-term investments 11,989 (22,970)
Cash and short-term investments,
January 1 148,236 125,485
---------------------------
Cash and short-term investments,
March 31 $ 160,225 $ 102,515
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CONTACT: Prime Resources Group Inc.
Walter T. Segsworth, 604/684-2345
or
Prime Resources Group Inc.
Michael Steeves, 415/983-9189
or
Prime Resources Group Inc.
Geoffrey A. Burns, 604/684-2345 |
