FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________
REPORT OF FOREIGN ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of August, 2004
Wheaton River Minerals Ltd.
(Translation of registrant's name into English)
Suite 1560, 200 Burrard Street, Vancouver, British Columbia V6C 3L6 CANADA
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F Form 40-F ____X______
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-________________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf of the undersigned, thereunto duly authorized.
Wheaton River Minerals Ltd. | ||
(Registrant) | ||
Date: August 10, 2004 | By: /s/ Peter Barnes | |
Name | ||
Its: Executive Vice-President and Chief Financial Officer | ||
(Title) |
![[form6kwheatonaug10nr001.jpg]](https://capedge.com/proxy/6-K/0001176256-04-000226/form6kwheatonaug10nr001.jpg)
FOR IMMEDIATE RELEASE
August 10, 2004
Toronto Stock Exchange: WRM
American Stock Exchange: WHT
Wheaton’s Second Quarter Earnings Increase 90% to US$21 Million
Wheaton River Minerals Ltd. (Vancouver, British Columbia) is pleased to report a 90% increase in second quarter net earnings to US$21 million (US$0.04 per share) for the three months ended June 30, 2004 compared with US$11 million (US$0.03 per share) in 2003. Operating cash flows for the three months were US$39 million, or US$0.07 per share (2003 – US$21 million, or US$0.05 per share).
During the quarter, Wheaton sold 148,700 gold equivalent ounces at a total cash cost of US$19 per ounce (net of by-product copper sales). This compared with sales of 112,400 gold equivalent ounces at a total cash cost of US$90 per ounce in 2003.
Net earnings for the six months ended June 30, 2004 amounted to US$55 million, more than triple the comparable 2003 earnings of US$15 million. Earnings per share doubled to US$0.10 in 2004 from US$0.05 per share in 2003. For the six months, 305,200 gold equivalent ounces were sold at a total cash cost of minus US$26 per ounce (net of by-product copper sales), compared with 2003 sales of 168,000 gold equivalent ounces at a total cash cost of $119 per ounce. Operating cash flows for the six months were US$101 million, or US$0.18 per share (2003 – US$31 million, or US$0.09 per share).
“Wheaton is committed to continuing our phenomenal growth path” said Ian Telfer, Chairman and CEO. “We plan to build on our solid, extremely profitable, asset base to further enhance shareholder value. Our recently announced monetization of our silver assets is just one example of this.”
Wheaton is a leading gold producer and expects 2006 production from all of its mines to increase to approximately 900,000 gold equivalent ounces at a total cash cost of less than US$100 per ounce. Current production exceeds 500,000 gold equivalent ounces (over 400,000 ounces of gold and 7 million ounces of silver) at a total cash cost of less than US$50 per ounce.
For further information please contact Wheaton River Minerals Ltd. Investor Relations at 1-800-567-6223 or email ir@wheatonriver.com.
WHEATON RIVER MINERALS LTD
Management’s Discussion & Analysis
of Results of Operations and Financial Condition
Six Months Ended June 30, 2004
Management’s Discussion and Analysis
of Results of Operations and Financial Condition
Six Months Ended June 30, 2004
This Management’s Discussion and Analysis should be read in conjunction with the Company’s unaudited consolidated financial statements for the six months ended June 30, 2004 and related notes thereto which have been prepared in accordance with Canadian generally accepted accounting principles. In addition, the following should be read in conjunction with the 2003 audited consolidated financial statements, the related annual Management’s Discussion and Analysis, and the Annual Information Form/40F on file with the US Securities and Exchange Commission and Canadian provincial securities regulatory authorities. All figures are in United States dollars unless otherwise noted. This Management’s Discussion and Analysis has been prepared as of August 6, 2004.
SECOND QUARTER HIGHLIGHTS
·
Net earnings of $21.1 million ($0.04 per share) for the three months, compared with $11.1 million ($0.03 per share) in 2003.
·
Operating cash flows of $38.9 million for the three months (2003 - $21.0 million).
·
Sales of 148,700 gold equivalent ounces and 32.5 million pounds of copper (2003 – 112,400 gold equivalent ounces and 28.1 million pounds of copper).
·
Total cash costs of $19 per gold equivalent ounce (2003 - $90).
·
Cash and cash equivalents at June 30, 2004 of $103.5 million (December 31, 2003 - $151.9 million), after repaying $67.5 million of long-term debt during the quarter.
·
Alumbrera mine life extended by 20%, ensuring production until at least 2015.
·
Wheaton announces termination of merger agreement with IAMGold.
·
Wheaton agrees to sell future silver production from Luismin mining operations for an upfront payment of Cdn$262 million plus a payment of US$3.90 per ounce.
OVERVIEW
Wheaton River Minerals Ltd. (“Wheaton” or the “Company”) is a growth-oriented precious metals mining company with operations in Mexico, Argentina, Brazil and Australia.
During 2002 Wheaton acquired the Luismin gold/silver mines in Mexico, followed by the 2003 acquisition of a 37.5% interest in the world-class Alumbrera gold/copper mine in Argentina and 100% of the Peak gold mine in Australia. In addition, the Company acquired the Los Filos gold project in Mexico and in January, 2004, the Amapari gold project in northern Brazil.
In continuation of this growth strategy, during March 2004, Wheaton and IAMGold Corporation (“IAMGold”) announced that their boards of directors had agreed to combine the companies under the name Axiom Gold Corporation, subject to shareholder approvals and certain other conditions. On July 6, 2004, IAMGold did not receive the necessary shareholder approvals to effect the proposed combination and Wheaton terminated the agreement with IAMGold regarding the combination. In the event that Golden Star Resources Ltd. completes a take-over bid for the shares of IAMGold on or before April 7, 2005, Wheaton will be entitled to receive a break fee from IAMGold equal to 3% of IAMGold's market capitalization at that time, which would approximate US$24 million.
During June 2004, Coeur d’Alene Mines Corporation (“Coeur”) announced that it would be making a tender offer to acquire all of the outstanding shares of Wheaton. To date, Coeur has only made a tender offer to Wheaton’s United States shareholders and therefore Wheaton’s Board has concluded that they are unable to make a recommendation to all shareholders at this time.
Wheaton continues to seek opportunities to maximize value for its shareholders and, on July 14, 2004, announced that Chap Mercantile Inc. (“Chap”) had agreed to purchase 100% of the silver produced by Luismin’s mining operations for an upfront payment of Cdn$262 million plus a payment of US$3.90 per ounce, subject to adjustment.
The upfront payment of Cdn$262 million is payable as to Cdn$46 million in cash and 540 million common shares of Chap. As a result, Wheaton will own approximately 75% of the shares of Chap, which will change its name to Silver Wheaton. The closing of the transaction is scheduled to occur on September 9, 2004.
Summarized Financial Results
June 30 | March 31 | December 31 | September 30 | |||||
2004 | 2003 | 2004 | 2003 | 2003 | 2002 | 2003 | 2002 | |
(Notes 2 and 3 ) | ||||||||
Sales($000’s) | $89,268 | $28,814 | $113,204 | $17,257 | $103,420 | $17,938 | $63,142 | $15,840 |
· Gold (ounces) | 123,000 | 92,600 | 129,700 | 35,100 | 136,200 | 32,300 | 105,400 | 25,900 |
· Silver (ounces) | 1,654,500 | 1,500,500 | 1,612,900 | 1,561,900 | 1,475,900 | 1,672,200 | 1,515,900 | 1,445,800 |
· Gold equivalent (ounces)(Note 1) | 148,700 | 112,400 | 156,500 | 55,600 | 156,000 | 55,600 | 126,100 | 47,800 |
· Copper (lbs) | 32,499,000 | 28,139,400 | 42,879,500 | 3,551,000 | 53,731,500 | - | 28,296,800 | - |
Net earnings($000’s) | $21,120 | $11,088 | $33,671 | $4,064 | $27,818 | $2,577 | $14,689 | $949 |
Earnings per share · Basic | $0.04 | $0.03 | $0.06 | $0.02 | $0.06 | $0.01 | $0.03 | $0.01 |
· Diluted | $0.03 | $0.03 | $0.05 | $0.02 | $0.05 | $0.01 | $0.03 | $0.01 |
Cash flow from operations($000’s) | $38,941 | $20,990 | $61,848 | $9,752 | $64,483 | $5,631 | $31,453 | $(2,663) |
Average realized gold price ($’s per ounce) | $388 | $353 | $412 | $347 | $385 | $323 | $366 | $331 |
Average realized silver price ($’s per ounce) | $6.09 | $4.61 | $6.78 | $4.64 | $5.29 | $4.51 | $5.00 | $4.60 |
Average realized copper price ($’s per lb) | $1.22 | $0.74 | $1.33 | $0.68 | $0.96 | $- | $0.81 | $- |
Total cash costs(per gold equivalent ounce)(Note 4) | $19 | $90 | $(67) | $175 | $(39) | $186 | $98 | $182 |
Cash and cash equivalents($000’s) | $103,482 | $55,140 | $173,814 | $20,540 | $151,878 | $22,936 | $128,037 | $18,953 |
Total assets($000’s) | $1,001,161 | $618,419 | $1,039,387 | $377,267 | $891,005 | $152,098 | $711,648 | $150,933 |
Long-term debt($000’s) | $65,463 | $177,342 | $132,783 | $- | $122,423 | $- | $152,342 | $- |
Shareholders’ equity($000’s) | $701,821 | $331,038 | $679,901 | $314,900 | $556,118 | $108,054 | $436,773 | $105,481 |
(1)
Gold and silver are accounted for as co-products at the Luismin mines. Silver sales are converted into gold sales using the ratio of the average gold price to the average silver price for the period. For the three months ended June 30, 2004, the equivalency ratio was 65 ounces of silver equals one ounce of gold sold (June 30, 2003 – 76).
(2)
Includes Peak’s results from March 18, 2003 onwards.
(3)
Includes, with the exception of sales, 25% of Alumbrera’s total operating results for the period March 18 to June 23, 2003, and 37.5% of the results for the period June 24, 2003 onwards. Sales include 37.5% of Alumbrera’s total sales for the period from June 24, 2003 onwards. Prior to June 24, 2003, the Company used the equity method to account for its 25% investment in Alumbrera.
(4)
The calculation of total cash costs per ounce for Peak and Alumbrera is net of by-product copper sales revenue.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2004 | |||||||
| Luismin | Peak | Alumbrera | Amapari | Corporate | Total | |
(Note 1) | (Note 2) | (Note 4) | |||||
Sales($000’s) | $22,709 | $14,137 | $53,353 | $- | $(931) | $89,268 | |
· Gold (ounces) | 33,500 | 33,000 | 56,500 | - | - | 123,000 | |
· Silver (ounces) | 1,654,500 | - | - | - | - | 1,654,500 | |
· Gold equivalent (ounces) (Note 1) | 59,200 | 33,000 | 56,500 | - | - | 148,700 | |
· Copper (lbs) | - | 1,384,900 | 31,114,100 | - | - | 32,499,000 | |
Net earnings (loss)($000’s) | $4,636 | $3,132 | $16,923 | $107 | $(3,678) | $21,120 | |
Average realized gold price ($’s per ounce) | $392 | $379 | $388 | $- | $- | $388 | |
Average realized silver price ($’s per ounce) | $6.09 | $- | $- | $- | $- | $6.09 | |
Average realized copper price ($’s per lb) | $- | $1.28 | $1.21 | $- | $- | $1.22 | |
Total cash costs (per gold equivalent ounce) | $159 | $172 | $(218) | $- | $- | $19 | |
Three Months Ended June 30, 2003 | |||||||
Luismin | Peak | Alumbrera | Amapari | Corporate | Total | ||
(Note 1) | (Note 2) | (Notes 3 and 4) | |||||
Sales($000’s) | $15,103 | $9,475 | $4,236 | $- | $- | $28,814 | |
· Gold (ounces) | 25,000 | 26,700 | 40,900 | - | - | 92,600 | |
· Silver (ounces) | 1,500,500 | - | - | - | - | 1,500,500 | |
· Gold equivalent (ounces) (Note 1) | 44,800 | 26,700 | 40,900 | - | - | 112,400 | |
· Copper (lbs) | - | - | 28,139,400 | - | - | 28,139,400 | |
Net earnings (loss)($000’s) | $2,768 | $1,298 | $7,706 | $- | $ (684) | $11,088 | |
Average realized gold price ($’s per ounce) | $350 | $355 | $355 | $- | $- | $353 | |
Average realized silver price ($’s per ounce) | $4.61 | $- | $- | $- | $- | $4.61 | |
Average realized copper price ($’s per lb) | $- | $- | $0.74 | $- | $- | $0.74 | |
Total cash costs (per gold equivalent ounce) | $200 | $221 | $ (112) | $- | $- | $90 | |
(1)
Gold and silver are accounted for as co-products at the Luismin mines. Silver sales are converted into gold sales using the ratio of the average gold price to the average silver price for the period. For the three months ended June 30, 2004 the equivalency ratio was 65 ounces of silver equals one ounce of gold sold (June 30, 2003 - 76).
(2)
The calculation of total cash costs per ounce of gold at Peak is net of by-product copper sales revenue.
(3)
Includes, with the exception of sales, 25% of Alumbrera’s total operating results for the period March 18 to June 23, 2003, and 37.5% of the results for the period June 24, 2003 onwards. Sales include 37.5% of Alumbrera’s total sales for the period from June 24, 2003 onwards. Prior to June 24, 2003, the Company used the equity method to account for its 25% investment in Alumbrera.
(4)
The calculation of total cash costs per ounce of gold for Alumbrera is net of by-product copper sales revenue. If copper production were treated as a co-product, average total cash costs at Alumbrera in 2004 would be $128 per ounce of gold and $0.60 per pound of copper.
Six Months Ended June 30, 2004 | |||||||
| Luismin | Peak | Alumbrera | Amapari | Corporate | Total | |
(Note 1) | (Note 2) | (Note 4) | |||||
Sales($000’s) | $46,424 | $29,444 | $128,465 | $- | $(1,861) | $202,472 | |
· Gold (ounces) | 65,900 | 66,400 | 120,400 | - | - | 252,700 | |
· Silver (ounces) | 3,267,400 | - | - | - | - | 3,267,400 | |
· Gold equivalent (ounces) (Note 1) | 118,400 | 66,400 | 120,400 | - | - | 305,200 | |
· Copper (lbs) | - | 3,977,000 | 71,401,400 | - | - | 75,378,400 | |
Net earnings (loss)($000’s) | $10,277 | $6,370 | $47,772 | $215 | $(9,843) | $54,791 | |
Average realized gold price ($’s per ounce) | $401 | $392 | $404 | $- | $- | $400 | |
Average realized silver price ($’s per ounce) | $6.43 | $- | $- | $- | $- | $6.43 | |
Average realized copper price ($’s per lb) | $- | $1.24 | $1.28 | $- | $- | $1.28 | |
Total cash costs (per gold equivalent ounce) | $164 | $195 | $(333) | $- | $- | $(26) | |
Six Months Ended June 30, 2003 | |||||||
Luismin | Peak | Alumbrera | Amapari | Corporate | Total | ||
(Note 1) | (Note 2) | (Notes 3 and 4) | |||||
Sales($000’s) | $30,756 | $11,079 | $4,236 | $- | $- | $46,071 | |
· Gold (ounces) | 50,600 | 31,600 | 45,500 | - | - | 127,700 | |
· Silver (ounces) | 3,062,400 | - | - | - | - | 3,062,400 | |
· Gold equivalent (ounces) (Note 1) | 90,900 | 31,600 | 45,500 | - | - | 168,000 | |
· Copper (lbs) | - | - | 31,690,400 | - | - | 31,690,400 | |
Net earnings (loss)($000’s) | $6,081 | $1,177 | $8,222 | $- | $(328) | $15,152 | |
Average realized gold price ($’s per ounce) | $352 | $351 | $350 | $- | $- | $351 | |
Average realized silver price ($’s per ounce) | $4.63 | $- | $- | $- | $- | $4.63 | |
Average realized copper price ($’s per lb) | $- | $- | $0.73 | $- | $- | $0.73 | |
Total cash costs (per gold equivalent ounce) | $192 | $240 | $(107) | $- | $- | $119 | |
(1)
Gold and silver are accounted for as co-products at the Luismin mines. Silver sales are converted into gold sales using the ratio of the average gold price to the average silver price for the period. For the three months ended June 30, 2004 the equivalency ratio was 62 ounces of silver equals one ounce of gold sold (June 30, 2003 - 76).
(2)
Peak results include the Company’s 100% interest from March 18, 2003 onwards. The calculation of total cash costs per ounce of gold is net of by-product copper sales revenue.
(3)
Includes, with the exception of sales, 25% of Alumbrera’s total operating results for the period March 18 to June 23, 2003, and 37.5% of the results for the period June 24, 2003 onwards. Sales include 37.5% of Alumbrera’s total sales for the period from June 24, 2003 onwards. Prior to June 24, 2003, the Company used the equity method to account for its 25% investment in Alumbrera.
(4)
The calculation of total cash costs per ounce of gold for Alumbrera is net of by-product copper sales revenue. If copper production were treated as a co-product, average total cash costs at Alumbrera in 2004 would be $119 per ounce of gold and $0.54 per pound of copper.
OPERATIONAL REVIEW
Luismin Mines
June 30 2004 | March 31 2004 | December 31 2003 | September 30 2003 | June 30 | ||
· Ore mined (tonnes) | 176,500 | 180,800 | 181,800 | 186,300 | 184,500 | |
· Ore milled (tonnes) | 192,600 | 209,800 | 176,000 | 182,800 | 181,900 | |
· Grade | - Gold (grams/tonne) | 5.61 | 5.19 | 5.21 | 5.01 | 4.54 |
- Silver (grams/tonne) | 302.17 | 266.00 | 291.15 | 285.88 | 288.92 | |
· Recovery | - Gold (%) | 95 | 94 | 97 | 97 | 96 |
- Silver (%) | 89 | 90 | 90 | 91 | 91 | |
· Production | - Gold (ounces) | 33,300 | 32,700 | 28,100 | 28,300 | 25,400 |
- Silver (ounces) | 1,664,400 | 1,615,500 | 1,483,300 | 1,520,700 | 1,527,600 | |
- Gold equivalent (ounces) (Note 1) | 59,600 | 59,100 | 48,000 | 49,200 | 45,600 | |
· Sales | - ($’000’s) | $22,709 | $23,715 | $18,343 | $17,152 | $15,103 |
- Gold (ounces) | 33,500 | 32,400 | 28,100 | 27,600 | 25,000 | |
- Silver (ounces) | 1,654,500 | 1,612,900 | 1,475,900 | 1,515,900 | 1,500,500 | |
- Gold equivalent (ounces) (Note 1) | 59,200 | 59,200 | 47,900 | 48,300 | 44,800 | |
· Net earnings ($’000’s) | $4,636 | $5,641 | $577 | $4,145 | $2,768 | |
· Average realized gold price ($’s per ounce) | $392 | $410 | $393 | $366 | $350 | |
· Average realized silver price ($’s per ounce) | $6.09 | $6.78 | $5.29 | $5.00 | $4.61 | |
· Total cash costs (per gold equivalent ounce) | $159 | $170 | $179 | $180 | $200 | |
(1)
Gold and silver are accounted for as co-products at the Luismin mines. Silver sales are converted into gold sales using the ratio of the average gold price to the average silver price for the period. For the three months ended June 30, 2004 the equivalency ratio was 65 ounces of silver equals one ounce of gold sold (June 30, 2003 – 76).
During the second quarter of 2004, the Luismin gold/silver operations in Mexico sold 59,200 gold equivalent ounces, compared with sales of 44,800 gold equivalent ounces in the same period of 2003. This 32% increase was primarily due to increased gold and silver grades processed. In addition, the average realized gold price increased by 12% to $392 per ounce, as compared with the same quarter in 2003, and the average realized silver price increased by 32%, resulting in increased sales from $15,103,000 in 2003 to $22,709,000 in 2004.
Total cash costs were $159 per gold equivalent ounce in the second quarter of 2004, compared with $200 during the second quarter of 2003 and $170 in the first quarter of 2004. The primary reason for this improvement was the increased gold and silver grades processed.
General and administrative expenses for the second quarter of 2004 were $1,253,000, compared with $1,146,000 in the same period of 2003 and $1,234,000 in the first quarter of 2004.
During the second quarter, significant exploration results were achieved at the Luismin mines, including deep and on-strike extensions of the San Dimas central block veins and new discoveries, including the Itzel vein system and the Paula and Nancy veins. At San Martin, Cuerpo 30 has also proved to be more significant in size than expected. These results were achieved by a combination of deep diamond drilling and underground development, and are in the process of being fully quantified.
The Los Filos project is progressing according to plan and a feasibility study is expected to be completed during the fourth quarter of 2004. Contracts have been awarded to international engineering companies and key personnel have been hired. Step-out drilling to the east and north along the host structure has also been successful in defining additional resources. Expenditures of $2,598,000 during the six months ended June 30, 2004 are according to plan.
Luismin owns a significant number of exploration properties, several of which are being explored and funded by joint venture partners.
Peak Mine
June 30 2004 | March 31 2004 | December 31 2003 | September 30 2003 | June 30 | |
· Ore mined (tonnes) | 114,000 | 178,300 | 219,200 | 352,700 | 247,500 |
· Ore milled (tonnes) | 164,600 | 170,800 | 153,100 | 157,500 | 157,200 |
· Grade - Gold (grams/tonne) | 7.04 | 6.44 | 5.93 | 7.81 | 6.56 |
- Copper (%) | 0.55 | 0.83 | 0.54 | 0.53 | 0.49 |
· Recovery - Gold (%) | 89 | 91 | 88 | 85 | 87 |
- Copper (%) | 68 | 82 | 77 | 84 | 67 |
· Production - Gold (ounces) | 32,900 | 32,100 | 25,700 | 33,600 | 28,900 |
- Copper (lbs) | 1,331,300 | 2,578,900 | 1,396,800 | 1,438,100 | 778,700 |
· Sales - ($’000’s) | $14,137 | $15,307 | $10,756 | $14,639 | $9,475 |
- Gold (ounces) | 33,000 | 33,400 | 26,500 | 39,200 | 26,700 |
- Copper (lbs) | 1,384,900 | 2,592,200 | 1,121,100 | 1,843,000 | - |
· Net earnings ($’000’s) | $3,132 | $3,238 | $2,379 | $1,721 | $1,298 |
· Average realized gold price ($’s per ounce) | $379 | $405 | $391 | $365 | $355 |
· Average realized copper price ($’s per lb) | $1.28 | $1.29 | $0.90 | $0.80 | $- |
· Total cash costs (per ounce) (Note 1) | $172 | $217 | $302 | $223 | $221 |
(1)
The calculation of total cash costs per ounce of gold is net of by-product copper sales revenue.
Peak sold 33,000 ounces of gold and 1.4 million lbs of copper during the three months ended June 30, 2004, compared with 26,700 ounces of gold and no copper in 2003. Gold and copper grades increased 7% and 12% respectively, compared with the same period in 2003, due to higher mill feed grades from the Perseverance ore body which was not in production in the second quarter of 2003. Milled tonnes were also higher during the second quarter of 2004 due to mill process improvements and recoveries were higher with improvements in the gravity and flotation circuits. Milling costs were 9% lower due to the mill process improvements and general cost reductions.
Ore mined for the second quarter was 114,000 tonnes, down significantly from previous quarters, due primarily to ceasing production from the New Cobar open pit during the first quarter. Approximately 50,000 tonnes of stockpiled open pit ore were processed through the mill during the second quarter, which reduced the average copper grade as compared with the first quarter, when primarily underground ore was processed. This change in mix also reduced the mill recoveries, as compared with the first quarter, however high gold mill feed grades were maintained.
Total cash costs averaged $172 per ounce (net of by-product copper sales revenue) during the quarter, compared with $221 per ounce during the comparative quarter in 2003. Underground mining costs were 35% lower during the quarter due to cost improvements implemented since June 2003. Also, the 2003 costs were not offset by any by-product copper sales revenues, as no copper concentrate was sold during that quarter. Total cash costs also compared favourably with the first quarter costs of $217 per ounce, reflecting Peak’s continued focus on efficiencies, particularly resulting from underground efficiencies, insurance savings and reduced explosives costs.
During the second quarter Peak exploration focused on advanced projects both within the mine corridor and regionally within approximately 100 kilometers of the Peak mine.
Mine corridor exploration focused on the historic Chesney deposit, located 5.5 kilometers north-west of Peak and 600 metres south of the recently approved New Cobar underground mine. Preliminary drill results were encouraging and further drilling is planned. Deep exploration drilling also commenced at the historic Great Cobar mine at the northern end of the mine corridor. Drilling is targeting the central and northern lenses of the deposit, which are believed to be the most gold endowed. A data compilation study of the previous exploration undertaken on Great Cobar highlighted that the central lense has never been drill tested. Regional exploration provided several targets of interest which will be followed up during the remainder of the year.
Alumbrera Mine (Wheaton interest – 37.5%)
(Wheaton’s share only) | June 30 2004 | March 31 2004 | December 31 2003 | September 30 | June 30 |
(Note 2) | |||||
· Ore mined (tonnes) | 3,113,700 | 2,836,900 | 2,409,000 | 2,219,300 | 2,171,700 |
· Ore milled (tonnes) | 3,222,200 | 3,171,400 | 3,415,000 | 3,043,100 | 2,235,400 |
· Grade - Gold (grams/tonne) | 0.64 | 0.80 | 0.94 | 0.83 | 0.81 |
- Copper (%) | 0.49 | 0.58 | 0.69 | 0.67 | 0.69 |
· Recovery - Gold (%) | 74 | 77 | 74 | 73 | 74 |
- Copper (%) | 88 | 91 | 89 | 89 | 89 |
· Production - Gold (ounces) | 49,200 | 62,800 | 75,900 | 59,000 | 43,300 |
- Copper (lbs) | 30,193,700 | 36,512,700 | 47,098,200 | 39,895,700 | 29,912,800 |
· Sales - ($’000’s) | $53,353 | $75,112 | $74,320 | $31,351 | $4,236 |
- Gold (ounces) | 56,500 | 63,900 | 81,600 | 38,600 | 40,900 |
- Copper (lbs) | 31,114,100 | 40,287,300 | 52,610,400 | 26,453,800 | 28,139,400 |
· Net earnings ($’000’s) | $16,923 | $30,849 | $26,015 | $8,919 | $7,706 |
· Average realized gold price ($’s per ounce) | $388 | $417 | $379 | $366 | $355 |
· Average realized copper price ($’s per lb) | $1.21 | $1.33 | $0.96 | $0.81 | $0.74 |
· Total cash costs (per ounce) (Note 1) | $(218) | $(435) | $(277) | $(132) | $(112) |
(1)
The calculation of total cash costs per ounce of gold for Alumbrera is net of by-product copper sales revenue. If copper production were treated as a co-product, second quarter 2004 average total cash costs at Alumbrera would be $128 per ounce of gold and $0.60 per pound of copper.
(2)
Includes, with the exception of sales, 25% of Alumbrera’s total operating results for the period April 1 to June 23, 2003, and 37.5% of the results for the period June 24, 2003 onwards. Sales include 37.5% of Alumbrera’s total sales for the period from June 24, 2003 onwards. Prior to June 24, 2003, the Company used the equity method to account for its 25% investment in Alumbrera.
Wheaton’s share of Alumbrera’s second quarter 2004 sales amounted to 56,500 ounces of gold and 31.1 million lbs of copper, compared with 40,900 ounces of gold and 28.1 million lbs of copper during the second quarter of 2003, during most of which Wheaton only held a 25% interest in Alumbrera. Gold and copper production during the quarter was according to mine plan, although lower than the last three quarters, due primarily to decreased gold and copper grades. Over the remainder of the year, grades are anticipated to improve. Ore tonnage mined during the second quarter was higher than previous quarters due to a reduced mine stripping ratio.
The second quarter average realized copper price of $1.21 per lb was significantly higher than the 2003 price of $0.74 per lb and was the primary reason for the reduction in 2004 total cash costs, which are presented net of by-product copper sales revenue.
Early in the second quarter, Alumbrera successfully commissioned the flotation plant expansion which was delivered under budget and within the allocated time frame. The plant is performing to planned levels.
During the quarter, Alumbrera announced a 20% increase in the ore reserves which has added 2.5 years to the present mine life and ensured production until mid-2015. This substantial increase in reserves has added 770 million lbs of contained copper and 1.2 million ounces of gold of which Wheaton’s share is 37.5%. Further intensive in-pit resource definition work will continue with the objective of adding additional ore reserves in the coming year.
Amapari Project
The construction and development of the Amapari open pit heap leach project in northern Brazil is progressing on schedule and on budget with the planned commissioning of the project occurring in the latter half of 2005. Major equipment orders have been placed and manufacturing is well underway for crushers, a heap leaching boom stacker and bucket wheel reclaimer. Further design optimization work has been carried out on the plant site and heap leach pad area to minimize earth moving capital costs and also to enhance operating parameters. A major pit infill drilling program is underway to allow the mine schedule to be optimized. The construction crew as of the quarter end has risen to 284 with numbers to increase further with expansion of site construction activities in the third quarter. A further drilling program is underway and continuing through 2004 to better define long-ter m ore resources and to expand the resource and reserve levels of the Amapari project.
Corporate
Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||
(in thousands) | 2004 | 2003 | 2004 | 2003 | |||||||
General and administrative expenses | $ | (1,481) | $ | (1,161) | $ | (3,922) | $ | (2,151) | |||
Interest and finance fees | (842) | (95) | (1,528) | (96) | |||||||
Gain on sale of marketable securities | 56 | (12) | 98 | 774 | |||||||
Merger costs written off | (2,811) | - | (2,811) | - | |||||||
Share purchase option expense | (100) | (209) | (1,085) | (293) | |||||||
Other | 700 | (69) | (1,575) | 1,042 | |||||||
(Loss) before income taxes | (4,478) | (1,546) | (10,823) | (724) | |||||||
Income tax recovery | 800 | 862 | 980 | 396 | |||||||
Corporate net loss | $ | (3,678) | $ | (684) | $ | (9,843) | $ | (328) | |||
Increased corporate activity resulted in higher general and administrative expenses during 2004 in comparison with 2003.
Interest and finance fees also increased as compared with 2003, due to the June 24, 2003 debt financing of the acquisition of an additional 12.5% interest in Alumbrera.
Merger costs written off during the second quarter of 2004 represent expenditures incurred for the proposed business combination with IAMGold, announced on March 30, 2004. On July 6, 2004, IAMGold did not receive the necessary shareholder approvals to effect the proposed combination and Wheaton terminated the agreement with IAMGold.
Effective January 1, 2004, the Company retroactively adopted the amended recommendations of the CICA Handbook Section 3870, “Stock-Based Compensation and other Stock-based Payments”, whereby the fair value of all stock options granted are estimated using the Black-Scholes method and are recorded in operations over their vesting periods. In 2003, stock-based awards made to non-employees were recognized and measured using the fair value based method at the date of grant, whereas for stock options granted to employees and directors, no expense was recorded. The amended recommendations have been applied retroactively from January 1, 2002 in the financial statements, without restatement of prior periods. As a result, as of January 1, 2004, retained earnings decreased by $16,848,000, share purchase options (a separate component of shareholders' equity) increased by $14,861,000, share c apital increased by $1,883,000 and contributed surplus increased by $104,000.
The total compensation expense recognized in the statement of operations for share purchase options granted in the three months ended June 30, 2004 amounted to $100,000 (six months ended June 30, 2004 - $1,085,000). Had the same basis been applied to 2003 share purchase options granted, net earnings would have been as follows:
Stock-based compensation expense is determined using an option pricing model assuming no dividends are to be paid, a weighted average volatility of the Company’s share price of 50% (2003 – 60%), an annual risk free interest rate of 3% (2003 – 4%) and expected lives of three years (2003 – three years).
No significant cash taxes were paid during 2004.
Non GAAP measures – total cash cost per gold equivalent ounce calculation
The Company reports total cash costs on a sales basis. In the gold mining industry, this is a common performance measure but does not have any standardized meaning. The following table provides a reconciliation of total cash costs per ounce to the financial statements:
Three Months Ended June 30 | Six Months Ended June 30 | ||||||||||
(in thousands, except per ounce amounts) | 2004 | 2003 | 2004 | 2003 | |||||||
Cost of sales per financial statements | $ | 35,017 | $ | 15,242 | $ | 73,803 | $ | 24,846 | |||
Alumbrera equity adjustment (Note 1) | - | (4,104) | - | (4,507) | |||||||
Treatment and refining charges | 7,253 | 1,213 | 14,903 | 1,810 | |||||||
Non-cash adjustments | (190) | 412 | (1,406) | 318 | |||||||
By-product copper sales | (40,090) | (2,954) | (97,906) | (2,954) | |||||||
Royalties | 777 | 365 | 2,794 | 425 | |||||||
$ | 2,767 | $ | 10,174 | $ | (7,812) | $ | 19,938 | ||||
Divided by gold equivalent ounces sold | 148,700 | 112,400 | 305,200 | 168,000 | |||||||
Total cash costs per ounce | $ | 19 | $ | 90 | $ | (26) | $ | 119 | |||
(1) Total cash costs are calculated as if the Company’s initial acquisition of a 25% interest in Alumbrera had been accounted for on a proportionately consolidated basis. The consolidated financial statements however present the initial 25% interest using the equity method until the Company increased its interest to 37.5% on June 24, 2003, and thereafter accounted for its interest on a proportionately consolidated basis.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2004 the Company had cash and cash equivalents of $103,482,000 (December 31, 2003 - $151,878,000) and working capital of $161,929,000 (December 31, 2003 - $147,484,000).
In the opinion of management, the working capital at June 30, 2004, together with cash flows from operations, are sufficient to support the Company’s normal operating requirements on an ongoing basis.
Total assets increased to $1,001,161,000 at June 30, 2004 from $891,005,000 at December 31, 2003. Contributing to the growth was the January 9, 2004 acquisition of the Amapari gold project located in northern Brazil for $25,000,000 in cash, 33,000,000 Wheaton River common shares and 21,516,000 Wheaton River Series “B” common share purchase warrants. Based upon the trading price of the common shares and warrants at the time of closing, this represents aggregate consideration of approximately $114,649,000, including $1,104,000 of acquisition costs.
During the quarter, the Company generated operating cash flows of $38,941,000, compared with $20,990,000 during the same period of 2003. For the six months to June 30, 2004, operating cash flows were $100,789,000, compared with $30,742,000 in 2003.
During 2003, the Company entered into a $75,000,000 bank loan facility which consisted of a $50,000,000 term loan bearing interest at LIBOR plus 2.75% and a $25,000,000 revolving working capital facility bearing interest at LIBOR plus 3%. During June 2004, the Company amended the facility such that the full $75,000,000 is a revolving working capital facility. The amended facility bears interest at LIBOR plus 1.625% to 2.25% depending on covenant ratios, has no set repayment terms, and matures in June 2007. The balance of this facility at June 30, 2004 was $61,155,000 (December 31, 2003 - $45,000,000).
During the quarter, Wheaton repaid long-term debt of $67,515,000, including its 37.5% share of Alumbrera’s non-recourse project debt. As a result, total long-term debt at June 30, 2004 was $65,463,000, compared with $122,423,000 at December 31, 2003.
During the quarter, the Company acquired marketable securities with a cost of $31.1 million, which it disposed of during July 2004 for a gain of approximately $900,000. During the three months ended June 30, 2004, the Company invested a total of $18,097,000 in property, plant and equipment, including $8,207,000 at the Luismin operations, $3,337,000 at Peak and $5,682,000 at Amapari.
As of August 6, 2004, there were 569,081,454 common shares of the Company issued and outstanding. In addition, the Company had 23,234,495 stock options outstanding under its share option plan and 176,580,869 share purchase warrants outstanding.
Derivative instruments
The Company has employed metal, interest rate and Canadian dollar forward and option contracts to manage exposure to fluctuations in metal prices and foreign currency exchange rates. In 2003, the Company acquired put options to sell gold at a price of $300 per ounce during the period from January 2004 to June 2008. At June 30, 2004, the Company held put options to sell 612,528 ounces of gold and the fair value of these options was $1,250,000. During 2003, the Company also entered into a gold-indexed interest rate swap transaction which has a fair value at June 30, 2004 of minus $1,060,000.
Commitments
Commitments exist for capital expenditures in 2004 and 2005 of $22,100,000 and $3,100,000 respectively.
Long-term debt repayment schedule
Scheduled minimum repayments of the Company’s long-term debt are as follows:
(in thousands) | ||||||||
2005 | $ | 4,308 | ||||||
2006 | - | |||||||
2007 | 61,155 | |||||||
$ | 65,463 |
Related party transactions
In 2001, the Company entered into a financial advisory agreement with Endeavour Financial Corporation (“Endeavour”), a corporation which until July 2004 had two directors in common. Under the terms of this agreement, which can be cancelled on 30 days notice, Endeavour provides financial advisory services to the Company and is entitled to a monthly fee of $10,000 and a success fee to be negotiated based on the value of any acquisitions, dispositions and financings. During the second quarter of 2004, Endeavour was paid consulting and financial advisory fees of $280,000 (2003 - $1,560,000).
Contingencies
Under the terms of the agreement between Wheaton and IAMGold, which was terminated on July 6, 2004, Wheaton will be entitled to receive a break fee from IAMGold equal to 3% of IAMGold’s market capitalization at the time of termination if a takeover bid by Golden Star Resources Ltd is successful and completed on or before April 7, 2005. Based on IAMGold’s present stock price, the break fee would approximate $24 million. Further, if a takeover bid of Wheaton by Coeur d’Alene Mines Corporation is successful, Wheaton may be required to pay a break fee to IAMGold equal to 3% of Wheaton’s market capitalization at the time of termination. Based on Wheaton’s stock price, the break fee would approximate $49 million. In addition, pursuant to agreements with its financial advisors, the Company will be required to pay advisory fees of $5,000,000 to both Endeavour a nd GMP Securities Ltd should a takeover bid of Wheaton be successful.
OUTLOOK
The Company has planned capital expenditures for the remainder of 2004 of approximately $47 million. Of these, approximately $15 million will be incurred at Amapari, $9 million at Peak, $8 million at Alumbrera, and $15 million at the Luismin operations of which $7 million relates to Los Filos and $8 million to San Dimas and San Martin.
As discussed previously, Wheaton has entered into a transaction, scheduled to close on September 9, 2004, whereby Chap Mercantile Inc. has agreed to purchase 100% of the silver produced by Luismin’s mining operations for an upfront payment of Cdn$262 million plus a payment of US$3.90 per ounce, subject to adjustment.
In 2004, Wheaton expects to produce approximately 540,000 gold equivalent ounces at a cash cost of less than US$50 per ounce. By 2006, with the Los Filos and Amapari projects in operation, overall production will increase to 900,000 gold equivalent ounces at a cash cost of less than US$100 per ounce.
Additional information relating to the Company, including its Annual Information Form, is available on SEDAR at www.sedar.com.
This Management’s Discussion & Analysis contains certain forward-looking statements. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding future plans and objectives of the Company are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove accurate, and actual results and future events could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from the Company’s expectations are disclosed in Company documents filed from time to time with the Toronto Stock Exchange and other regulatory authorities.