EXHIBIT 1
MATERIAL CHANGE REPORT
s. 85(1)(b) OF THE SECURITIES ACT (BRITISH COLUMBIA)
s. 118(1)(b) OF THE SECURITIES ACT (ALBERTA)
s. 84(1)(b) OF THE SECURITIES ACT (SASKATCHEWAN)
s. 75(2) OF THE SECURITIES ACT (ONTARIO)
s. 73 OF THE SECURITIES ACT (QUEBEC)
s. 81(2) OF THE SECURITIES ACT (NOVA SCOTIA)
s. 76(2) OF THE SECURITIES ACT (NEWFOUNDLAND)
ITEM 1. REPORTING ISSUER:
Breakwater Resources Ltd.
Suite 2000
95 Wellington Street West
Toronto, Ontario
M5J 2N7
ITEM 2. DATE OF MATERIAL CHANGE:
March 9, 2004.
ITEM 3. PRESS RELEASE:
A press release regarding the material change was issued in Toronto,
Ontario on March 10, 2004 through Canada NewsWire.
ITEM 4. SUMMARY OF MATERIAL CHANGE:
Breakwater Resources Ltd. released its financial and operating
results for the year and quarter ended December 31, 2003.
ITEM 5. FULL DESCRIPTION OF MATERIAL CHANGE:
Please see attached press release.
ITEM 6. RELIANCE ON SECTION 75(3) OF THE SECURITIES ACT (ONTARIO) AND
ANALOGOUS PROVISIONS:
Not applicable.
ITEM 7. OMITTED INFORMATION:
Not applicable.
ITEM 8. SENIOR OFFICERS:
E. Ann Wilkinson
Corporate Secretary
Breakwater Resources Ltd.
Telephone: (416) 363-4798 Ext. 277
2.
ITEM 9. - STATEMENT OF SENIOR OFFICER:
The foregoing accurately discloses the material change referred to
herein.
Dated at Toronto, Ontario as of the 17th day of March, 2004.
E. Ann Wilkinson" (signed)
---------------------------------
E. Ann Wilkinson
Corporate Secretary
Breakwater Resources Ltd.
[LOGO] B
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BREAKWATER RESOURCES LTD.
95 Wellington Street West, Suite 950
Toronto, Ont., M5J 2N7
Tel: (416) 363-4798
Fax: (416) 363-1315
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NEWS RELEASE
BREAKWATER ANNOUNCES 2003 ANNUAL FINANCIAL AND OPERATING RESULTS
Toronto, Canada, March 10, 2004...BREAKWATER RESOURCES LTD. (TSX - BWR)
For the year ended December 31, 2003, Breakwater Resources Ltd. (the "Company")
reported Net Earnings of $7.1 million ($0.03 per share) on Gross sales revenue
of $207.6 million compared with a Net Loss in 2002 of $19.9 million ($0.12 per
share) on Gross sales revenue of $305.4 million.
The following are the notable details related to the Net Earnings of 2003
compared with the Net Loss of 2002:
o Gross sales revenue decreased by 32 percent due mainly to the closure of
the Nanisivik mine in September 2002 and the effect of the stronger
Canadian dollar.
o General and administrative costs were reduced by $1.1 million due to
lower capital taxes, lower office costs and a one-time compensation
expense of $0.6 million incurred in 2002.
o Interest and financing costs decreased by $1.4 million due to reduced
debt levels following the partial repayment of debt and lower interest
rates.
o Foreign exchange gain on US dollar denominated debt rose by $10.9
million, $4.4 million of this gain was realized on the repayment of
US$17.1 million of the bank debt in July and December.
o Other non-producing property costs decreased by $9.3 million largely as
a result of the gain on the sale of the Lapa properties of $10.3 million
in June of 2003.
The year ended December 31, 2003, saw a marked improvement in the US dollar zinc
price from the 2002 record low. The zinc price closed at the end of 2003 at
US$1,008 per tonne compared with US$750 at the end of 2002, averaging US$828 per
tonne for the year compared with US$779 for 2002. However, the stronger Canadian
dollar offset the benefit of the improved average US dollar metal price. The
average Canadian dollar price of zinc in 2003 was $1,161 per tonne compared with
$1,220 per tonne in 2002 based on an average C$/US$ exchange rate of 1.4004
versus 1.5701. All metal prices closed significantly higher at the end of 2003
compared with the end of 2002 and are expected to remain at these levels or
higher in 2004.
In November 2003, the Company received net proceeds of approximately $28.0
million on the issuance of 85.8 million common shares of the Company (the
"Common Shares") pursuant to a subscription receipt offer in October. A portion
of these funds was used to repay part of the bank debt as more completely
described later in this news release.
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Use of Proceeds ($ millions)
- -------------------------------------- ------------
- -------------------------------------- ------------
Bank Debt Repayment 15.7
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Working Capital 12.3
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Net Proceeds 28.0
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Total debt was substantially lower at the end 2003 at $25.8 million compared
with $78.7 million at the end of 2002. During 2003, US$17.1 million was repaid
against the Non-Revolving Facility and the Supplementary Term Facility, combined
as (the "Non-Revolving Facility"). The revolver component of the Credit Facility
(the "Revolver") was paid down from US$16.0 million to US$5.0 million, and the
stronger Canadian dollar reduced the carrying value of the balance of the US
dollar denominated debt.
The Company's Credit Facility, which was repayable in full on January 2, 2004,
was renegotiated in November 2003. Under this amended agreement the term of the
Non-Revolving Facility was extended to January 2, 2009 and requires 54 equal
monthly principal payments starting in July 2004. The Revolver was extended to
January 2, 2005 and is subject to annual review. The amount available under the
Revolver was reduced from US$30.0 million to US$25.0 million.
On January 28, 2004, the Company completed the sale of 57,142,858 units for net
proceeds of $37.3 million. Each unit consisted of one Common Share and one-half
of one Common Share purchase warrant. Each whole warrant entitles the holder to
acquire one Common Share at a price of $1.00 at any time until January 28, 2009.
The Company used $16.0 million of the proceeds to retire the Non-Revolving
Facility, $16.4 million of the proceeds will be used to start the development of
the Langlois mine and the balance for working capital and general corporate
purposes.
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Use of Proceeds ($ millions)
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Bank Debt Repayment 16.0
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Langlois Development 16.4
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Working Capital and General Corporate 4.9
Purposes
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Net Proceeds 37.3
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On February 16, 2004, the Company signed a letter of intent with Boliden AB to
purchase all the outstanding shares of Boliden Westmin (Canada) Limited
("BWCL"). BWCL is the owner of the Myra Falls mine in British Columbia. The
acquisition of BWCL will be exclusive of the Premier Gold property and certain
other assets and liabilities. The general terms of the proposed acquisition
include the Company issuing 18 million Common Shares and 5 million warrants,
exercisable at $1.00 per Common Share until January 28, 2009. Subject to final
due diligence, the acquisition is expected to close early in the second quarter
of 2004.
The Myra Falls mine produces zinc and copper concentrates containing significant
gold and silver as well as a gold-bearing gravity concentrate. The operation
consists of a 1.25 million tonne per annum underground mine and processing
facility, and associated infrastructure including a storage and load out
terminal in the community of Campbell River, BC. In 2003 Myra Falls produced
57,400 tonnes of zinc, 10,700 tonnes of copper, 27,300 ounces of gold and
720,900 ounces of silver.
FOURTH QUARTER REVIEW
For the quarter ended December 31, 2003, the Company reported Net Earnings of
$0.3 million ($0.00 per share) on Gross sales revenue of $51.4 million compared
with a Net Loss of $2.0 million ($0.01 per share) on $104.2 million of Gross
sales revenue for the fourth quarter of 2002.
The reduction in Gross sales revenue quarter over quarter was a result of: the
closure of the Nanisivik mine in September 2002 reducing the amount of
concentrate available for sale; the timing of the shipments from the other
mines; a $1.1 million charge for metal hedge settlements and the mark to market
liability inherent in these instruments; and the stronger Canadian dollar
resulting in lower realized Canadian dollar revenue. Despite the increase in the
average realized US dollar zinc price in the fourth quarter of 2003 to US$859
from US$775 in 2002 the average realized Canadian dollar price declined slightly
to $1,202 from $1,217. Notwithstanding the lower Gross sales revenue, the
Contribution from mining activities in 2003 was $0.9 million, only slightly less
than the $1.1 million in 2002 or 1.7 percent versus 1.1 percent of Gross sales
revenue respectively. This improved contribution on a percentage basis resulted
from lower unit Treatment and marketing costs and the stronger Canadian dollar
as Treatment and marketing costs are incurred mainly in US dollars.
General and administrative costs were $0.7 million dollars lower for the
quarter, as the fourth quarter of 2002 included a one-time compensation expense
of $0.6 million.
$2.0 million Foreign exchange gain was realized on US dollar denominated debt
compared with $0.2 million in the fourth quarter of 2002 due to the stronger
Canadian dollar.
The Company realized a recovery of Income and mining taxes of $1.0 million
compared with less than $0.1 million in the fourth quarter of 2002.
Cash flow from operations (before changes in non-cash working capital items) was
$10.4 million in fourth quarter of 2003 compared with $3.1 million in the same
period in 2002.
SUMMARY OF QUARTERLY RESULTS
- ----------------------------- ------------------------------------------- -------------------------------------------
2002 2003
- ------------------------------ ---------- --------- ---------- ----------- ---------- ----------- --------- ----------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
- ------------------------------ ---------- --------- ---------- ----------- ---------- ----------- --------- ----------
Gross Sales Revenue 64.5 60.9 74.2 104.2 52.9 61.7 41.6 51.4
($ millions)
- ------------------------------ ---------- --------- ---------- ----------- ---------- ----------- --------- ----------
Net Earning (Loss) (3.3) 2.3 (16.9) ($2.0) 0.1 10.8 (4.1) 0.3
($ millions)
- ------------------------------ ---------- --------- ---------- ----------- ---------- ----------- --------- ----------
Per share basic ($0.03) $0.01 ($0.09) ($0.01) $0.00 $0.05 ($0.02) $0.00
- ------------------------------ ---------- --------- ---------- ----------- ---------- ----------- --------- ----------
Per share diluted N/A $0.01 N/A N/A $0.00 $0.05 N/A $0.00
- ------------------------------ ---------- --------- ---------- ----------- ---------- ----------- --------- ----------
YTD to the end of the 1.5943 1.5741 1.5704 1.5701 1.5097 1.4537 1.4290 1.4004
Quarter (C$/US$)
- ------------------------------ ---------- --------- ---------- ----------- ---------- ----------- --------- ----------
Average realized zinc price $791 $813 $752 $775 $785 $768 $810 $859
(US$/t)
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Average realized zinc price $1,261 $1,280 $1,181 $1,217 $1,185 $1,116 $1,157 $1,202
(C$/t)
- ------------------------------ ---------- --------- ---------- ----------- ---------- ----------- --------- ----------
Concentrate tonnes sold 105,388 98,069 139,425 180,448 89,653 116,366 78,626 93,519
- ------------------------------ ---------- --------- ---------- ----------- ---------- ----------- --------- ----------
The quantity of concentrate tonnes sold directly effects Gross sales revenue.
The shipment and sale of concentrate can vary from quarter to quarter based on
customer agreements and the availability of ships. The Nanisivik mine closure in
September 2002 reduced the amount of concentrate available for sale in
subsequent quarters. As all sales are based in US dollars the impact of the
declining US dollar against the Canadian dollar reduced the realized Canadian
dollar Gross sales revenue, this despite an improvement in the average realized
US dollar price of zinc in the third and fourth quarters of 2003.
OUTLOOK
The Company's earnings and cash flow have historically, in a very large part,
been determined by the zinc metal price. However, with the planned acquisition
of BWCL and its principal asset, the Myra Falls mine, sales revenue from copper,
gold and silver will be a higher percentage of gross sales revenue and lessens
our dependence on one metal.
While the past three years have been challenging due to depressed metal prices,
the commodity markets turned for the better during the last few months of 2003
and are forecast to be very strong for 2004 and onward. Continued strong Chinese
consumption, in conjunction with increasing demand in the rest of the world, has
improved both market fundamentals and sentiment. Although zinc metal inventories
remain relatively high, they have begun to decline and appear to be following
the trends of other base metals, including copper and lead.
As a result of the improved metals markets and two successful financings, the
Company can now return to a growth mode. The injection of new equity allowed the
Company to retire its Non-Revolving Facility and add working capital and,
combined with the improved metal prices, should support the improved financial
performance of the Company and underpin its ability to grow.
Looking ahead, the Company has several opportunities for currently owned
projects. These include the completion of the expansion at the El Toqui mine and
the reopening of the Langlois mine which will replace the declining production
due to the expected closure of the Bouchard-Hebert and Bougrine mines in 2005.
The Company also plans to expand its exploration programs in and around all of
its mines, and pursue an industrial mineral opportunity in Tunisia. In terms of
acquisitions, the Company is working toward the prompt finalization of the
purchase of BWCL and its Myra Falls mine and continues to pursue additional
opportunities in the base metal sector.
It is management's intent, as in the past, to grow the Company in a manner that
is accretive to its shareholders. The Company's vision is to grow its business
and increase its ranking in the top ten global zinc concentrate producers, and
the base metal sector in general.
SELECTED ANNUAL INFORMATION
The consolidated financial statements of the Company have been prepared in
accordance with Canadian generally accepted accounting principles. The reporting
currency is Canadian dollars.
STATEMENT OF OPERATIONS AND DEFICIT Years ended December 31,
DATA -----------------------------------------------
2003 2002 2001
-------------- -------------- ---------------
($000's except for per share numbers, ratios and
weights)
Tonnes of Concentrate Sold
(Zinc, Copper and Lead) 378,164 523,330 505,521
Gross Sales Revenue 207,591 305,354 304,037
Treatment and Marketing Costs 83,581 136,738 142,236
Net Sales Revenue 124,010 168,616 161,801
Total Operating Costs 129,631 178,112 185,293
Loss from Mining Activities (5,621) (9,496) (23,492)
STATEMENT OF OPERATIONS AND DEFICIT Years ended December 31,
DATA -----------------------------------------------
2003 2002 2001
-------------- -------------- ---------------
($000's except for per share numbers, ratios and
weights)
Net Earnings (Loss) 7,118 (19,887) (111,058)
Earnings (Loss) per Common Share 0.03 (0.12) (0.92)
Diluted Earnings per Common Share 0.03 N/A N/A
Cash Provided by (used for)
Operating Activities(1) 14,708 8,647 (9,361)
Capital Expenditures 10,621 10,971 21,662
Weighted-Average Number of
Common Shares Outstanding
After Bonus Element 211,411 169,074 120,166
Number of Common Shares 285,790 193,281 93,848
Outstanding
(1) Before changes in non-cash working capital items.
BALANCE SHEET DATA As at December 31,
-----------------------------------------------
2003 2002 2001
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Working Capital 36,147 22,284 5,048
Total Assets 175,635 223,380 251,569
Total Debt 25,846 78,665 80,406
Total Long-Term Liabilities 29,889 62,957 62,084
Shareholders' Equity (Net Assets) 113,699 95,596 98,576
Net Debt to Net Debt plus Equity 15% 43% 44%
Book Value per Common Share 0.40 0.49 1.05
Capital Stock 287,743 257,759 239,214
Cash Dividends per Common Share 0.00 0.00 0.00
SENSITIVITY TO METAL PRICES
The Company's earnings, cash flow and common share price are highly sensitive to
the price of zinc. The following table sets forth the average LME cash prices
for zinc, copper and lead, the London PM fix for gold and silver, and the US$/C$
exchange rates for 2003, 2002 and 2001.
- ------------------------------------------ ------------- ------------- --------------
2003 2002 2001
- ------------------------------------------ ------------- ------------- --------------
Zinc (US$/pound) $0.38 $0.35 $0.40
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Lead (US$/pound) $0.23 $0.21 $0.22
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Copper (US$/pound) $0.81 $0.71 $0.72
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Gold (US$/ounce) $364 $310 $271
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Silver (US$/ounce) $4.88 $4.60 $4.37
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Exchange rate (US$1.00/Cdn$) yearly 1.4004 1.5701 1.5490
average
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The following table illustrates the sensitivity of earnings and cash flow to
changes in metal prices and in the US$/C$ exchange rate based on production
estimates for 2004, and on a US$/C$ exchange rate of $0.75/$1.00.
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Sensitivities
(Cdn$
thousands)
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Zinc (US$0.01/pound) 3,010
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Lead (US$0.01/pound) 315
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Copper (US$0.01/pound) 72
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Silver (US$0.10/ounce) 174
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Gold (US$10.00/ounce) 436
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Exchange rate (US$0.01/Cdn$1.00)* 763
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*When the Canadian dollar weakens against the US dollar earnings would increase.
SENSITIVITY TO SMELTER TREATMENT CHARGES
The Company sells zinc, lead and copper concentrates to smelters in various
parts of the world including Europe, Asia and the Americas. Smelters charge the
Company for treating the zinc, lead and copper concentrates. Treatment charges
vary according to the world demand for concentrates. In 2004, there should
continue to be downward pressure on zinc concentrate treatment charges as the
world zinc smelting capacity continues to exceed mine production. It is expected
that the overall demand for zinc concentrates should remain strong in 2004.
The following table outlines the sensitivity to changes in the average treatment
charges based on production estimates for 2004 and is based on a US$/C$ exchange
rate of $0.75/$1.00.
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Sensitivities
(Cdn$
thousands)
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Zinc concentrate (US$5.00 per tonne) 1,973
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Lead concentrate (US$5.00 per tonne) 154
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Copper concentrate (TC US$10.00 per tonne, RC US$0.01 per pound) 313
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STATEMENT OF OPERATIONS REVIEW - 2003 AND 2002
GROSS SALES REVENUE
Sales of zinc, lead and copper concentrate decreased by 28 percent in 2003 from
2002 (378,164 tonnes compared with 523,330 tonnes).
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SALES BY METAL IN CONCENTRATE 2003 2002
- -------------------------------------------------- ------------ -------------
Zinc - tonnes 149,850 206,631
- -------------------------------------------------- ------------ -------------
- -------------------------------------------------- ------------ -------------
SALES BY METAL IN CONCENTRATE 2003 2002
- -------------------------------------------------- ------------ -------------
Lead - tonnes 11,533 17,977
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Copper - tonnes 3,909 5,447
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Gold - ounces 22,952 25,364
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Silver - ounces 1,328,903 2,226,474
- -------------------------------------------------- ------------ -------------
Gross sales revenue decreased by $97.8 million due to less concentrate available
for sale, mainly resulting from the closure of the Nanisivik mine in September
2002, ($75.3 million) and the stronger Canadian dollar ($22.5 million).
- -------------------------------------------------- ------------ -------------
GROSS SALES REVENUE BY METAL ($ THOUSANDS) 2003 2002
- -------------------------------------------------- ------------ -------------
Zinc (US) 120,547 160,223
- -------------------------------------------------- ------------ -------------
Lead (US) 5,403 8,397
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Copper (US) 6,905 8,688
- -------------------------------------------------- ------------ -------------
Gold (US) 8,109 7,781
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Silver (US) 6,106 10,111
- -------------------------------------------------- ------------ -------------
Total Gross sales revenue (US) 147,070 195,200
- -------------------------------------------------- ------------ -------------
Realized exchange rate 1.4115 1.5643
- -------------------------------------------------- ------------ -------------
Total Gross sales revenue (Cdn) 207,591 305,354
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The Company periodically hedges against fluctuations in metal prices and foreign
exchange with the use of various financial instruments (forward sales or
options). At the end of 2003, the mark to market of the liability inherent in
these instruments was $0.3 million compared with $0.7 million in 2002. These
amounts are included in Gross sales revenue.
NET REVENUE
Net revenue, the value of concentrates sold after deducting treatment charges,
freight and marketing costs, decreased by 26 percent to $124.0 million in 2003
from $168.6 million in 2002. Treatment charges, the amount paid to smelters for
refining concentrates to produce metal, and shipping and marketing costs
decreased by 39 percent to $83.6 million in 2003 from $136.7 million in 2002.
Treatment charges, shipping and marketing expenses were $220 per tonne of
concentrate sold in 2003 compared with $263 per tonne in 2002. This improvement
was due to the tightness of the zinc concentrate market globally, which allowed
the Company to secure lower smelter treatment charges, and the stronger Canadian
dollar, as these costs are denominated in US dollars.
OPERATING COSTS
Direct operating costs were $103.2 million in 2003 compared with $147.7 million
in 2002, 30 percent lower. Concentrate sold in 2003 was 378,164 tonnes compared
with 523,330 tonnes in 2002 due primarily to the closure of the Nanisivik mine
in 2002.
The total cash cost per pound of payable zinc, which includes all minesite cash
costs, treatment charges, ocean freight and other marketing costs, net of
by-product credits, was US$0.32 at an average LME zinc price of US$0.38 in 2003.
This compares with US$0.32 at an average LME zinc price of US$0.35 in 2002.
- -------------------------------------------------- ------------ -------------
Direct Operating Costs ($ millions) 2003 2002
- -------------------------------------------------- ------------ -------------
Bouchard-Hebert 38.9 36.9
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Nanisivik 5.9 34.5
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Bougrine 17.9 22.9
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El Mochito 23.9 34.2
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El Toqui 16.6 19.2
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Total 103.2 147.7
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OTHER EXPENSES (INCOME)
Other Expenses (Income), was an income of $3.8 million in 2003 compared with an
expense of $9.7 million in 2002. General and administrative expenses decreased
by $1.1 million due to lower capital taxes, lower general office expenses and a
one-time compensation expense of $0.6 million incurred in 2002. Interest and
financing expense decreased by $1.4 million due to the reduction in debt during
the year and a lower average LIBOR rate of 1.17 percent in 2003 compared with
1.80 percent in 2002. The foreign exchange gain resulting from having debt
denominated in US dollars increased to $11.6 million in 2003 from $0.7 million
in 2002. The carrying value of the US dollar debt is measured at the end of each
period. In 2003, the Canadian dollar strengthened significantly against the US
dollar from 1.5926 at the end of 2002 to 1.2924 at the end of 2003. A total of
$4.4 million of the foreign exchange gain was realized when US$5.0 million and
US$12.1 million of the Non-Revolving Facility were repaid in July 2003 and
December 2003 respectively.
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OTHER EXPENSES (INCOME) ($ millions) 2003 2002
- -------------------------------------------------- ------------ -------------
General and administrative 5.1 6.2
- -------------------------------------------------- ------------ -------------
Interest expense and financing 3.3 4.8
- -------------------------------------------------- ------------ -------------
Investment income (0.6) (0.6)
- -------------------------------------------------- ------------ -------------
Foreign exchange (11.6) (0.7)
- -------------------------------------------------- ------------ -------------
TOTAL OTHER EXPENSES (INCOME) (3.8) 9.7
- -------------------------------------------------- ------------ -------------
Write-down of mineral property 0.3 0.0
- -------------------------------------------------- ------------ -------------
Other non-producing property (income) costs (8.4) 0.9
- -------------------------------------------------- ------------ -------------
Income and mining tax recovery (0.8) (0.2)
- -------------------------------------------------- ------------ -------------
TOTAL EXPENSE (INCOME) (12.7) 10.4
- -------------------------------------------------- ------------ -------------
OTHER NON-PRODUCING PROPERTY (INCOME) COSTS
The activities related to Other non-producing properties generated income of
$8.4 million in 2003, primarily as a result of the sale of the Lapa properties
in June for $10.6 million. This compares with a cost in 2002 of $0.8 million.
Other non-producing property (income) costs include care and maintenance costs
for the Caribou, Langlois and Nanisivik properties, exploration costs and
revenues received from optioned or sold properties.
CASH PROVIDED FROM OPERATING ACTIVITIES (BEFORE CHANGES IN NON-CASH
WORKING CAPITAL ITEMS) - 2003 AND 2002
Cash Provided from Operating Activities (before changes in non-cash working
capital items) was $14.7 million in 2003 compared with $8.6 million in 2002.
- -------------------------------------------------- ------------ -------------
($ millions) 2003 2002
- -------------------------------------------------- ------------ -------------
Loss from mining activities 5.6 9.5
- -------------------------------------------------- ------------ -------------
Other expenses (income) (3.8) 9.7
- -------------------------------------------------- ------------ -------------
Non-producing property (income) costs* (8.4) 0.9
- -------------------------------------------------- ------------ -------------
Income and mining tax (recovery) (0.8) (0.2)
- -------------------------------------------------- ------------ -------------
Earnings (loss) before asset valuation
adjustments 7.4 (19.9)
- -------------------------------------------------- ------------ -------------
Write-down of properties 0.3 0.0
- -------------------------------------------------- ------------ -------------
Net earnings (loss) 7.1 (19.9)
- -------------------------------------------------- ------------ -------------
Reclamation expenditures (4.6) (5.1)
- -------------------------------------------------- ------------ -------------
Non-cash expenses 12.2 33.6
- -------------------------------------------------- ------------ -------------
Cash Provided from Operating Activities (before
changes in non-cash working capital items) 14.7 8.6
- -------------------------------------------------- ------------ -------------
*Non-producing property (income) costs include the proceeds from the sale of
the Lapa properties in 2003.
LIQUIDITY AND FINANCIAL POSITION REVIEW
WORKING CAPITAL
Cash and cash equivalents were $6.4 million at the end of 2003, the same as at
the end of 2002. This amount represents the normal working cash balance, which
is maintained by varying the amount drawn under the Revolver. Working capital at
the end of 2003 was $36.1 million compared with $22.3 million at the end of
2002. The improvement in working capital was directly related to improved Cash
Provided from Operating Activities ($17.9 million), the completion of the Common
Share issue in November for net proceeds of ($28.0 million) and the funds
received ($10.6 million) from the sale of the Lapa properties.
The current working capital position and the expected cash flows from operations
at the current metal prices and foreign exchange rates will be sufficient to
fund all debt obligations and planned capital expenditures in 2004. Tables
earlier in this section show the approximate sensitivity of the Company's
earnings and cash flows to variations in metal prices, the US/Canadian dollar
exchange rate and treatment charges, based on current plans for 2004 and
assuming the changes were to remain in effect for the full year. Capital
expenditures were $10.6 million in 2003 compared with $11.0 million in 2002. For
2004 capital expenditures are forecast to be $15.4 million.
CURRENT ASSETS
Current assets decreased to $68.2 million in 2003 from $87.1 million at the end
of 2002. The largest component of the reduction came from reduced Accounts
receivable - concentrate ($9.6 million). This was due to the closure of the
Nanisivik mine, the timing of the shipments of concentrate from the various mine
sites and the effect of the stronger Canadian dollar on the US dollar based
amounts. The closure of the Nanisivik mine and the effect of the stronger
Canadian dollar also contributed to reduce Supplies inventory by $5.2 million.
It is expected that a future tax asset of $1.2 million will be realized in 2004.
CURRENT LIABILITIES
Current liabilities decreased to $32.0 million at the end of 2003, from $64.8
million at the end of 2002. Of this decrease, Accounts payable and accrued
liabilities and Short-term debt including current portion of long-term debt were
lower by $6.1 million and $19.9 million respectively. Provisional payments for
concentrate inventory shipped but not priced decreased by $6.6 million. These
provisional payments represent contractual payments from customers for
concentrates shipped but not yet recognized as sales pending pricing.
LONG-TERM LIABILITIES
A Deferred Royalty of $1.3 million was setup in 2003 for the advance of a
non-refundable royalty payment (US$1.0 million) received on the sale of the Lapa
properties in June. This amount will be taken into revenue when the royalty is
earned as per the sale agreement.
Long-term debt at the end of 2003 was $15.5 million compared with $48.4 million
at the end of 2002. The reduction reflects the repayments of US$5.0 million
($6.9 million) and US$12.1 million ($15.7 million) in July and December
respectively, the reclassification of a portion of the Non-Revolving Facility
($1.7 million) to current liabilities and the balance due to the effect of the
stronger Canadian dollar when translating US$ denominated debt.
Reclamation and closure cost accruals decreased by $1.6 million in 2003 due to
$2.5 million of actual expenditures at the Nanisivik mine partially offset by
additional accruals set up for the other mines.
DEBT
As at December 31, 2003, the Company's total borrowings were $25.8 million, down
67 percent from the $78.7 million at the end of 2002. Of the total debt, the
Credit Facility included:
1. US$12.1 million, the balance of the Non-Revolving Facility, (US$29.1
million at December 31, 2002); and
2. US$5.0 million, drawn from the Revolver (US$16.0 million at December
2002).
The Revolver can be drawn as required based upon approximately 90 percent of the
value of accounts receivable and 75 to 90 percent of concentrate inventory value
at any time depending on the inventory's location.
The Credit Facility was repayable in full on January 2, 2004. In November of
2003, the Company renegotiated the terms of the Credit Facility. The new terms
extended the due date of the Non-Revolving Facility to January 2, 2009, with 54
equal monthly principal payments starting in July 2004. As part of the
extension, the Revolver was extended to January 2, 2005, and is subject to
annual renewal. The Revolver cap was reduced to US$25.0 million from US$30.0
million. Interest rates remained unchanged.
The Non-Revolving Facility was repaid in full in February 2004.
In addition to the above Credit Facility, the Company had miscellaneous
unsecured debt totalling $3.8 million at the end of 2003 compared with $7.5
million at the end of 2002. Of this amount, $0.6 million was in the form of a
prepayment for zinc concentrates by a customer of the Company ($3.2 million at
the end of 2002) which is to be settled in the first quarter of 2004 and $1.0
million associated with previous financing activities owed to Dundee Securities
Corporation (unchanged from 2002) which was paid in February 2004.
SOURCES AND USES OF CASH
The net cash received from investing activities was $1.3 million in 2003 and
composed of the following:
o $10.6 million received for the sale of the Lapa properties,
o $1.3 million on the return of cash deposits for future reclamation
(replaced with Letters of Credit),
o $10.6 million used for capital expenditures at the mine sites of which
principal expenditures were $5.7 million for El Toqui's mill expansion and
$2.6 million at El Mochito for environmental engineering and mine
development.
EQUITY
During 2003, the Company issued 92,509,000 Common Shares for net proceeds of
$30.0 million compared with 99,433,000 Common Shares for net proceeds of $18.5
million in 2002. The majority of the 2003 proceeds ($28.0 million) were received
for the issuance of 85.8 million Common Shares in November pursuant to a
subscription receipt offer in October. These funds were used to repay US$12.1
million of the Company's Non-Revolving Facility with the balance to be used for
working capital. The majority of the 2002 net proceeds ($17.6 million) were
raised pursuant to a rights offering in May for 94.5 million Common Shares,
these funds were used for working capital. At the end of 2003, the Company had
issued and outstanding Common Shares of approximately 285.8 million compared
with 193.3 million at the end of 2002.
Shareholders' equity as at December 31, 2003, was $113.7 million compared with
$95.6 million as at December 31, 2002 reflecting a net profit of $7.1 million
for 2003 plus $30.0 million of proceeds from the issue of Common Shares during
the year offset by a reduction in Cumulative translation adjustments of $18.4
million.
OPERATING REVIEW - 2003 and 2002
The following table summarizes financial results for each of the Company(1)s
operating mines. Although Nanisivik closed in September of 2002 sales continued
into 2003.
- --------------------------- -------------------- ----------------- ------------------- --------------------
Contribution
(Loss) From Capital
Gross Revenue Mining Non-cash Expenditures
Activities(1) Costs(2)
- --------------------------- -------------------- ----------------- ------------------- --------------------
($ millions) 2003 2002 2003 2002 2003 2002 2003 2002
- --------------------------- ---------- -------- -------- -------- --------- --------- --------- ----------
Bouchard-Hebert 75.7 81.9 0.2 3.0 10.1 9.7 0.0 1.7
- --------------------------- ---------- -------- -------- -------- --------- --------- --------- ----------
Bougrine 33.3 40.9 (6.5) (8.5) 8.8 8.1 0.6 2.0
- --------------------------- ---------- -------- -------- -------- --------- --------- --------- ----------
El Mochito 53.9 69.5 3.9 (2.9) 4.7 6.8 2.6 2.3
- --------------------------- ---------- -------- -------- -------- --------- --------- --------- ----------
El Toqui 34.3 44.1 (1.5) 0.6 2.3 2.6 5.7 2.9
- --------------------------- ---------- -------- -------- -------- --------- --------- --------- ----------
Nanisivik 11.5 69.0 (0.2) (1.6) 0.0 3.2 0.0 0.0
- --------------------------- ---------- -------- -------- -------- --------- --------- --------- ----------
Langlois 0.0 0.0 0.0 0.0 0.0 0.0 1.7 0.9
- --------------------------- ---------- -------- -------- -------- --------- --------- --------- ----------
Unallocated (1.1) (3) 0.0 (1.5) (0.1) 0.4 0.0 0.0 0.0
- --------------------------- ---------- -------- -------- -------- --------- --------- --------- ----------
Total 207.6 305.4 (5.6) (9.5) 26.3 30.4 10.6 9.8
- --------------------------- ---------- -------- -------- -------- --------- --------- --------- ----------
1) After non-cash costs.
2) Depreciation, depletion and reclamation costs.
3) Net realised from metal hedging activity.
PRODUCTION STATISTICS
Production for the years ended December 31, 2003 and 2002 is shown in the tables
below.
Production of zinc in concentrate in 2003 decreased by 24 percent from 2002 due
to the closure of the Nanisivik mine in September 2002. Production of zinc in
concentrate at the four mines operating in 2003 was only 1 percent lower than
2002 levels (364.7 million pounds compared with 368.6 million pounds).
- --------------------------------------------------------------------- --------------- ---------------
ZINC PRODUCTION (MILLION POUNDS OF ZINC CONTAINED IN 2003 2002
CONCENTRATE)
- --------------------------------------------------------------------- --------------- ---------------
Bouchard-Hebert 118.7 112.9
- --------------------------------------------------------------------- --------------- ---------------
Bougrine 77.1 74.3
- --------------------------------------------------------------------- --------------- ---------------
El Mochito 96.5 102.2
- --------------------------------------------------------------------- --------------- ---------------
El Toqui 72.4 79.2
- --------------------------------------------------------------------- --------------- ---------------
Nanisivik 0 109.1
- --------------------------------------------------------------------- --------------- ---------------
Total zinc production 364.7 477.7
- --------------------------------------------------------------------- --------------- ---------------
- --------------------------------------------------------------------- -------------------------------
ALL MINES -------------------------------
2003(1) 2002(2)
- --------------------------------------------------------------------- --------------- ---------------
Ore Milled (tonnes) 2,586,180 3,077,811
- --------------------------------------------------------------------- --------------- ---------------
Zinc (%) 7.2 7.8
- --------------------------------------------------------------------- --------------- ---------------
Concentrate Production
- --------------------------------------------------------------------- --------------- ---------------
Zinc (tonnes) 310,337 403,661
- --------------------------------------------------------------------- --------------- ---------------
Copper (tonnes) 23,781 37,680
- --------------------------------------------------------------------- --------------- ---------------
Lead (tonnes) 20,220 18,747
- --------------------------------------------------------------------- --------------- ---------------
Gold (tonnes) 2,575 5,424
- --------------------------------------------------------------------- --------------- ---------------
Metal in Concentrates
- --------------------------------------------------------------------- --------------- ---------------
Zinc (tonnes) 165,422 216,663
- --------------------------------------------------------------------- --------------- ---------------
Copper (tonnes) 3,710 6,055
- --------------------------------------------------------------------- --------------- ---------------
Lead (tonnes) 13,516 12,693
- --------------------------------------------------------------------- --------------- ---------------
Silver (ounces) 2,225,728 2,957,221
- --------------------------------------------------------------------- --------------- ---------------
Gold (ounces) 26,220 24,804
- --------------------------------------------------------------------- --------------- ---------------
Minesite Operating Cash Costs
- --------------------------------------------------------------------- --------------- ---------------
Per tonne milled (US$) 28.31 27.18
- --------------------------------------------------------------------- --------------- ---------------
Total Cash Costs
- --------------------------------------------------------------------- --------------- ---------------
Per pound payable zinc (US$) 0.32 0.32
- --------------------------------------------------------------------- --------------- ---------------
(1) 2003 includes production from Bouchard-Hebert, Bougrine, El Mochito and El Toqui.
(2) 2002 includes production from Bouchard-Hebert, Bougrine, El Mochito, El Toqui and Nanisivik.
BOUCHARD-HEBERT MINE
Production of zinc metal in concentrate at Bouchard-Hebert increased by 5
percent in 2003 from 2002 due to record milled tonnage, improved zinc recovery
and an improved zinc concentrate grade. The copper metal in concentrate was
lower than in 2002 due to mining in the upper portions of the deposit where
copper grades were lower. The copper recovery and concentrate grade were lower
in 2003 than 2002 due to the decreased copper head grade resulting in a 39
percent reduction of copper in concentrate in 2003 compared with 2002.
- ------------------------------------------------------------------------------
PRODUCTION STATISTICS YEAR ENDED DECEMBER 31,
- ---------------------------------------------- --------------- ---------------
2003 2002
- ---------------------------------------------- --------------- ---------------
Ore Milled (tonnes) 1,082,833 1,050,009
- ---------------------------------------------- --------------- ---------------
Zinc (%) 5.6 5.6
- ---------------------------------------------- --------------- ---------------
Copper (%) 0.4 0.7
- ---------------------------------------------- --------------- ---------------
Silver (grams/tonne) 36 39
- ---------------------------------------------- --------------- ---------------
Gold (grams/tonne) 1.2 1.2
- ---------------------------------------------- --------------- ---------------
Concentrate Production
- ---------------------------------------------- --------------- ---------------
Zinc (tonnes) 98,149 94,914
- ---------------------------------------------- --------------- ---------------
Recovery (%) 89.5 87.6
- ---------------------------------------------- --------------- ---------------
Grade (%) 54.9 53.9
- ---------------------------------------------- --------------- ---------------
Copper (tonnes) 23,781 37,680
- ---------------------------------------------- --------------- ---------------
- ------------------------------------------------------------------------------
PRODUCTION STATISTICS YEAR ENDED DECEMBER 31,
- ---------------------------------------------- --------------- ---------------
2003 2002
- ---------------------------------------------- --------------- ---------------
Recovery (%) 80.4 85.2
- ---------------------------------------------- --------------- ---------------
Grade (%) 15.6 16.1
- ---------------------------------------------- --------------- ---------------
Metal in Concentrates
- ---------------------------------------------- --------------- ---------------
Zinc (tonnes) 53,844 51,197
- ---------------------------------------------- --------------- ---------------
Copper (tonnes) 3,710 6,055
- ---------------------------------------------- --------------- ---------------
Silver (ounces) 361,568 446,755
- ---------------------------------------------- --------------- ---------------
Gold (ounces) 23,686 20,122
- ---------------------------------------------- --------------- ---------------
Minesite Operating Cash Costs
- ---------------------------------------------- --------------- ---------------
Per tonne milled (C$) 34.80 34.99
- ---------------------------------------------- --------------- ---------------
Total Cash Costs
- ---------------------------------------------- --------------- ---------------
Per pound of payable zinc (US$) 0.30 0.28
- ---------------------------------------------- --------------- ---------------
BOUCHARD-HEBERT MINE OUTLOOK
The tonnes to be processed in 2004 is forecast to drop modestly from 2003 (1.025
million from 1.082 million); however, the zinc head grade is expected to
increase by 11 percent, while the copper head grade is expected to remain
constant year over year. Production of zinc metal in concentrate is planned to
increase in 2004, while copper, gold and silver will be slightly lower. These
grade forecasts are consistent with the mining sequences in the life-of-mine
plan.
In line with the life-of-mine plan is the expected closure of the mine near the
end of the first quarter 2005. As a result of the pending closure, there were no
capital expenditures in 2003 compared with $1.7 million in 2002 and there will
be no capital expenditures required in 2004. Preliminary reclamation work will
begin in the fourth quarter of 2004.
The Company will continue its diamond-drilling program on two known anomalies in
close proximity to the mine and will carry out geophysics and other exploration
activities in the area of the mine. The current program is focussed on the
targets with the greatest potential to be a future source of mill feed through
the existing mine infrastructure. If the Company is successful in its efforts
this could extend the life of the mine but it will not prevent a temporary
closure due to the time requirements to develop a zone if found.
BOUGRINE MINE
The tonnes milled at Bougrine decreased in 2003 from 2002 due to a change in the
shift schedules of the milling operations. In the third quarter of 2003, milling
operations were rescheduled to five days per week to allow for the surface
stockpiling of ore in order to blend the feed to the mill. The purpose of
blending the mill feed is to ensure maximum metallurgical recovery. The zinc
head grade increased in 2003 as a result of correcting ground control conditions
experienced in 2002, which correction resulted in an improved supply of mill
feed from the higher-grade F-3 zone. As a result, production of zinc metal in
concentrate increased by 4 percent. Lead grades and lead metal in concentrate
remained unchanged between 2003 and 2002.
- ------------------------------------------------------------------------------
PRODUCTION STATISTICS YEAR ENDED DECEMBER 31,
- ---------------------------------------------- --------------- ---------------
2003 2002
- ---------------------------------------------- --------------- ---------------
Ore Milled (tonnes) 410,961 423,414
- ---------------------------------------------- --------------- ---------------
Zinc (%) 10.4 9.7
- ---------------------------------------------- --------------- ---------------
Lead (%) 1.5 1.5
- ---------------------------------------------- --------------- ---------------
Concentrate Production
- ---------------------------------------------- --------------- ---------------
Zinc (tonnes) 64,036 61,656
- ---------------------------------------------- --------------- ---------------
Recovery (%) 81.8 81.8
- ---------------------------------------------- --------------- ---------------
Grade (%) 54.6 54.7
- ---------------------------------------------- --------------- ---------------
Lead (tonnes) 6,900 6,859
- ---------------------------------------------- --------------- ---------------
Recovery (%) 74.7 75.1
- ---------------------------------------------- --------------- ---------------
Grade (%) 65.2 66.6
- ---------------------------------------------- --------------- ---------------
Metal in Concentrates
- ---------------------------------------------- --------------- ---------------
Zinc (tonnes) 34,964 33,706
- ---------------------------------------------- --------------- ---------------
Lead (tonnes) 4,502 4,565
- ---------------------------------------------- --------------- ---------------
Minesite Operating Cash Costs
- ---------------------------------------------- --------------- ---------------
Per tonne milled (US$) 35.81 32.19
- ---------------------------------------------- --------------- ---------------
Total Cash Costs
- ---------------------------------------------- --------------- ---------------
Per pound payable zinc (US$) 0.35 0.36
- ---------------------------------------------- --------------- ---------------
BOUGRINE MINE OUTLOOK
While the zinc head grade will remain the same in 2004 as in 2003, the tonnes to
be processed are estimated to be 375,800 compared with 411,000 in 2003, a 9
percent reduction. The zinc metal contained in concentrate will drop
accordingly. However, the lead head grade is expected to increase in 2004 and
will result in an increase of approximately 10 percent of lead metal contained
in concentrate.
Capital expenditures were 70 percent lower in 2003 than 2002 at $0.6 million. No
further capital expenditures are anticipated at the mine because the F-2 and F-3
ore zones, the primary sources of mill feed at Bougrine, are expected to be
depleted by the end of the second quarter of 2005. The Company is, however,
presently drilling on the Bou Khil property 38 road kilometers from the Bougrine
mill, where zinc and lead resources of approximately 0.5 million tonnes have
been identified. The Company expects to determine the worthiness of these
resources as a mill feed source by the end of the third quarter of 2004. In
addition, the Company is exploring the possibility of converting the Bougrine
mill to a cement mill grinding plant, producing a finished product. Cement
clinker would be purchased from a local cement plant in the area and crushed,
ground and the final cement product bagged in the Bougrine mill. It is
anticipated that the Bougrine mill, after a suitable conversion, could produce
up to 500,000 tonnes of cement annually with the finished product transported by
rail to the Company's storage building at the Port of Rades near Tunis and, from
there, shipped to customers in the Mediterranean area. A full feasibility is
planned for completion by early in the third quarter of 2004.
EL MOCHITO MINE
Production of zinc metal in concentrate at El Mochito decreased by 5 percent in
2003 compared with 2002 as a result of lower ore production and grades. The lead
metal in concentrate production increased by 11 percent over the same period in
2002 due to the increased head grade.
- ------------------------------------------------------------------------------
PRODUCTION STATISTICS YEAR ENDED DECEMBER 31,
- ---------------------------------------------- --------------- ---------------
2003 2002
- ---------------------------------------------- --------------- ---------------
Ore Milled (tonnes) 652,085 663,385
- ---------------------------------------------- --------------- ---------------
Zinc (%) 7.3 7.5
- ---------------------------------------------- --------------- ---------------
Lead (%) 1.7 1.5
- ---------------------------------------------- --------------- ---------------
Silver (grams/tonne) 87 90
- ---------------------------------------------- --------------- ---------------
Concentrate Production
- ---------------------------------------------- --------------- ---------------
Zinc (tonnes) 84,045 88,697
- ---------------------------------------------- --------------- ---------------
Recovery (%) 92.0 93.0
- ---------------------------------------------- --------------- ---------------
Grade (%) 52.1 52.2
- ---------------------------------------------- --------------- ---------------
Lead (tonnes) 13,320 11,888
- ---------------------------------------------- --------------- ---------------
Recovery (%) 81.9 80.6
- ---------------------------------------------- --------------- ---------------
Grade (%) 67.7 68.4
- ---------------------------------------------- --------------- ---------------
Metal in Concentrates
- ---------------------------------------------- --------------- ---------------
Zinc (tonnes) 43,766 46,339
- ---------------------------------------------- --------------- ---------------
Lead (tonnes) 9,014 8,128
- ---------------------------------------------- --------------- ---------------
Silver (ounces) 1,638,465 1,700,034
- ---------------------------------------------- --------------- ---------------
Minesite Operating Cash Costs
- ---------------------------------------------- --------------- ---------------
Per tonne milled (US$) 29.96 28.40
- ---------------------------------------------- --------------- ---------------
Total Cash Costs
- ---------------------------------------------- --------------- ---------------
Per pound payable zinc (US$) 0.29 0.32
- ---------------------------------------------- --------------- ---------------
EL MOCHITO MINE OUTLOOK
For 2004, the zinc head grade is expected to drop slightly, while the lead and
silver head grades will remain about the same as in 2003. The tonnes to be
processed will be the same as in 2003 resulting in a drop in the zinc metal
contained in concentrate.
Capital expenditures for 2004 will be US$3.7 million (up substantially from
US$1.8 million spent in 2003). The primary focus will be on mine equipment, mine
development and exploration, and preliminary work on a new tailings' disposal
site. The Company has launched an accelerated development and exploration
program on several promising in-mine targets to increase reserves and resources.
As well, a cost improving mine-pumping plan will be implemented.
EL TOQUI MINE
The milled tonnage at El Toqui increased due to improved operating efficiencies
in the new plant. The 2003 milled tonnage was a new record for the operation. As
well, a new crushing plant, which was commissioned in July 2003, aided in
improving the delivery of crushed material to the grinding plant. Zinc and gold
head grades in 2003 were lower than in 2002 resulting in an 8 percent decrease
in zinc production and a 46 percent decrease in gold production.
The gold grades were lower due to a delay in reaching the high-grade Aserradero
area caused by water inflow. The matter was rectified by the end of 2003 and
gold grades are expected to be higher in 2004. Metallurgical improvements
initiated in 2002 continued with both the zinc recovery and concentrate grade
being at record levels in 2003.
Capital expenditures were $5.7 million in 2003, 97 percent higher than 2002
expenditures with the majority spent on the mill expansion.
- ------------------------------------------------------------------------------
PRODUCTION STATISTICS YEAR ENDED DECEMBER 31,
- ---------------------------------------------- --------------- ---------------
2003 2002
- ---------------------------------------------- --------------- ---------------
Ore Milled (tonnes) 440,301 424,459
- ---------------------------------------------- --------------- ---------------
Zinc (%) 8.1 9.2
- ---------------------------------------------- --------------- ---------------
Gold (grams/tonne) 0.3 0.7
- ---------------------------------------------- --------------- ---------------
Concentrate Production
- ---------------------------------------------- --------------- ---------------
Zinc (tonnes) 64,107 70,752
- ---------------------------------------------- --------------- ---------------
Recovery (%) 92.5 92.1
- ---------------------------------------------- --------------- ---------------
Grade (%) 51.2 50.8
- ---------------------------------------------- --------------- ---------------
Gold (tonnes) 2,575 5,424
- ---------------------------------------------- --------------- ---------------
Recovery (%) 31.8 49.9
- ---------------------------------------------- --------------- ---------------
Grade (grams/tonne) 17.7 26.9
- ---------------------------------------------- --------------- ---------------
Metal in Concentrates
- ---------------------------------------------- --------------- ---------------
Zinc (tonnes) 32,848 35,907
- ---------------------------------------------- --------------- ---------------
Gold (ounces) 2,534 4,682
- ---------------------------------------------- --------------- ---------------
Silver (ounces) 225,695 282,383
- ---------------------------------------------- --------------- ---------------
Minesite Operating Cash Costs
- ---------------------------------------------- --------------- ---------------
Per tonne milled (US$) 27.38 26.04
- ---------------------------------------------- --------------- ---------------
Total Cash Costs
- ---------------------------------------------- --------------- ---------------
Per pound payable zinc (US$) 0.36 0.32
- ---------------------------------------------- --------------- ---------------
EL TOQUI MINE OUTLOOK
Improvements in operating efficiencies at El Toqui have been ongoing, as has the
expansion of the milling facilities. In July 2003, the new crushing plant
installation was completed and the corresponding expansions in the grinding,
de-watering and tails handling circuits are expected to be complete by June of
2004. Once complete, the annual processing capacity will be increased to 550,000
tonnes from 440,000 tonnes. Nonetheless, in 2004 only a modest increase in mill
throughput is expected due to allowances for commissioning the new systems and
ramping up to the increased tonnage level. While the zinc metal contained in
concentrate will not change appreciably in 2004 from 2003, gold output will
increase as mining activities move into the gold rich Aserradero zone. During
2004 the gold output is expected to increase to 20,000 ounces compared with
2,500 ounces in 2003.
With the resurgence of the zinc price in late 2003 the Company placed a renewed
emphasis on exploration in the mineral rich Toqui District and will be quite
aggressive in 2004 unlike in the past three years. New targets identified
following extensive geochem surveys over the past few years will be explored by
way of diamond-drilling. These targets are all within the overall area known to
host zinc mineralization at El Toqui, which is an area about 4.5 by 3.5
kilometres. Capital expenditures, as a result of increased exploration and
development activities, will be US$2.7 million compared with US$1.3 million in
2003.
LANGLOIS
The Langlois mine was placed on care and maintenance in November 2000 pending
the resolution of an ore pass problem and an improvement in the price of zinc. A
feasibility study to reopen the Langlois mine including a technical resolution
for the ore pass was completed by SRK in August 2001 (the "2001 SRK Report"),
following an extensive drilling program of Zone 97.
In April 2003, the Company completed an in-fill drill program of 28 holes
(11,511 metres) to further delineate and upgrade mineral resources to mineral
reserves in Zone 97 at the Langlois mine. The results of the in-fill drill
program show a 25 percent increase in mineral reserves, which added a further
year's production to the expected life of the Langlois mine. In total, the
mineral reserves for Zone 97 increased by 419,600 tonnes at a grade of 8.1
percent zinc, 1.7 percent copper, 46.9
grams of silver per tonne and 0.1 grams of gold per tonne. The mineral reserves
and resources for Zones 3 and 4 have not changed.
Following the 2003 in-fill drill program, SRK updated the 2001 SRK Report in
June 2003 (the "2003 SRK Report") to include the new mineral reserves in Zone
97. The 2003 SRK Report estimates that the total net pre-tax cash flow will be
$71.1 million based on the metal prices shown in the table set out below. The
pre-tax internal rate of return is to 25.3 percent, and the pre-tax net present
value at 8.0 percent is $30.9 million.
The following table sets forth the metal prices and exchange rate used in the
2003 SRK Report:
Zinc US$0.50/lb
Copper US$0.80/lb
Silver US$5.00/oz
Gold US$343/oz
Exchange Rate US$0.70/Cdn$
Based on these price assumptions, the 2003 SRK Report determined the operating
cost per pound of payable zinc including smelting, shipping and by-product
credits for copper and precious metals to be US$0.38.
It was estimated in the 2003 SRK Report that $38.2 million in capital is
required over the life of the mine of which approximately $16.4 million must be
expended on development prior to the start of production at the Langlois mine.
The aggregate operating cost to mine gate is estimated at $55.61 per tonne
milled over the life of the Langlois mine. The estimated capital cost prior to
the start of production of $16.4 million excludes working capital and capital
contingencies.
When a long-term zinc price of US$0.45 per pound is assumed in the 2003 SRK
Report, the total net pre-tax cash flow decreases to $41.5 million, the pre-tax
internal rate of return decreases to 15.2 percent and the pre-tax net present
value at 8.0 percent decreases to $12.6 million. Based on this price assumption,
the 2003 SRK Report sets the operating cost per pound of payable zinc including
smelting, shipping and by-product credits for copper and precious metals at
US$0.36.
The difference between the operating cost per pound, $0.36 versus $0.38 in the
two SRK reports is due to lower treatment charges related to the de-escalator
from a lower zinc price assumption ($0.45 versus $0.50 per pound).
LANGLOIS OUTLOOK
As a result of the recent metal price increase and improved working capital
position the Company is planning to commence re-development of the mine by
mid-year 2004. It is anticipated the development program will take approximately
18 months, with full production targeted for the first quarter of 2006. Over an
eight year mine life it is expected that the mine will produce 358,000 tonnes of
zinc metal in concentrate, 27,000 tonnes of copper metal in concentrate and
2,200,000 ounces of silver metal in concentrate.
NANISIVIK MINE
The Nanisivik mine was permanently closed in September 2002.
The Nunavut Water Board (NWB) issued a renewal water license on October 10,
2002, to cover the period October 1, 2002, to May 1, 2008, during which period
all reclamation work and post-closure monitoring will be completed. Although the
final amount and form of the financial
security are currently under discussion, the water license requires that
CanZinco Ltd., a wholly-owned subsidiary of the Company and owner of the
Nanisivik mine, post total financial security in the amount of $17.6 million.
The amount of financial security recommended by the NWB is a reflection of the
submissions made to them by DIAND and others on this topic and is significantly
at odds with the Company's estimate of closure costs which is approximately $9.2
million. The Company continues to strongly defend its estimate of closure costs
as being more realistic and indicative of the amount and nature of work to be
completed. The Company's revised estimate of closure costs, based on the revised
closure and reclamation plan must be filed with the NWB no later than March 31,
2004.
Of the amount of financial security mandated by the NWB (i.e. $17.6 million),
$5.0 million was previously posted pursuant to the expired water license in the
form of a surety bond. That bond was scheduled to and did expire in July 2003
and was not replaced. Discussions regarding the full amount of financial
security required are ongoing with DIAND.
Reclamation activities at Nanisivik commenced during 2002, continued throughout
2003 and will continue again throughout 2004 as permitted by the NWB, pending
their review and acceptance of a final closure and reclamation plan. Throughout
2003 many technical reports were prepared, reviewed and amended accordingly,
taking into consideration the views of the technical staff of the NWB and the
various regulators involved as well as their retained consultants and experts.
It had originally been anticipated and communicated to the NWB that the final
closure plan would be filed with them on December 15, 2003. A longer than
anticipated technical review process required that the Company postpone the
filing of its final report until February 6, 2004, an obligation which was
largely honoured with only one report to follow within ten days of the revised
submission date. In response to the filed closure and reclamation report the NWB
continues to finalize their arrangements for a thorough and complete technical
review of the documents as well as the timing of a public hearing, most likely
to occur in Arctic Bay in the second quarter of 2004. Based on the technical
meetings that have been held to date and the ongoing, thorough review process,
it is not anticipated that the final reclamation and closure plan will require
significant modification.
The NWB estimate of closure costs set out above does not take into consideration
the salvage value of the assets remaining at Nanisivik, all of which are being
reviewed for possible sale. Most notably in 2003 an agreement was reached with
Wolfden Resources Inc. that they would earn the right to the contents of the
industrial complex (principally the mill processing equipment), four of the five
electrical generators located on site, the concentrate storage facility and the
ship loading equipment. In return, Wolfden has agreed to clean up those areas
(i.e. industrial complex, concentrate storage facility and ship loading areas)
to the satisfaction of CanZinco Ltd. and the regulators involved. Wolfden is
scheduled to commence their dismantling work during the summer of 2004 with the
expectation that the equipment involved will be ready for shipment during the
shipping season of 2005. Wolfden has provided a $2.0 million letter of credit to
the Company to secure its performance.
As well, these amounts do not take into consideration the value of equipment and
supplies that were purchased and are currently located at Nanisivik, earmarked
for reclamation activities, and the considerable amount of reclamation work that
was completed prior to and following the closure of the mine (both 2002 and
2003).
- ------------------------------------------------------------------------------
PRODUCTION STATISTICS YEAR ENDED DECEMBER 31,
- ---------------------------------------------- --------------- ---------------
2003 2002
- ---------------------------------------------- --------------- ---------------
Ore Milled (tonnes) 0.0 516,544
- ---------------------------------------------- --------------- ---------------
Zinc (%) 0.0 10.0
- ---------------------------------------------- --------------- ---------------
Silver (grams/tonne) 0.0 42
- ---------------------------------------------- --------------- ---------------
- ------------------------------------------------------------------------------
PRODUCTION STATISTICS YEAR ENDED DECEMBER 31,
- ---------------------------------------------- --------------- ---------------
2003 2002
- ---------------------------------------------- --------------- ---------------
Concentrate Production
- ---------------------------------------------- --------------- ---------------
Zinc (tonnes) 0.0 87,644
- ---------------------------------------------- --------------- ---------------
Recovery (%) 0.0 96.0
- ---------------------------------------------- --------------- ---------------
Grade (%) 0.0 56.5
- ---------------------------------------------- --------------- ---------------
Metal in Concentrate
- ---------------------------------------------- --------------- ---------------
Zinc (tonnes) 0.0 49,514
- ---------------------------------------------- --------------- ---------------
Silver (ounces) 0.0 528,049
- ---------------------------------------------- --------------- ---------------
Minesite Operating Cash Costs
- ---------------------------------------------- --------------- ---------------
Per tonne milled (Cdn$) 0.0 50.87
- ---------------------------------------------- --------------- ---------------
Total Cash Costs
- ---------------------------------------------- --------------- ---------------
Per pound payable zinc (US$) 0.0 0.34
- ---------------------------------------------- --------------- ---------------
CARIBOU MINE
The Caribou mine remained on care and maintenance during 2003. Costs of $1.5
million were incurred in 2003 compared with $1.7 million during 2002.
CARIBOU MINE OUTLOOK
Based on the most recent zinc and lead prices the Company is revisiting the
Caribou Reopening Plan of 2000 (the "Plan"). The Plan is being updated to
incorporate the current prices and exchange rates in order to determine the
worth of the property.
OUTSTANDING SHARE DATA AND FULL DILUTION CALCULATION
- -------------------------------------------------------------- ---------------
Common Shares or Securities Convertible into Common Shares March 9, 2004
- -------------------------------------------------------------- ---------------
Common Shares 344,394,741
- -------------------------------------------------------------- ---------------
Share Option Plan - Options 10,347,434
Weighted average exercise price $1.07.
- -------------------------------------------------------------- ---------------
1,000,000 warrants granted at $0.21, expire May 8, 2005. 500,000
- -------------------------------------------------------------- ---------------
30,801,410 warrants granted at $0.20, 15,400,705 expire 30,801,410
March 2, 2007 and 15,400,705 expire May 2, 2007.
- -------------------------------------------------------------- ---------------
3,000,000 warrants granted at $0.19, expire March 27, 2006. 2,000,000
- -------------------------------------------------------------- ---------------
FULLY DILUTED 388,043,585
- -------------------------------------------------------------- ---------------
Warrants granted at $1.00, expire January 28, 2009 - 28,571,429
traded on TSX
- -------------------------------------------------------------- ---------------
Shares to be issued to Boliden pursuant to the acquisition 18,000,000
of BWCL*
- -------------------------------------------------------------- ---------------
Warrants to be issued to Boliden pursuant to the acquisition 5,000,000
of BWCL*
- -------------------------------------------------------------- ---------------
FUTURE FULLY DILUTED 439,615,014
- -------------------------------------------------------------- ---------------
* The Company has not completed its due diligence review. Accordingly, this
assumes that the transaction will be completed as proposed.
CAUTIONARY NOTE
Certain statements included in this news release are forward-looking statements
within the meaning of the United States Private Securities Litigation Reform Act
of 1995. They include estimates and statements that describe the Company's
future plans, objectives and goals, including words to the effect that the
Company or management expects a stated condition or result to occur. Such
forward-looking statements involve inherent risks and uncertainties and other
factors that may cause the actual results or performance to differ materially
from those currently anticipated in such statements. Important factors that
could cause actual results to differ materially from those currently anticipated
are described above and in the Company's
most recent Annual Report under "Management's Discussion and Analysis of
Financial Results" and Annual Report on Form 20-F under "Risk Factors" on file
with the U.S. Securities and Exchange Commission and Canadian provincial
securities regulatory authorities. The Company disclaims any obligation to
update or revise any forward-looking statements whether as a result of new
information, events or otherwise.
For further information please contact:
Colin K. Benner Rene R. Galipeau
President and Chief Executive Officer Executive Vice President
(416) 363-4798 Ext. 269 And Chief Financial Officer
(416) 363-4798 Ext. 260
E. Ann Wilkinson
Corporate Secretary and Investor Relations Officer
(416) 363-4798 Ext. 277
BREAKWATER RESOURCES LTD.
CONSOLIDATED BALANCE SHEETS
As at December 31, 2003 and 2002
(Expressed in thousands of Canadian dollars)
- -----------------------------------------------------------------------------------------------------------
DECEMBER 31, December 31,
2003 2002
===========================================================================================================
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,388 $ 6,435
Accounts receivable - concentrate 7,450 17,061
Other receivables 5,650 6,921
Concentrate inventory 21,828 25,340
Materials and supplies inventory 23,783 28,967
Prepaid expenses and other current assets 1,905 2,387
Future tax assets 1,190 --
- -----------------------------------------------------------------------------------------------------------
68,194 87,111
RECLAMATION DEPOSITS 100 1,387
MINERAL PROPERTIES AND FIXED ASSETS 107,341 134,882
- -----------------------------------------------------------------------------------------------------------
$ 175,635 $ 223,380
===========================================================================================================
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 19,456 $ 25,577
Provisional payments for concentrate inventory shipped and not priced 2,010 8,642
Short-term debt including current portion of long-term debt 10,329 30,227
Income and mining taxes payable 252 381
- -----------------------------------------------------------------------------------------------------------
32,047 64,827
DEFERRED ROYALTY 1,340 --
LONG-TERM DEBT 15,517 48,438
RECLAMATION AND CLOSURE COST ACCRUALS 12,070 13,697
FUTURE TAX LIABILITIES 962 822
- -----------------------------------------------------------------------------------------------------------
61,936 127,784
- -----------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Capital stock 287,743 257,759
Common shares to be issued -- 618
Contributed surplus 1,582 1,582
Deficit (171,737) (178,855)
Cumulative translation adjustments (3,889) 14,492
- -----------------------------------------------------------------------------------------------------------
113,699 95,596
- -----------------------------------------------------------------------------------------------------------
$ 175,635 $ 223,380
===========================================================================================================
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
For the Periods Ended December 31, 2003 and 2002
(Expressed in thousands of Canadian dollars except share and per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------
INTERIM PERIODS ENDED DECEMBER 31,
DECEMBER 31,
2003 2002 2003 2002
==============================================================================================================================
Gross sales revenue $ 51,390 $ 104,212 207,591 $ 305,354
Treatment and marketing costs 21,773 46,134 83,581 136,738
- ------------------------------------------------------------------------------------------------------------------------------
Net revenue 29,617 58,078 124,010 168,616
- ------------------------------------------------------------------------------------------------------------------------------
OPERATING COSTS
Direct operating costs 21,665 48,774 103,239 147,653
Depreciation and depletion 6,487 8,207 24,115 27,565
Reclamation and closure costs 589 (33) 2,277 2,894
- ------------------------------------------------------------------------------------------------------------------------------
28,741 56,948 129,631 178,112
- ------------------------------------------------------------------------------------------------------------------------------
CONTRIBUTION (LOSS) FROM MINING ACTIVITIES 876 1,130 (5,621) (9,496)
- ------------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES (INCOME)
General and administrative 1,338 2,084 5,087 6,198
Interest and financing 1,079 1,023 3,321 4,761
Investment and other income 339 (81) (611) (551)
Foreign exchange gain on U.S. dollar denominated debt (1,953) (213) (11,578) (669)
- ------------------------------------------------------------------------------------------------------------------------------
803 2,813 (3,781) 9,739
- ------------------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE THE FOLLOWING: 73 (1,683) (1,840) (19,235)
- ------------------------------------------------------------------------------------------------------------------------------
Write-down of mineral properties and fixed assets 279 -- 279 --
Other non-producing property costs (income) 483 393 (8,396) 876
Income and mining taxes (recovery) (1,016) (43) (841) (224)
- ------------------------------------------------------------------------------------------------------------------------------
(254) 350 (8,958) 652
- ------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) 327 (2,033) 7,118 (19,887)
DEFICIT - BEGINNING OF PERIOD (172,064) (176,822) (178,855) (158,968)
- ------------------------------------------------------------------------------------------------------------------------------
DEFICIT - END OF PERIOD $ (171,737) $ (178,855) (171,737) $ (178,855)
- ------------------------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE - BASIC $ 0.00 $ (0.01) $ 0.03 $ (0.12)
==============================================================================================================================
DILUTED EARNINGS PER COMMON SHARE $ 0.00 $ N/A $ 0.03 $ N/A
==============================================================================================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING AFTER BONUS ELEMENT 256,431,000 192,737,000 211,411,000 169,074,000
==============================================================================================================================
The interim periods ended December 31, 2003 and 2002 are unaudited.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Periods Ended December 31, 2003 and 2002
(Expressed in thousands of Canadian dollars)
- ---------------------------------------------------------------------------------------------------------------------
INTERIM PERIODS ENDED DECEMBER 31,
DECEMBER 31,
2003 2002 2003 2002
=====================================================================================================================
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net earnings (loss) $ 327 $ (2,033) $ 7,118 $(19,887)
Non-cash items:
Depreciation and depletion 6,487 8,207 24,115 27,565
Gain on sale of property -- -- (10,336) --
Write-down of mineral properties and fixed assets 279 -- 279 --
Foreign exchange loss (gain) on U.S. dollar
denominated debt and other non-cash items 5,022 50 (3,133) 2,379
Future income taxes (1,024) -- (1,050) 822
Reclamation and closure cost accruals 589 (33) 2,277 2,894
- ---------------------------------------------------------------------------------------------------------------------
11,680 6,191 19,270 13,773
Payment of reclamation and closure costs (1,149) (3,097) (4,562) (5,126)
Changes in non-cash working capital items (4,653) 629 3,179 (11,198)
- ---------------------------------------------------------------------------------------------------------------------
5,878 3,723 17,887 (2,551)
- ---------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Decrease in restricted cash 3,950 -- -- --
Issue of common shares for cash 29,150 59 29,316 17,907
Decrease in short-term debt (3,735) (8,867) (18,711) (3,495)
(Decrease) increase in long-term debt (29,821) 2,390 (29,821) 2,390
- ---------------------------------------------------------------------------------------------------------------------
(456) (6,418) (19,216) 16,802
- ---------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Reclamation deposits 1,512 (75) 1,287 (150)
Mineral properties and fixed assets (2,756) (3,849) (10,621) (10,971)
Proceeds from sale of property -- -- 10,616 --
- ---------------------------------------------------------------------------------------------------------------------
(1,244) (3,924) 1,282 (11,121)
- ---------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH 4,178 (6,619) (47) 3,130
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 2,210 15,393 6,435 3,305
- ---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 6,388 $ 8,774 $ 6,388 $ 6,435
=====================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 693 $ 879 $ 2,681 $ 3,539
Income and mining taxes $ 206 $ 260 $ 339 $ 588
The interim periods ended December 31, 2003 and 2002 are unaudited.