EXHIBIT 1
FORM 51-102F3
MATERIAL CHANGE REPORT
ITEM 1. NAME AND ADDRESS OF COMPANY.
Breakwater Resources Ltd.
Suite 950
95 Wellington Street West
Toronto, Ontario
M5J 2N7
ITEM 2. DATE OF MATERIAL CHANGE.
April 30, 2004.
ITEM 3. NEWS RELEASE.
A news release was issued on April 30, 2004 through Canada NewsWire
and subsequently filed on SEDAR.
ITEM 4. SUMMARY OF MATERIAL CHANGE.
Breakwater Resources Ltd. announced its financial and operating
results for the interim period ended March 31, 2004.
ITEM 5. FULL DESCRIPTION OF MATERIAL CHANGE.
Please see attached news release dated April 30, 2004.
ITEM 6. RELIANCE ON SUBSECTION 7.1(2) OR (3) OF NATIONAL INSTRUMENT 51-102.
Not applicable.
ITEM 7. OMITTED INFORMATION.
No material information was omitted from this material change report.
ITEM 8. EXECUTIVE OFFICER
E. Ann Wilkinson
Corporate Secretary
Breakwater Resources Ltd.
Telephone: (416) 363-4798 Ext. 277
ITEM 9. Date of Report
May 4, 2004.
BREAKWATER RESOURCES LTD.
"E. Ann Wilkinson" (signed)
--------------------------------------------
E. Ann Wilkinson
Corporate Secretary
2.
[LOGO] b
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BREAKWATER RESOURCES LTD.
95 WELLINGTON STREET WEST, SUITE 2000
TORONTO, ONT., M5J 2N7
Tel: (416) 363-4798
Fax: (416) 363-1315
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MEDIA RELEASE
FOR IMMEDIATE RELEASE TORONTO STOCK EXCHANGE: BWR
BREAKWATER REPORTS FIRST QUARTER 2004 FINANCIAL AND OPERATING RESULTS
April 30, 2004...In the first quarter of 2004, Breakwater earned $2.2 million on
gross sales revenue of $60.2 million compared with a loss of $1.5 million on
gross sales revenue of $52.9 million for the same period of 2003. Cash provided
from operating activities (before changes in non-cash working capital items) was
$9.7 million in the first quarter of 2004 compared with $0.8 million in 2003.
OVERVIEW
The continued improvement in base and precious metal prices contributed to the
Company's significantly better Net Earnings in the first quarter of 2004 of $2.2
million compared with a Net Loss $1.5 million in the first quarter of 2003, even
though total tonnes of concentrate sold were slightly lower and the stronger
Canadian dollar reduced realized Canadian dollar metal prices.
The Company realized an average zinc price of US$1,058 per tonne in the first
quarter of 2004 compared with average prices of US$785, US$768, US$810 and
US$859 in the first, second, third and fourth quarters of 2003 respectively.
The total cash costs per pound of payable zinc were US$0.34 for the first
quarter and the average realized price of zinc was US$0.48 per pound (See
Non-GAAP Reconciliation).
Total zinc metal production for the quarter was 38,641 tonnes of zinc contained
in concentrate and was in line with Breakwater's production forecast. Total
lead, copper and silver production for the quarter were on or better than
forecast. Gold production was lower than planned due to stockpiling at El Toqui
of the high-grade, gold-bearing ore that will be campaign (batch) milled during
the second quarter of the year in order to ensure maximum recovery.
Exploration activities continued at all mine sites during the quarter with
particularly good results at El Toqui. As a follow-up to previous exploration
activities in the Toqui District, a twelve-hole, 1,516-metre drill program was
completed during the quarter in the south of the Concordia area that lies
approximately three kilometres northwest of the Toqui mine.
Seven of the twelve holes drilled in the quarter encountered base and precious
metal mineralization, with a grouping of four holes averaging 15.67 percent
zinc, 5.72 percent lead, 156 grams of silver per tonne and 0.45 percent copper
over an average true thickness of 8.3 metres.
The Concordia area remains open in a north south direction and mineralization
encountered to date suggests the potential for multiple mineralized zones in the
target area. This is part of a larger, unexplored area of the property, and
further drilling is underway.
In addition, a five-hole, 1,707 metre diamond drill program was initiated in the
Aserradero area during January to test the continuation of the structural trend
of the gold/zinc deposit to the southeast, beyond the known mineral resource and
reserve area. All of the drill holes intercepted a strongly mineralized manto
with a true thickness between 4.9 and 7.7 metres. The average true thickness was
6.5 meters at an average grade of 5.4 percent zinc and 8.8 grams per tonne of
gold.
The drill program was successful in extending the zone for a distance of 170
metres to the southeast and, to date, the deposit remains open to the south,
northeast and southeast. The data from this drill program will be incorporated
into the current mine plan to update the mineral resources for this area. A new
drill program is currently being planned.
On January 28, 2004, the Company completed the sale of 57,142,858 units for net
proceeds of $37.0 million. Each unit consisted of one Common Share and one-half
of one Common Share purchase warrant. $16.0 million was used to fully repay the
Non-Revolving Facility, $16.4 million will be used for the Langlois development
and the balance is to be used for working capital and general corporate
purposes.
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. Subject
to final due diligence, the acquisition is expected to close in June 2004.
OUTLOOK
The past two quarters (Q4-03 and Q1-04) have seen stronger commodity prices and
despite the impact of the weakening US dollar, this has improved the Company's
financial performance. These stronger commodity prices, coupled with the
injection of new equity allowed the Company to retire all of its bank debt,
increase its working capital and have stimulated a renewed opportunity for
growth. While management looks to internal opportunities, such as the re-opening
of the Langlois mine and the expansion of El Toqui mine, external opportunities
are also being explored. The Company continues with its due diligence for the
acquisition of the Boliden Westmin (Canada) Ltd. with its Myra Falls multi-metal
producing mine, and has begun a more aggressive exploration program in the
mineral-rich El Toqui District. Breakwater is also evaluating alternative uses
for the Bougrine infrastructure in Tunisia. As well, on an ongoing basis, other
opportunities are being explored to increase the Company's reserve and resource
base and production profile in the base metal sector.
Production of zinc metal contained in concentrate was 3 percent under forecast
while lead metal in concentrate was 4 percent above forecast and copper was
essentially on target. Contained silver production was 23 percent better than
forecast while gold production contained was 26 percent under forecast. Gold
production should be on forecast by year-end as production from the Aserradero
zone is increased and stockpiled ore from the Aserradero zone is milled.
STATEMENT OF OPERATIONS REVIEW - FIRST QUARTERS 2004 AND 2003
GROSS SALES REVENUE
Gross Sales Revenue increased by $7.3 million to $60.2 million in the quarter
ended March 31, 2004, from $52.9 million in the same period in 2003. The
improvement in the US dollar price of all metals contributed to this increase,
though the stronger Canadian dollar and slightly lower sales volumes offset the
total Canadian dollar amount realized. The average Canadian/US dollar exchange
rate realized was 1.3167 for the first quarter of 2004 compared with 1.5117 for
the same period in 2003. Total tonnes of concentrates sold decreased by 4
percent from 89,653 tonnes to 86,030 tonnes. Though the number of zinc
concentrate tonnes sold was higher at 77,948 tonnes versus 72,383 tonnes, copper
and lead concentrate tonnes were lower (see table below for actual metal sold).
Lower mine production levels and the timing of shipments contributed to fewer
tonnes being sold.
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SALES BY METAL IN CONCENTRATE FIRST QUARTER FIRST QUARTER
2004 2003
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Zinc - tonnes 35,518 32,645
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Lead - tonnes 2,619 4,141
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Copper - tonnes 579 1,406
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Gold - ounces 7,249 9,020
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Silver - ounces 331,978 447,456
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GROSS SALES REVENUE BY METAL ($ millions) FIRST QUARTER FIRST QUARTER
2004 2003
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Zinc (US$) 37.6 25.6
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Lead (US$) 2.3 1.9
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Copper (US$) 1.5 2.3
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Gold (US$) 3.0 3.1
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Silver (US$) 1.7 2.1
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Hedge settlements & mark-to-market adjustments (0.4) -
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TOTAL GROSS SALES REVENUE (US$) 45.7 35.0
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Realized exchange rate 1.3172 1.5117
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TOTAL GROSS SALES REVENUE (C$) 60.2 52.9
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The Company periodically hedges against fluctuations in metal prices with the
use of financial instruments (forward sales and options). Outstanding positions
are marked to market at the end of each period. No metal hedging was in place in
the first quarter of 2003. At the end of March 31, 2004, the following positions
were outstanding:
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METAL TYPE STRIKE PRICE QUANTITY - OUNCES STRIKE DATES
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Silver Forward $7.70 400,000 May - December 2004
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Silver Call $5.50 180,000 April - June 2004
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Gold Call $395 700 April 2004
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NET REVENUE
For the first quarter of 2004, Net revenue (the value of concentrates sold after
deducting treatment charges, freight and marketing costs) increased by 29
percent to $39.3 million in 2004 from $30.5 million in the same period in 2003.
Treatment charges, (the amount paid to smelters for refining concentrates to
produce metal) shipping and marketing costs decreased by 7 percent to $20.8
million in 2004 from $22.4 million in 2003. Treatment charges, shipping and
marketing expenses were lower on average in the first quarter of 2004 at $242
per tonne of concentrate sold compared with $250 per tonne in 2003. The stronger
Canadian dollar more than offset treatment charge escalators triggered by higher
metal prices.
DIRECT OPERATING COSTS
For the first quarter of 2004, Direct operating costs were $26.8 million
compared with $26.2 million in 2003. The slightly higher direct operating costs
in 2004 arose despite lower quantities sold due to higher unit production costs.
The average cost per tonne of concentrate sold increased to $311 compared with
$292 in 2003. The main reason for this increase was lower mine production for
the quarter, particularly at Bougrine.
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DIRECT OPERATING COSTS ($ millions) FIRST QUARTER FIRST QUARTER
2004 2003
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Bouchard-Hebert 11.1 10.0
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Nanisivik - 2.7
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Bougrine 6.2 2.5
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El Mochito 6.9 7.3
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El Toqui 2.6 3.7
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Total 26.8 26.2
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OTHER EXPENSES (INCOME)
Other Expenses (Income) were an expense of $2.5 million in the first quarter of
2004 compared with income of $3.0 million for the same period in 2003. General
and administrative expenses increased by $0.6 million due to the Company's
adoption of the Canadian Institute of Chartered Accountants ("CICA") Handbook
Section 3870 - "Stock Based Compensation", and higher compensation and general
office costs. Interest and financing expenses decreased by $0.6 million due to
the significant reduction of debt between the comparable periods. The Foreign
exchange loss (gain) on US dollar denominated debt was a loss in 2004 of $0.4
million compared with a gain of $5.0 million in 2003. This was due to the
weakening of the Canadian dollar in 2004 from the beginning of the year to the
time debt was repaid in late January, compared with a strengthening in 2003.
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OTHER EXPENSES (INCOME) ($ millions) FIRST QUARTER FIRST QUARTER
2004 2003
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General and administrative 2.0 1.4
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Interest and financing 0.1 0.7
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Investment and other income - (0.1)
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Foreign exchange loss (gain) on US
dollar denominated debt 0.4 (5.0)
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TOTAL OTHER EXPENSES (INCOME) 2.5 (3.0)
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Other non-producing property costs 1.3 0.6
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Income and mining taxes 0.4 -
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TOTAL EXPENSE (INCOME) 4.2 (2.4)
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OTHER NON-PRODUCING PROPERTY COSTS
Other non-producing properties costs, which include care and maintenance costs
for the Caribou, Langlois and Nanisivik properties and exploration costs were
$1.3 million in the first quarter of 2004 compared with $0.6 million in 2003.
The increase is due to having to incur an additional year of carrying costs for
the Nanisivik property because of the delay in being able to commence
reclamation.
CASH PROVIDED FROM OPERATING ACTIVITIES (BEFORE CHANGES IN NON-CASH WORKING
CAPITAL ITEMS)
Cash Provided from Operating Activities (before changes in non-cash working
capital items) was $9.7 million in the first quarter 2004 compared with $0.8
million in 2003.
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CASH PROVIDED FROM OPERATING ACTIVITIES, FIRST QUARTER FIRST QUARTER
before changes in non-cash working capital 2004 2003
items ($ millions)
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INCOME (LOSS) FROM MINING ACTIVITIES 6.4 (3.8)
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Other income (expenses) (2.5) 3.0
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Other non-producing property income costs (1.3) (0.6)
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Income and mining taxes (0.4) (0.1)
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NET EARNINGS (LOSS) 2.2 (1.5)
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Reclamation expenditures (0.3) (0.8)
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Non-cash expenses 7.8 3.1
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CASH PROVIDED FROM OPERATING ACTIVITIES
(BEFORE CHANGES IN NON-CASH WORKING CAPITAL
ITEMS) 9.7 0.8
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LIQUIDITY AND FINANCIAL POSITION REVIEW
WORKING CAPITAL
Cash and cash equivalents were $27.3 million at March 31, 2004 compared with
$6.4 million at December 31, 2003. Working capital was $64.5 million compared
with $36.8 million at the end of 2003. These improvements are directly related
to the completion of the Common Share issue in January 2004 and funds generated
from operating activities.
DEBT
Total borrowings at March 31, 2004, were $2.0 million, down from $25.8 million
at the end of 2003. During the quarter the Non-Revolving Facility (US$12.1
million) and Revolver (US$5.0 million) were fully repaid (the Revolver remains
available to be drawn against up to US$ 25.0 million). As well, $1.0 million
owed to Dundee Securities Corporation and $0.7 million in the form of a
prepayment for zinc concentrates, were repaid.
RECLAMATION AND CLOSURE COSTS
At March 31, 2004, the total Reclamation and Closure Cost Accrual was $35.2
million. $30.9 million of this amount was the estimated fair value of the
Company's obligation for asset retirement at its mine sites as per the CICA
Handbook Section - 3110 "Asset Retirement Obligations", which was adopted
January 1, 2004 (See "Changes in Accounting Policies"). The balance of $4.2
million reflects the accrued severance liabilities at the various mine sites.
EQUITY
At the end of March 2004, the Company had issued and outstanding Common Shares
of 344.4 million compared with 285.8 million at the end of December 2003. This
increase resulted from the share issue in January (57.1 million), with the
balance (1.5 million) from the exercise of options and warrants.
Shareholders' equity at March 31, 2004, was $137.1 million compared with $96.2
million at December 31, 2003, reflecting Net Earnings of $2.2 million for the
first quarter of 2004, proceeds from equity issued of $37.4 million, a reduction
in the Cumulative translation adjustment of $1.2 million and an increase in the
Contributed surplus of 0.1 million.
CAPITAL EXPENDITURES
Total capital expenditures in the quarter were $5.0 million. The majority of
these funds were used for sustaining capital of $3.6 million, $1.0 million for
exploration mainly at El Toqui and Bouchard-Hebert, and $0.4 million for new
tailings dam work at El Mochito.
FINANCIAL CAPABILITY
With its existing working capital and credit availability, the Company is well
positioned to carry out its operating, capital and acquisition program as
presently contemplated.
OPERATING REVIEW
The following table summarizes financial results for each of the Company(1)s
operating mines.
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OPERATING REVIEW Contribution (Loss)
FOR THE THREE From Mining Capital
MONTHS ENDED Gross Revenue Activities(1) Non-cash Costs(2) Expenditures
MARCH 31
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($ millions) 2004 2003 2004 2003 2004 2003 2004 2003
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Bouchard-Hebert 29.0 19.9 6.6 - 2.1 3.0 0.4 -
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Bougrine 11.1 5.0 (1.1) (1.9) 1.9 2.1 0.1 0.4
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El Mochito 15.2 14.9 2.1 (0.4) 1.0 1.3 0.9 0.2
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El Toqui 5.6 4.7 (0.1) (0.1) 0.8 0.7 2.8 1.5
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Nanisivik - 8.4 (0.2) (1.2) 0.2 0.8 - -
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Langlois - - - - - - 0.4 0.5
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Unallocated (3) (0.7) - (0.9) (0.2) 0.2 0.2 0.4 0.7
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Total 60.2 52.9 6.4 (3.8) 6.2 8.1 5.0 3.3
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1) After non-cash costs.
2) Depreciation, depletion and reclamation costs.
3) Hedge settlements and mark-to-market of outstanding hedge positions.
NON-GAAP RECONCILIATION
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NON-GAAP RECONCILIATION OF TOTAL CASH COSTS PER POUND OF PAYABLE
ZINC TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------
FIRST QUARTER FIRST QUARTER
2004 2003
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By-Product Credit ($ millions)
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Gross sales revenue per financial statements 60.2 52.9
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Less zinc sales revenue (45.6) (42.1)
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Inventory adjustment (0.3) 0.7
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14.3 11.5
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Treatments Charges ($ millions)
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Per financial statements 20.8 22.4
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Inventory adjustment 1.5 (0.9)
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22.3 21.5
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Direct operating costs ($ millions)
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Per financial statements 26.8 26.2
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Inventory adjustment (2.1) 1.4
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24.7 27.6
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Total Cash Costs - Canadian ($ millions) 32.7 37.6
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Exchange rate C$/US$ 1.3167 1.5097
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Total Cash Costs - US ($ millions) 24.8 24.9
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Zinc pounds produced (millions) 72.2 80.1
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Total Cash Costs per pound of payable zinc (US$) 0.34 0.31
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RECONCILIATION OF MINESITE OPERATING CASH COSTS PER TONNE MILLED TO
CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------
FIRST QUARTER FIRST QUARTER
2004 2003
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Direct operating costs ($ millions)
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Per financial statements 26.8 26.2
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Inventory adjustment (2.1) 1.4
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Minesite Operating Cash Costs - Canadian ($ millions) 24.7 27.6
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Exchange rate C$/US$ 1.3167 1.5097
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Minesite Operating Cash Costs - US ($ millions) 18.7 18.3
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Tonnes milled 609,160 655,616
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Minesite Operating Cash Costs Per tonne milled (US$) 30.77 27.84
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Total Cash Cost per Pound of Payable Zinc and Minesite Operating Cash Costs per
Tonne Milled are furnished to provide additional information and are non-GAAP
measures. These measures should not be considered in isolation as a substitute
for measures of performance prepared in accordance with generally accepted
accounting principles and are not necessarily indicative of operating expenses
as determined under generally accepted accounting principles. These measures
intend to provide investors with information about the cash generating
capabilities of the Company's mining operations. The Company uses this
information for the same purpose. Mining operations are capital intensive. These
measures exclude capital expenditures. Capital expenditures are discussed
throughout the MD&A and the consolidated financial statements.
PRODUCTION STATISTICS
Production of zinc in concentrate in the first quarter ended March 31, 2004
totaled 85.4 million pounds compared with 95.0 million pounds in the first
quarter of 2003. The reduced zinc production during the quarter reflects less
mill production at Bougrine and El Mochito, and lower head grades at El Mochito
and El Toqui.
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ZINC PRODUCTION (million pounds of zinc contained in concentrate) FIRST QUARTER
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2004 2003
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Bouchard-Hebert 31.5 29.8
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Bougrine 15.0 21.3
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El Mochito 22.7 25.2
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El Toqui 16.2 18.7
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Total zinc production 85.4 95.0
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PRODUCTION STATISTIC - ALL MINES FIRST QUARTER
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2004 2003
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Ore Milled (tonnes) 609,160 655,617
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Zinc (%) 7.2 7.4
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Concentrate Production
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Zinc (tonnes) 72,450 80,943
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Copper (tonnes) 6,127 8,443
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Lead (tonnes) 5,139 5,885
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Gold (tonnes) 874 848
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Metal in Concentrates
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Zinc (tonnes) 38,641 43,125
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Copper (tonnes) 921 1,328
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Lead (tonnes) 3,468 3,935
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Silver (ounces) 564,863 588,602
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Gold (ounces) 6,363 7,252
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Minesite Operating Cash Costs
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Per tonne milled (US$) (See Non-GAAP Reconciliation above) 30.77 27.84
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Total Cash Costs
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Per pound payable zinc (US$) (See Non-GAAP Reconciliation above) 0.34 0.31
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BOUCHARD-HEBERT MINE
Despite a 5 percent reduction in the tonnes milled, zinc metal in concentrate
increased by 6 percent in the first quarter of 2004 over the same period in 2003
due to a higher zinc head grade, improved zinc recovery and an improved zinc
concentrate grade. Copper recovery and concentrate grade were lower in the first
quarter of 2004 over the same period in 2003, resulting in a 27 percent
reduction of copper in concentrate. This reduction was due to a decrease in the
copper head grade as mining is currently in the upper portions of the deposit
where copper grades are lower.
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PRODUCTION STATISTICS FIRST QUARTER
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2004 2003
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Ore Milled (tonnes) 256,816 271,059
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Zinc (%) 6.2 5.6
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Copper (%) 0.4 0.6
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Silver (grams/tonne) 27 42
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Gold (grams/tonne) 1.0 1.3
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Concentrate Production
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Zinc (tonnes) 25,877 24,768
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Recovery (%) 90.4 88.9
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Grade (%) 55.3 54.6
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PRODUCTION STATISTICS FIRST QUARTER
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2004 2003
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Copper (tonnes) 6,127 8,443
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Recovery (%) 82.3 84.5
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Grade (%) 15.0 15.7
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Metal in Concentrates
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Zinc (tonnes) 14,300 13,518
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Copper (tonnes) 921 1,328
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Silver (ounces) 72,387 132,649
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Gold (ounces) 4,529 6,664
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Minesite Operating Cash Costs
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Per tonne milled (C$) 33.94 36.73
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Total Cash Costs
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Per pound of payable zinc (US$) 0.29 0.29
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BOUCHARD-HEBERT MINE OUTLOOK
Closure of the mine is still expected near the end of the first quarter of 2005,
with preliminary reclamation work planned to begin in the fourth quarter of
2004.
The Company continues 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 throughout the remainder of the year. If
successful, 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
Production of zinc in concentrate decreased by 29 percent in the first quarter
of 2004 compared with the first quarter of 2003 due to the rescheduling in
August 2003 of the milling operations to five days per week. As well, a further
reduction in tonnes milled was brought about by a nine-day interruption of
mining to stabilize a caved area between 277 and 316 levels. A major
back-filling program was undertaken during the quarter to support and stabilize
the area on the 316 level and control the oxidization process that was producing
gas. Operations are now back to normal.
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PRODUCTION STATISTICS FIRST QUARTER
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2004 2003
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Ore Milled (tonnes) 78,353 108,901
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Zinc (%) 10.8 10.9
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Lead (%) 1.7 1.6
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Concentrate Production
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Zinc (tonnes) 12,642 17,729
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Recovery (%) 80.3 81.9
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Grade (%) 53.9 54.6
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Lead (tonnes) 1,597 1,874
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Recovery (%) 77.2 74.2
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Grade (%) 63.4 66.7
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Metal in Concentrates
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Zinc (tonnes) 6,699 9,676
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Lead (tonnes) 1,079 1,250
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Minesite Operating Cash Costs
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Per tonne milled (US$) 45.36 34.56
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Total Cash Costs
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Per pound payable zinc (US$) 0.42 0.32
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BOUGRINE MINE OUTLOOK
Due to the interruptions in mining experienced during the second quarter of
2004, the tonnes to be processed for the year are now estimated to be 364,700
compared with the original estimate for 2004 of 375,800 tonnes, or a 3 percent
reduction. The zinc metal contained in concentrate will drop accordingly.
The Bougrine mine is expected to cease operation during the first half of 2005.
Management undertook, in late 2003, to examine alternative uses for the Bougrine
mill and infrastructure. A study was initiated to determine the technical merit
of converting the facility to a clinker grinding and last-stage cement producing
plant. As well, a marketing study was undertaken. Both reports are expected to
be received during the second quarter. Preliminary observations indicate that
the project is viable. A feasibility study is expected to commence during the
second quarter.
EL MOCHITO MINE
Production of zinc metal in concentrate at El Mochito decreased by 11 percent in
the first quarter of 2004 compared to the same period in 2003. This was due to
lower ore production and grades. The lead metal in concentrate production
decreased by 12 percent in the first quarter of 2004 over the same period in
2003 due to lower ore production, decreased head grade and recovery. Silver
production increased quarter over quarter due to improved grades.
Total cash costs remained the same at US$0.29 per pound of payable zinc. The
mine produced less metal quarter over quarter because fewer tonnes were mined in
Q1-04 due to the stoping cycle and lower grade ore being mined in the lower
manto zones. Mine development headings have reached the Northeast Salva Vida and
the new Barbasco Zone where higher grade ore is available for mining.
Underground diamond drilling continued to outline ore to the northwest on the
Salva Vida Trend.
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PRODUCTION STATISTICS FIRST QUARTER
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2004 2003
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Ore Milled (tonnes) 160,910 166,494
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Zinc (%) 7.0 7.5
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Lead (%) 1.8 1.9
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Silver (grams/tonne) 93 84
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Concentrate Production
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Zinc (tonnes) 19,515 21,924
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Recovery (%) 91.7 91.9
- ------------------------------------------------------------------- -------------- --------------
Grade (%) 52.8 52.1
- ------------------------------------------------------------------- -------------- --------------
Lead (tonnes) 3,542 4,011
- ------------------------------------------------------------------- -------------- --------------
Recovery (%) 82.2 83.4
- ------------------------------------------------------------------- -------------- --------------
Grade (%) 67.5 66.9
- ------------------------------------------------------------------- -------------- --------------
Metal in Concentrates
- ------------------------------------------------------------------- -------------- --------------
Zinc (tonnes) 10,302 11,422
- ------------------------------------------------------------------- -------------- --------------
Lead (tonnes) 2,389 2,685
- ------------------------------------------------------------------- -------------- --------------
Silver (ounces) 431,289 398,785
- ------------------------------------------------------------------- -------------- --------------
Minesite Operating Cash Costs
- ------------------------------------------------------------------- -------------- --------------
Per tonne milled (US$) 31.90 29.70
- ------------------------------------------------------------------- -------------- --------------
Total Cash Costs
- ------------------------------------------------------------------- -------------- --------------
Per pound payable zinc (US$) 0.29 0.29
- ------------------------------------------------------------------- -------------- --------------
EL MOCHITO MINE OUTLOOK
The Company has accelerated its development and exploration programs in various
sectors of the mine on targets with the most promise to increase reserves and
resources. Results are expected in the second quarter.
EL TOQUI MINE
The milled tonnage at El Toqui increased over the first quarter of 2003 due to
the improved operating efficiencies in the new crushing plant, which aided in
the delivery of crushed material to the grinding plant. Zinc head grades in the
first quarter of 2004 were lower than in the same period in 2003 resulting in a
14 percent decrease in zinc metal production. Gold head grades were higher in
the first quarter of 2004 than in the same period in 2003 resulting in an
increase in gold production, a reflection of the contribution of mining in the
higher grade Aserradero area.
Principal to the increased unit costs quarter over quarter were the fewer pounds
of payable zinc and increased site operating costs due to the strengthening
Chilean Peso against the US dollar and increasing fuel costs. These two items
accounted for approximately three-quarters of the 11% increase in operating
costs.
The new Aserradero Zone was reached during the quarter and processing of this
higher-grade gold ore will be conducted in the second quarter.
Exploration work for the quarter focused on surface and underground diamond
drilling. The surface program targeted on the Aserradero and Concordia areas,
the results of which have already been noted earlier.
- -------------------------------------------------------------------------------------------------
PRODUCTION STATISTICS FIRST QUARTER
-------------- --------------
2004 2003
- ------------------------------------------------------------------- -------------- --------------
Ore Milled (tonnes) 113,081 109,163
- ------------------------------------------------------------------- -------------- --------------
Zinc (%) 7.0 8.4
- ------------------------------------------------------------------- -------------- --------------
Gold (grams/tonne) 0.8 0.3
- ------------------------------------------------------------------- -------------- --------------
Concentrate Production
- ------------------------------------------------------------------- -------------- --------------
Zinc (tonnes) 14,416 16,522
- ------------------------------------------------------------------- -------------- --------------
Recovery (%) 93.1 92.3
- ------------------------------------------------------------------- -------------- --------------
Grade (%) 51.0 51.5
- ------------------------------------------------------------------- -------------- --------------
Gold (tonnes) 874 848
- ------------------------------------------------------------------- -------------- --------------
Recovery (%) 28.3 34.1
- ------------------------------------------------------------------- -------------- --------------
Grade (grams/tonne) 29.7 13.1
- ------------------------------------------------------------------- -------------- --------------
Metal in Concentrates
- ------------------------------------------------------------------- -------------- --------------
Zinc (tonnes) 7,341 8,509
- ------------------------------------------------------------------- -------------- --------------
Gold (ounces) 1,834 588
- ------------------------------------------------------------------- -------------- --------------
Silver (ounces) 61,188 57,158
- ------------------------------------------------------------------- -------------- --------------
Minesite Operating Cash Costs
- ------------------------------------------------------------------- -------------- --------------
Per tonne milled (US$) 30.42 27.41
- ------------------------------------------------------------------- -------------- --------------
Total Cash Costs
- ------------------------------------------------------------------- -------------- --------------
Per pound payable zinc (US$) 0.42 0.36
- ------------------------------------------------------------------- -------------- --------------
EL TOQUI MINE OUTLOOK
With the installation of the new primary crusher in 2003, the focus of
increasing the milling capacity was placed on the grinding, dewatering and
tailings disposal systems. The civil and mechanical aspects of the expansion are
expected to be completed by the second quarter of 2004 with production ramp up
to take place in the third quarter. The capacity increase planned for is a 25
percent mill throughput increase.
LANGLOIS
During the quarter, an internal review of SRK's study to re-open the Langlois
mine was initiated. The main focus of the study was material handling, detailed
mine planning of Zone 97, redesigning the paste-fill distribution system,
updating the power distribution system for the mine, equipment repair and stope
design for Zones 3 and 4. As well, economic reviews of various mining methods
were conducted.
NANISIVIK MINE
In compliance with the Water License issued by the Nunavut Water Board (NWB) in
October 2002, the Company revised its estimate of the costs associated with the
closure of the Nanisivik Mine. That revision saw the estimate increase from
approximately $9.2 million to $9.9 million. The majority of the increase is
attributable to increased volume of material required to cover the tailing
ponds.
Discussions with DIAND regarding the financial security attached to the Water
License are ongoing, as is the Request for Judicial Review of the previous DIAND
Minister's decision not to meet with Company officials. The Federal Court has
assigned a court date of June 22, 2004 to deal with this matter, although the
Company has sent a letter to the new DIAND Minister suggesting a compromise.
In final consideration of the closure and reclamation plan submitted by the
Company, the NWB has scheduled a series of meetings. They will culminate with a
public hearing held in Arctic Bay from May 31st to June 4, 2004. Based on
ongoing discussions with the regulators and their various experts and
consultants, it is not anticipated that significant technical opposition to the
closure and reclamation plan will be experienced.
As part of the reclamation project, Wolfden Resources Inc. plans to have a crew
on site during the summer season of 2004 to commence the dismantling of the
industrial complex, consistent with the signed agreement between the parties.
CARIBOU MINE
The Caribou mine remained on care and maintenance throughout the first quarter
of 2004. However, during the quarter an agreement was entered into with BIOTEQ
Environmental Technologies Inc. of Vancouver, BC for mine dewatering, water
collection and water treatment services at Caribou and Restigouche, as well as
general site management. The agreement with BIOTEQ is for a period of six years
and replaces various agreements that have previously been in place between the
parties. The
agreement is conditional upon a three-month transition period that is currently
underway, following which a definitive operating agreement will be finalized.
CARIBOU MINE OUTLOOK
Based on the most recent zinc and lead prices, the Company has reviewed the
Caribou Re-Opening Plan completed in 2000. Taking current prices and exchange
rates into consideration, the Company is currently evaluating the value of the
property either as a stand-alone producer of base metals, or as satellite feed
source for another producer. No conclusions have yet been reached with respect
to this property.
SUMMARY OF QUARTERLY RESULTS
- --------------------------- ---------------------------- --------------------------------------- ----------
QUARTERLY RESULTS 2002 2003 2004
---------------------------- --------------------------------------- ----------
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
- --------------------------- -------- --------- --------- --------- -------- --------- ---------- ----------
Gross Sales Revenue 60.9 74.2 104.2 52.9 61.7 41.6 51.4 60.2
($ millions)
- --------------------------- -------- --------- --------- --------- -------- --------- ---------- ----------
Net Earning (Loss) 1.2 (17.7) (2.7) (1.4) 9.2 (5.7) (1.4) 2.2
($ millions)
- --------------------------- -------- --------- --------- --------- -------- --------- ---------- ----------
Per share basic $0.01 ($0.09) ($0.01) $0.00 $0.05 ($0.02) $0.00 $0.01
- --------------------------- -------- --------- --------- --------- -------- --------- ---------- ----------
Per share diluted $0.01 N/A N/A $0.00 $0.05 N/A $0.00 $0.01
- --------------------------- -------- --------- --------- --------- -------- --------- ---------- ----------
YTD to the end of the 1.5741 1.5704 1.5701 1.5097 1.4537 1.4290 1.4004 1.3167
Quarter (C$/US$)
- --------------------------- -------- --------- --------- --------- -------- --------- ---------- ----------
Average realized zinc 813 752 775 785 768 810 859 1,058
price (US$/t)
- --------------------------- -------- --------- --------- --------- -------- --------- ---------- ----------
Average realized zinc 1,280 1,181 1,217 1,185 1,116 1,157 1,202 1,393
price (C$/t)
- --------------------------- -------- --------- --------- --------- -------- --------- ---------- ----------
Concentrate tonnes sold 98,069 139,425 180,448 89,653 116,366 78,626 93,519 86,030
- --------------------------- -------- --------- --------- --------- -------- --------- ---------- ----------
The quantity of concentrate sold directly affects Gross sales revenue.
The sale of concentrates can vary from quarter to quarter dependent on customer
agreements and the timing of shipping. 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, changes in US/Canadian dollar
exchange rates can impact the realized Canadian dollar Gross sales revenue.
Net Earnings (Loss) in 2003 were positively impacted by the foreign exchange
gain on the US dollar denominated debt as a result of the stronger Canadian
dollar. As well, in the second quarter of 2003 the Company realized a one-time
gain of $10.3 million on the sale of the Lapa properties in Quebec.
CHANGES IN ACCOUNTING POLICIES
As of January 1, 2004, the Company adopted the following two new Accounting
Policies.
CICA Handbook Section 3870, Stock Based Compensation; the Company will
expense the estimated fair value cost of compensation options issued in each
period.
CICA Handbook Section 3110, Asset Retirement Obligations; the Company is
required to estimate the fair value of mine site reclamation based on the
current laws and regulations. The fair value estimate is set up as an asset and
a liability on the Balance Sheet, with the asset being amortized over the life
of the mine. As the policy must be adopted retroactively to the point when each
mine was acquired or the legal obligation arises, the depreciation related to
prior periods was charged to Retained Earnings. The fair value estimate must be
reviewed on a regular basis to reflect changes in laws and regulations, the
estimated scope of work and estimated costs. It is important to note that in
Honduras there is no legal obligation to conduct site reclamation. Accordingly,
in the case of El Mochito mine, the Company is prevented, by accounting
regulations, from setting up a liability representing the fair value estimate of
the reclamation and closure costs the Company expects to incur upon depletion of
El Mochito's reserves and resources sometime in the future.
As a result of the Company adopting these two new standards, the Company
restated its previously reported financial information. See note 1 to the
interim consolidated financial statements for the period ended March 31, 2004
for the effects on adoption.
OUTSTANDING SHARE DATA AND FULL DILUTION CALCULATION
For a complete description of certain elements please refer to note 6 of the
Company's 2003 annual consolidated financial statements.
- -------------------------------------------------------------------- ---------------
SHARE DATA
- -------------------------------------------------------------------- ---------------
Common Shares or Securities Convertible into Common Shares April 19, 2004
- -------------------------------------------------------------------- ---------------
Common Shares 344,490,932
- -------------------------------------------------------------------- ---------------
SHARE OPTION PLAN - OPTIONS 13,597,434
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 March 2, 30,801,410
2007 and 15,400,705 expire May 2, 2007.
- -------------------------------------------------------------------- ---------------
3,000,000 warrants granted at $0.19, expire March 27, 2006. 2,000,000
- -------------------------------------------------------------------- ---------------
Warrants - exercise price at $1.00, expire January 28, 2009 - 28,571,429
traded on TSX
- -------------------------------------------------------------------- ---------------
FULLY DILUTED 419,961,205
- -------------------------------------------------------------------- ---------------
Shares to be issued to Boliden pursuant to the acquisition of 18,000,000
BWCL*
- -------------------------------------------------------------------- ---------------
Warrants to be issued to Boliden pursuant to the acquisition of 5,000,000
BWCL*
- -------------------------------------------------------------------- ---------------
FUTURE FULLY DILUTED 442,961,205
- -------------------------------------------------------------------- ---------------
*The Company has not completed its due diligence review. Accordingly, this
assumes that the transaction will be completed as proposed.
OTHER INFORMATION
Additional information regarding the Company is included in the Company's Annual
Report on Form 20-F filed with the Canadian securities regulators and the United
States
Securities and Exchange Commission, a copy of which is posted on the SEDAR
website at www.sedar.com.
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 an din 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 Richard R. Godfrey
President and Chief Executive Officer Vice President, Finance
(416) 363-4798 Ext. 269 and Chief Financial
Officer (Acting)
(416) 363-4798 Ext. 276
E. Ann Wilkinson
Corporate Secretary and Investor Relations Officer
(416) 363-4798 Ext. 277
BREAKWATER RESOURCES LTD.
CONSOLIDATED BALANCE SHEETS
As at March 31, 2004 and December 31, 2003
(Expressed in thousands of Canadian dollars)
- -------------------------------------------------------------------------------------------------------------
MARCH 31, December 31,
2004 2003
=============================================================================================================
ASSETS (Unaudited) (Restated - note 1)
CURRENT ASSETS
Cash and cash equivalents $ 27,265 $ 6,388
Accounts receivable - concentrate 7,955 7,450
Other receivables 5,685 5,650
Concentrate inventory 19,948 21,828
Materials and supplies inventory 23,512 23,783
Prepaid expenses and other current assets 4,389 1,905
Future tax assets - 1,190
- -------------------------------------------------------------------------------------------------------------
88,754 68,194
RECLAMATION DEPOSITS 100 100
MINERAL PROPERTIES AND FIXED ASSETS 111,682 111,299
- -------------------------------------------------------------------------------------------------------------
$ 200,536 $ 179,593
=============================================================================================================
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 20,234 $ 18,761
Provisional payments for concentrate inventory shipped and not priced 3,243 2,010
Short-term debt including current portion of long-term debt 587 10,329
Income and mining taxes payable 238 252
- -------------------------------------------------------------------------------------------------------------
24,302 31,352
DEFERRED ROYALTY 1,340 1,340
LONG-TERM DEBT 1,416 15,517
RECLAMATION AND CLOSURE COST ACCRUALS 35,161 34,253
FUTURE TAX LIABILITIES 1,238 962
- -------------------------------------------------------------------------------------------------------------
63,457 83,424
- -------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Capital stock 321,924 287,790
Warrants 3,270 -
Contributed surplus 2,120 1,991
Deficit (188,102) (190,291)
Cumulative translation adjustments (2,133) (3,321)
- -------------------------------------------------------------------------------------------------------------
137,079 96,169
- -------------------------------------------------------------------------------------------------------------
$ 200,536 $ 179,593
=============================================================================================================
CONSOLIDATED STATEMENTS OF
OPERATIONS AND DEFICIT
For the Periods Ended March 31, 2004 and 2003
(Expressed in thousands of Canadian dollars except share and per share amounts)
(Unaudited)
- ------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
2004 2003
======================================================================================================
(Restated - note 1)
Gross sales revenue $ 60,172 $ 52,910
Treatment and marketing costs 20,837 22,432
- ------------------------------------------------------------------------------------------------------
Net revenue 39,335 30,478
- ------------------------------------------------------------------------------------------------------
OPERATING COSTS
Direct operating costs 26,792 26,214
Depreciation and depletion 5,079 6,504
Reclamation and closure costs 1,076 1,565
- ------------------------------------------------------------------------------------------------------
32,947 34,283
- ------------------------------------------------------------------------------------------------------
CONTRIBUTION (LOSS) FROM MINING ACTIVITIES 6,388 (3,805)
- ------------------------------------------------------------------------------------------------------
OTHER EXPENSES (INCOME)
General and administrative 1,949 1,375
Interest and financing 142 703
Investment and other income (7) (29)
Foreign exchange loss (gain) on U.S. dollar
denominated debt 431 (5,029)
- ------------------------------------------------------------------------------------------------------
2,515 (2,980)
- ------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) BEFORE THE FOLLOWING: 3,873 (825)
- ------------------------------------------------------------------------------------------------------
Other non-producing property costs 1,295 583
Income and mining taxes 389 42
- ------------------------------------------------------------------------------------------------------
1,684 625
- ------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) 2,189 (1,450)
DEFICIT - BEGINNING OF PERIOD (190,291) (190,942)
======================================================================================================
DEFICIT - END OF PERIOD $ (188,102) $ (192,392)
======================================================================================================
EARNINGS (LOSS) PER SHARE - BASIC $ 0.01 $ (0.01)
======================================================================================================
DILUTED EARNINGS PER COMMON SHARE $ 0.01 $ N/A
======================================================================================================
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 343,811,000 195,509,000
======================================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Periods Ended March 31, 2004 and 2003
(Expressed in thousands of Canadian dollars)
(Unaudited)
- ------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31,
2004 2003
======================================================================================================
CASH PROVIDED FROM (USED FOR) (Restated - note 1)
OPERATING ACTIVITIES
Net earnings (loss) $ 2,189 $ (1,450)
Non-cash items:
Depreciation and depletion 5,079 6,504
Foreign exchange loss (gain) on U.S. dollar denominated debt - (5,002)
Other non-cash items 141 (63)
Future income taxes 1,466 66
Reclamation and closure cost accruals 1,076 1,565
- ------------------------------------------------------------------------------------------------------
9,951 1,620
Payment of reclamation and closure costs (252) (816)
Changes in non-cash working capital items 2,457 3,771
- ------------------------------------------------------------------------------------------------------
12,156 4,575
- ------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issue of common shares for cash 34,134 54
Issue of warrants for cash 3,270 -
Decrease in short-term debt (9,760) (1,880)
Decrease in long-term debt (14,106) -
- ------------------------------------------------------------------------------------------------------
13,538 (1,826)
- ------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Reclamation deposits - (75)
Mineral properties and fixed assets (4,957) (3,264)
Proceeds from sale of fixed assets 140 -
- ------------------------------------------------------------------------------------------------------
(4,817) (3,339)
- ------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH 20,877 (590)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 6,388 6,435
- ------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 27,265 $ 5,845
======================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Interest $ 175 $ 743
Income and mining taxes $ 126 $ 108