EXHIBIT 4
BREAKWATER RESOURCES LTD.
2004 FIRST QUARTER INTERIM REPORT [PICTURE]
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
SIGNIFICANTLY BETTER NET EARNINGS
IN THE FIRST QUARTER OF 2004
OF $2.2 MILLION COMPARED WITH
THE FIRST QUARTER OF 2003
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF BREAKWATER RESOURCES LTD. CONSTITUTES MANAGEMENT'S REVIEW OF THE
FACTORS THAT AFFECTED THE COMPANY'S FINANCIAL AND OPERATING PERFORMANCE FOR THE
THREE MONTHS ENDED MARCH 31, 2004, AND SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S MD&A INCLUDED IN THE 2003 ANNUAL REPORT.
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 metres 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.
RENEWED COMMITMENT TO GROWTH 1 BREAKWATER RESOURCES LTD.
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 $52.9 million in the same period in 2003. The
improvement in the US dollar price of all metals contributed to this increase,
though the stronger Canadian dollar and slightly lower sales volumes offset the
total Canadian dollar amount realized. The average Canadian/US dollar exchange
rate realized was 1.3167 for the first quarter of 2004 compared with 1.5117 for
the same period in 2003. Total tonnes of concentrates sold decreased by 4
percent from 89,653 tonnes to 86,030 tonnes. Though the number of zinc
concentrate tonnes sold was higher at 77,948 tonnes versus 72,383 tonnes, copper
and lead concentrate tonnes were lower (see table below for actual metal sold).
Lower mine production levels and the timing of shipments contributed to fewer
tonnes being sold.
FIRST First
QUARTER Quarter
2004 2003
---------------------------------------------------
SALES BY METAL IN CONCENTRATE
Zinc - tonnes 35,518 32,645
Lead - tonnes 2,619 4,141
Copper - tonnes 579 1,406
Gold - ounces 7,249 9,020
Silver - ounces 331,978 447,456
FIRST First
QUARTER Quarter
($ millions) 2004 2003
---------------------------------------------------
GROSS SALES REVENUE BY METAL
Zinc (US$) 37.6 25.6
Lead (US$) 2.3 1.9
Copper (US$) 1.5 2.3
Gold (US$) 3.0 3.1
Silver (US$) 1.7 2.1
Hedge settlements &
mark-to-market adjustments (0.4) -
---------------------------------------------------
TOTAL GROSS SALES REVENUE
(US$) 45.7 35.0
Realized exchange rate 1.3172 1.5117
---------------------------------------------------
TOTAL GROSS SALES REVENUE
(C$) 60.2 52.9
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:
STRIKE QUANTITY - STRIKE
METAL TYPE PRICE OUNCES DATES
- -----------------------------------------------------------------------------
SILVER FORWARD $7.70 400,000 MAY - DEC. 2004
SILVER CALL $5.50 180,000 APR. - JUNE 2004
GOLD CALL $395 700 APRIL 2004
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.
FIRST QUARTER 2
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
$292 in 2003. The main reason for this increase was lower mine production for
the quarter, particularly at Bougrine.
FIRST First
QUARTER Quarter
($ millions) 2004 2003
---------------------------------------------------
DIRECT OPERATING COSTS
Bouchard-Hebert 11.1 10.0
Nanisivik - 2.7
Bougrine 6.2 2.5
El Mochito 6.9 7.3
El Toqui 2.6 3.7
---------------------------------------------------
Total 26.8 26.2
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 $5.0 million in 2003. This was due to the
weakening of the Canadian dollar in 2004 from the beginning of the year to the
time debt was repaid in late January, compared with a strengthening in 2003.
FIRST First
QUARTER Quarter
($ millions) 2004 2003
------------------------------------------------
OTHER EXPENSES (INCOME)
General and administrative 2.0 1.4
Interest and financing 0.1 0.7
Investment and other income - (0.1)
Foreign exchange loss (gain) on
US dollar denominated debt 0.4 (5.0)
---------------------------------------------------
TOTAL OTHER EXPENSES
(INCOME) 2.5 (3.0)
Other non-producing
property costs 1.3 0.6
Income and mining taxes 0.4 -
---------------------------------------------------
TOTAL EXPENSE (INCOME) 4.2 (2.4)
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 $0.8
million in 2003.
FIRST First
QUARTER Quarter
($ millions) 2004 2003
---------------------------------------------------
CASH PROVIDED FROM OPERATING
ACTIVITIES (before changes in
non-cash working capital items)
INCOME (LOSS) FROM MINING
ACTIVITIES 6.4 (3.8)
Other income (expenses) (2.5) 3.0
Other non-producing property
income costs (1.3) (0.6)
Income and mining taxes (0.4) (0.1)
---------------------------------------------------
NET EARNINGS (LOSS) 2.2 (1.5)
Reclamation expenditures (0.3) (0.8)
Non-cash expenses 7.8 3.1
---------------------------------------------------
CASH PROVIDED FROM
OPERATING ACTIVITIES
(before changes in non-cash
working capital items) 9.7 0.8
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.
RENEWED COMMITMENT TO GROWTH 3 BREAKWATER RESOURCES LTD.
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's
operating mines.
OPERATING REVIEW FOR THE THREE MONTHS ENDED MARCH 31
Contribution
(Loss)
From Mining Non-cash Capital
Gross Revenue Activities(1) Costs(2) Expenditures
(millions of $) 2004 2003 2004 2003 2004 2003 2004 2003
- --------------------------------------------------------------------------------
Bouchard-Hebert 29.0 19.9 6.6 - 2.1 3.0 0.4 -
Bougrine 11.1 5.0 (1.1) (1.9) 1.9 2.1 0.1 0.4
El Mochito 15.2 14.9 2.1 (0.4) 1.0 1.3 0.9 0.2
El Toqui 5.6 4.7 (0.1) (0.1) 0.8 0.7 2.8 1.5
Nanisivik - 8.4 (0.2) (1.2) 0.2 0.8 - -
Langlois - - - - - - 0.4 0.5
Unallocated (3) (0.7) - (0.9) (0.2) 0.2 0.2 0.4 0.7
- --------------------------------------------------------------------------------
Total 60.2 52.9 6.4 (3.8) 6.2 8.1 5.0 3.3
1) After non-cash costs.
2) Depreciation, depletion and reclamation costs.
3) Hedge settlements and mark-to-market of outstanding hedge positions.
FIRST QUARTER 4
NON-GAAP RECONCILIATION
NON-GAAP RECONCILIATION OF TOTAL CASH COSTS
PER POUND OF PAYABLE ZINC TO CONSOLIDATED
FINANCIAL STATEMENTS
FIRST First
QUARTER Quarter
2004 2003
--------------------------------------------------------
By-Product Credit ($ millions)
Gross sales revenue per
financial statements 60.2 52.9
Less zinc sales revenue (45.6) (42.1)
Inventory adjustment (0.3) 0.7
--------------------------------------------------------
14.3 11.5
--------------------------------------------------------
Treatments Charges ($ millions)
Per financial statements 20.8 22.4
Inventory adjustment 1.5 (0.9)
--------------------------------------------------------
22.3 21.5
--------------------------------------------------------
Direct operating costs ($ millions)
Per financial statements 26.8 26.2
Inventory adjustment (2.1) 1.4
--------------------------------------------------------
24.7 27.6
--------------------------------------------------------
Total Cash Costs - Canadian
($ millions) 32.7 37.6
Exchange rate C$/US$ 1.3167 1.5097
Total Cash Costs - US ($ millions) 24.8 24.9
Zinc pounds produced (millions) 72.2 80.1
Total Cash Costs per pound
of payable zinc (US$) 0.34 0.31
RECONCILIATION OF MINESITE OPERATING CASH
COSTS PER TONNE MILLED TO CONSOLIDATED
FINANCIAL STATEMENTS
FIRST First
QUARTER Quarter
2004 2003
--------------------------------------------------------
Direct operating costs ($ millions)
Per financial statements 26.8 26.2
Inventory adjustment (2.1) 1.4
--------------------------------------------------------
Minesite Operating Cash
Costs - Canadian ($ millions) 24.7 27.6
--------------------------------------------------------
Exchange rate C$/US$ 1.3167 1.5097
Minesite Operating Cash
Costs - US ($ millions) 18.7 18.3
Tonnes milled 609,160 655,616
Minesite Operating Cash
Costs per tonne milled (US$) 30.77 27.84
Total Cash Costs 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.
ZINC PRODUCTION
FIRST First
(million pounds of zinc QUARTER Quarter
contained in concentrate) 2004 2003
--------------------------------------------------------
Bouchard-Hebert 31.5 29.8
Bougrine 15.0 21.3
El Mochito 22.7 25.2
El Toqui 16.2 18.7
--------------------------------------------------------
Total zinc production 85.4 95.0
PRODUCTION STATISTICS - ALL MINES
FIRST First
QUARTER Quarter
2004 2003
--------------------------------------------------------
Ore Milled (tonnes) 609,160 655,617
Zinc (%) 7.2 7.4
Concentrate Production
Zinc (tonnes) 72,450 80,943
Copper (tonnes) 6,127 8,443
Lead (tonnes) 5,139 5,885
Gold (tonnes) 874 848
Metal in Concentrates
Zinc (tonnes) 38,641 43,125
Copper (tonnes) 921 1,328
Lead (tonnes) 3,468 3,935
Silver (ounces) 564,863 588,602
Gold (ounces) 6,363 7,252
Minesite Operating Cash Costs
Per tonne milled (US$)
(See Non-GAAP Reconciliation
above) 30.77 27.84
Total Cash Costs
Per pound payable zinc (US$)
(See Non-GAAP Reconciliation
above) 0.34 0.31
RENEWED COMMITMENT TO GROWTH 5 BREAKWATER RESOURCES LTD.
BOUCHARD-HEBERT MINE
Despite a 5 percent reduction in the tonnes milled, zinc metal in
concentrate increased by 6 percent in the first quarter of 2004 over the same
period in 2003 due to a higher zinc head grade, improved zinc recovery and an
improved zinc concentrate grade. Copper recovery and concentrate grade were
lower in the first quarter of 2004 over the same period in 2003, resulting in a
27 percent reduction of copper in concentrate. This reduction was due to a
decrease in the copper head grade as mining is currently in the upper portions
of the deposit where copper grades are lower.
FIRST First
QUARTER Quarter
2004 2003
--------------------------------------------------------
PRODUCTION STATISTICS
Ore Milled (tonnes) 256,816 271,059
Zinc (%) 6.2 5.6
Copper (%) 0.4 0.6
Silver (grams/tonne) 27 42
Gold (grams/tonne) 1.0 1.3
Concentrate Production
Zinc (tonnes) 25,877 24,768
Recovery (%) 90.4 88.9
Grade (%) 55.3 54.6
Copper (tonnes) 6,127 8,443
Recovery (%) 82.3 84.5
Grade (%) 15.0 15.7
Metal in Concentrates
Zinc (tonnes) 14,300 13,518
Copper (tonnes) 921 1,328
Silver (tonnes) 72,387 132,649
Gold (ounces) 4,529 6,664
Minesite Operating Cash Costs
Per tonne milled (C$) 33.94 36.73
Total Cash Costs
Per pound of payable zinc
(US$) 0.29 0.29
Bouchard-Hebert Mine Outlook
Closure of the mine is still expected near the end of the first quarter of
2005, with preliminary reclamation work planned to begin in the fourth quarter
of 2004.
The Company continues its diamond drilling program on two known anomalies
in close proximity to the mine, and will carry out geophysics and other
exploration activities in the area of the mine throughout the remainder of the
year. If successful, this could extend the life of the mine, but it will not
prevent a temporary closure due to the time requirements to develop a zone, if
found.
BOUGRINE MINE
Production of zinc in concentrate decreased by 29 percent in the first
quarter of 2004 compared with the first quarter of 2003 due to the rescheduling
in August 2003 of the milling operations to five days per week. As well, a
further reduction in tonnes milled was brought about by a nine-day interruption
of mining to stabilize a caved area between 277 and 316 levels. A major
back-filling program was undertaken during the quarter to support and stabilize
the area on the 316 level and control the oxidization process that was producing
gas. Operations are now back to normal.
FIRST First
QUARTER Quarter
2004 2003
--------------------------------------------------------
PRODUCTION STATISTICS
Ore Milled (tonnes) 78,353 108,901
Zinc (%) 10.8 10.9
Lead (%) 1.7 1.6
Concentrate Production
Zinc (tonnes) 12,642 17,729
Recovery (%) 80.3 81.9
Grade (%) 53.9 54.6
Lead (tonnes) 1,597 1,874
Recovery (%) 77.2 74.2
Grade (%) 63.4 66.7
Metal in Concentrates
Zinc (tonnes) 6,699 9,676
Lead (tonnes) 1,079 1,250
Minesite Operating Cash Costs
Per tonne milled (US$) 45.36 34.56
Total Cash Costs
Per pound payable zinc
(US$) 0.42 0.32
Bougrine Mine Outlook
Due to the interruptions in mining experienced during the first 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.
FIRST QUARTER 6
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$0.29 per pound of payable zinc.
The mine produced less metal quarter over quarter because fewer tonnes were
mined in Q1-04 due to the stoping cycle and lower grade ore being mined in the
lower manto zones. Mine development headings have reached the Northeast Salva
Vida and the new Barbasco Zone where higher grade ore is available for mining.
Underground diamond drilling continued to outline ore to the northwest on
the Salva Vida Trend.
FIRST First
QUARTER Quarter
2004 2003
--------------------------------------------------------
PRODUCTION STATISTICS
Ore Milled (tonnes) 160,910 166,494
Zinc (%) 7.0 7.5
Lead (%) 1.8 1.9
Silver (grams/tonne) 93 84
Concentrate Production
Zinc (tonnes) 19,515 21,924
Recovery (%) 91.7 91.9
Grade (%) 52.8 52.1
Lead (tonnes) 3,542 4,011
Recovery (%) 82.2 83.4
Grade (%) 67.5 66.9
Metal in Concentrates
Zinc (tonnes) 10,302 11,422
Lead (tonnes) 2,389 2,685
Silver (ounces) 431,289 398,785
Minesite Operating Cash Costs
Per tonne milled (US$) 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 percent
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.
FIRST First
QUARTER Quarter
2004 2003
--------------------------------------------------------
PRODUCTION STATISTICS
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.
RENEWED COMMITMENT TO GROWTH 7 BREAKWATER RESOURCES LTD.
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 ($ millions) 60.9 74.2 104.2 52.9 61.7 41.6 51.4 60.2
Net Earning (Loss) ($ millions) 1.2 (17.7) (2.7) (1.5) 9.2 (5.7) (1.4) 2.2
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 $0.01
YTD to the end of the Quarter
(C$/US$) 1.5741 1.5704 1.5701 1.5097 1.4537 1.4290 1.4004 1.3167
Average realized zinc price
(US$/t) 813 752 775 785 768 810 859 1,058
Average realized zinc price
(C$/t) 1,280 1,181 1,217 1,185 1,116 1,157 1,202 1,393
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.
FIRST QUARTER 8
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
Weighted average exercise price $1.07. 13,597,434
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, 2007 and
15,400,705 expire May 2, 2007. 30,801,410
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 -
traded on TSX 28,571,429
--------------------------------------------------------
FULLY DILUTED 419,961,205
Shares to be issued to Boliden pursuant
to the acquisition of BWCL* 18,000,000
Warrants to be issued to Boliden
pursuant to the acquisition of BWCL* 5,000,000
--------------------------------------------------------
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.
/s/ Colin K. Benner
COLIN K. BENNER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
April 29, 2004
CAUTIONARY NOTE
CERTAIN STATEMENTS INCLUDED IN THIS 2004 FIRST QUARTER INTERIM REPORT,
FINANCIAL STATEMENTS FOR THE PERIOD ENDED MARCH 31, 2004 AND MANAGEMENT'S
DISCUSSION AND ANALYSIS 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.
RENEWED COMMITMENT TO GROWTH 9 BREAKWATER RESOURCES LTD.
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
- --------------------------------------------------------------------------------------------------------
(Unaudited) (Restated
- note 1)
ASSETS
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 (note 2) 587 10,329
Income and mining taxes payable 238 252
- --------------------------------------------------------------------------------------------------------
24,302 31,352
DEFERRED ROYALTY 1,340 1,340
LONG-TERM DEBT (note 3) 1,416 15,517
RECLAMATION AND CLOSURE COST ACCRUALS (note 4) 35,161 34,253
FUTURE TAX LIABILITIES 1,238 962
- --------------------------------------------------------------------------------------------------------
63,457 83,424
- --------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Capital stock (notes 5(a) and 5(c)) 321,924 287,790
Warrants (note 5(a)) 3,270 -
Contributed surplus (note 5(c)) 2,120 1,991
Deficit (188,102) (190,291)
Cumulative translation adjustments (2,133) (3,321)
- --------------------------------------------------------------------------------------------------------
137,079 96,169
- --------------------------------------------------------------------------------------------------------
$ 200,536 $ 179,593
========================================================================================================
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
FIRST QUARTER 10
Breakwater Resources Ltd.
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 (note 4) 1,076 1,565
- --------------------------------------------------------------------------------------------------------
32,947 34,283
- --------------------------------------------------------------------------------------------------------
CONTRIBUTION (LOSS) FROM MINING ACTIVITIES 6,388 (3,805)
- --------------------------------------------------------------------------------------------------------
OTHER EXPENSES (INCOME)
General and administrative (note 6(c)) 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 (as restated note 1) (190,291) (190,942)
========================================================================================================
DEFICIT - END OF PERIOD $ (188,102) $ (192,392)
========================================================================================================
EARNINGS (LOSS) PER SHARE - BASIC (note 6) $ 0.01 $ (0.01)
========================================================================================================
DILUTED EARNINGS PER COMMON SHARE (note 6) $ 0.01 $ N/A
========================================================================================================
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (note 6) 343,811,000 195,509,000
========================================================================================================
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
RENEWED COMMITMENT TO GROWTH 11 BREAKWATER RESOURCES LTD.
Breakwater Resources Ltd.
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
- ------------------------------------------------------------------------------------------------
(Restated - note 1)
CASH PROVIDED FROM (USED FOR)
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 (note 8) 2,457 3,771
- ------------------------------------------------------------------------------------------------
12,156 4,575
- ------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issue of common shares for cash (note 5(a)) 34,134 54
Issue of warrants for cash (note 5(a)) 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
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
FIRST QUARTER 12
Breakwater Resources Ltd.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the Periods Ended March 31, 2004 and 2003
(Unaudited)
1. BASIS OF PRESENTATION AND NEW PRONOUNCEMENTS
BASIS OF PRESENTATION
These interim consolidated financial statements of Breakwater Resources
Ltd. (the "Company") for the three months ended March 31, 2004 and 2003 have
been prepared in accordance with Canadian generally accepted accounting
principles ("Canadian GAAP") and follow the same accounting principles and
methods of application as those disclosed in note 1 to the Company's
consolidated financial statements for the year ended December 31, 2003, except
for those new pronouncements described below. The accompanying interim unaudited
consolidated financial statements include all adjustments that are, in the
opinion of management, necessary for fair presentation. These interim
consolidated financial statements do not include all disclosures required by
Canadian GAAP for annual financial statements, and accordingly, should be read
in conjunction with the Company's consolidated financial statements included in
its 2003 Annual Report.
NEW PRONOUNCEMENTS
On January 1, 2004, the Company adopted the Canadian Institute of Chartered
Accountants ("CICA") Handbook Section 3110 - "Asset Retirement Obligations"
("CICA 3110") which requires that the fair value of liabilities for asset
retirement obligations be recognized in the period in which they are incurred. A
corresponding increase in the carrying amount of the related asset is generally
recorded and then depreciated over the life of the asset. Over time, the
liability is accreted to its present value each period, and the capitalized cost
is amortized over the useful life of the related asset. Upon settlement of the
liability, an entity either settles the obligation for its recorded amount or
incurs a gain or loss upon settlement.
CICA 3110 is applicable to obligations that are required to be settled as a
result of an existing law, regulation or contract related to asset retirements.
Previously, the Company provided for estimated reclamation and site
restoration costs, where reasonably determinable, net of salvage value, on a
unit-of-production basis over the estimated economic life of the related mine.
The adoption of CICA 3110 has been applied retroactively and the effects on
the consolidated financial statements are as follows:
Increase (decrease) in Statement of Operations and Deficit amounts:
MARCH 31,
($000's) 2003
----------------------------------------------
Depreciation and depletion 474
Reclamation and closure costs 976
----------------------------------------------
Net loss 1,450
Deficit - beginning of period 11,904
----------------------------------------------
Deficit - end of period 13,354
Earnings per share ($0.01)
Increase (decrease) in Balance Sheet amounts:
DECEMBER 31,
($000's) 2003
----------------------------------------------
ASSETS
Mineral properties and fixed assets 3,958
LIABILITIES
Accounts payable and accrued
liabilities (695)
Reclamation and closure accruals 22,183
SHAREHOLDERS' EQUITY
Deficit 18,098
Cumulative translation adjustment (568)
On January 1, 2004, the Company adopted the CICA Handbook Section 3870 -
"Stock-based Compensation and Other Stock-based payments" ("CICA 3870") which
requires that the Company use the fair value method of accounting and to
recognize as compensation expense its stock-based compensation for employees.
The adoption of CICA 3870 has been applied retroactively and the effects on
the consolidated financial statements are as follows:
Increase (decrease) in Statement of Operations and Deficit amounts:
MARCH 31,
($000's) 2003
----------------------------------------------
Administrative expenses 68
----------------------------------------------
Net loss 68
Deficit - beginning of period 183
----------------------------------------------
Deficit - end of period 251
----------------------------------------------
Earnings per share $Nil
Increase (decrease) in Balance Sheet amounts:
DECEMBER 31,
($000's) 2003
----------------------------------------------
Shareholders' Equity
Capital stock 47
Contributed surplus 409
Deficit 456
2003 FIGURES
In addition to the restatements described under "New
Pronouncements" above, certain of the 2003 figures have been
reclassified to conform to the 2004 presentation.
RENEWED COMMITMENT TO GROWTH 13 BREAKWATER RESOURCES LTD.
2. SHORT-TERM DEBT
MARCH 31, December 31,
($000's) 2004 2003
----------------------------------------------
Syndicated Credit Facility
- Revolver - 6,462
- Non-Revolving Credit
Facility, current portion - 1,266
(note 3)
- Supplemental Term Credit
Facility, current portion - 467
(note 3)
Customer prepayments for
zinc concentrate - 646
Other 587 1,488
----------------------------------------------
587 10,329
On January 30, 2004, the Revolver was fully repaid. The Revolver is still
available to be drawn against.
3. LONG-TERM DEBT
MARCH 31, December 31,
($000's) 2004 2003
----------------------------------------------
Non-Revolving
Credit Facility (note 2) - 11,393
Supplemental Term - 4,201
Facility (note 2)
Reimbursable government
assistance, discounted
at rate of 8% 1,416 1,412
Customer prepayments for
zinc concentrates - 646
Other - 1,277
----------------------------------------------
Total 1,416 18,929
Less current portion - 3,412
----------------------------------------------
1,416 15,517
On January 30, 2004, the Non-Revolving Facility and the Supplemental Term
Facility were fully repaid and cannot be redrawn. The repayment of the Company's
various credit facilities was provided from using a portion of the proceeds from
the sale of units to a syndicate of underwriters (SEE NOTE 5(A)).
4. RECLAMATION AND CLOSURE COSTS ACCRUALS
The Reclamation and Closure Costs Accruals shown on the balance sheet of
$35,161,000 (December 31, 2003 - $34,253,000) includes the liability for asset
retirement obligations of $30,884,000 (December 31, 2003 - $30,237,000) (SEE
NOTE 1 "NEW PRONOUNCEMENTS" ABOVE).
($000's)
----------------------------------------------
As at December 31, 2003 30,237
Accretion (included in reclamation
and closure costs) 540
Impact of foreign exchange 107
----------------------------------------------
As at March 31, 2004 30,884
The undiscounted amount of estimated cash flows required to settle the
asset retirement obligations as at March 31, 2004 was $40,899,000 (December 31,
2003 - $40,770,000). The expected timing of payments of the cash flows ranges
from the year 2004 to 2017 and the credit-adjusted risk-free rates at which the
estimated cash flows have been discounted ranges from 7.17% to 7.89%.
5. CAPITAL STOCK AND STOCK OPTIONS
(A) Common Shares
NUMBER OF
(000's) SHARES AMOUNT
----------------------------------------------------------
As at December 31, 2003 -
as originally reported 285,790 $ 287,743
Adjustment relating to options
exercised under stock-based
compensation (see note 1) - 47
----------------------------------------------------------
December 31, 2003 - Restated 285,790 287,790
Common shares issued for cash
(see below) 57,143 33,757
Exercise of warrants 1,250 243
Value ascribed to options exercised
under stock-based compensation
(see (c) below) - 57
Adjustment to flow-through
shares costs - 3
Employee share purchase plan 212 74
----------------------------------------------------------
As at March 31, 2004 344,395 $ 321,924
On January 28, 2004, the Company completed the sale of 57,142,858 units to
a syndicate of underwriters at a purchase price of $0.70 per unit, for net
proceeds of $37,027,000, net of costs of issue of approximately $2,973,000. 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 fair value of the
warrants, net of costs of issue, of $3,270,000 is shown separately under
shareholders' equity on the balance sheet as "Warrants".
(B) Options transactions were as follows:
WEIGHTED-
OPTIONS AVERAGE
(000's) EXERCISE PRICE
----------------------------------------------------------
As at December 31, 2003 8,885 $1.25
Granted 915 0.75
Exercised (134) 0.19
Cancelled (19) 1.34
----------------------------------------------------------
As at March 31, 2004 9,647 $1.22
The following table summarizes the information about the share options
outstanding at March 31, 2004:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------------------------------------------------------------------------------------
NUMBER WEIGHTED- NUMBER
OUTSTANDING AVERAGE EXERCISABLE
AS AT REMAINING WEIGHTED- AS AT WEIGHTED-
RANGE OF MAR. 31, 2004 CONTRACTUAL AVERAGE MAR. 31, 2004 AVERAGE
EXERCISE PRICES (000's) LIFE EXERCISE PRICE (000's) EXERCISE PRICE
- ---------------------------------------------------------------------------------------------------------
$0.18 - $0.29 4,972 8 years 259 days $0.22 3,504 $0.22
$0.64 - $0.75 1,015 7 years 11 days $0.74 530 $0.74
$0.95 - $2.00 1,261 4 years 179 days $1.33 1,261 $1.33
$2.05 - $3.35 1,492 3 years 139 days $2.93 1,492 $2.93
$3.75 - $8.20 907 5 years 179 days $4.33 907 $4.33
- ---------------------------------------------------------------------------------------------------------
9,647 7,694
FIRST QUARTER 14
(C) The Company's share option plan is disclosed in note 6(g) of the
Company's consolidated financial statements for the year ended December 31,
2003. Compensation expense for the stock-based compensation plan for employees
has been determined based upon the fair value of awards granted on or after
January 1, 2002. The compensation expense for 2004 of $186,000 (2003 - $68,000)
is included in "General and administrative" on the consolidated statements of
operations and deficit. Compensation expense net of options exercised of
$129,000 (2003 - $68,000), and options exercised of $57,000 (2003 - $Nil) were
credited to "Contributed Surplus" and Capital stock" respectively, under the
shareholders' equity on the balance sheet.
The fair value of each option grant has been estimated using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
MARCH 31, March 31,
2004 2003
----------------------------------------------------
Expected life (years) 10 10
Risk free interest rate 3.98% 4.83%
Expected volatility 33% 48%
Dividend yield 0% 0%
6. EARNINGS (LOSS) PER SHARE
Earnings (Loss) per Share ("EPS") has been calculated using the
weighted-average number of shares outstanding during the
period. The diluted EPS gives effect to the exercise of all outstanding options
and warrants. Diluted earnings per Common Share data is not presented for 2003,
as the exercise of options would not have been dilutive in 2003.
The calculation of diluted earnings per share assumes that options and
warrants with an exercise price lower than the average quoted market price were
exercised at the later of the beginning of the period, or time of issue. In
applying the treasury stock method, options and warrants with an exercise price
greater than the average quoted market price of the Common Shares are not
included in the calculation of diluted earnings per share as the effect is
anti-dilutive. The average quoted market price of the Common Shares during the
three months ended March 31, 2004 was $0.69 (2003 - $0.22).
Three months ended
March 31,
----------------------
(000's) 2004 2003
----------------------------------------------------
Weighted-average number of
Common Shares outstanding 343,811 195,509
Incremental Common Shares
on assumed exercise of
options and warrants 27,649 -
----------------------------------------------------
WEIGHTED-AVERAGE NUMBER
OF COMMON SHARES USED
FOR DILUTED EARNINGS
PER SHARE 371,460 195,509
7. SEGMENT INFORMATION
FOR THE THREE MONTHS ENDED MARCH 31, 2004
($000's)
(Unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE
AND CONSOL-
GEOGRAPHIC LOCATION LATIN AMERICA CANADA TUNISIA OTHER IDATED
- ------------------------------------------------------------------------------------------------------------------------------------
EL EL NANIS- BOUCHARD LANG-
OPERATING SEGMENT MOCHITO TOQUI IVIK CARIBOU -HEBERT LOIS BOUGRINE
MINE MINE TOTAL MINE MINE MINE MINE TOTAL MINE
- ------------------------------------------------------------------------------------------------------------------------------------
Net revenue 9,951 3,326 13,277 - - 19,697 - 19,697 7,047 (686) 39,335
Depreciation and depletion (858) (743) (1,601) - - (1,615) - (1,615) (1,771) (92) (5,079)
Reclamation and closure costs (159) (74) (233) (179) (91) (437) - (707) (136) - (1,076)
Contribution (loss) from mining
activities 2,033 (92) 1,941 (179) (91) 6,579 - 6,309 (1,084) (778) 6,388
General and administrative - - - - - - - - - (1,949) (1,949)
Interest and financing - - - - - - - - - (142) (142)
Investment and other income - - - - - - - - - 7 7
Foreign exchange loss on
US dollar denominated debt - - - - - - - - - (431) (431)
Other non-producing property
income (costs) - - - (935) (337) - (21) (1,293) - (2) (1,295)
Income and mining taxes (49) - (49) - - (276) 1 (275) - (65) (389)
Net earnings (loss) 1,984 (92) 1,892 (1,114) (428) 6,303 (20) 4,741 (1,084) (3,360) 2,189
Capital expenditures 878 2,793 3,671 - - 414 386 800 80 406 4,957
Identifiable assets 35,084 35,679 70,763 6,822 1,555 20,959 42,947 72,283 23,797 33,693 200,536
Information about major customers
Of the Company's total consolidated net revenue in the three months ended
March 31 2004, revenue from one customer of $19,714,000 originated from the
Bouchard-Hebert Mine and revenue from another customer of $4,217,000 originated
from the El Mochito Mine.
RENEWED COMMITMENT TO GROWTH 15 BREAKWATER RESOURCES LTD.
FOR THE THREE MONTHS ENDED MARCH 31, 2003
($000's)
(Unaudited) (Restated - note 1)
- ------------------------------------------------------------------------------------------------------------------------------------
CORPORATE
AND CONSOL-
GEOGRAPHIC LOCATION LATIN AMERICA CANADA TUNISIA OTHER IDATED
- ------------------------------------------------------------------------------------------------------------------------------------
EL EL NANIS- BOUCHARD LANG-
OPERATING SEGMENT MOCHITO TOQUI IVIK CARIBOU -HEBERT LOIS BOUGRINE
MINE MINE TOTAL MINE MINE MINE MINE TOTAL MINE
- ------------------------------------------------------------------------------------------------------------------------------------
Net revenue 8,206 4,266 12,472 2,287 - 12,950 - 15,237 2,769 - 30,478
Depreciation and depletion (1,145) (598) (1,743) - - (2,660) - (2,660) (2,031) (70) (6,504)
Reclamation and closure costs (189) (79) (268) (836) (85) (300) - (1,221) (76) - (1,565)
Loss from mining activities (382) (139) (521) (1,219) (85) (35) - (1,339) (1,875) (70) (3,805)
General and administrative - - - - - - - - - (1,375) (1,375)
Interest and financing - - - - - - - - - (703) (703)
Investment and other income - - - - - - - - - 29 29
Foreign exchange gain on
US dollar denominated debt - - - - - - - - - 5,029 5,029
Other non-producing property
costs (income) - - - (141) (445) - (21) (607) - 24 (583)
Income and mining taxes (34) - (34) - - (66) 1 (65) 157 (100) (42)
Net (loss) earnings (416) (139) (555) (1,360) (530) (101) (20) (2,011) (1,718) 2,834 (1,450)
Capital expenditures 152 1,556 1,708 (19) - - 490 471 362 723 3,264
Identifiable assets 37,102 34,561 71,663 11,294 3,534 29,410 40,410 84,648 34,272 16,200 206,783
Information about major customers
Of the Company's total consolidated net revenue in the three months ended
March 31, 2003, revenue from one customer of $12,454,000 originated from the
Bouchard-Hebert Mine and revenue from another customer of $3,505,000 consisted
of $2,057,000 that originated from the El Toqui Mine and $1,448,000 that
originated from the Bougrine Mine.
8. ANALYSIS OF CHANGES IN NON-CASH WORKING CAPITAL ITEMS
Three months ended
March 31,
----------------------------
($000's) 2004 2003
- --------------------------------------------------------------------------------
(Restated
- note 1)
Accounts receivable - concentrate (360) 10,767
Other receivables (35) 1,230
Concentrate and materials and supplies inventory 2,734 (613)
Prepaid expenses and other current assets (2,431) (1,211)
Accounts payable and accrued liabilities 1,352 (2,012)
Provisional payments for concentrate inventory
shipped and not priced 1,211 (4,258)
Income and mining taxes payable (14) 132)
- --------------------------------------------------------------------------------
2,457 3,771
- -----------------------------------------------------------------------------------------------------------------------------
MANAGEMENT AND CORPORATE INFORMATION
DIRECTORS TRANSFER AGENT AND Computershare Trust E-MAIL
Garth A. C. MacRae REGISTRAR Company Inc. investorinfo@breakwater.ca
CHAIRMAN Computershare Trust Company of 350 Indiana Street,
Colin K. Benner Gordon F. Canada 100 University Ave., 9th Flr Suite 800 WEBSITE www.breakwater.ca
Bub Donald K. Charter Toronto, ON M5J 2Y1 Golden, Colorado
Jonathan C. Goodman Allen Tel: (514) 982-7555 U.S.A. 80401 SHARES TRADED
J. Palmiere A. Murray (800) 564-6253 Tel: (303) 262-0600 Toronto Stock Exchange
Sinclair, Jr. Fax: (416) 263-9524 Fax: (303) 262-0603 Symbol - BWR
(866) 249-7775
OFFICERS E-Mail: service@computershare.com CORPORATE AND AUDITORS
Colin K. Benner www.computershare.com REGISTERED OFFICE Deloitte & Touche LLP
PRESIDENT AND CEO 95 Wellington Street West Suite 1700
John D. Bracale CO-TRANSFER AGENTS Suite 950 5140 Yonge Street
VP, LATIN AMERICA AND Computershare Trust Toronto, Ontario M5J 2N7 Toronto, ON M2N 6L7
CORPORATE LOGISTICS Company of Canada Tel: (416) 363-4798 Tel: (416) 601-6150
Richard R. Godfrey 510 Burrard Street Fax: (416) 363-1315
VP, FINANCE AND CFO 2nd Floor
(ACTING) Vancouver, BC V6C 3B9
J. Steven Hayes
VP, MARKETING
William M. Heath
VP, ADMINISTRATION
Torben Jensen
VP, ENGINEERING
John B. McCombe
VP, LATIN AMERICAN
OPERATIONS
Norman L. Calder
TREASURER
Leroy A. Fong
CONTROLLER
E. Ann Wilkinson
CORPORATE SECRETARY
FIRST QUARTER 16