(American and Toronto stock exchanges, symbol ECO)
Earnings Summary
U.S. dollars 1998 1997
THREE MONTHS ENDED DEC. 31:
Revenue $58,367,000 $81,326,000
Net loss before non-recurring
charges $(8,520,000) $(8,081,000)
(a) Non-recurring charges $-- $(47,410,000)
Net loss $(8,520,000) $(55,490,000)
Loss per share:
Before non-recurring charges $(0.08) $(0.07)
(a) After non-recurring charges $(0.08) $(0.41)
Weighted average common shares
outstanding 140,607,145 139,370,031
TWELVE MONTHS ENDED DEC. 31:
Revenue $232,181,000 $305,429,000
Net loss before non-recurring
charges $(20,123,000) $(57,843,000)
(a) Non-recurring charges -- $(362,665,000)
Net loss $(20,123,000) $(420,508,000)
Loss per share:
Before non-recurring charges $(0.23) $(0.46)
(a) After non-recurring charges $(0.23) $(3.06)
Weighted average common shares
outstanding 140,083,751 139,366,794
(a) - These charges include provisions of $11.2 million in the fourth
quarter of 1997 and $5.4 million in the first three quarters of 1997 for
severance costs, $309.8 million in the third quarter of 1997 for impaired
assets and $36.2 million in the fourth quarter of 1997 to write off the
company's investment in Santa Elina Mines Corporation.
Echo Bay Announces 1998 Results
ENGLEWOOD, Colo., Feb. 11 /PRNewswire/ -- Echo Bay Mines Ltd.
(Amex: ECO; Toronto) today reported a 1998 net loss of $20.1 million
($0.23 per share). This compares with a 1997 net loss of $57.8 million
($0.46 per share) before a provision for impaired assets and other charges of
$362.7 million ($2.60 per share). Including the special charges, the loss for
1997 totaled $420.5 million ($3.06 per share). Both years' loss per share
includes interest on the company's capital securities, issued in March 1997,
$12.4 million ($0.09 per share) in 1998 compared with $5.7 million
($0.04 per share) in 1997.
During 1998, despite a 24% decrease in revenues, the company lowered its
loss by focusing on operational improvements and continuing to reduce
spending. Revenue in 1998 dropped to $232.2 million from $305.4 million in
1997, as a result of two major factors. First, fewer gold ounces were sold
(553,130 ounces compared with 698,337 ounces), primarily due to the absence of
production from the Lupin mine, where operations were temporarily suspended in
January 1998 (165,335 ounces in 1997). Second, the average gold price
realized was lower than in 1997 ($333 per ounce compared with $362 in 1997),
reflecting a year in which spot prices for gold averaged only $294 per ounce.
Consolidated cash operating costs were reduced to $208 per ounce in 1998
from $249 in 1997. This reduction was the result of operational improvements
at McCoy/Cove, higher production at Round Mountain and the absence of
high-cost production from Lupin.
Lowered Expenses
During 1998, the company continued its efforts to control costs and cut
expenses. Exploration and development expense was reduced by $22.9 million,
to $12.0 million, including $4.6 million in costs associated with the care and
maintenance of Lupin, down from $34.9 million in 1997. In addition, general
and administrative expense in 1998 was reduced by $2.9 million, to $8.0
million from $10.9 million in 1997.
Depreciation and amortization expense decreased by $16.0 million in 1998
compared with 1997. This was primarily the result of the absence of
production from Lupin and a full year of benefit from the company's write-down
of carrying values in the third quarter of 1997. Reclamation and closure
accruals, which are charged to earnings on a per-unit-of-production basis,
were down by $2.5 million, reflecting 1998's lower production.
Benefit of Hedging 1998 and Into 1999
Echo Bay realized significant benefit from its hedging program in 1998 --
averaging a cash price per ounce of gold sold of $340 ($333 per ounce on a
revenue basis), compared to the average spot price for the year of $294 per
ounce. The company not only used hedging to manage its revenues but also to
raise cash. A repurchase of 250,000 ounces of gold forward sales in early
1998 generated $8.7 million in cash. The company also took advantage of high
silver prices early in the year to hedge 19 million ounces of silver
production from the McCoy/Cove property for 1998-2001 at an average price of
$6.01 per ounce. The revenues that will be generated by this hedging helps
ensure the profitability of mining the gold and silver ounces located at the
bottom of the Cove open pit.
With the company's current gold hedge position, Echo Bay will realize a
minimum average price of $349 per ounce for approximately 429,000 ounces in
1999 -- over 90% of 1999's planned gold production. Of this, over 35% is in
the form of put options, allowing for participation in gold price rallies
above the strike prices (ranging between $300 and $311 per ounce).
Approximately 5.2 million ounces of the 1999 planned silver production is also
currently hedged and will realize $5.76 per ounce.
Cash and Debt
Echo Bay ended 1998 with $8.0 million in cash and cash equivalents.
During 1998, Echo Bay reduced its total debt by $13.7 million. At December
31, 1998, the company's current debt was $11.7 million and its long-term debt
was $41.1 million. Long-term debt includes the present value, $4.9 million,
of the company's $100.0 million capital securities due in 2027. The present
value of the future interest payable on this security is reported as a
separate component of shareholders' equity, in accordance with Canadian GAAP,
the standard under which the company reports. The shareholders' equity
component, $110.9 million at December 31, 1998, also includes the interest
that is currently being deferred, as provided by the terms of the security.
Interest during the period of deferral is accruing at a rate of 12% per annum,
compounding semiannually.
During 1998, Echo Bay borrowed no additional funds on its revolving line
of credit, leaving the outstanding balance at $15.0 million. Because the
covenants of the facility are tied to the gold price, only a limited portion
of the $100.0 million revolving facility has been available to the company.
Based on the company's significantly reduced borrowing needs and the cost of
paying standby fees for borrowing capacity not available, Echo Bay elected to
reduce the amount of this revolving facility to $50.0 million. The company
currently has no restrictions on the borrowing capacity of this line based on
the trailing 90-day average spot price of $294 per ounce.
Exploration and Development Projects
Late in 1997, Echo Bay placed two development projects on care-and-
maintenance status: Aquarius in the Timmins mining district of Ontario,
Canada, and Paredones Amarillos in Baja California Sur, Mexico. The cost
incurred to hold these projects, as well as Lupin, totaled $5.5 million in
1998 and was expensed. Echo Bay will continue to hold these projects in 1999
as they represent growth opportunities for the company at the right gold
prices.
During 1998, the company advanced the Kuranakh gold project, an existing
mining and milling operation located in the Sakha Republic in the Russian Far
East. Negotiations are ongoing with the Russian government on a production
sharing and gold sales agreement which will establish a framework for the
company to do business in Russia, including a life-of-project defined tax
structure and the right to export gold. Echo Bay believes that when it takes
over management of the property, changes in the operations, including the
introduction of Western heap leach and related process technology, will allow
the company and its partners to realize an attractive economic return. The
company has a 50% interest in the property's heap leach operations and
exploration rights. Work on a bankable feasibility study will begin after the
agreement is completed and in effect, currently anticipated during 1999.
Echo Bay's exploration spending in 1998 was focused on projects located
principally in North America in areas where Echo Bay already has existing gold
mining infrastructure. Expanding the ore reserves at or near these projects
represents the greatest potential to realize a near-term return with the
limited exploration dollars available in today's gold market.
During the year, $1.9 million (Echo Bay's share, $1.3 million) was spent
on exploration at the company's three operating mines and Lupin. Of this,
approximately $1.2 million (Echo Bay's share, $600,000) was spent on Round
Mountain. McCoy/Cove continues to investigate mineralization located just
outside the planned pit bottom that may be accessible by underground mining
methods. In addition, limited drilling was done on the McPherson Zone at
Lupin, discovered in 1997.
During 1998, Echo Bay used joint ventures to advance a number of
exploration projects while dealing with the budgetary limitations resulting
from the low gold price. Through these arrangements, an exploration company
that is interested in one of Echo Bay's projects can earn an equity interest
in that property by spending a predetermined number of dollars advancing
exploration and development. Both the Odgen property, located near the
Aquarius project, and the Kilgore project, located in Idaho, are examples of
this type of arrangement. In other cases, such as the Youga/Bitou property in
Burkina Faso, West Africa, Echo Bay is a non-operating partner, sharing the
costs with Ashanti Goldfields Company Ltd., a large West African gold mining
company. Advancement of this project has been slowed by the limited funding
currently available for exploration, but initial results are encouraging.
With the gold price continuing near 18-year lows, Echo Bay's 1999
exploration budget will continue to reflect the realities of today's gold
price. The company is budgeting $10-12 million in 1999 for exploration and
development activities, including $5 million in holding costs. This budget
will be reviewed if the gold price improves.
Ore Reserves at Year End
In estimating year-end 1998 gold reserves, a long-term gold price
assumption of $325 per ounce was used. The lowering of this year's price from
last year's $350 level resulted in a less than 1% reduction of reserves. The
effect of the lower price assumption was largely offset by the significant
improvements the sites accomplished on their operating costs during the year.
A full year of mining at the company's three producing mines depleted reserves
by 774,000 ounces of gold. The year-end proven and probable gold reserve for
1998 was 6.8 million ounces, compared with 7.5 million ounces in 1997.
Silver reserves were 38.8 million ounces at year-end 1998, down from
46.5 million ounces at the beginning of the year, after producing 9.4 million
ounces of silver during the year.
Lupin Mine: Re-engineered and Ready
Early in 1998, operations were temporarily suspended at Lupin in the
Northwest Territories of Canada in response to 18-year lows in the gold price
and high operating costs. Since then, the company has taken the opportunity
to re-evaluate every aspect of operations at Lupin with the goal of
determining where costs could be lowered and productivity improved without
compromising safety or the environment. The initial re-engineering was
completed at the end of the third quarter of 1998. The study indicates that
under the new cost structure, Lupin can accomplish a life-of-mine average cash
operating cost of $245 to $255 per ounce in current dollars. This is based on
annual gold production of 150,000 ounces and uses a conservative Canadian/U.S.
exchange rate of 0.71:1.
The decision to restart Lupin will depend on the gold price and access to
the site over the ice road, built to transport equipment and supplies the
360 miles from Yellowknife.
Limited drilling was done at Lupin in 1998. It was aimed at better
understanding the McPherson Zone, discovered in 1997, and proved that the
mineralized zone has vertical continuity. The McPherson Zone is expected to
add to reserves. The additional drilling necessary to establish this as an
ore reserve will be much more cost-effective to carry out once the project is
back in operation.
1999 Production and Cost Targets
Echo Bay's operations faced the challenges of 1998 and came through with
higher than anticipated production at a cost considerably below the company's
original projection of $245-255 per ounce. The challenges continue as the
gold price languishes below $300 per ounce. The higher waste removal at Round
Mountain and lower grades at McCoy/Cove and Kettle River are the factors
contributing to Echo Bay's lower 1999 company-wide production target of
455-475,000 ounces of gold and 7-8 million ounces of silver at a consolidated
cash operating cost of $235-245 per ounce of gold produced.
In 2000, when Round Mountain's strip ratio normalizes and McCoy/Cove has
access to higher-grade ores, production is anticipated to return to better
than 500,000 ounces, with per-ounce costs returning to around 1998's level.
If gold prices rise sufficiently to warrant restarting Lupin, restart
activities would begin late in the fourth quarter of 1999 with production
beginning in the first quarter of 2000. Lupin would add approximately 140,000
ounces to 2000's anticipated production.
Echo Bay mines gold and silver in North America. The primary markets for
its shares are the American and Toronto stock exchanges.
Additional information is available by fax on request. Please call the
company's Investor Relations department at 303-714-8686.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995: The statements herein that are not historical facts are
forward-looking statements. They involve risks and uncertainties that could
cause actual results to differ materially from targeted results. These risks
and uncertainties include, but are not limited to, future changes in gold
prices (including derivatives) and/or production costs, which could render
projects uneconomic; ability to access financing; availability of hedging
opportunities; differences in ore grades, recovery rates and tons mined from
those expected; changes in mining and milling/heap leaching rates from
currently planned rates; the results of future exploration activities and new
exploration opportunities; changes in project parameters as plans continue to
be refined; success at startup; success in negotiations with the Russian
government; and other factors detailed in the company's filings with the
Securities and Exchange Commission.
SOURCE Echo Bay Mines, Ltd.
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Related links:
http://www.echobay.com
CONTACT:
Robbin Lee of Echo Bay Mines, Ltd.,
303-714-8829
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