ENGLEWOOD, Colo., April 29 /PRNewswire/ -- Echo Bay Mines Ltd.
(Amex: ECO; TSE) today reported a net loss of $7.6 million ($0.07 per share)
in the first quarter, compared with a net loss of $16.8 million ($0.12 per
share) a year ago.
The 1998 loss per share includes $2.6 million ($0.02 per share) of
interest on the company's capital securities. A year ago, the interest was
negligible; the securities were issued in the last week of March 1997.
The smaller loss reflects sharply reduced costs and improved operating
results. With gold prices hovering near 18-year lows, the company has cut
expenses, reduced capital expenditures, restructured operations, refocused
exploration and development programs, eliminated marginal projects, deferred
construction of two new gold mines, temporarily suspended operations at its
highest-cost mine, scaled back operations at another mine, downsized the
corporate office and reduced the total workforce to about 1300 people from
2300 a year ago.
Cash operating costs were reduced to $208 per ounce of gold produced in
the quarter from $255 per ounce a year ago. In total, cash operating costs
were trimmed to $33.3 million, down 35% from $51.5 million a year ago.
In addition, depreciation and amortization expenses were reduced to $13.9
million in the quarter, down 31% from $20.0 million a year ago; exploration
and development expenses totaled $3.2 million, down 51% from $6.5 million; and
general & administrative expense were $2.3 million, down 32% from $3.4
million.
The sizable reduction in costs more than offset lower production and
reduced revenues caused by the company's temporary suspension of operations at
the Lupin mine in the Northwest Territories. A year ago, Lupin had produced
36,602 ounces of gold in the first quarter.
Quarterly production was higher at Round Mountain in Nevada, the company's
largest and lowest-cost mine, reflecting startup of a new mill late last year,
and lower at McCoy/Cove in Nevada and Kettle River in Washington State due to
the planned processing of lower-grade ores.
The company produced a total of 133,165 ounces of gold and 2.3 million
ounces of silver in the first quarter. Echo Bay expects to meet or exceed its
full-year production targets of 500-520,000 ounces of gold and 7-8 million
ounces of silver.
Gold and Silver Hedging Gives Higher Realized Prices
The price of gold on world markets fell by $58 per ounce to an average of
$294 in the first quarter from $352 a year ago. Echo Bay's hedging program
overcame most of the price erosion, obtaining a premium of $47 per ounce
above the $294 average price of gold on world markets, or a total of $341 per
ounce.
The company has protected itself against continued low gold prices by
hedging its entire planned gold production for the remaining three quarters of
1998 at a minimum average price of $341 per ounce. The company will receive
more than $341 if the gold price rises above $310 per ounce, because Echo
Bay's hedge position includes 195,000 ounces of put options at $310 per ounce
for the remaining three quarters of the year. In that case, the company would
simply sell its gold production at the higher spot prices instead of
exercising its right to deliver the gold under the put options.
For 1999, the company has hedged approximately 330,000 ounces of gold at a
minimum average price of $363 per ounce.
In addition, Echo Bay has hedged 4.9 million ounces of silver at an
average price of $5.60 per ounce for the remaining three quarters of 1998.
For 1999, the company has hedged 4.0 million ounces of silver at an average
price of $5.77 per ounce.
Unusually High Silver Prices
Echo Bay's McCoy/Cove mine in Nevada is primarily a gold mine, but it also
produces so much silver as a co-product that McCoy/Cove is one of the largest
silver mines in the world. During the quarter, Echo Bay took advantage of
unusually high silver prices by selling forward an additional 19 million
ounces of McCoy/Cove's silver for delivery in the years 1998-2001 at an
average price of $6.01 per ounce. Over the past 10 years, silver prices have
averaged $4.85 per ounce.
These forward sales of silver, combined with the company's gold forward
position, will provide sufficient revenue to pay for all of the planned future
cost of remediating the Cove pit wall instability. This guarantees the
profitability of mining 406,000 ounces of contained gold and 22 million ounces
of contained silver located at the bottom of the pit beneath the pit wall
instability, based on year-end 1997 ore reserves, current operating costs, and
all anticipated future costs. Remediation work was interrupted in late 1997
when gold prices neared 18-year lows. The work is now expected to resume this
summer.
Cash and Debt
In January 1998, Echo Bay took advantage of low gold prices by
repurchasing 250,000 ounces of gold forward sales and eliminating 225,000
ounces of contingent gold forwards, realizing $9 million in cash. Gold was
then trading at $292 per ounce, a price significantly lower than the average
contractual price of $383 per ounce for the hedge positions that were closed
out. The company has no current plans to close out any more of its hedge
positions.
The company repaid $4 million of debt during the quarter, reducing its
total debt to $64 million. At March 31, Echo Bay's current debt was $16
million and its long-term debt was $48 million. Long-term debt includes the
present value, $4 million, of the company's capital securities principal
amount, in accordance with Canadian generally accepted accounting principles.
The present value of the future interest payments on the capital securities,
$101 million, is a separate component of shareholders' equity.
In March, the company elected to exercise its right to defer the April 1,
1998 cash interest payment to holders of the capital securities. Under the
terms of the securities, issued in March 1997, the company has the right to
defer interest payments for up to 10 consecutive semiannual periods. During
the deferral period, interest on the securities will accrue at the rate of 12%
per annum, compounded semiannually.
Interest accrued during the deferral period will be paid in cash to the
capital securities holders at the end of the deferral period. At its
discretion, the company may satisfy its deferred interest obligation by
delivering common shares to a trustee for sale, the proceeds of which would be
used to pay the deferred interest to the securities holders. The company has
no current plans to deliver shares to the trustee for sale.
At March 31, the company had $6 million in cash and cash equivalents, $6
million in short-term investments, and $26 million in then-exercisable credit
facilities determined by certain covenants of the facilities based on the
prior quarter's average gold price. Depressed gold prices limit the company's
ability to borrow under its revolving credit facility, which is measured at
the end of each quarter. Continuation of gold prices at depressed levels
could have the effect of reducing or eliminating the company's capacity to
borrow under its existing credit facilities. For this reason, as previously
reported, the company and its lenders are in discussions aimed at
restructuring the terms of its credit facilities to provide more flexibility
than is currently available in the event of a continued period of depressed
gold prices.
Round Mountain, Nevada: Production Up, Costs Down
At 50%-owned Round Mountain in Nevada, Echo Bay's portion of gold
production totaled 66,067 ounces, up 18% from 56,161 ounces in 1997. The
increase in production resulted principally from the successful startup of a
new mill late last year to process large quantities of nonoxide ore. The mill
produced 24,478 ounces of gold in the first quarter (Echo Bay's 50% share,
12,239 ounces). During the first quarter, Round Mountain also produced the
first ounces of gold from a new dedicated heap leach pad, supplementing
production from the existing dedicated pad.
Round Mountain's cash operating costs were reduced to $194 per ounce of
gold produced, down from $210 a year ago, reflecting the lower costs of a new
mining plan adopted late last year. The new plan optimizes the design of the
open pit, eliminating the mining of more than 250 million tons of waste rock
and low-grade, high-cost material over the life of the mine. The smaller pit
means less pre-stripping expense, less capital for new equipment and less
reclamation expense. This increases profitability and cash flow significantly
over the life of the mine.
The favorable first quarter results are expected to enable Round Mountain
to meet or do better than its full-year production and cost targets of 460-
480,000 ounces of gold (Echo Bay's 50% share, 230-240,000 ounces) at a cash
operating cost of $230-240 per ounce of gold produced.
McCoy/Cove, Nevada: Significantly Reduced Costs
At McCoy/Cove in Nevada, production of both gold and silver was lower,
reflecting the planned processing of lower-grade ores. Gold production
totaled 39,853 ounces, down 24% from 52,286 ounces a year ago, and silver
production totaled 2,258,456 ounces, down 7% from 2,437,413 ounces in the
year-ago quarter.
Cash operating costs were reduced sharply, to $203 per ounce of gold
produced in the first quarter of this year from $285 per ounce in the year-ago
period. Of the $82 reduction in cost per ounce of gold produced, $34 resulted
from a series of operating improvements. The 450-person workforce was
downsized by more than 20%. Mining was discontinued in the smaller McCoy pit
in December 1997, pending completion of optimization studies aimed at reducing
costs. Based on a reengineered McCoy pit design, mining then resumed in March
1998 at a lower cost. Mining activities were refocused on mill ounces from
the Cove pit. Milling costs were significantly reduced. Remediation work on
the Cove pit was postponed until the second half of 1998.
In addition, a $47.0 million write-down of McCoy/Cove's carrying value in
the third quarter of 1997 reduced deferred mining costs by a like amount over
the remaining life of the mine, resulting in a reduction of $40 per ounce in
McCoy/Cove's cash operating cost in the first quarter of 1998.
Finally, cash operating costs increased by $38 per ounce due to lower ore
grades and recoveries. This was more than offset by a decrease of $46 per
ounce due to significantly lower gold prices relative to co-product silver
prices, which reduced the gold-to-silver price equivalency ratio to 47.3:1 in
1998 from 71.2:1 in 1997. The price equivalency ratio is used to calculate
co-product costs under co-product accounting principles.
McCoy/Cove expects to meet or better its 1998 cash operating cost target
of $260-270 per ounce of gold produced. The mine's production targets for
1998 are 160-170,000 ounces of gold and 7-8 million ounces of silver.
Kettle River, Washington: Lower-Grade Ore Processed
The Kettle River mine in Washington State produced 27,245 ounces of gold,
down 29% from 38,279 ounces a year ago, reflecting the processing of lower-
grade ores as planned. Recovery rates were also lower, principally a function
of the lower grades. Kettle River processed increased tonnages of ore,
helping to partly offset the lower ore grades.
As expected, costs rose per ounce of gold produced, reflecting the lower
grades and increased tonnages processed. Cash operating costs increased to
$258 per ounce from $185 a year ago.
First quarter results were in line with Kettle River's full-year
production and cost targets of 100-110,000 ounces of gold at a cash operating
cost of $240-250 per ounce.
Lupin, Northwest Territories: Operations Temporarily Suspended
Operations were temporarily suspended at Lupin in the Northwest
Territories in January in response to 18-year lows in the gold price and
impending increases in production costs, as reported. The mine was placed on
"care and maintenance" to preserve its integrity and enable it to reopen when
gold prices permit. The company is examining a number of opportunities for
reducing costs by optimizing Lupin's mining methods and operating procedures.
A year ago, Lupin produced 36,602 ounces of gold in the first quarter at a
cash operating cost of $325 per ounce.
Echo Bay mines gold and silver in North America. The primary markets for
its shares are the American and Toronto stock exchanges.
"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 significant declines in precious
metals prices and/or increases in production costs, which could render
projects uneconomic; ability to access financing; changes in project
parameters as plans continue to be refined; differences in ore grades,
recovery rates and tons mined from those expected; changes in mining, milling
and/or heap leaching rates from currently planned rates; the results of
current exploration activities and new opportunities; and other factors
detailed in the company's filings with the Securities and Exchange Commission.
ECHO BAY MINES
Highlights
Three months ended March 31
U.S. dollars 1998 1997
Financial Data
Revenue (millions) $52.9 $73.8
Net loss (millions) $(7.6) $(16.8)
Net loss attributable to common
shareholders (millions) $(10.3) $(16.9)
Gold ounces sold (a) 118,594 171,232
Silver ounces sold (a) 2,016,097 1,936,345
Average price realized:
Per ounce of gold sold $341 $372
Per ounce of silver sold $6.19 $5.25
Cash operating costs:
Per ounce of gold produced $208 $255
Per ounce of silver produced $4.29 $4.00
% of revenue from gold 76% 86%
% of revenue from silver 24% 14%
Production and Reserves
Production (ounces): (a)
Gold 133,165 183,328
Silver 2,258,456 2,437,413
Reserves (ounces): (b)
Gold 7,479,000 8,573,000
Silver 46,525,000 53,858,000
Per Share Data
Loss per share $(0.07) $(0.12)
Shares outstanding (millions):
Weighted average 139.4 139.4
Period end 139.4 139.4
(a) Amounts sold differ from amounts produced due to inventory changes.
(b) Proven and probable reserves at the beginning the year.
ECHO BAY MINES
Production and Costs
Three months ended March 31
1998 1997
Gold Production (ounces)
Round Mountain (50%) 66,067 56,161
McCoy/Cove 39,853 52,286
Kettle River 27,245 38,279
Lupin -- 36,602
Total gold 133,165 183,328
Silver Production (ounces)
McCoy/Cove 2,258,456 2,437,413
Total silver 2,258,456 2,437,413
Cash Operating Costs
(U.S. dollars per ounce of gold produced)
Round Mountain $194 $210
McCoy/Cove (a) 203 285
Kettle River 258 185
Lupin -- 325
Company average $208 $255
Consolidated Costs
(U.S. dollars per ounce of gold produced)
Cash operating costs $208 $255
Royalties 9 10
Production taxes 2 2
Total cash costs 219 267
Depreciation 63 63
Amortization 26 35
Reclamation and mine closure 9 10
Total production costs $317 $375
(a) Cash operating costs per ounce of silver produced at McCoy/Cove were
$4.29 in 1998 and $4.00 in 1997, based on average gold-to-silver price ratios
of 47.3:1 and 71.2:1 respectively.
ECHO BAY MINES
Consolidated Earnings Statement
(Unaudited)
Three months ended March 31
Thousands of U.S. dollars,
except for per share data 1998 1997
Revenue $52,855 $73,838
Expenses:
Operating costs 33,305 51,453
Royalties 1,722 2,244
Production taxes 354 439
Depreciation and amortization 13,902 19,973
Reclamation and mine closure 1,651 2,186
General and administrative 2,257 3,418
Exploration and development 3,180 6,490
Interest and other (a) 4,038 2,641
Provision for impaired assets
and other charges (a) -- 1,000
60,409 89,844
Loss before income taxes (7,554) (16,006)
Income tax expense:
Current 72 318
Deferred -- 437
72 755
Net loss $(7,626) $(16,761)
Net loss attributable to
common shareholders $(10,259) $(16,876)
Loss per share (b) $(0.07) $(0.12)
Weighted average number
of shares outstanding 139,370,031 139,357,083
(a) Certain prior-period items have been reclassified to conform with the
current presentation.
(b) Echo Bay's financial statements are prepared in accordance with
accounting principles generally accepted in Canada. Loss per share equals the
sum of the net loss for the period plus the interest on the $100 million
capital securities in the period (a portion of which is charged directly to
the deficit in common shareholders' equity on the company's consolidated
balance sheet, rather than being charged to interest on the consolidated
earnings statement) divided by the weighted average number of common shares
outstanding during the period. The capital securities were issued in March
1997; interest on these securities that was charged to the deficit was $2.6
million in the first quarter of 1998 and $0.1 million in the first quarter of
1997.
ECHO BAY MINES
Consolidated Balance Sheet
(Unaudited)
March 31 Dec. 31 March 31
Thousands of U.S. dollars 1998 1997 1997
Assets
Current assets:
Cash and cash equivalents $6,227 $16,953 $104,847
Short-term investments 6,387 10,325 --
Interest and accounts receivable 7,207 5,927 9,702
Inventories 44,753 41,168 44,078
Prepaid expenses and other assets 4,935 5,068 5,596
69,509 79,441 164,223
Plant and equipment 228,286 238,948 231,328
Mining properties 105,392 107,820 404,474
Long-term investments and
other assets 13,071 6,558 48,972
$416,258 $432,767 $848,997
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued
liabilities $60,791 $82,371 $67,970
Income and mining taxes payable 3,750 3,494 3,696
Current portion of gold and
other financings (a) 15,658 14,779 16,408
Current portion of deferred income14,410 7,461 14,708
94,609 108,105 102,782
Long-term gold and
other financings (a) 48,002 51,745 51,051
Long-term deferred income 53,569 54,708 55,578
Other long-term obligations 61,819 56,607 63,287
Deferred income taxes 8,040 7,941 8,789
Common shareholders' equity:
Common shares 709,593 709,593 709,593
Capital securities 101,253 95,753 95,974
Deficit (641,579) (631,320) (221,974)
Foreign currency translation (19,048) (20,365) (16,083)
150,219 153,661 567,510
$416,258 $432,767 $848,997
(a) Total gold and other financings were $63.7 million at March 31, 1998
(including current portion of $15.7 million), down $3.8 million from $67.5
million at March 31, 1997 (including current portion of $16.4 million).
ECHO BAY MINES
Consolidated Statement Of Cash Flow
(Unaudited)
Three months ended March 31
Thousands of U.S. dollars 1998 1997
Cash Provided by (Used in):
Operating Activities
Net loss $(7,626) $(16,761)
Add (deduct):
Depreciation and amortization 13,902 19,973
Non-cash portion of exploration
and development expense -- 146
Deferred income taxes -- 437
Gain on sale of assets (1,189) 160
Unrealized losses on share
investments 849 --
Other (1,349) (2,781)
4,587 1,174
Change in cash invested in
operating assets and liabilities:
Interest and accounts receivable(1,318) 3
Inventories (607) (8,384)
Prepaid expenses and other assets 591 2,028
Accounts payable and other
liabilities (20,503) (11,610)
Income and mining taxes payable 258 45
(16,992) (16,744)
Financing Activities
Debt repayments (4,164) (118,057)
Capital securities issued,
net of issuance costs -- 96,700
Common share issues, net of
issuance costs -- 60
Other (112) --
(4,276) (21,297)
Investing Activities
Mining properties, plant
and equipment (4,629) (20,822)
Proceeds on repurchase of
the company's:
Gold and silver forward sales 8,673 54,963
Gold swap -- 8,107
Foreign exchange contracts -- 6,672
Short-term investments 2,414 --
Long-term investments and
other assets 522 (9,377)
Proceeds on the sale of plant
and equipment 2,309 160
Proceeds on the sale of mining
properties 1,195 --
Other 58 (11)
10,542 39,692
Net increase (decrease) in cash
and cash equivalents (10,726) 1,651
Cash and cash equivalents,
beginning of period 16,953 103,196
Cash and cash equivalents,
end of period $6,227 $104,847
ECHO BAY MINES
Mine Operating Data
Three months ended March 31
U.S. dollars, except where indicated 1998 1997
Round Mountain Mine (50% owned)
Gold produced (ounces):
Reusable heap leach pad (50%) 30,407 31,945
Dedicated heap leach pad (50%) 22,638 24,216
Milling (50%) 12,239 --
Other (50%) 783 --
Total (50%) 66,067 56,161
Ore and waste mined
(tons) (100%) 16,110,000 16,319,000
Mining cost/ton of ore and waste $0.65 $0.70
Heap leaching cost/ton of ore $0.68 $0.69
Milling cost/ton of ore $3.98 --
Production cost per ounce
of gold produced:
Direct mining expense $194 $211
ferred stripping cost 10 --
Inventory movements and other (10) (1)
Cash operating cost $194 210
Royalties 17 27
Production taxes 2 3
Total cash cost $213 240
Depreciation 40 47
Amortization 18 18
Reclamation and mine closure 7 7
Total production cost $278 $312
Reusable heap leach pad:
Ore processed (tons/day) (100%) 26,366 26,904
Grade (ounce/ton) 0.036 0.037
Recovery rate (%) 74.9 65.5
Dedicated heap leach pad:
Ore processed (tons/day) (100%) 108,297 88,539
Grade (ounce/ton) 0.010 0.011
Recovery rate (a)
Milled:
Ore processed (tons/day) (100%) 7,169 --
Gold grade (ounce/ton) 0.053 --
Gold recovery rate (%) 72.6 --
McCoy/Cove Mine (100% owned)
Gold produced (ounces):
Milled 25,422 40,894
Heap leached 14,431 11,392
Total gold 39,853 52,286
Silver produced (ounces):
Milled 2,136,149 2,355,583
Heap leached 122,307 81,830
Total silver 2,258,456 2,437,413
Ore and waste mined (tons) 7,601,618 15,478,726
Mining cost/ton of ore and waste $0.74 $0.69
Milling cost/ton of ore $6.31 $8.76
Heap leaching cost/ton of ore $1.57 $1.64
Production cost per ounce
of gold produced: (b)
Direct mining expense $196 $293
Deferred stripping cost (1) (12)
Inventory movements and other 8 4
Cash operating cost 203 285
Royalties 3 4
Production taxes 2 2
Total cash cost 208 291
Depreciation 53 70
Amortization 38 45
Reclamation and mine closure 8 10
Total production cost $307 $416
Average gold-to-silver
price ratio (2) 47.3:1 71.2:1
Milled:
Ore processed (tons/day) 10,916 10,076
Gold grade (ounce/ton) 0.041 0.066
Silver grade (ounce/ton) 2.62 3.34
Gold recovery rate (%) 55.8 71.8
Silver recovery rate (%) 74.2 70.2
Heap leached:
Ore processed (tons/day) 12,021 17,648
Gold grade (ounce/ton) 0.020 0.012
Silver grade (ounce/ton) 0.37 0.17
Recovery rates (a)
Kettle River Mine (100% owned)
Gold produced (ounces) 27,245 38,279
Tons of ore mined 193,453 178,175
Mining cost/ton of ore $20.91 $20.68
Milling cost/ton of ore $9.76 $11.57
Production cost per ounce
of gold produced:
Direct mining expense $260 $196
Deferred mine development cost -- --
Inventory movements and other (2) (11)
Cash operating cost 258 185
Royalties 11 11
Production taxes 1 2
Total cash cost 270 198
Depreciation 72 51
Amortization 5 45
Reclamation and mine closure 12 12
Total production cost $359 $306
Milled:
Ore processed (tons/day) 2,107 1,958
Total tons milled 191,769 178,175
Grade (ounce/ton) 0.176 0.243
Recovery rate (%) 80.5 88.6
Lupin Mine (100% owned) (c)
Gold produced (ounces) -- 36,602
Tons of ore mined and milled -- 192,930
Mining cost/ton of ore (Cdn. Dollars) -- C$46.06
Milling cost/ton of ore (Cdn. Dollars) -- C$11.41
Production cost per ounce
of gold produced:
Direct mining expense (Cdn. dollars) -- C$423
Deferred mine development
cost (Cdn. dollars) -- 20
Inventory movements and
other (Cdn. dollars) -- (1)
Cash operating cost
(Cdn. dollars) -- C$442
Cash operating cost
(U.S. dollars) -- US$325
Royalties -- --
Production taxes -- --
Total cash cost -- 325
Depreciation -- 80
Amortization -- 29
Reclamation and mine closure -- 14
Total production cost -- US$448
Milled:
Ore processed (tons/day) -- 2,120
Total tons milled -- 192,930
Grade (ounce/ton) -- 0.206
Recovery rate (%) -- 91.9
(a) Recovery rates on dedicated pads can only be estimated, as actual
recoveries will not be known until leaching is complete. At the Round
Mountain mine, the gold recovery rate on the dedicated heap leach pad is
estimated at 50%. At the McCoy/Cove mine, the gold recovery rate is estimated
at 68% for crushed ore and 48% for uncrushed, run-of-mine ore, and the silver
recovery rate is estimated at 35% for crushed ore and 10% for uncrushed, run-
of-mine ore.
To convert costs per ounce of gold into comparable costs per ounce of co-
product silver, divide by the period's average gold-to-silver price ratio.
In January 1998, operations at Lupin were temporarily suspended.
SOURCE Echo Bay Mines Ltd.
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Related links:
http://www.echobay.com
CONTACT:
Robbin Lee of Echo Bay Mines, 303 714-8829
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