ENGLEWOOD, Colo., Jan. 14 /PRNewswire/ -- Echo Bay Mines Ltd.
(AMEX and Toronto: ECO) announced today that its Board of Directors has
approved bringing two new gold mines into production, Aquarius in Canada and
Paredones Amarillos in Mexico, and the company will take a
$77 million after-tax charge ($0.55 per share) to write off the Alaska-Juneau
property in Alaska as of Dec. 31, 1996.
The decision to proceed with both projects is contingent on arrangement of
satisfactory financing. The Paredones decision is also contingent on Viceroy,
Echo Bay's 40% joint venture partner, approving the project and obtaining its
share of financing.
Echo Bay produces about 725-750,000 ounces of gold from four mines in the
United States and Canada. The two new mines to be brought into production,
Aquarius and Paredones Amarillos, will together produce about 240-250,000
ounces of annual gold production for Echo Bay's account. The new mines are
targeted for startup in late 1998 and expected to be in full-scale commercial
production by early 1999. Paredones Amarillos will be the largest gold mine
in Mexico.
Cash operating costs for the gold produced at the two new mines are
expected to average about $220-225 per ounce, compared with Echo Bay's current
consolidated cash operating costs of $245-255 per ounce. Total production
costs of the two new mines are expected to average about $320-325 per ounce,
including depreciation, amortization and reclamation.
The new mines will add 2.0 million ounces of gold to Echo Bay's proven and
probable reserves as of year-end 1996. The company believes there is
excellent potential to add to reserves and other mineralization as exploration
continues on these properties.
To bring both new mines into production will require an investment by Echo
Bay of $167 million over the coming two years. The company said it intends to
finance Aquarius with a new $75 million unsecured corporate credit facility.
Paredones Amarillos is to be financed with a $36 million non-recourse project
loan, subject to arrangement of satisfactory terms. Most of the remaining
funds will come from cash on hand and operating cash flow from Echo Bay's four
existing gold mines.
In addition, the company said it will suspend payment of dividends on its
common shares. This will save about $21 million over the next two years for
mine development, based on Echo Bay's prior practice of paying a semiannual
dividend of US$0.0375 per common share. The company said it believes
shareholder interests are best served by using its cash resources to build a
foundation for sustained future value rather than making short-term cash
payouts at this time.
To have brought the A-J into production would have required an additional
investment exceeding $300 million over the next four years. Echo Bay said it
will invest its resources instead in Aquarius, Paredones Amarillos and other
more promising projects.
Richard C. Kraus, president and chief executive officer of Echo Bay, said,
"Going forward, we intend to realize better growth and greater value for our
shareholders from our assets. We believe we can achieve this by concentrating
our efforts and resources on higher-quality, lower-cost gold mines. This
means we will not develop marginal properties. The decision to write off the
A-J is a necessary decision."
The company will write off its entire remaining investment in the A-J
project, $57 million, and will establish a reserve of $20 million to cover
estimated reclamation and closure responsibilities. A-J's proven and probable
reserves of 3.4 million ounces and other mineralization of 1.6 million ounces
will be removed from Echo Bay's total gold resources as of Dec. 31, 1996. The
company is implementing plans to address the human resources, environmental
and community responsibilities related to this decision.
The company's decision to write off the A-J results from a new feasibility
study. The study was based on a new mine plan incorporating extensive
geological information from a two-year underground drilling program completed
in 1995. Geological assessment of the drill data was completed in the third
quarter of 1996. The significantly increased information indicated a much
smaller minable geologic resource at only a marginally higher grade. The new
mining plan developed from this information incorporated narrower mining zones
than previously planned, a reduced scale of operations, and higher-cost mining
methods. The lower reserves and higher operating costs could not be offset by
savings from the newer concept of submarine tailings disposal. In total,
these factors rendered the project uneconomic as currently designed.
Echo Bay is a major gold producer with mines in Canada and the United
States and with exploration and development projects on four continents.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995: The statements herein that are not historical facts are forward-
looking statements involving risks and uncertainties that could cause actual
results to vary materially from targeted results. These include but are not
limited to differences in ore grades, recovery rates and tons mined from those
expected; changes in project parameters as plans continue to be refined;
changes in mining and milling rates from currently planned rates; and the
results of future exploration activities and new exploration opportunities on
nearby properties. Please refer to a discussion of these and other factors in
the company's 10-K, 10-Q and other Securities and Exchange Commission filings.
Aquarius Mine (100%)
Fact Sheet
Location
Timmins, Ontario, Canada
Ownership
100% Echo Bay
Targeted Mine Startup
Fourth quarter 1998
Commencement of Commercial Production
Early 1999
Average Annual Production Rate
166,000 ounces of gold per year
Mine Life
Seven years based on year-end 1996 reserves. Assumes no more gold is ever
discovered on the 6,987-acre property.
Exploration Potential
A number of excellent targets exist to the east and west of the proposed
open pit. Drill rigs will be moved to these targets during the 1997
exploration drilling season.
Type of Mine
Open pit mine, on-site mill
Mill
7,500 metric tonnes of ore/day (8,267 short tons/day)
Gravity and carbon-in-pulp recovery circuits
95% recovery rate
Proven and Probable Reserves
1,277,000 ounces of gold
19,713,000 metric tonnes grading 2.015 grams/tonne
(21,730,000 short tons grading 0.059 ounces/ton)
Other Mineralization
None at year-end 1996. See "Exploration Potential" above.
Cutoff Grade
0.45 grams/tonne (0.013 ounces/ton)
Strip Ratio
5.6:1 waste:ore
Gold Price Assumption for Reserve Calculations
US$375 per ounce
Mining Data by Year*
Ore processed/day Grade Recovery Ounces of
Year (tonnes) (tons) (ounce/ton) rate production
4Q1998 7,500 8,267 0.031 95% 16,000
1999 7,500 8,267 0.051 95% 145,000
2000 7,500 8,267 0.064 95% 182,000
2001 7,500 8,267 0.046 95% 132,000
2002 7,500 8,267 0.068 95% 195,000
2003 7,500 8,267 0.080 95% 228,000
2004 7,500 8,267 0.056 95% 160,000
2005 7,500 8,267 0.053 95% 151,000
2006 7,500 8,267 0.035 95% 4,000
Total 1,213,000
Average Life-of-Mine Costs per Tonne Processed*
Mining cost: US$1.13 per tonne of ore and waste
Milling cost: US$3.86 per tonne of ore
All other costs (dewatering, definition drilling, site administration,
refining, etc.): US$1.77 per tonne of ore
Average Life-of-Mine Costs per Ounce of Gold*
Cash operating cost US$218
Royalty expense --
Production taxes --
Total cash cost 218
Depreciation 80
Amortization 14
Reclamation 4
Total production cost US$316
Sunk Capital to Date**
US$13.9 million
**Total amount capitalized. Excludes US$1.0 million of exploration that
was expensed prior to the decision to develop Aquarius.
Additional Investment Required to Startup (Millions of Dollars)
1997 US$ 65.7
1998 34.3
US$100.0
Sustaining Capital After Startup (Millions of Dollars)
1999 US$0.5
2000 0.5
2001 0.5
2002 0.5
2003 0.5
2004 0.5
2005 0.5
2006 --
2007 --
US$3.5
*Based on current mine planning parameters. All numbers are subject to
change as mine plans are refined.
Months to Payback* from Targeted Startup Date
At US$375 gold price: 53 months
At US$400 gold price: 47 months
At US$425 gold price: 45 months
*After taxes, before financing, excluding sunk capital.
Net Present Value* (0% Discount)
At US$375 gold price: US$72 million
At US$400 gold price: US$97 million
At US$425 gold price: US$122 million
*After taxes, before financing, excluding sunk capital.
Internal Rate of Return*
At US$375 gold price: 12%
At US$400 gold price: 15%
At US$425 gold price: 19%
*After taxes, before financing. Excludes sunk capital (US$13.9 million).
If sunk capital were to be included, IRR would be 9%, 11% and 15%,
respectively.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995: The statements herein that are not historical facts are forward-
looking statements involving risks and uncertainties that could cause actual
results to vary materially from targeted results. These include but are not
limited to differences in ore grades, recovery rates and tons mined from those
expected; changes in project parameters as plans continue to be refined;
changes in mining and milling rates from currently planned rates; and the
results of future exploration activities and new exploration opportunities on
nearby properties. Please refer to a discussion of these and other factors in
the company's 10-K, 10-Q and other Securities and Exchange Commission filings.
Paredones Amarillos Mine (60%)
Fact Sheet
Location
Near La Paz, Baja California Sur, Mexico
Ownership
60% Echo Bay, 40% Viceroy Resource Corporation. At Viceroy's election,
Echo Bay may increase its ownership to 65% by assisting Viceroy in
arranging project financing.
Targeted Mine Startup
Third quarter 1998
Commencement of Commercial Production
Late 1998 or early 1999
Contingency
The decision to proceed is contingent on arrangement of satisfactory
project financing.
Average Annual Production Rate
128,000 ounces (100%). Echo Bay's share: 77,000 ounces (60%).
Mine Life
Nine years based on year-end 1996 reserves. Assumes no more gold is ever
discovered on the 31,500-acre property.
Exploration Potential
An area of ore-grade mineralization containing an estimated 500,000 ounces
of gold (100% basis) has been outlined slightly below and to the east of
the planned open pit. This material is potentially accessible by an adit
from the bottom of the open pit after surface mining has been completed,
but has not been included in minable reserves or other mineralization. In
addition, potential exists to outline other areas of mineralization on the
31,500-acre property and elsewhere in the area, where local miners using
hand tools have been digging near-surface gold for many years.
Type of Mine
Open pit mine, on-site mill
Mill
11,000 metric tonnes of ore/day (12,125 short tons/day)
Gravity and carbon-in-pulp recovery circuits
91% recovery rate
Proven and Probable Reserves
1,292,000 ounces of gold (100%). Echo Bay's 60%: 775,200 ounces.
36,246,000 metric tonnes grading 1.109 grams/tonne (100%)
(39,954,000 short tons grading 0.032 ounces/ton) (100%)
Other Mineralization
None at year-end 1996. See "Exploration Potential" above.
Cutoff Grade
0.5 grams/tonne (0.015 ounces/ton)
Strip Ratio
4.15:1 waste:ore
Gold Price Assumption for Reserve Calculations
US$375 per ounce
Mining Data by Year (100%)*
Ounces of production
Ore processed/day Grade Recovery Echo Bay's
Year (tonnes) (tons) (ounce/ton) rate 100% 60% share
3Q+4Q98 11,000 12,125 0.032 85% 58,000 34,800
1999 11,000 12,125 0.035 91% 138,000 82,800
2000 11,000 12,125 0.032 91% 129,000 77,400
2001 11,000 12,125 0.026 91% 102,000 61,200
2002 11,000 12,125 0.028 91% 113,000 67,800
2003 11,000 12,125 0.032 91% 128,000 76,800
2004 11,000 12,125 0.032 91% 127,000 76,200
2005 11,000 12,125 0.031 91% 124,000 74,400
2006 11,000 12,125 0.038 91% 149,000 89,400
2007 11,000 12,125 0.039 91% 104,000 62,400
Totals 1,172,000 703,200
Management Fee
Under the terms of the joint venture agreement between Echo Bay and
Viceroy, Echo Bay receives a management fee from Viceroy consisting of 5%
of Viceroy's share of operating and capital costs. All of Echo Bay's
operating and capital costs stated herein are net of the management fee
from Viceroy.
Average Life-of-Mine Costs per Tonne Processed*
Mining cost: US$0.51 per tonne of ore and waste
Milling cost: US$3.10 per tonne of ore
All other costs (power and water, definition drilling, site
administration,
refining, etc., less management fee to Echo Bay from Viceroy):
US$1.64 per tonne of ore
Average Life-of-Mine Costs per Ounce of Gold*
Cash operating cost** US$223
Royalty expense --
Production taxes --
Total cash cost 223
Depreciation 103
Amortization 5
Reclamation 7
Total production cost US$338
**Net of management fee. See "Management Fee" above.
*Based on current mine planning parameters. All numbers are subject to
change as mine plans are refined.
Sunk Capital to Date*
US$7.4 million
*Total amount capitalized by Echo Bay. Includes US$2.6 million that Echo
Bay loaned to Viceroy, to be repaid from 50% of Viceroy's cash flow from
the project. Excludes US$6.7 million of exploration that was expensed
prior to the decision to develop Paredones Amarillos.
Additional Investment Required to Startup (Echo Bay's 60% Share)
1997 US$43.9 million
1998 23.0 "
US$66.9 "
Sustaining Capital After Startup (Echo Bay's 60% Share)
1999 US$0.1 million
2000 1.7 "
2001 1.2 "
2002 1.2 "
2003 0.1 "
2004 0.1 "
2005 0.1 "
2006 0.1 "
2007 --
US$4.6 "
Months to Payback* from Targeted Startup Date
At US$375 gold price: 85 months
At US$400 gold price: 73 months
At US$425 gold price: 63 months
*After taxes, before financing, excluding sunk capital, net of management
fee.
Net Present Value,* Echo Bay's 60% Share (0% Discount)
At US$375 gold price: US$32 million
At US$400 gold price: US$49 million
At US$425 gold price: US$67 million
*After taxes, before financing, excluding sunk capital, net of management
fee.
Internal Rate of Return*
At US$375 gold price: 8%
At US$400 gold price: 11%
At US$425 gold price: 15%
*After taxes, before financing, net of management fee. Excludes sunk
capital (US$7.4 million). If sunk capital were to be included, IRR would
be 4%, 7% and 10% respectively.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995: The statements herein that are not historical facts are forward-
looking statements involving risks and uncertainties that could cause actual
results to vary materially from targeted results. These include but are not
limited to differences in ore grades, recovery rates and tons mined from those
expected; changes in project parameters as plans continue to be refined;
changes in mining and milling rates from currently planned rates; and the
results of future exploration activities and new exploration opportunities on
nearby properties. Please refer to a discussion of these and other factors in
the company's 10-K, 10-Q and other Securities and Exchange Commission filings.
SOURCE Echo Bay Mines Ltd.
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CONTACT:
Media: Jill Paukert, 303-714-8825 or
Investor: Ted Sheldon, 303-714-8813, both of Echo Bay Mines Ltd.
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