-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EvnFF4+H2xTjxwDQuJXAsFTSmTptf+sAMvk4hLIlFql1ee4tk8zSLtgfTjFuu6eW yCd+sg35FUngQ4XH+ISqcg== 0001188112-05-001520.txt : 20050819 0001188112-05-001520.hdr.sgml : 20050819 20050819141758 ACCESSION NUMBER: 0001188112-05-001520 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20050831 FILED AS OF DATE: 20050819 DATE AS OF CHANGE: 20050819 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BREAKWATER RESOURCES LTD CENTRAL INDEX KEY: 0000782875 STANDARD INDUSTRIAL CLASSIFICATION: METAL MINING [1000] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13979 FILM NUMBER: 051038187 BUSINESS ADDRESS: STREET 1: 1440 625 HOWE ST CITY: VANCOUVER BC CANADA STATE: A1 MAIL ADDRESS: STREET 1: 95 WELLINGTON STREET WEST STREET 2: SUITE 2000 CITY: TORONTO, ONTARIO STATE: A6 ZIP: 00000 6-K 1 t6k-7362.txt 6-K - -------------------------------------------------------------------------------- SEC 1815 (11-2002) POTENTIAL PERSONS WHO ARE TO RESPOND TO THE COLLECTION OF Previous INFORMATION CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND versions UNLESS THE FORM DISPLAYS A CURRENTLY VALID OMB CONTROL NUMBER. obsolete - -------------------------------------------------------------------------------- OMB APPROVAL OMB Number: 3235-0116 Expires: August 31, 2005 Estimated average burden hours per response: 6.00 FORM 6-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Report of Foreign Private Issuer Pursuant to Rule 13a-16 or 15d-16 of the Securities Exchange Act of 1934 For the month of August 2005 Commission File Number 000 - 13979 Breakwater Resources Ltd. (Translation of registrant's name into English) 95 Wellington Street West, Suite 950, Toronto, Ontario M5J 2N7 (Address of principal executive offices) Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. Form 20-F Form 40-F X ----- ----- Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934. Yes No X ----- ----- 1 If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________ SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. BREAKWATER RESOURCES LTD. By: /s/ Priya Patil ----------------------------- Priya Patil Corporate Counsel Date: August 19, 2005 INDEX TO EXHIBITS The following document is being filed with the Commission as exhibit to, and is incorporated by reference into and form part of, the report on Form 6-K. EXHIBIT 1: PRESS RELEASE RELATING TO 2005 SECOND QUARTER INTERIM FINANCIAL RESULTS 2 EX-1 2 tex1-7362.txt EX-1 [LOGO] Breakwater - -------------------------------------------------------------------------------- BREAKWATER RESOURCES LTD. 95 WELLINGTON STREET WEST, SUITE 950 TORONTO, ONT., M5J 2N7 Tel: (416) 363-4798 Fax: (416) 363-1315 - -------------------------------------------------------------------------------- NEWS RELEASE (TSX: BWR) BREAKWATER CONTINUES TO BUILD ON THE POSITIVE EARNINGS TREND ESTABLISHED IN 2004 Toronto, Canada, August 10, 2005... MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Breakwater Resources Ltd. ("Breakwater" or the "Company") should be read in conjunction with the Company's unaudited consolidated financial statements for the three months ended June 30, 2005 and related notes thereto which have been prepared in accordance with Canadian generally accepted accounting principles. This should also be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2004, related annual Management's Discussion and Analysis, and the Annual Information Form/40-F on file with the Canadian provincial securities regulatory authorities and the U.S. Securities and Exchange Commission. This Management's Discussion and Analysis has been prepared as of August 9, 2005. OVERVIEW The following are the notable details related to the Company's operations and financial results in the second quarter and first six months of 2005 compared with the same periods of 2004: o George Pirie joined the Company on July 4, 2005, as President and Chief Executive Officer. Mr. Pirie brings a wealth of experience in the areas of operations, corporate finance, strategic corporate development and business development in the mining industry. o Higher metal prices and more tonnes of concentrate sold in 2005 compared with 2004 was offset by higher production costs, higher treatment and marketing costs, a stronger Canadian dollar and an increase of $2.1 million in the reclamation liability at the Nanisivik mine. The combination of these resulted in a decrease in contribution from mining activities of $2.3 million to $6.5 million in the second quarter of 2005 compared with $8.8 million in 2004 and of $0.7 million in the first six months of 2005 to $14.5 compared with $15.2 in 2004. o Metals prices were stronger in 2005, as the Company realized an average zinc price per tonne of U.S.$1,252 for the second quarter of 2005 and U.S.$1,253 for the first six months compared with U.S.$1,006 and U.S.$1,034 respectively in the same periods of 2004. The realized Canadian dollar metal prices were offset to some degree by the stronger Canadian dollar as the Company realized an average of C$1.2429 per U.S. dollar in the second quarter and C$1.2351 per U.S.$ in the first six months of 2005, compared with $1.3596 per U.S. dollar and $1.3367 per U.S.$ respectively for the same periods of 2004 (see realized metal price table on page 4). o Gross sales revenue increased by 76 percent to $92.4 million on 118,022 tonnes of concentrate sold in the second quarter of 2005, from $52.5 million on 76,061 tonnes of concentrate sold in 2004 and by 63 percent to $183.7 million on 226,530 tonnes of concentrate sold in the first six months of 2005 compared to $112.6 million on 162,091 tonnes of concentrate sold in 2004. o Net earnings decreased to $2.4 million in the second quarter of 2005 compared to $4.4 million in 2004 but for the six months ended June 30, 2005 net earnings was only $0.1 million less than 2004 at $6.5 million. 3 o Total concentrate production was 88,782 tonnes in the second quarter of 2005 compared with 86,115 tonnes in 2004, a 3 percent increase mainly due to increased production from El Mochito. As well, in the quarter production from Myra Falls essentially replaced Bouchard-Hebert production which closed in February 2005. In the first six months of 2005, 192,041 tonnes of concentrate were produced compared with 170,978 tonnes in 2004, a 12% increase, due to higher production from El Mochito in the second quarter and the inclusion of the Myra Falls mine production with Bouchard-Hebert mine production until February 20, 2005. (See Production Statistics section for details.) o Total production cash cost per pound of payable zinc increased in the second quarter of 2005 to U.S.$0.36 from U.S.$0.30 in 2004. This was a decrease from the first quarter of 2005 which was U.S.$0.40 per pound. The first six months 2005 total production cash cost per pound was U.S.$0.38 compared with U.S.$0.32 in 2004. These increases were due to higher mine site operating costs (mainly with the loss of lower cost Bouchard-Hebert production and the addition of higher cost Myra Falls production), higher treatment charges and freight cost, partially offset by higher by-product credits due to higher by-product metal production, particularly gold, and higher by-product metal prices. o Reclamation and closure activities and the funding of reclamation security consumed $17.7 million of the Company's free cash during the first six months of 2005. $10.0 million directly related to reclamation and closure work at Nanisivik, Myra Falls and Bouchard-Hebert and $7.7 million to fund reclamation security requirements with the provinces of Quebec and New Brunswick. Of the $7.7 million, $5.5 million relates to surety bonds which expired on June 30, 2005 for which the Company was unable to secure similar non cash security. o John McCombe, Vice President (Operations) announced his resignation to the Board of Directors on August 9, 2005. The Company has a strong operational team in place and is confident that the mines will continue to operate efficiently. His responsibilities will be divided among the existing management team. Metallurgical gains were made in the gold circuit at Myra Falls where gravity gold recovery has more than doubled in 2005 compared with 2004. Work continued on the lead circuit during the quarter and a test lead flash cell was received and installed in the grinding circuit. Initial results were inconclusive. The surface ramp was advanced and work on the collar and portal was nearing completion by the end of the quarter. Exploration continued during the quarter at El Toqui mine. A total of 2,682 meters were drilled in 18 holes at the Concordia area. This program was focused on infill drilling in order to develop a mine plan for this zone. Soil geochemical results from the Concordia area were received during the quarter. Exploration field work was stopped in June due to the onset of the winter season. At the Bouchard-Hebert mine, exploration in the immediate mine area did not encounter economic mineralization. Based on the results to date, the Company has removed the mobile equipment and some of the underground infrastructure and has allowed the mine to flood. The Company will continue to explore for mineral deposits on the 7,982 hectares of exploration claims surrounding the mining leases. The updated Langlois feasibility study was received from SRK late in the second quarter and thus has not been reviewed in sufficient detail to make a production decision. This review is expected to be completed by the end of the third quarter. On May 17, 2005, NVI Mining Ltd. ("NVI"), a wholly-owned subsidiary of the Company, entered into a contract (the "Prepayment Facility") with a customer whereby the customer made a prepayment of U.S.$5,000,000 against future deliveries of zinc concentrate for the years 2005 to 2009. (See note 5 to the interim financial statements.) On July 12, 2004, the Company and its wholly-owned subsidiary CanZinco Ltd. signed a revised letter of intent ("LOI") with Forest Gate Resources Ltd. and its wholly-owned subsidiary, Blue Note Metals Inc., regarding the acquisition of the Caribou and Restigouche mines. Under the terms of the LOI, after raising sufficient funds, Blue Note Metals Inc. will acquire the Caribou and Restigouche mines by replacing the reclamation deposits of approximately $5.9 million with the New Brunswick government and issuing to CanZinco a $15 million convertible debenture with a maturity of 5 years. (See July 12, 2005 press release for full details.) On July 20, 2005, NVI signed an indicative term sheet with Auramet Trading LLC ("Auramet") whereby Auramet will arrange and place a Gold Based Pre-production Advance Facility (the "Facility"). The lender of the Facility will be Natexis Banques Popularies of France. Under the terms of the Facility, NVI would be provided with up to U.S.$10,000,000 gold equivalent. The funds will be used to support reclamation and or similar working capital requirements at NVI's Myra Falls mine and for general corporate purposes. 4 OUTLOOK Management continues to focus on profitable growth. The second quarter and first half results continue to build on the positive trend established in 2004 with solid production from the operations, which is expected for the remainder of 2005. It is the opinion of management that the current market conditions for all base metal commodities will continue through 2005 and 2006. Accordingly, investments will continue to be made at the operations to increase productivity to lower costs and secure our future through prudent capital and exploration expenditures. Work continues on both mining and milling improvements at the Myra Falls mine. Phase I of the surface ramp, required to improve ventilation as well as provide exploration platforms for underground drilling continues. The first drill stations in this ramp will be cut in the third quarter. Metallurgical improvements have resulted in gold gravity recoveries doubling and additionally a test lead flash cell was received and installed in the grinding circuit. A decision on the installation of a lead circuit to remove lead from the copper concentrate will be made in the fourth quarter of 2005. The expansion of the plant at El Toqui is a success with throughput now achieving a sustainable rate of 520,000 tonnes per year. Exploration continues to be a focus at El Toqui. The site geochemical results from Concordia indicate several exciting anomalous areas on strike which could extend the known mineralization further to the north and west. In the Asseradero zone further exploration programs to develop this high gold grade zone will be conducted from underground platforms. As noted earlier, the Company decided to cease operations at Bouchard-Hebert. The Company will undertake an aggressive exploration program over the next two years on its land package which is very favourably placed within the Blake River formation. The feasibility study update on the Langlois project is expected to be fully reviewed and a decision made by the end of the third quarter in 2005. As always, Management will continue to seek out all opportunities to increase the Company's reserve and resource base and production profile in the base metal sector. STATEMENT OF OPERATIONS REVIEW GROSS SALES REVENUE For the second quarter ended June 30, 2005, gross sales revenue was $92.4 million on 118,022 tonnes of concentrate sold compared with $52.5 million on 76,061 tonnes sold in the same period of 2004. During the first six months of 2005, gross sales revenue was $183.7 million on 226,530 tonnes of concentrate sold compared with $112.6 million on 162,090 tonnes sold for the same period in 2004. The gross sales revenue in both the second quarter and first six months of 2005 was higher than the same periods in 2004 due to the higher tonnes of concentrate sold and a higher realized metals prices, offset partially by the stronger Canadian dollar (see tables below).
- ------------------------------------------------- ------------------------------- ----------------------------- SALES BY CONCENTRATE FIRST SIX MONTHS SECOND QUARTER - ------------------------------------------------- ------------------------------- ----------------------------- 2005 2004 2005 2004 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Zinc - tonnes 177,187 144,375 102,492 66,428 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Lead - tonnes 18,135 8,701 8,998 4,601 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Copper - tonnes 31,208 9,014 6,532 5,032 - ------------------------------------------------- -------------- ---------------- -------------- -------------- TOTAL TONNES SOLD 226,530 162,090 118,022 76,061 - ------------------------------------------------- -------------- ---------------- -------------- -------------- - ------------------------------------------------- ------------------------------- ----------------------------- REALIZED PRICES FIRST SIX MONTHS SECOND QUARTER - ------------------------------------------------- ------------------------------- ----------------------------- 2005 2004 2005 2004 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Zinc (U.S.$/tonne) 1,253 1,034 1,252 1,006 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Lead (U.S.$/tonne) 980 849 990 809 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Copper (U.S.$/tonne) 3,275 2,641 3,284 2,690 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Gold (U.S.$/oz) 431 404 427 400 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Silver (U.S.$/oz) 7.03 5.30 7.04 5.38 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Exchange rate (U.S.$1.00/Cdn$) average 1.2351 1.3367 1.2429 1.3596 - ------------------------------------------------- -------------- ---------------- -------------- --------------
5
- ------------------------------------------------- ------------------------------- ----------------------------- AVERAGE LME METAL PRICES FIRST SIX MONTHS SECOND QUARTER - ------------------------------------------------- ------------------------------- ----------------------------- 2005 2004 2005 2004 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Zinc (U.S.$/tonne) 1,294 1,049 1,273 1,028 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Lead (U.S.$/tonne) 982 827 986 811 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Copper (U.S.$/tonne) 3,327 2,759 3,387 2,788 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Gold (U.S.$/oz) 428 401 427 393 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Silver (U.S.$/oz) 7.07 6.45 7.15 6.25 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Exchange rate (U.S.$1.00/Cdn$) average 1.235 1.335 1.244 1.360 - ------------------------------------------------- -------------- ---------------- -------------- -------------- - ------------------------------------------------- ------------------------------- ----------------------------- SALES BY PAYABLE METAL FIRST SIX MONTHS SECOND QUARTER - ------------------------------------------------- ------------------------------- ----------------------------- 2005 2004 2005 2004 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Zinc - tonnes 78,272 65,251 45,205 29,733 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Lead - tonnes 11,120 5,100 5,697 2,481 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Copper - tonnes 6,282 1,267 1,198 689 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Gold - ounces 23,121 12,698 10,256 5,449 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Silver - ounces 1,301,774 565,351 535,994 233,373 - ------------------------------------------------- -------------- ---------------- -------------- -------------- - ------------------------------------------------- ------------------------------- ----------------------------- GROSS SALES REVENUE BY METAL ($ millions) FIRST SIX MONTHS SECOND QUARTER - ------------------------------------------------- ------------------------------- ----------------------------- 2005 2004 2005 2004 ================================================= ============== ================ ============== ============== Zinc (U.S.$) 98.1 67.5 56.6 29.9 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Lead (U.S.$) 10.9 4.3 5.6 2.0 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Copper (U.S.$) 20.6 3.3 3.9 1.9 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Gold (U.S.$) 10.0 5.1 4.4 2.2 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Silver (U.S.$) 9.2 3.3 3.8 1.3 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Hedge settlements & mark-to-market adjustments 0 0.7 0 1.2 - ------------------------------------------------- -------------- ---------------- -------------- -------------- TOTAL GROSS SALES REVENUE (U.S.$) 148.7 84.2 74.3 38.6 - ------------------------------------------------- -------------- ---------------- -------------- -------------- Realized exchange rate 1.2351 1.3367 1.2429 1.3596 - ------------------------------------------------- -------------- ---------------- -------------- -------------- TOTAL GROSS SALES REVENUE (C$) 183.7 112.6 92.4 52.5 - ------------------------------------------------- -------------- ---------------- -------------- --------------
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 transactions have been entered into in 2005 and no positions were outstanding at December 31, 2004. NET REVENUE For the second quarter of 2005, net revenue (gross sales revenue less treatment charges, freight and marketing costs) increased by 66 percent to $57.6 million from $34.6 million in the same period in 2004. The 55 percent increase in tonnes of concentrate sold, (118,022 versus 76,061) and at higher metal prices, partially offset by higher unit treatment charges and higher freight costs, were the main reasons for the higher net revenue. Treatment charges, (the amount paid to smelters for refining concentrates to produce metal) shipping and marketing costs per tonne of concentrate increased to $294 from $235 due to the impact of the price escalators triggered by the higher metal prices and higher freight costs. For the six months ended June 30, 2005, net revenue increased by 61 percent to $118.9 million compared with $74.0 million in the same period of 2004. The increase in tonnes of concentrate sold, (226,530 versus 162,090) 40 percent more, at higher metal prices, partially offset by higher unit treatment charges and freight costs were the main reasons for the higher net revenue. Treatment charges, shipping and marketing costs per tonne of concentrate increased to $286 from $239 due to the impact of the price escalators triggered by the higher metal prices and higher freight costs. OPERATING COSTS Operating costs were $51.1 million for the second quarter of 2005 compared with $25.8 million in the same period of 2004, with the average cost per tonne of concentrate sold increasing to $433 from $339. For the six months ended June 30, 2005, operating costs were $104.4 million compared with $58.8 million for the first six months of 2004, the average cost per tonne of concentrate sold increasing to $461 compared with $363. The average operating cost per tonne of concentrate was higher in 2005 due to the inclusion of the higher cost Myra Falls mine, a proportionally higher volume of copper concentrate was sold in 2005 which has a higher allocated production cost and the impact of the revision of the estimate for the reclamation at the Nanisivik mine of $2.1 million 6
- ---------------------------------------------------------- ------------------------- ------------------------ OPERATING COSTS ($ millions) FIRST SIX MONTHS SECOND QUARTER - ---------------------------------------------------------- ------------------------- ------------------------ 2005 2004 2005 2004 ========================================================== ============= =========== =========== ============ Bouchard-Hebert 11.7 21.3 3.1 8.2 - ---------------------------------------------------------- ------------- ----------- ----------- ------------ Bougrine 12.7 15.6 7.9 7.4 - ---------------------------------------------------------- ------------- ----------- ----------- ------------ El Mochito 20.4 14.0 12.1 6.1 - ---------------------------------------------------------- ------------- ----------- ----------- ------------ El Toqui 14.9 6.9 7.2 3.5 - ---------------------------------------------------------- ------------- ----------- ----------- ------------ Myra Falls 42.0 - 18.5 - - ---------------------------------------------------------- ------------- ----------- ----------- ------------ Other Properties 2.7 1.0 2.3 0.6 - ---------------------------------------------------------- ------------- ----------- ----------- ------------ TOTAL 104.4 58.8 51.1 25.8 - ---------------------------------------------------------- ------------- ----------- ----------- ------------
OTHER EXPENSES (INCOME) Other expenses were $1.8 million in the second quarter of 2005 compared with $3.7 million for the same period in 2004. For the six months ended June 2005, other expenses were $2.9 million compared with $6.2 million in the same period of 2004.
- ---------------------------------------------------------- ------------------------- ----------------------- OTHER EXPENSES (INCOME) ($ millions) FIRST SIX MONTHS SECOND QUARTER - ---------------------------------------------------------- ------------------------- ----------------------- 2005 2004 2005 2004 ========================================================== ============= =========== =========== =========== General and administrative 4.0 4.6 2.0 2.8 - ---------------------------------------------------------- ------------- ----------- ----------- ----------- Stock-based compensation 0.4 0.9 0.2 0.7 - ---------------------------------------------------------- ------------- ----------- ----------- ----------- Interest and financing 0.5 0.2 0.3 0.0 - ---------------------------------------------------------- ------------- ----------- ----------- ----------- Investment and other income (1.9) (0.4) (0.6) (0.1) - ---------------------------------------------------------- ------------- ----------- ----------- ----------- Foreign exchange loss (gain) on U.S. dollar denominated (0.2) 0.4 (0.2) 0.0 debt - ---------------------------------------------------------- ------------- ----------- ----------- ----------- Foreign exchange loss other 0.1 0.5 0.1 0.3 - ---------------------------------------------------------- ------------- ----------- ----------- ----------- TOTAL OTHER EXPENSES (INCOME) 2.9 6.2 1.8 3.7 - ---------------------------------------------------------- ------------- ----------- ----------- -----------
GENERAL AND ADMINISTRATIVE General and administrative expenses were $2.0 million for the second quarter of 2005 compared with $2.8 million in 2004 and $4.0 million for the first six months of 2005 compared with $4.6 million in 2004. The main reasons for the decrease in the first six months of 2005 were lower capital taxes ($0.6 million) and a lower accrual for the Company's incentive plan ($0.3 million) partially offset by higher audit and legal fees and costs related to the ongoing work to make the Company Sarbanes Oxley compliant ($0.4 million). STOCK-BASED COMPENSATION Stock-based compensation reflects the cost, as required under CICA 3870, of issuing employee stock-based compensation. For the first 6 months of 2005 the cost decreased to $0.4 million from $0.8 million in 2004 as fewer stock options were issued in the period. This is a non-cash cost. INTEREST AND FINANCING Interest and financing increased by $0.2 million and $0.3 million in the second quarter and first six months of 2005 respectively compared to 2004 as interest expense was accrued on the royalty obligation related to the Red Mile transaction that the Company entered into in December 2004. (See note 9 to the 2004 Consolidated Financial Statements.) INVESTMENT AND OTHER INCOME Investment and other income increased by $0.4 million and $1.5 million in the second quarter and first six months of 2005 respectively compared to 2004, as interest income was accrued on the promissory note related to the Red Mile transaction that the Company entered into in December 2004 (see note 9 to the 2004 Consolidated Financial Statements) and as a result the 7 disposition of the Yukon Zinc shares in the first and second quarters of 2005 that the Company had held in short-term investments at the end of 2004. FOREIGN EXCHANGE LOSS (GAIN) ON U.S. DOLLAR DENOMINATED DEBT Foreign exchange gain on U.S. dollar denominated debt of $0.2 in the second quarter of 2005 represents the gain on the U.S. dollar debt entered into in May of 2005, reflecting the weakening of the Canadian dollar in the quarter relative to the U.S. dollar debt. 8 OTHER FOREIGN EXCHANGE LOSS Other foreign exchange loss represents the loss that the Company incurred on its non Canadian dollar bank balances. OTHER NON-PRODUCING PROPERTY COSTS Other non-producing property costs, which include care and maintenance costs for the Caribou, Langlois, Bouchard-Hebert and Nanisivik properties, were $2.5 million in the second quarter of 2005 compared with $1.2 million in the second quarter of 2004 and $5.5 million for the first six months of 2005 compared to $2.5 million in 2004. The increase in 2005 was due to the closure of the Bouchard-Hebert mine in February 2005 and higher than expected holding costs at the Nanisivik mine. 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, decreased by $8.2 million dollars in the second quarter of 2005 to $3.8 million from $12.0 million in the same period of 2004. For the first half of 2005, the cash provided from operating activities decreased by $7.7 million to $14.0 million, from $21.7 million in the first six months of 2004. The reason for the decrease in cash provided from operating activities was the higher reclamation expenditures at Nanisivik in 2005 compared with 2004. Also, the Company incurred reclamation expenditures for its newly acquired Myra Falls mine.
- ---------------------------------------------------------- ------------------------- ----------------------- CASH PROVIDED FROM OPERATING ACTIVITIES (before changes in non-cash working capital items) ($ millions) FIRST SIX MONTHS SECOND QUARTER - ---------------------------------------------------------- ------------------------- ----------------------- 2005 2004 2005 2004 ========================================================== ============= =========== ========== ============ INCOME (LOSS) FROM MINING ACTIVITIES 14.5 15.2 6.5 8.8 - ---------------------------------------------------------- ------------- ----------- ---------- ------------ Other income (expenses) (2.9) (6.2) (1.8) (3.7) - ---------------------------------------------------------- ------------- ----------- ---------- ------------ Other non-producing property income costs (5.5) (2.4) (2.5) (1.1) - ---------------------------------------------------------- ------------- ----------- ---------- ------------ Income and mining taxes 0.4 - 0.2 0.4 - ---------------------------------------------------------- ------------- ----------- ---------- ------------ NET EARNINGS (LOSS) 6.5 6.6 2.4 4.4 - ---------------------------------------------------------- ------------- ----------- ---------- ------------ Reclamation & closure expenditures (11.1) (0.5) (8.7) (0.2) - ---------------------------------------------------------- ------------- ----------- ---------- ------------ Non-cash expenses 18.6 15.6 10.1 7.8 - ---------------------------------------------------------- ------------- ----------- ---------- ------------ CASH PROVIDED FROM OPERATING ACTIVITIES (BEFORE CHANGES IN NON-CASH WORKING CAPITAL ITEMS) 14.0 21.7 3.8 12.0 - ---------------------------------------------------------- ------------- ----------- ---------- ------------
LIQUIDITY AND FINANCIAL POSITION REVIEW WORKING CAPITAL Working capital was $34.9 million at June 30, 2005, compared with $36.6 million at the end of 2004, a reduction of $1.7 million. Current assets were lower by $12.5 million due mainly to a reduction of concentrate inventories. Current liabilities were lower by $10.8 million due mainly to reductions in accounts payable and the current portion of reclamation and closure cost accruals, offset partially by an increase in short-term debt. RESTRICTED CASH AND RECLAMATION DEPOSITS At June 30, 2005, the Company had a total of $13.9 million in restricted cash ($6.3 million) and reclamation deposits ($7.6 million). $2.7 million of the restricted cash was returned to the Company in July 2005. The balance of $11.2 million, $7.7 million of which the Company funded in 2005, was allocated as follows:
JURISDICTION LOCATION $ MILLION PURPOSE Province of Quebec Bouchard-Hebert & Langlois $5.1 Reclamation Security Province of New Brunswick Caribou mine $5.9 Reclamation Security Dept. of Indian & Northern Affairs Nanisivik mine $0.2 Operating Permit TOTAL $11.2
9 The net restricted cash of $3.6 million (after the return of the $2.7 million) represents 70% of the funds that will be used for the reclamation work at the Bouchard-Hebert mine over the next twelve months, and the $0.2 million related to the Nanisivik mine operating permit. The $5.9 million deposited with the Province of New Brunswick will be returned to the Company upon the completion of the sale of the Caribou and Restigouche mines to Blue Note Metals Inc. DEBT Total debt was $8.1 million at June 30, 2005, up from $1.7 million at the end of 2004. The Company entered into a concentrate prepayment contract (the "Prepayment Facility") with a customer in May 2005 whereby the customer advanced the Company U.S.$5.0 million against future deliveries of zinc concentrate. The Prepayment Facility is repayable in eight equal instalments each six months commencing July 1, 2005 (see note 6 to the interim financial statements.) On July 20, 2005, NVI signed an indicative term sheet with Auramet Trading LLC ("Auramet") whereby Auramet will arrange and place a Gold Based Pre-production Advance Facility (the "Facility"). The lender of the Facility will be Natexis Banques Popularies of France. Under the terms of the Facility, NVI would be provided with up to U.S.$10,000,000 gold equivalent (sufficient gold would be borrowed and then sold on the advance date at the then spot gold price to provide the dollar value of the Facility) on a date no later than August 24, 2005. The term of the Facility will be 12 months with six principal payments commencing October 2005 and ending August 2006. The principal repayments will be in the form of gold. The interest rate will be at the Gold Base Rate plus 2.5% and paid monthly in arrears in U.S. dollars. The funds will be used to support reclamation and/or similar working capital requirements at NVI's Myra Falls mine and for general corporate purposes. Security for the Facility will be a charge on the Myra Falls mine's copper concentrate inventory and related smelter accounts receivable; an assignment of the copper smelting contract for the Myra Falls mine production; a cash collateral account; and, unsecured guarantees of the Company and NVI Holdings Ltd. The finalization of the Facility is subject to satisfactory documentation. RECLAMATION AND CLOSURE COSTS Reclamation and closure costs represent the Company's obligation for reclamation and severance costs at its mine sites. At June 30, 2005, total accrued reclamation and closure costs were $58.2 million compared to $63.8 million at the December 31, 2004. Of the $58.2 million, $17.7 million is classified as current and is expected to be spent over the next 12 months at Nanisivik, Bouchard-Hebert, Bougrine and Myra Falls. The Company incurred expenditures of $11.1 million in reclamation and closure cost in the first six months of 2005 compared to only $0.5 million in the same period of 2004. EQUITY At June 30, 2005, the Company had 367.4 million issued and outstanding Common Shares compared with 363.2 million at December 31, 2004. The 4.2 million share increase resulted from the exercise of employee options and bank warrants and shares issued under the employee share purchase plan. Shareholders' equity was $151.2 million at June 30, 2005, compared with $141.4 million at December 31, 2004, an increase of $9.8 million, reflecting net earnings of $6.5 million, proceeds from equity issued of $1.8 million, an increase in the cumulative translation adjustment of $1.6 million and a decrease in the contributed surplus of $0.1 million. CAPITAL EXPENDITURES Total capital expenditures were $10.6 million in the second quarter and $19.6 million for the first six months compared with $11.5 million in the first six months of 2004. The majority of the capital was spent as follows: o El Mochito - $4.1 million, including $1.9 million on the construction of the new Soledad tailings storage facility, $600,000 on mine development, $190,000 on underground diamond drilling and the remainder on mine and mill equipment repair and replacement. 10 o El Toqui - $4.2 million, including $730,000 million on development, $1.5 million on mine haulage trucks, $1 million on surface exploration and the remainder on equipment repair and replacement. o Myra Falls - $7.7 million, including $3.8 million in underground development, $1.3 million on the surface ramp, $1.5 million in mine equipment and $400,000 in generation upgrades. o Langlois - $2.7 million for preproduction work and the excavation of loading pockets in the shaft. 11 FINANCIAL CAPABILITY With existing working capital, planned metal production, current metal prices and current U.S.$/C$ exchange rate, the Company is positioned to carry out its operating and capital programs for the balance of 2005, as presently contemplated. But the need to cash fund reclamation security requirements in Quebec, New Brunswick and British Columbia, and the higher than estimated cost of the Nanisivik reclamation has necessitated that the Company secure a short-term gold-based preproduction advance as described in the Highlights. The Company's financial capability is sensitive to metal prices and the U.S.$/C$ exchange rate (see sensitivity table in the Company's 2004 annual report). OPERATING REVIEW The following tables summarize financial results for each of the Company(1)s operating mines.
- ----------------------------- ----------------- -------------------- -------------------- ------------------- OPERATING REVIEW FOR THE Contribution SIX MONTHS ENDED (Loss) From Mining Capital JUNE 30 Net Revenue Activities(1) Non-cash Costs(2) Expenditures - ----------------------------- ----------------- -------------------- -------------------- ------------------- ($ millions) 2005 2004 2005 2004 2005 2004 2005 2004 - ----------------------------- --------- ------- --------- ---------- --------- ---------- --------- --------- Bouchard-Hebert 18.3 33.9 6.5 12.6 1.4 4.2 0.7 0.8 - ----------------------------- --------- ------- --------- ---------- --------- ---------- --------- --------- Bougrine 15.5 12.6 2.9 (3.0) 2.0 4.6 0.1 0.4 - ----------------------------- --------- ------- --------- ---------- --------- ---------- --------- --------- El Mochito 29.3 19.3 8.9 5.3 3.1 2.0 4.1 3.1 - ----------------------------- --------- ------- --------- ---------- --------- ---------- --------- --------- El Toqui 12.2 7.22 (2.7) 0.3 2.6 1.7 4.2 5.5 - ----------------------------- --------- ------- --------- ---------- --------- ---------- --------- --------- Myra Falls 43.6 - 1.6 - 6.2 0 7.7 - - ----------------------------- --------- ------- --------- ---------- --------- ---------- --------- --------- Nanisivik - - (2.4) (0.3) 2.4 0.3 - - - ----------------------------- --------- ------- --------- ---------- --------- ---------- --------- --------- Langlois - - - - - - 2.7 1.2 - ----------------------------- --------- ------- --------- ---------- --------- ---------- --------- --------- Others - 0.9(3) (0.3) 0.3 0.3 0.6 0.1 0.5 - ----------------------------- --------- ------- --------- ---------- --------- ---------- --------- --------- Total 118.9 73.9 14.5 15.2 18.0 13.4 19.6 11.5 - ----------------------------- --------- ------- --------- ---------- --------- ---------- --------- --------- - ---------------------------- ------------------ -------------------- -------------------- ------------------- OPERATING REVIEW FOR THE Contribution QUARTER ENDED JUNE 30 (Loss) From Mining Capital Net Revenue Activities(1) Non-cash Costs(2) Expenditures - ---------------------------- ------------------ -------------------- -------------------- ------------------- ($ millions) 2005 2004 2005 2004 2005 2004 2005 2004 - ---------------------------- --------- -------- --------- ---------- --------- ---------- --------- --------- Bouchard-Hebert 5.0 14.2 2.0 6.0 0.2 2.1 0.3 0.4 - ---------------------------- --------- -------- --------- ---------- --------- ---------- --------- --------- Bougrine 10.1 5.6 2.2 (1.9) 0.9 2.7 - 0.3 - ---------------------------- --------- -------- --------- ---------- --------- ---------- --------- --------- El Mochito 17.5 9.4 5.4 3.3 1.5 1.0 2.3 2.2 - ---------------------------- --------- -------- --------- ---------- --------- ---------- --------- --------- El Toqui 6.2 3.8 (1.0) 0.4 1.5 0.9 2.4 2.7 - ---------------------------- --------- -------- --------- ---------- --------- ---------- --------- --------- Myra Falls 18.8 - 0.3 - 3.0 - 4.0 - - ---------------------------- --------- -------- --------- ---------- --------- ---------- --------- --------- Nanisivik - - (2.2) (0.2) 2.2 0.2 - - - ---------------------------- --------- -------- --------- ---------- --------- ---------- --------- --------- Langlois - - - - - - 1.6 0.8 - ---------------------------- --------- -------- --------- ---------- --------- ---------- --------- --------- Others - 1.6(3) (0.2) 1.2 0.1 0.4 - 0.1 - ---------------------------- --------- -------- --------- ---------- --------- ---------- --------- --------- Total 57.6 34.6 6.5 8.8 9.4 7.3 10.6 6.5 - ---------------------------- --------- -------- --------- ---------- --------- ---------- --------- ---------
1) After non-cash costs. 2) Depreciation, depletion and reclamation costs. 3) Hedge settlements and mark-to-market of outstanding hedge positions. NON-GAAP RECONCILIATION
- ----------------------------------------------------- ---------------------------- -------------------------- NON-GAAP RECONCILIATION OF TOTAL CASH COSTS PER POUND OF PAYABLE ZINC TO CONSOLIDATED FINANCIAL FIRST SIX MONTHS SECOND QUARTER STATEMENTS - ----------------------------------------------------- -------------- ------------- ------------ ------------- 2005 2004 2005 2004 ===================================================== ============== ============= ============ ============= By-Product Credit ($ millions) - ----------------------------------------------------- -------------- ------------- ------------ ------------- Gross sales revenue per financial statements 183.7 112.6 92.4 52.5 - ----------------------------------------------------- -------------- ------------- ------------ ------------- Less zinc sales revenue (105.6) (90.9) (45.9) (45.3) - ----------------------------------------------------- -------------- ------------- ------------ ------------- Inventory adjustment (17.4) 7.5 (18.7) 7.8 - ----------------------------------------------------- ============== ============= ============ ============= 60.7 29.2 27.8 15.0 - ----------------------------------------------------- ============== ============= ============ ============= - ----------------------------------------------------- -------------- ------------- ------------ ------------- Treatments Charges ($ millions) - ----------------------------------------------------- -------------- ------------- ------------ ------------- Per financial statements 64.7 38.7 34.8 17.8 - ----------------------------------------------------- -------------- ------------- ------------ ------------- Inventory adjustment (4.8) 3.3 (9.9) 1.8 - ----------------------------------------------------- ============== ============= ============ ============= 59.9 42.0 24.9 19.6 - ----------------------------------------------------- ============== ============= ============ =============
12
- ----------------------------------------------------- ---------------------------- -------------------------- NON-GAAP RECONCILIATION OF TOTAL CASH COSTS PER POUND OF PAYABLE ZINC TO CONSOLIDATED FINANCIAL FIRST SIX MONTHS SECOND QUARTER STATEMENTS - ----------------------------------------------------- -------------- ------------- ------------ ------------- Direct Operating Costs ($ millions) - ----------------------------------------------------- -------------- ------------- ------------ ------------- Per financial statements 86.4 45.3 41.6 18.6 - ----------------------------------------------------- -------------- ------------- ------------ ------------- Inventory adjustment (14.8) 4.2 (7.5) 6.3 - ----------------------------------------------------- ============== ============= ============ ============= 71.6 49.5 34.1 24.9 - ----------------------------------------------------- ============== ============= ============ ============= - ----------------------------------------------------- -------------- ------------- ------------ ------------- Total Cash Costs - Canadian ($ millions) 70.8 62.3 31.2 29.5 - ----------------------------------------------------- -------------- ------------- ------------ ------------- - ----------------------------------------------------- -------------- ------------- ------------ ------------- Exchange rate C$/U.S.$ 1.2351 1.3390 1.2441 1.3597 - ----------------------------------------------------- -------------- ------------- ------------ ------------- - ----------------------------------------------------- -------------- ------------- ------------ ------------- Total Cash Costs - U.S. ($ millions) 57.4 46.5 25.0 21.7 - ----------------------------------------------------- -------------- ------------- ------------ ------------- - ----------------------------------------------------- -------------- ------------- ------------ ------------- Zinc pounds produced (millions) 150.3 146.2 69.5 74.0 - ----------------------------------------------------- -------------- ------------- ------------ ------------- - ----------------------------------------------------- -------------- ------------- ------------ ------------- Production Cash Cost Per Pound of Payable Zinc (U.S.$) - ----------------------------------------------------- -------------- ------------- ------------ ------------- By-product credit (0.33) (0.15) (0.32) (0.15) - ----------------------------------------------------- -------------- ------------- ------------ ------------- Treatment and marketing costs 0.32 0.21 0.29 0.20 - ----------------------------------------------------- -------------- ------------- ------------ ------------- Direct operating costs 0.39 0.26 0.39 0.25 - ----------------------------------------------------- ============== ============= ============ ============= Total 0.38 0.32 0.36 0.30 - ----------------------------------------------------- ============== ============= ============ ============= - ----------------------------------------------------- ---------------------------- -------------------------- RECONCILIATION OF MINESITE OPERATING CASH COSTS PER TONNE MILLED TO CONSOLIDATED FINANCIAL FIRST SIX MONTHS SECOND QUARTER STATEMENTS - ----------------------------------------------------- -------------- ------------- ------------ ------------- 2005 2004 2005 2004 - ----------------------------------------------------- -------------- ------------- ------------ ------------- Direct Operating Costs ($ millions) - ----------------------------------------------------- -------------- ------------- ------------ ------------- Per financial statements 86.4 45.3 41.6 18.6 - ----------------------------------------------------- -------------- ------------- ------------ ------------- Inventory adjustment (14.8) 4.2 (7.5) 6.3 - ----------------------------------------------------- ============== ============= ============ ============= Minesite Operating Cash Costs - Canadian 71.6 49.5 34.1 24.9 ($ millions) - ----------------------------------------------------- ============== ============= ============ ============= - ----------------------------------------------------- -------------- ------------- ------------ ------------- Exchange rate C$/U.S.$ 1.2351 1.3390 1.2441 1.3597 - ----------------------------------------------------- -------------- ------------- ------------ ------------- - ----------------------------------------------------- -------------- ------------- ------------ ------------- Minesite Operating Cash Costs - U.S. ($ millions) 58.0 37.0 27.4 18.2 - ----------------------------------------------------- -------------- ------------- ------------ ------------- - ----------------------------------------------------- -------------- ------------- ------------ ------------- Tonnes milled 1,359,542 1,216,266 617,163 607,106 - ----------------------------------------------------- -------------- ------------- ------------ ------------- - ----------------------------------------------------- -------------- ------------- ------------ ------------- Minesite Operating Cash Costs Per Tonne Milled 42.6 30.4 44.3 30.1 (U.S.$) - ----------------------------------------------------- -------------- ------------- ------------ -------------
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 Aggregate production of zinc in concentrate in the second quarter ended June 30, 2005 was 82.9 million pounds compared with 87.9 million pounds in the second quarter of 2004. The reduced zinc production during the quarter reflects lower zinc head grades at the Bougrine mine and the end of production at the now closed Bouchard-Hebert mine. 13
- ---------------------------------------------------- ---------------------------- -------------------------- Zinc Production (million pounds of zinc contained in concentrate) FIRST SIX MONTHS SECOND QUARTER ---------------------------- -------------------------- 2005 2004 2005 2004 ==================================================== ============= ============== ============ ============= Myra Falls 62.3 - 31.9 - - ---------------------------------------------------- ------------- -------------- ------------ ------------- Bouchard-Hebert 13.9 67.5 - 36.0 - ---------------------------------------------------- ------------- -------------- ------------ ------------- Bougrine 25.6 31.5 11.8 16.5 - ---------------------------------------------------- ------------- -------------- ------------ ------------- El Mochito 46.2 43.6 24.2 20.9 - ---------------------------------------------------- ------------- -------------- ------------ ------------- El Toqui 30.2 30.7 15.0 14.5 - ---------------------------------------------------- ------------- -------------- ------------ ------------- Total zinc production 178.2 173.3 82.9 87.9 - ---------------------------------------------------- ------------- -------------- ------------ -------------
Tonnes milled for the second quarter of 2005 increased to 617,163 tonnes from 607,106 tonnes in the same period in 2004 reflecting higher tonnage milled at the El Mochito and the El Toqui mines, however, the consolidated average zinc head grade decreased to 6.9 percent from 7.4 percent. Zinc concentrate production decreased to 71,232 tonnes in the second quarter of 2005 from 74,246 tonnes in the same period in 2004 due to the closure of the Bouchard-Hebert mine, in February, and lower zinc concentrate production from the Bougrine mine due to lower zinc head grades. The Myra Falls mine produced less zinc concentrate in the first half of 2005 than the Bouchard-Hebert mine produced in the same period in 2004. Lead concentrate production increased to 9,140 tonnes in 2005 from 5,105 tonnes in 2004 due to higher lead head grades at Bougrine and El Mochito. Copper concentrate production increased to 7,530 tonnes in the second quarter of 2005 from 5,773 tonnes in the same period in 2004 due to the inclusion of the Myra Falls mine, which produced more copper concentrate during the second quarter of 2005 than the Bouchard-Hebert mine produced in the second quarter of 2004. Gold production in concentrate increased to 20,099 ounces in the second quarter of 2005 from 8,917 ounces in the same period in 2004 due to higher gold production from the Asseradero zone at the El Toqui mine, and higher gold production from the Myra Falls.
- ---------------------------------------------------- ---------------------------- -------------------------- Production Statistics - All Mines FIRST SIX MONTHS SECOND QUARTER ---------------------------- -------------------------- 2005 2004 2005 2004 ==================================================== ============= ============== ============ ============= Ore Milled (tonnes) 1,359,542 1,216,266 617,163 607,106 - ---------------------------------------------------- ------------- -------------- ------------ ------------- Zinc (%) 6.8 7.3 6.9 7.4 - ---------------------------------------------------- ------------- -------------- ------------ ------------- Concentrate Production - ---------------------------------------------------- ------------- -------------- ------------ ------------- Zinc (tonnes) 153,038 146,969 71,232 74,246 - ---------------------------------------------------- ------------- -------------- ------------ ------------- Copper (tonnes) 21,860 11,900 7,530 5,773 - ---------------------------------------------------- ------------- -------------- ------------ ------------- Lead (tonnes) 15,519 10,244 9,140 5,105 - ---------------------------------------------------- ------------- -------------- ------------ ------------- Gold (tonnes) 1,624 1,865 880 991 - ---------------------------------------------------- ------------- -------------- ------------ ------------- Metal in Concentrates - ---------------------------------------------------- ------------- -------------- ------------ ------------- Zinc (tonnes) 80,803 78,610 37,658 39,837 - ---------------------------------------------------- ------------- -------------- ------------ ------------- Copper (tonnes) 4,979 1,804 6,111 883 - ---------------------------------------------------- ------------- -------------- ------------ ------------- Lead (tonnes) 10,415 6,855 1,868 3,452 - ---------------------------------------------------- ------------- -------------- ------------ ------------- Silver (ounces) 1,606,757 1,069,935 775,133 505,166 - ---------------------------------------------------- ------------- -------------- ------------ ------------- Gold (ounces) 40,650 15,308 20,099 8,917 - ---------------------------------------------------- ------------- -------------- ------------ ------------- Minesite Operating Costs - ---------------------------------------------------- ------------- -------------- ------------ ------------- Per tonne milled (U.S.$) 42.64 30.42 44.34 30.09 - ---------------------------------------------------- ------------- -------------- ------------ ------------- Total Cash Costs - ---------------------------------------------------- ------------- -------------- ------------ ------------- Per lb. payable zinc (U.S.$) 0.38 0.32 0.36 0.30 - ---------------------------------------------------- ------------- -------------- ------------ -------------
14 MYRA FALLS MINE Breakwater acquired the Myra Falls operation on July 23, 2004. As a result, comparative information is unavailable. Mined and milled tonnage was lower in the second quarter than the first quarter 2005, due to mining delays in the Battle-Gap area caused by ground conditions. This resulted in higher unit costs per tonne milled. Higher zinc head grades resulted in zinc metal production remaining flat.
- -------------------------------------------------- ---------------------------- -------------------------- FIRST SIX MONTHS SECOND QUARTER ---------------------------- -------------------------- 2005 2004 2005 2004 ================================================== ============= ============== ============= ============ Ore Milled (tonnes) 498,183 - 233,707 - - -------------------------------------------------- ------------- -------------- ------------- ------------ Zinc (%) 6.5 - 7.0 - - -------------------------------------------------- ------------- -------------- ------------- ------------ Copper (%) 1.3 - 1.2 - - -------------------------------------------------- ------------- -------------- ------------- ------------ Silver (g/t) 53 - 51 - - -------------------------------------------------- ------------- -------------- ------------- ------------ Gold (g/t) 1.8 - 1.8 - - -------------------------------------------------- ------------- -------------- ------------- ------------ Concentrate Production - -------------------------------------------------- ------------- -------------- ------------- ------------ Zinc (tonnes) 52,904 - 26,664 - - -------------------------------------------------- ------------- -------------- ------------- ------------ Recovery (%) 87.3 - 88.9 - - -------------------------------------------------- ------------- -------------- ------------- ------------ Grade (%) 53.4 - 54.3 - - -------------------------------------------------- ------------- -------------- ------------- ------------ Copper (tonnes) 18,832 - 7,530 - - -------------------------------------------------- ------------- -------------- ------------- ------------ Recovery (%) 70.9 - 67.5 - - -------------------------------------------------- ------------- -------------- ------------- ------------ Grade (%) 23.9 - 24.8 - - -------------------------------------------------- ------------- -------------- ------------- ------------ Gold (tonnes) 17.9 - 9.70 - - -------------------------------------------------- ------------- -------------- ------------- ------------ Recovery (%) 20.5 - 20.1 - - -------------------------------------------------- ------------- -------------- ------------- ------------ Grade (g/t) 10,047 - 8,888 - - -------------------------------------------------- ------------- -------------- ------------- ------------ Metal in Concentrates - -------------------------------------------------- ------------- -------------- ------------- ------------ Zinc (tonnes) 28,265 - 14,471 - - -------------------------------------------------- ------------- -------------- ------------- ------------ Copper (tonnes) 4,509 - 1,868 - - -------------------------------------------------- ------------- -------------- ------------- ------------ Silver (ounces) 700,751 - 303,809 - - -------------------------------------------------- ------------- -------------- ------------- ------------ Gold (ounces) 18,212 - 8,905 - - -------------------------------------------------- ------------- -------------- ------------- ------------ Minesite Operating Costs - -------------------------------------------------- ------------- -------------- ------------- ------------ Per tonne milled (Cdn.$) 72.73 - 76.96 - - -------------------------------------------------- ------------- -------------- ------------- ------------ Total Cash Costs - -------------------------------------------------- ------------- -------------- ------------- ------------ Per lb. payable zinc (U.S.$) 0.45 - 0.46 - - -------------------------------------------------- ------------- -------------- ------------- ------------
MYRA FALLS OUTLOOK During the second quarter of 2005, the Company continued to integrate the Myra Falls mine into the Breakwater organization. Work continued on mine planning and materials handling. A raise bore unit was acquired and overhauled during the quarter and will be taken underground in the third quarter. This machine will be used to bore ventilation raises and ore passes for the Battle-Gap area. Work continued during the quarter on metallurgical improvements in the mill. Test work continued during the quarter on developing a lead concentrate of marketable quality, with the ultimate goal of reducing the quantity of lead reporting to the copper concentrate. A test lead flash flotation cell was received and installed in the grinding circuit during the quarter and test work with this unit will continue in the third quarter. Should this test work prove positive, there would be an increase in revenue from the copper concentrates, where the current quantity of lead is a significant penalty item. Underground exploration work consisting of drift development and diamond drilling continued during the quarter. Diamond drilling is now concentrating on three prospective areas, the Marsh zone to the northwest, the Extension zone to the west of the Battle-Gap mine and 43 Black to the east of the HW mine. 15 BOUCHARD-HEBERT MINE The Bouchard-Hebert mine closed permanently on February 20, 2005.
- -------------------------------------------------- ---------------------------- -------------------------- FIRST SIX MONTHS SECOND QUARTER ---------------------------- -------------------------- 2005 2004 2005 2004 ================================================== ============= ============== ============= ============ Ore Milled (tonnes) 118,933 513,158 - 256,342 - -------------------------------------------------- ------------- -------------- ------------- ------------ Zinc (%) 5.8 6.6 - 7.0 - -------------------------------------------------- ------------- -------------- ------------- ------------ Copper (%) 0.5 0.4 - 0.4 - -------------------------------------------------- ------------- -------------- ------------- ------------ Silver (g/t) 31 28 - 29 - -------------------------------------------------- ------------- -------------- ------------- ------------ Gold (g/t) 1.1 1.0 - 1.0 - -------------------------------------------------- ------------- -------------- ------------- ------------ Concentrate Production - -------------------------------------------------- ------------- -------------- ------------- ------------ Zinc (tonnes) 11,299 55,434 - 29,557 - -------------------------------------------------- ------------- -------------- ------------- ------------ Recovery (%) 91.1 90.7 - 90.9 - -------------------------------------------------- ------------- -------------- ------------- ------------ Grade (%) 55.7 55.2 - 55.2 - -------------------------------------------------- ------------- -------------- ------------- ------------ Copper (tonnes) 3,028 11,900 - 5,773 - -------------------------------------------------- ------------- -------------- ------------- ------------ Recovery (%) 86.5 80.8 - 79.2 - -------------------------------------------------- ------------- -------------- ------------- ------------ Grade (%) 15.5 15.2 - 15.3 - -------------------------------------------------- ------------- -------------- ------------- ------------ Metal in Concentrates - -------------------------------------------------- ------------- -------------- ------------- ------------ Zinc (tonnes) 6,292 30,617 - 16,317 - -------------------------------------------------- ------------- -------------- ------------- ------------ Copper (tonnes) 470 1,804 - 883 - -------------------------------------------------- ------------- -------------- ------------- ------------ Silver (ounces) 40,013 142,948 - 70,561 - -------------------------------------------------- ------------- -------------- ------------- ------------ Gold (ounces) 2,644 8,808 - 4,279 - -------------------------------------------------- ------------- -------------- ------------- ------------ Minesite Operating Costs - -------------------------------------------------- ------------- -------------- ------------- ------------ Per tonne milled (Cdn.$) 30.79 33.00 - 32.06 - -------------------------------------------------- ------------- -------------- ------------- ------------ Total Cash Costs - -------------------------------------------------- ------------- -------------- ------------- ------------ Per lb. payable zinc (U.S.$) 0.27 0.26 - 0.23 - -------------------------------------------------- ------------- -------------- ------------- ------------
BOUCHARD-HEBERT MINE OUTLOOK In accordance with the life-of-mine plan, the Bouchard-Hebert mine closed permanently on February 20, 2005, due to the exhaustion of the known mineral reserves. Reclamation work on the site continued during the quarter consisting of rock removal and covering of the tailings disposal area. The Company has continued to explore the area around the mine, but no economic mineralization in the immediate mine area has been encountered. Based on the results to date, the Company has removed the mobile equipment and some of the underground infrastructure, and has allowed the mine to flood. The Company will continue to explore for mineral deposits on the 7,982 hectares of exploration claims surrounding the mining leases. The concentrator building and equipment will be left intact pending any success in discovering economic mineralization in the near term. BOUGRINE MINE Production of zinc in concentrate decreased by 29 percent in the second quarter of 2005 compared with the second quarter of 2004 due to a reduction in the zinc head grade. The reduced zinc head grade is a result of the planned mining of lower grade stopes and pillars and the lower zinc grade of the ore purchased from a government owned zinc/lead mining operation. Lead grades have increased due to higher lead grades in the mined stopes and pillars and also due to the fact that the purchased ore has a higher lead grade. During the quarter, a total of 10,178 tonnes of purchased ore was processed. 16
- --------------------------------------- -------------------------------- -------------------------------- FIRST SIX MONTHS SECOND QUARTER -------------------------------- -------------------------------- 2005 2004 2005 2004 ======================================= =============== ================ =============== ================ Ore Milled (tonnes) 153,622 161,820 82,515 83,467 - --------------------------------------- --------------- ---------------- --------------- ---------------- Zinc (%) 9.3 10.8 8.1 10.8 - --------------------------------------- --------------- ---------------- --------------- ---------------- Lead (%) 4.1 1.8 4.8 1.8 - --------------------------------------- --------------- ---------------- --------------- ---------------- Concentrate Production - --------------------------------------- --------------- ---------------- --------------- ---------------- Zinc (tonnes) 21,474 26,411 9,767 13,769 - --------------------------------------- --------------- ---------------- --------------- ---------------- Recovery (%) 81.1 82.1 80.2 83.7 - --------------------------------------- --------------- ---------------- --------------- ---------------- Grade (%) 54.0 54.1 54.6 54.3 - --------------------------------------- --------------- ---------------- --------------- ---------------- Lead (tonnes) 8,123 3,405 5,161 1,808 - --------------------------------------- --------------- ---------------- --------------- ---------------- Recovery (%) 84.1 78.5 85.5 79.7 - --------------------------------------- --------------- ---------------- --------------- ---------------- Grade (%) 65.8 65.5 65.9 67.3 - --------------------------------------- --------------- ---------------- --------------- ---------------- Metal in Concentrates - --------------------------------------- --------------- ---------------- --------------- ---------------- Zinc (tonnes) 11,600 14,288 5,334 7,472 - --------------------------------------- --------------- ---------------- --------------- ---------------- Lead (tonnes) 5,347 2,230 3,403 1,217 - --------------------------------------- --------------- ---------------- --------------- ---------------- Minesite Operating Costs - --------------------------------------- --------------- ---------------- --------------- ---------------- Per tonne milled (U.S.$) 40.23 45.54 37.79 45.70 - --------------------------------------- --------------- ---------------- --------------- ---------------- Total Cash Costs - --------------------------------------- --------------- ---------------- --------------- ---------------- Per lb payable zinc (U.S.$) 0.36 0.42 0.30 0.41 - --------------------------------------- --------------- ---------------- --------------- ----------------
BOUGRINE MINE OUTLOOK Consistent with the life of mine plan, the Bougrine mine is expected to cease operations in September 2005. The Company is presently investigating other uses for the Bougrine infrastructure. Closure of the tailings facility will commence once the mine closes. EL MOCHITO MINE Production of zinc metal in concentrate at El Mochito increased by 16 percent in the second quarter of 2005 compared to the same period in 2004, due to higher mine production, higher zinc head grades and higher zinc recovery. The production of lead metal in concentrate increased by 21 percent in the second quarter of 2005 over the same period in 2004 due to an increase in tonnes milled. Silver production increased quarter over quarter due to increased mine production and higher silver head grades. During the quarter, the Company continued its development and exploration programs in various areas of the mine with the most promising to increase reserves and resources, in the Salva Vida Northeast, Santo Nino, and San Jose areas.
- --------------------------------------- -------------------------------- -------------------------------- FIRST SIX MONTHS SECOND QUARTER -------------------------------- -------------------------------- 2005 2004 2005 2004 ======================================= =============== ================ =============== ================ Ore Milled (tonnes) 331,405 314,966 171,464 154,056 - --------------------------------------- --------------- ---------------- --------------- ---------------- Zinc (%) 6.9 6.9 7.0 6.8 - --------------------------------------- --------------- ---------------- --------------- ---------------- Lead (%) 1.9 1.8 1.9 1.8 - --------------------------------------- --------------- ---------------- --------------- ---------------- Silver (g/t) 84 91 90 88 - --------------------------------------- --------------- ---------------- --------------- ---------------- Concentrate Production - --------------------------------------- --------------- ---------------- --------------- ---------------- Zinc (tonnes) 40,020 37,462 21,099 17,947 - --------------------------------------- --------------- ---------------- --------------- ---------------- Recovery (%) 91.9 91.4 91.9 91.0 - --------------------------------------- --------------- ---------------- --------------- ---------------- Grade (%) 52.3 52.8 52.3 52.8 - --------------------------------------- --------------- ---------------- --------------- ---------------- Lead (tonnes) 7,396 6,839 3,979 3,297 - --------------------------------------- --------------- ---------------- --------------- ---------------- Recovery (%) 81.2 81.7 81.0 81.2 - --------------------------------------- --------------- ---------------- --------------- ---------------- Grade (%) 68.5 67.6 68.1 67.8 - --------------------------------------- --------------- ---------------- --------------- ---------------- Metal in Concentrates - --------------------------------------- --------------- ---------------- --------------- ---------------- Zinc (tonnes) 20,950 19,778 11,035 9,475 - --------------------------------------- --------------- ---------------- --------------- ---------------- Lead (tonnes) 5,068 4,625 2,708 2,235 - --------------------------------------- --------------- ---------------- --------------- ---------------- Silver (ounces) 793,714 818,558 438,886 387,386 - --------------------------------------- --------------- ---------------- --------------- ----------------
17
- --------------------------------------- --------------- ---------------- --------------- ---------------- Minesite Operating Costs - --------------------------------------- --------------- ---------------- --------------- ---------------- Per tonne milled (U.S.$) 32.67 32.54 32.25 33.21 - --------------------------------------- --------------- ---------------- --------------- ---------------- Total Cash Costs - --------------------------------------- --------------- ---------------- --------------- ---------------- Per lb. payable zinc (U.S.$) 0.35 0.30 0.27 0.31 - --------------------------------------- --------------- ---------------- --------------- ----------------
EL MOCHITO MINE OUTLOOK The Company continues to develop and explore along the Salva Vida and Santo Nino trends in order to add resources and reserves in these areas. Surface exploration began during the second quarter on several target areas. During the third quarter, geochemical and geophysical surveys will be carried out. During the quarter, construction continued on the new Soledad tailings storage facility where work will continue into 2006. Work was slowed at the end of the quarter due to the onset of the rainy season in Honduras. This was considered in the construction schedule and the project remains on schedule. EL TOQUI MINE The milled tonnage at El Toqui increased in the second quarter of 2005 compared to the same period in 2004 reflecting the changes made to the grinding circuit at the El Toqui mill. The changes were completed in mid-2004. Zinc head grades during the second quarter of 2005 were lower than in the same period in 2004; however, the increased mill throughput resulted in a four percent increase in zinc contained in concentrate. The lower zinc grades were due to lower grade areas being mined, and delays in production from the Estatuas zone. These delays were due to ground problems in the main access ramp and high snowfall in the area of the Estatuas ore body, which hampered trucking of the ore to the mill. These problems have been overcome and production is expected to return to normal in the third quarter. Gold head grades were considerably higher during the second quarter of 2005 than in the same period in 2004, resulting in a significant increase in gold production, also a reflection of mining the higher gold-grade Asseradero area. El Toqui mine provided a negative contribution in the first six months of 2005 as only a small portion of sales in the period were of the high value gold concentrates. It is expected that El Toqui mine will provide a positive contribution in the second six months of 2005 as these gold concentrates are sold. 18
- --------------------------------------- -------------------------------- -------------------------------- FIRST SIX MONTHS SECOND QUARTER -------------------------------- -------------------------------- 2005 2004 2005 2004 ======================================= =============== ================ =============== ================ Ore Milled (tonnes) 257,399 226,322 129,477 113,241 - --------------------------------------- --------------- ---------------- --------------- ---------------- Zinc (%) 5.9 6.7 5.8 6.4 - --------------------------------------- --------------- ---------------- --------------- ---------------- Gold (g/t) 2.9 1.2 3.1 1.6 - --------------------------------------- --------------- ---------------- --------------- ---------------- Concentrate Production - --------------------------------------- --------------- ---------------- --------------- ---------------- Zinc (tonnes) 27,341 27,389 13,702 12,973 - --------------------------------------- --------------- ---------------- --------------- ---------------- Recovery (%) 90.2 92.0 90.4 90.7 - --------------------------------------- --------------- ---------------- --------------- ---------------- Grade (%) 50.1 50.8 49.8 50.7 - --------------------------------------- --------------- ---------------- --------------- ---------------- Gold (tonnes) 1,606 1,865 870 991 - --------------------------------------- --------------- ---------------- --------------- ---------------- Recovery (%) 48.9 39.8 37.1 49.9 - --------------------------------------- --------------- ---------------- --------------- ---------------- Grade (g/t) 268.6 63.9 157.9 94.1 - --------------------------------------- --------------- ---------------- --------------- ---------------- Metal in Concentrates - --------------------------------------- --------------- ---------------- --------------- ---------------- Zinc (tonnes) 13,696 13,927 6,818 6,573 - --------------------------------------- --------------- ---------------- --------------- ---------------- Gold (ounces) 19,794 6,500 11,194 4,638 - --------------------------------------- --------------- ---------------- --------------- ---------------- Silver (ounces) 72,279 108,429 32,438 47,219 - --------------------------------------- --------------- ---------------- --------------- ---------------- Minesite Operating Costs - --------------------------------------- --------------- ---------------- --------------- ---------------- Per tonne milled (U.S.$) 33.69 29.74 33.20 29.06 - --------------------------------------- --------------- ---------------- --------------- ---------------- Total Cash Costs - --------------------------------------- --------------- ---------------- --------------- ---------------- Per lb. payable zinc (U.S.$) 0.36 0.40 0.32 0.36 - --------------------------------------- --------------- ---------------- --------------- ----------------
EL TOQUI MINE OUTLOOK The milled tonnage at El Toqui will increase in 2005 due to operating a full year at the new production rate. Gold production is forecasted to increase due to the higher gold grades from the Asseradero area. Ore production from the higher zinc grade Estatuas area should increase as the main access ramp enters the main ore zone. Further exploration is planned in the future on the Concordia area to add resources to this zone and to upgrade existing resources to reserves in support of a preliminary feasibility for mining the deposit. LANGLOIS MINE The Company, along with SRK, has completed updating the SRK Langlois feasibility study, considering the current metal prices, operating and capital costs and the Canadian/U.S. dollar exchange rate. The Langlois mine is sensitive to currency exchange rates and metal prices. The current Canadian/U.S. dollar exchange rate has a significant impact on the economics of the Langlois mine. The Company received the study late in the second quarter which did not allow for sufficient time for a decision to be made in the second quarter. The Company is currently reviewing the study and it is expected that a decision on this project will now be made in the third quarter. NANISIVIK MINE Reclamation activity for the 2005 season commenced in April and is ongoing, with most of the work being carried out by a third party contractor, and some modest amount of work being carried out by Company employees using Company equipment. The scope of the work has expanded somewhat from what was originally anticipated as sources of cover materials have not developed entirely as anticipated, requiring, in some instances, longer haulage distances. This, together with greater than anticipated fuel consumption, has caused the original estimates of project costs to escalate. All avenues are currently being explored to minimize the expense associated with the reclamation of the Nanisivik site, including ongoing discussions with both the federal and territorial governments and discussions with other mining companies regarding the possible sale of equipment and inventories. 19 In any event, there is a firm understanding in place that at the end of the reclamation season (expected to be either late September or very early October) the fleet of equipment at site that belongs to the contractor will be shipped out, and any remaining work will be completed next year using only the Company's equipment and the Company's employees. It is not anticipated, though, that there will be any significant volume of work left to be completed in 2006. Wolfden Resources, who purchased the mill and related industrial complex in return for the clean-up of the sites where they are active, has indicated that it will be staying at the Nanisivik site through to 2006. Its current plan is to leave a crew at Nanisivik throughout the winter of 2005-06 in order to complete its dismantling of the facility and also to undertake some needed fabrication work. It will leave the site in 2006 with its materials, and will complete the reclamation activity of the site prior to its departure. CARIBOU MINE On July 12, 2004, the Company and its wholly owned subsidiary CanZinco Ltd. signed a revised letter of intent ("LOI") with Forest Gate Resources Ltd. and its wholly-owned subsidiary, Blue Note Metals Inc., regarding the acquisition of the Caribou and Restigouche mines. Under the terms of the LOI, after raising sufficient funds, Blue Note Metals Inc. will acquire the Caribou and Restigouche mines by replacing the reclamation deposits of approximately $5.9 million with the New Brunswick government and issuing to CanZinco a $15 million convertible debenture with a maturity of 5 years (see July 12, 2005 press release for full details). In the meantime, Caribou continues on care and maintenance and the site continues to be managed by Bioteq Environmental Technologies Inc. ("Bioteq"). SUMMARY OF QUARTERLY RESULTS
- --------------------------------- ------------------- ----------------------------------------- --------------------- QUARTERLY RESULTS 2003 2004 2005 - --------------------------------- ------------------- ----------------------------------------- --------------------- Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 - --------------------------------- --------- --------- --------- --------- ---------- ---------- ---------- ---------- Gross Sales Revenue 41.6 51.4 60.2 52.5 66.1 61.5 91.3 92.4 ($ millions) - --------------------------------- --------- --------- --------- --------- ---------- ---------- ---------- ---------- Net Earning (Loss) (4.1) 0.3 2.2 4.4 2.3 (6.3) 4.1 2.4 ($ millions) - --------------------------------- --------- --------- --------- --------- ---------- ---------- ---------- ---------- Per share - basic ($0.02) $0.00 $0.01 $0.01 $0.01 ($0.02) $0.01 0.01 - --------------------------------- --------- --------- --------- --------- ---------- ---------- ---------- ---------- Weighted-average number of Common Shares outstanding (millions) 197.0 211.4 343.8 344.5 362.7 353.5 365.7 367.4 - --------------------------------- --------- --------- --------- --------- ---------- ---------- ---------- ---------- Per share - diluted ($0.02) $0.00 $0.01 $0.01 $0.00 ($0.02) $0.01 $0.01 - --------------------------------- --------- --------- --------- --------- ---------- ---------- ---------- ---------- (C$/U.S.$) realized exchange rate 1.3722 1.3269 1.3172 1.3596 1.3127 1.2290 1.2274 1.2429 - --------------------------------- --------- --------- --------- --------- ---------- ---------- ---------- ---------- Average realized zinc price (U.S.$/t) 810 859 1,058 1,006 988 1,095 1,256 1,252 - --------------------------------- --------- --------- --------- --------- ---------- ---------- ---------- ---------- Average realized zinc price (C$/t) 1,111 1,140 1,394 1,368 1,297 1,345 1,542 1,556 - --------------------------------- --------- --------- --------- --------- ---------- ---------- ---------- ---------- Concentrate tonnes sold 78,626 93,519 86,031 76,061 94,957 79,848 108,507 118,022 - --------------------------------- --------- --------- --------- --------- ---------- ---------- ---------- ---------- Concentrate tonnes produced 83,116 89,667 84,590 86,115 111,790 106,241 103,259 88,782 - --------------------------------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
The quantity of concentrate sold directly affects gross sales revenue. The sale of concentrates can vary from quarter to quarter depending on customer agreements and the timing of shipping. As all sales are based in U.S. dollars, changes in the U.S./Canadian dollar exchange rate can impact the realized Canadian dollar gross sales revenue. CHANGES IN ACCOUNTING POLICIES On January 1, 2005, the Company adopted the Canadian Institute of Chartered Accountants ("CICA") Accounting Guideline No. 15 -"Consolidation of Variable Interest Entities" ("AcG-15") which requires that the Company consolidate a variable interest entity when the Company has a variable interest, or combination of variable interests, that will absorb a majority of the Company's expected losses, receive a majority of the Company's expected residual returns, 20 or both. As at June 30, 2005, the Company had no interests which would qualify as a variable interest entity under AcG-15. 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 As of August 2, 2005 - -------------------------------------------------------------------------------- ------------------------ Common Shares Issued and Outstanding 367,513,414 - -------------------------------------------------------------------------------- ------------------------ Share Options Outstanding Weighted average exercise price $0.91 10,539,667 - -------------------------------------------------------------------------------- ------------------------ Dundee Bancorp Inc., 15,400,705 warrants at $0.20 will expire on March 2, 2007 30,801,410 and 15,400,705 will expire on May 2, 2007 - -------------------------------------------------------------------------------- ------------------------ Lender Warrants at $0.19 expire March 27, 2006. 1,000,000 - -------------------------------------------------------------------------------- ------------------------ Traded Warrants 33,571,429 - -------------------------------------------------------------------------------- ------------------------ FULLY DILUTED 443,425,920 - -------------------------------------------------------------------------------- ------------------------
21
BREAKWATER RESOURCES LTD. Consolidated Balance Sheets As at June 30, 2005 and December 31, 2004 (Expressed in thousands of Canadian dollars) - ------------------------------------------------------------------------------------------------------------- JUNE 30, December 31, 2005 2004 - ------------------------------------------------------------------------------------------------------------- ASSETS (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 12,654 $ 12,667 Restricted cash - short-term 6,317 3,391 Short-term investments (quoted market value - 2005: $385; 2004: $3,886) 253 2,633 Accounts receivable - concentrate 7,107 6,622 Other receivables 8,321 6,488 Concentrate inventory 41,930 56,215 Materials and supplies inventory 23,051 23,863 Prepaid expenses and other current assets 4,781 5,022 - ------------------------------------------------------------------------------------------------------------- 104,414 116,901 RECLAMATION DEPOSITS 7,545 100 MINERAL PROPERTIES AND FIXED ASSETS 159,672 153,073 LONG-TERM INVESTMENT 5,615 5,615 PROMISSORY NOTE 11,785 11,785 - ------------------------------------------------------------------------------------------------------------- $ 289,031 $ 287,474 ============================================================================================================= LIABILITIES CURRENT LIABILITIES Accounts payable and accrued liabilities $ 27,969 $ 35,558 Provisional payments for concentrate inventory shipped and not priced 21,740 22,962 Short-term debt, including current portion of long-term debt 2,049 256 Income and mining taxes payable 85 441 Current portion of reclamation, closure cost accruals and other environmental obligations 17,701 21,081 - ------------------------------------------------------------------------------------------------------------- 69,544 80,298 DEFERRED INCOME 1,829 1,848 ROYALTY OBLIGATION 11,979 11,696 LONG-TERM DEBT 6,021 1,424 RECLAMATION, CLOSURE COST ACCRUALS AND OTHER ENVIRONMENTAL OBLIGATIONS 40,481 42,673 EMPLOYEE FUTURE BENEFITS 6,163 6,446 FUTURE TAX LIABILITIES 1,817 1,681 - ------------------------------------------------------------------------------------------------------------- 137,834 146,066 - ------------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Capital stock 328,171 326,403 Warrants 8,561 8,561 Contributed surplus 3,003 3,120 Deficit (181,160) (187,667) Cumulative translation adjustments (7,378) (9,009) - ------------------------------------------------------------------------------------------------------------- 151,197 141,408 - ------------------------------------------------------------------------------------------------------------- $ 289,031 $ 287,474 =============================================================================================================
22
BREAKWATER RESOURCES LTD. Consolidated Statements of Operations and Deficit For the Periods Ended June 30, 2005 and 2004 (Expressed in thousands of Canadian dollars except share and per share amounts) (Unaudited) - -------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 2005 2004 2005 2004 - -------------------------------------------------------------------------------------------------------------------- Gross sales revenue $ 92,381 $ 52,474 $ 183,682 $ 112,646 Treatment and marketing costs 34,809 17,838 64,734 38,675 - -------------------------------------------------------------------------------------------------------------------- Net revenue 57,572 34,636 118,948 73,971 - -------------------------------------------------------------------------------------------------------------------- OPERATING COSTS Direct operating costs 41,617 18,553 86,419 45,345 Depreciation and depletion 6,314 6,277 13,587 11,356 Reclamation and closure costs 3,127 984 4,407 2,060 - -------------------------------------------------------------------------------------------------------------------- 51,058 25,814 104,413 58,761 - -------------------------------------------------------------------------------------------------------------------- CONTRIBUTION FROM MINING ACTIVITIES 6,514 8,822 14,535 15,210 - -------------------------------------------------------------------------------------------------------------------- OTHER EXPENSES (INCOME) General and administrative 1,998 2,825 4,004 4,588 Stock-based compensation 219 662 445 848 Interest and financing 273 44 504 186 Investment and other income (547) (143) (1,908) (378) Foreign exchange (gain) loss on U.S. dollar denominated debt (213) - (213) 431 Foreign exchange loss, other 94 272 94 500 - -------------------------------------------------------------------------------------------------------------------- 1,824 3,660 2,926 6,175 - -------------------------------------------------------------------------------------------------------------------- EARNINGS BEFORE THE FOLLOWING: 4,690 5,162 11,609 9,035 - -------------------------------------------------------------------------------------------------------------------- Other non-producing property costs 2,523 1,167 5,479 2,462 Income and mining taxes recovery (273) (391) (377) (2) - -------------------------------------------------------------------------------------------------------------------- 2,250 776 5,102 2,460 - -------------------------------------------------------------------------------------------------------------------- NET EARNINGS 2,440 4,386 6,507 6,575 DEFICIT - BEGINNING OF PERIOD (183,600) (188,102) (187,667) (190,291) - -------------------------------------------------------------------------------------------------------------------- DEFICIT - END OF PERIOD $ (181,160) $ (183,716) $ (181,160) $ (183,716) - -------------------------------------------------------------------------------------------------------------------- EARNINGS PER SHARE - BASIC $ 0.01 $ 0.01 $ 0.02 $ 0.02 - -------------------------------------------------------------------------------------------------------------------- DILUTED EARNINGS PER COMMON SHARE $ 0.01 $ 0.01 $ 0.02 $ 0.02 - -------------------------------------------------------------------------------------------------------------------- WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 367,414,000 344,501,000 366,546,000 344,156,000 - --------------------------------------------------------------------------------------------------------------------
23
BREAKWATER RESOURCES LTD. Consolidated Statements of Cash Flows For the Periods Ended June 30, 2005 and 2004 (Expressed in thousands of Canadian dollars) (Unaudited) - ---------------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 2005 2004 2005 2004 - ---------------------------------------------------------------------------------------------------------------------------- CASH PROVIDED FROM (USED FOR) OPERATING ACTIVITIES Net earnings $ 2,440 $ 4,386 $ 6,507 $ 6,575 Non-cash items: Depreciation and depletion 6,314 6,277 13,587 11,356 Gain on sale of investment (21) - (851) - Foreign exchange gain on US dollar denominated loans (213) - (213) - Other non-cash items 347 99 337 111 Stock-based compensation 219 662 445 848 Deferred income (4) - (19) - Future income taxes (64) (194) 136 1,272 Reclamation and closure cost accruals and other environmental obligations 3,127 984 4,407 2,060 Employee future benefits 421 - 842 - - ---------------------------------------------------------------------------------------------------------------------------- 12,566 12,214 25,178 22,222 Payment of reclamation, closure costs and other environmental obligations (8,181) (243) (10,002) (495) Payment of employee future benefits (557) - (1,125) - Changes in non-cash working capital items 6,819 1,146 8,063 3,603 - ---------------------------------------------------------------------------------------------------------------------------- 10,647 13,117 22,114 25,330 - ---------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES (Increase) decrease in restricted cash (3,271) - (2,926) 355 Issue of common shares for cash 255 72 1,206 34,149 Issue of warrants for cash - - - 3,270 Increase (decrease) in short-term debt 1,957 41 1,844 (9,719) Increase (decrease) in long-term debt 4,756 (1) 4,757 (14,107) - ---------------------------------------------------------------------------------------------------------------------------- 3,697 112 4,881 13,948 - ---------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Reclamation deposits (5,491) - (7,445) - Mineral properties and fixed assets (10,591) (6,543) (19,609) (11,500) Proceeds from sale of fixed assets and property 46 18 46 158 - ---------------------------------------------------------------------------------------------------------------------------- (16,036) (6,525) (27,008) (11,342) - ---------------------------------------------------------------------------------------------------------------------------- (DECREASE) INCREASE IN CASH (1,692) 6,704 (13) 27,936 CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 14,346 27,265 12,667 6,033 - ---------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS - END OF PERIOD $ 12,654 $ 33,969 $ 12,654 $ 33,969 ============================================================================================================================ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid for: Interest $ 34 $ 28 $ 88 $ 203 Income and mining taxes $ 57 $ 171 $ 402 $ 297
24 OTHER INFORMATION Additional information regarding the Company is included in the Company's Annual Information Form filed with the Canadian securities regulators and the 40-F filed with United States Securities and Exchange Commission, a copy of which is posted on the SEDAR website at www.sedar.com. CAUTIONARY NOTE ON FORWARD LOOKING STATEMENTS Certain statements included in this news release are forward-looking statements, which are made pursuant to the "safe harbor" provisions 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. When used herein, words such as "could", "should", "would", "expected", "anticipated", "contemplated", and other similar expressions are intended to identify forward-looking statements. In particular, statements relating to the estimated future metal prices, cash flows, expenses, capital costs, ore production, mine life, financing, construction and commissioning are forward-looking statements. Such forward-looking statements involve inherent risks and uncertainties and subject to other factors, many of which are beyond our control that may cause the actual results or performance to differ materially from those expressed or implied by such forward-looking statements. Such factors include, among others, asset impairment, metal price volatility, fluctuations in foreign exchange rates, economic and political events affecting metal supply and demand, fluctuations in ore grade or ore tonnes milled, geological, operating and environmental risks, problems during the development, construction and start-up phases of an underground mine, inadequacy of environmental insurance. For a more comprehensive review of risk factors, please refer to the Company's most recent annual report under "Management's Discussion and Analysis of Financial Results" and Form 40-F under "Risk Factors" on file with the Canadian provincial securities regulatory authorities and the U.S. Securities and Exchange Commission filed on SEDAR at www.sedar.com. The Company disclaims any obligation to update or revise any forward-looking statements whether as a result of new information, events or otherwise. Readers are cautioned not to put undue reliance on these forward-looking statements. For further information please contact: George E. Pirie Richard Godfrey President and Chief Executive Officer Vice President, Finance (416) 363-4798 Ext. 231 And Chief Financial Officer (416) 363-4798 Ext. 276 25 -----END PRIVACY-ENHANCED MESSAGE-----