Echo Bay narrows losses

Echo Bay Mines‘ (ECO-T) has followed up a US$400,000 second-quarter loss with one half that amount for the recent third quarter.

The recent US$200,000 loss, which translates into 3 per share, compares with net earnings of $9 million (or 4 per share) in the comparable period of 2000. Revenue between the two periods fell to US$58.5 million from US$76.4 million. The drop in revenue is attributed to lower realized gold prices (US$298 per oz. in 2001 versus US$313 per oz. in 2000) and lower average silver prices (US$4.43 per oz. versus US$5.13 per oz.).

Net earnings for the first nine months of the year were $3.2 million compared with net earnings of $16.5 million in the same period in 2000. Similarly, revenues slipped to US$186.7 million from US$212.5 million.

Total gold production for the quarter topped 171,533 oz., down from the year-ago 184,449 oz. produced. Lower production at the aging McCoy-Cove mine in Nevada was partially offset by increased gold production at the Round Mountain mine in the same state. Year-to-date gold production tallies to 521,287 oz., slightly better than the year-ago 513,094 oz.

The bulk of the quarter’s gold production came from the 50% owned and operated Round Mountain mine, from which Echo Bay’s share of production was 102,883 oz. The mine chipped in 79,987 oz. during the same period of 2000. The improved performance is thanks to an increase in mill tonnage, reduction of in-process inventory and the dual processing (leaching followed by through the mill) of high-grade oxide material. Cash operating costs fell US$10 per oz. to US$191 per oz.

Silver production at McCoy also slipped to 1.7 million oz. from 2.7 million oz. the previous year. The mine’s cash costs climbed to US$217 per oz, from US$197. So far this year, the mine has produced 5 million oz., almost exactly half that of a year earlier. McCoy’s quarterly gold production totalled 23,450 oz., down from 39,362 oz. a year earlier. Cash costs grew to US$239 per oz. from US$189 per oz. The drop off in production is owing to the processing of low-grade stockpiles as open pit mining was completed in 2000.

The Lupin mine, in the Northwest Territories, produced 33,000 oz. of gold at US$241 per oz. during the quarter, well off the 40,696 oz. at US$199 per oz. the previous year. Cash costs rose as grades fell. Meanwhile, the Kettle River mine in Washington state chipped in 12,200 oz. gold, half that of a year ago. Cash operating grew to US$278 per oz. from US$206 per oz.

Echo Bay ended the quarter with US$10.9 million in cash after repaying debt of US$2 million.

In early September, the company announced plans to convert a large debt into about 361.5 million shares. The deal would give effective control of the company to Franco-Nevada Mining (FN-T), and put a large block of shares into the hands of Kinross Gold (K-T).

The company has entered into support and lock-up agreements with the holders of 98% of the capital securities. The holders have agreed to exchange all capital securities owned. The share issuance will be presented to shareholders, and if approved is expected to wrap up in the first quarter of 2002.

In the end, Franco would have a 49.5% stake in Echo Bay and Kinross’ interest would be about 11.4%. Echo Bay’s current common shareholders would retain about 28% of the company.

In early October, the company arranged a new revolving and letter of credit facility for up to US$21 million, which it applied to its syndicated bank debt of US$17 million. The new credit facility, guaranteed by an affiliate of Franco, matures at the end of September 2002 and bears interest, payable quarterly, at a rate of LIBOR plus 2.125%.