Vancouver — With the price of zinc at levels not seen in 15 years, cash-strapped producer Breakwater Resources (BWR-T) has increased its bank loan by $6.5 million to $10.4 million.
The terms of the agreement, supported by major shareholder Dundee Bancorp, will see the banking syndicate stand still on principal payments, waive non-compliance with existing financial contracts until Dec. 31, 2002 and waive non-compliance with existing financial agreements.
Interest payments must be kept current during this period and the revolving facility has been capped at US$37.5 million until a planned rights offering is complete, when it will be restored to US$45 million.
Breakwater plans to raise $15 million through the rights offering. Dundee has indicated to the company that it would subscribe for up to $5 million of the financing. In return, Dundee will have the right to buy 50 million Breakwater shares at 20 each before the end of 2004.
As of October 31, US$22.6 million was owing under the term loan and US$16.3 million had been drawn under the revolving facility.
The company recently initiated a plan that will result in the closure of the Nanisivik zinc mine on Baffin Island by Sept. 2002 and continues to monitor all of its operations to minimize cash requirements. Revisions to previously approved mining plans are underway and the temporary suspension of operations at one or more of its other mines is under constant review.
Breakwater posted a loss of $7.5 million, or 8 per share in the second quarter ended June 30, compared with earnings of $4 million, or 5 per share tabled in the corresponding period of 2000. Revenues plunged 39% to $59.4 million from $81.8 million recorded in the second quarter of 2000. Driving the decline was a 35% drop in the average realized price of zinc to US$0.34 per lb, compared with the US$0.52 per lb. the company received in the second quarter of 2000.
Production in the second quarter came in at 50,810 tonnes of zinc, 2,092 tonnes of copper, 3,084 tonnes of lead, 730,353 oz. of silver and 9,943 oz of gold. This marks a significant jump in copper, silver and gold output with zinc and lead only slightly lower over the same period last year. Total cash costs averaged US$0.34 per lb in the latest quarter, down considerable from the US$0.42 per lb recorded a year earlier.
Plaguing the company’s bottom line is depressed metal prices, which has resulted in a liquidity crunch. The company operates a total of five zinc mines in Chile, Honduras, Tunisia and Canada. Only the Bouchard-Hebert mine in Quebec and the Bourgrine operation in Tunisia recorded operating profits during the quarter. Breakwater expects to produce around 480 million pounds of zinc at a cash cost of US$0.39 per lb in 2001.
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