Breakwater slips into red despite production boost

Low metal prices in the second quarter overshadowed Breakwater Resources’ (BWR-T) impressive gains in zinc, lead and silver production, pushing the company into the red.

For the three months ended June 30, Breakwater suffered a loss of $4.7 million (or 7 cents per share), compared with earnings of $6.2 million (10 cents per share) in the same period in 1997. The $42.2 million in gross revenue generated in the recent quarter was $2.7 million lower than a year ago.

Breakwater attributes the decrease in earnings to lower zinc prices and an operating loss at the El Toqui mine in Chile. The decrease was partially offset by increased metal production at the Nanisivik mine on Baffin Island, higher silver prices, and lower production costs at both Nanisivik and the El Mochito mine in Honduras. The Bougrine mine in Tunisia, which entered commercial production in early June, turned a $100,000 operating profit in the second quarter, while the Caribou mine in New Brunswick remains in startup mode.

In terms of overall production for the recent quarter, Breakwater milled 720,136 tonnes and produced the following metals in concentrate: 40,719 tonnes zinc, 7,402 tonnes lead, 859,000 oz. silver and 951 oz. gold. By comparison, in the second quarter of last year, 338,928 tonnes were milled, yielding the following metals in concentrate: 23,262 tonnes zinc, 1,487 tonnes lead, 437,000 oz. silver and no gold.

Nanisivik produced 70,548 tonnes of concentrate grading 57.4% zinc. The first shipment was scheduled to depart in early August.

At Bougrine, mill throughput during the second quarter was 61,230 tonnes grading 10% zinc and 1.7% lead yielding 9,585 tonnes of zinc concentrate (containing 4,790 tonnes zinc) and 1,046 tonnes of lead concentrate (709 tonnes lead). Operating costs in the second quarter averaged US$37.54 per tonne of ore milled.

At Caribou, zinc and lead recoveries averaged 59.3% and 68.2%, respectively, for this year to July 24, with Breakwater stating that trends in metallurgical performance continue to be encouraging. For the month of June, zinc and lead recoveries averaged 64.6% and 69.6%, respectively, though the company’s short-term target recoveries for zinc and lead are 75% and 70%, respectively. Proposed changes in the mill circuit are designed to increase the zinc recovery rate to 75%. Breakwater’s feasibility study for the Caribou project indicated zinc recovery at 83%, and lead at 70%.

The company is monitoring the Caribou project closely with a view to minimizing cash drain, and vacations and a maintenance shutdown are scheduled for August.

Breakwater’s working capital at June 30 was $34.3 million, down by $27.3 million from the end of 1997. The decrease is mostly due to capital expenditures at various mines totalling $27.6 million. Cash and short-term investments decreased to $8.5 million from $39.4 million at the end of 1997.

During June, Breakwater acquired 185,600 Breakwater shares, bringing to 2.1 million the total number of shares that have been bought back, at an average acquisition of $2.56 per share, for cancellation. The current number of shares issued and outstanding is 69 million.