Despite higher mine production and stronger copper prices,
The company earned US$1.9 million (or US2 per share) on revenue of US$54.3 million in the three months ended Dec. 31, compared with US$5.5 million (US5 per share) on US$56 million in the corresponding period of 2001. Mining revenue was actually up by US$3.6 million, but expenses rose in tandem, and hedging gains were down 61%.
(In 2000, Aur borrowed US$170 million from a syndicate of banks to buy the Quebrada Blanca copper mine in Chile. As part of the agreement, it had to enter into a series of call-forward contracts, covering 69,853 tonnes of production in 2001 priced at US$1,918 per tonne, 48,080 tonnes in 2002 priced at US$1,830 per tonne, and 22,680 tonnes in each of 2003 and 2004 priced at US$1,830 per tonne. Aur bought matching call options in case copper prices should rally.)
Cash flow from operations sank from US$26.6 million to US$14.8 million between the two fourth quarters. Net changes to non-cash working capital items showed the largest single variance, dropping US$7.2 million as receivables entered negative territory.
Aur’s attributable production rang in at 27,033 tonnes copper, plus 1,314 tonnes zinc, 64,000 oz. silver and 2,100 oz. gold. All were down from a year earlier, and Aur realized 2.6% less, or US$88 per tonne, for its copper production.
Consolidated cash costs climbed US$110 per tonne to US$1,102 copper sold, net of byproduct credits.
Quebrada Blanca, in which Aur has a 90% stake, contributed US$1.8 million to operating income — twice as much as in the fourth quarter of 2001. Higher sales volumes and realized prices account for the increase.
The mine pumped out 20,394 tonnes cathode in the recent quarter, or 570 tonnes more than a year earlier. Unit costs, in turn, rose 9% to US$1,080 per tonne copper.
Aur’s 30% share of copper production from the Louvicourt polymetallic mine in Quebec was actually down 8%; however, this was more than offset by higher realized prices, and the mine contributed US$749,000 to Aur’s bottom line, or US$366,000 more than a year earlier.
On a unit basis, costs remained virtually unchanged, at US$992 per tonne copper sold, net of byproduct credits. Louvicourt pumped out 1,314 tonnes zinc, 2,100 oz. gold and 64,000 oz. silver in the recent quarter.
The 70%-owned Andacollo mine, also in Chile, recorded an operating loss of US$608,000, versus a gain of US$32,000 in the fourth quarter of 2001. The mine actually sold more copper, but the extra revenue and added benefit of stronger copper prices were eclipsed by a 20% increase in mining expenses related to extra maintenance.
Andacollo produced 5,650 tonnes cathode in the recent quarter at a cash cost of US$1,213 per tonne, compared with 5,596 tonnes at US$1,014 per tonne a year earlier.
For all of 2002, Aur posted a profit of US$10.1 million (US10 per share) on revenue of US$195.6 million, compared with record earnings of US$21.4 million (US22 per share) on US$215.8 million in 2001. The shortfall is attributed to lower copper prices and a 4% drop in production of the red metal.
Annual cash flow fell to US$58 million from US$79 million.
Aur’s attributable 2002 production rang in at 95,279 tonnes copper, 6,002 tonnes zinc, 224,000 oz. silver and 8,300 oz. gold. Andacollo was the exception to the year, cranking out a record 22,109 tonnes copper.
Aur sold its copper production at an average of US$1,720 per tonne, or US$110 less than in 2001.
Steady costs
Cash costs remained steady at US$1,058 per tonne, net of byproduct credits.
In 2003, Aur expects to produce 109,316 tonnes copper at a cash cost of US$1,080 per tonne, net of byproduct credits. The forward contracts mature at a rate of 3,130 tonnes per month until July, after which time they mature at a rate of 635 tonnes monthly.
Using a copper price of US$1,764 per tonne, Aur expects to earn US$10.7 million and generate US$60 million in cash flow over the entire year. Excluding hedging, for every US$110 swing in spot copper, Aur’s revenue and cash flow change by US$12 million and its net earnings, by US$9 million.
On the development front, in 2003, Aur expects to begin construction at Duck Pond in order to achieve production two years later. By then, Louvicourt’s reserves will have been depleted.
“There have been no changes to the feasibility [study] since we acquired the project,” President James Gill told analysts in early February. “The economics are excellent, and the rate of return exceeds our threshold.”
Situated in central Newfoundland, Louvicourt hosts a reserve of 5.2 million tonnes grading 3.3% copper, 5.8% zinc and 0.9% lead, plus 59 grams silver and 0.8 gram gold per tonne. Gill says the reserve can support 10 years of production at an annual rate of 14,514 tonnes copper, 27,216 tonnes zinc, 400,000 oz. silver and 2,100 oz. gold.
Cash costs are expected to average US$750 per tonne copper, net of byproduct credits.
In early 2002, Aur paid $3.3 million to
Private placement
Aur expects soon to close a US$125-million private placement of unsecured senior notes that will bear interest of 6.75% and be repayable in four equal instalments, starting four years after the deal’s closing. The buyer (assuming there is only one) has not been revealed.
Said Gill: “Proceeds from this offering will be used principally to repay, in full, Aur’s bank debt and will, when completed, result in about US$54 million of additional cash resources being made available to Aur.”
In 2002, Aur repaid US$35.4 million to reduce the Quebrada Blanca loan to US$120 million. A mandatory payment of US$3.6 million was due in mid-February, and two payments of US$14.4 million each are due by July 2003 and January 2004.
Should the financing proceed, Aur must pay a one-time charge of US$4.3 million for the unamortized portion of the Quebrada Blanca loan. The charge is expected to be recorded in the first quarter.
Aur also expects to repay a $35-million convertible debenture, held by
On Dec. 31, 2003, Aur had US$63.4 million in working capital.
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