Breakwater faces liquidity crunch

Vancouver — With the price of zinc at levels not seen in eight years, shares in Canadian zinc producer Breakwater Resources (BWR-T) hit a new all time low after releasing delayed second-quarter results.

This year, the company’s issue is down 77% and well off its all-time high in late 1997 of just over $9 per share. On Thursday, the company’s stock traded at 45 per share before recovering to 55 late in the day, down 4 with more than 425,000 shares changing hands.

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 considerably from the US$0.42 per lb. recorded a year earlier.

Plaguing the company’s bottom line are depressed metal prices, which have resulted in a liquidity crunch. Under terms with its creditors, some US$16 million of its US$45-million revolving credit facility cannot be accessed until metal prices recover. A 1-per-lb. increase in the price of zinc releases $1.5 million in credit to the company. In June, creditors deferred the next three quarterly payments of its $31.5-million loan to help the company conserve cash. In order to stave off the liquidity crunch, the company plans to reduce operating costs, restraincapital expenses and move forward with a 23.1 million share rights offering priced at 50 each.

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.