Demonstrating the damage caused by record-low zinc prices,
Spot zinc began the year at US46.2 per lb., but prices have steadily eroded to recent lows of just US33.7 per lb. Of late, zinc has managed to stage a modest recovery to US35.6 per lb. and Breakwater is confident the zinc market will recover in 2002.
Breakwater says this year’s slump in prices have put “severe pressure” on the company’s finances, leading to a restructuring of its loans and a renewed effort to raise equity.
Breakwater lost the $102 million (or $1.10 per share) on gross sales revenue of $202 million during the first nine months of the year, compared with the $15 million (18 per share) earned on revenue of $244 million in the corresponding period last year.
Some $70 million of the 9-month loss come in the form of non-cash writedowns. The two largest writedowns were the metallurgically troublesome Caribou mine in New Brunswick ($53.7 million, thereby reducing its value to nil) and the Nanisivik mine in Nunavut ($11.5 million).
The financial squeeze prompted Breakwater to review of all of its mines and exploration projects with an eye toward cutting costs.
The first cost-cutting decision was to advance Nanisivik’s closure to September 2002, much earlier than planned. Cash costs there soared to US49 per lb. zinc during the recent quarter and averaged US45 over the first three quarters of 2001.
On a brighter note, Breakwater’s earnings statement was given a boost by rising production, recovery rates and earnings from the company’s top performer, the Bouchard-Hbert polymetallic mine in Quebec, which was acquired from Cambior in May 2000.
During the first nine months of 2000, Breakwater produced, in concentrate, 154,677 tonnes zinc (compared with 150,789 tonnes last year), 5,606 tonnes copper (2,757 tonnes), 10,163 tonnes lead (8,209 tonnes), 2.2 million oz. silver (2.1 million oz.) and 31,382 oz. gold (11,268 oz.).
The figure for mine-site operating costs per tonne milled fell slightly to US$27.56 per tonne during the 9-month period, while total cash costs dropped 5 to US36 per lb.
In mid-November, Breakwater reached a deal with bankers to amend its credit facilities whereby a US$22.6-million term loan will be increased by US$6.5 million. The additional sum will be guaranteed by Breakwater’s major shareholder,
Under the new agreement, Breakwater’s bankers will provide a standstill on principal repayments plus other relief measures until Dec. 31, 2002, which is the new maturity date for the term loan.
In the meantime, Breakwater will proceed with a rights offering that could raise up to $15 million. Dundee has already signed on for up to one-third of the rights that will be offered.
Breakwater can use the cash infusion: working capital had declined to just $1.8 million by Sept. 31, 2001, from $27.9 million at the start of the year.
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