Doyon drowns Cambior

A US$71.2-million writedown of the Doyon mine in Quebec overshadowed record gold production, and pushed Cambior (CBJ-T) deep into the red during the fourth quarter.

The impairment charge at Doyon relates to second-quarter ground stability issues that forced a 30% reduction in the underground mining rate; that forced mining costs higher and reduced mining reserves. As a result, Doyon’s value was trimmed by US$52.6 million to the present value of future net discounted cash flows, which totals $51 million. Another US$14.3 million is cut when losses on the mine’s hedge book are included; an additional US$4.3-million loss arises from deferred losses on previously closed hedges.

During the fourth quarter, the Doyon Division, which includes both the Doyon and Mouska mines, produced 31,300 oz. of gold at a mine operating cost of US$430 per oz., down from the 55,900 oz. produced at US$273 per oz. a year earlier. For all of 2004, production totaled 146,500 oz. at US$374 apiece, a major drop-off from the 217,200 oz. poured at US$267 per oz. a year earlier.

Company wide, fourth-quarter production totaled 175,100 oz. at US$251 per oz., up from 143,100 oz. at US$231 apiece in the corresponding period of 2003. The increased unit costs reflect a stronger Canadian dollar, higher fuel prices, and the operating difficulties at Doyon.

In all, Cambior produced a record 694,100 oz. of gold in 2004. That’s a third more than in 2003, thanks mostly to the startup of the Rosebel open-pit mine in Suriname. The company’s remaining operations — Omai, Doyon and Sleeping Giant — all produced fewer ounces than in 2003 (T.N.M.,.Jan. 24-30/05).

On the financial front, Cambior lost US $76.7 million (or 28 per share) on revenue of US$81.9 million during the recent fourth quarter, a far cry from the US$4.6 million (2 per share) it earned on US$58.7 million a year earlier. Revenues improved as gold on better gold sales. Cash flow from operations was more than quartered to US$3.8 million.

For the full year, the company’s net loss tallies to US$73.8 million (30 per share), compared with year-ago net earnings of $800,000. Revenue between the two periods rose by 55% to US$300.9 million on higher gold sales. Cash flow climbed by US$ 13.8 million to US$38 million.

Looking ahead, Cambior expects to produce 621,000 oz. of gold at US$250 apiece during 2005. The decrease from 2004 production levels reflects the scheduled shutdown of the Omai mine in Guyana by the end of the third quarter, and reduced throughput at Doyon. Slightly more than half the projected ounces are slated to come from the Rosebel mine. That mine began operating in February 2004, and produced 93,300 oz. during the fourth quarter.

“We are very disappointed by the loss of US$73.8 million for the year caused by an impairment charge of US$73.2 million resulting from the complete re-evaluation of the Doyon mine and associated hedges,” said Cambior CEO Louis Gignac in his company’s recent financial report.

Gignac added that he expects a major improvement in 2005 financial results.

“For 2005, we will maintain an aggressive exploration and development program valued at US$28 million in order to increase our reserve and resource base at the new Rosebel mining property, and advance the Camp Caiman, La Arena-El Toro and Westwood projects towards production decisions; we will also continue the search for new business opportunities,” he added.

During 2004, Cambior’s exploration efforts, mainly at the Camp Caiman project and Rosebel mine, boosted measured and indicated resources by 24% to 3.5 million oz. of contained gold; inferred resources rose by 42% to around 3.7 million contained oz., mostly owing to the Westwood project, 2.5 km east of the Doyon mine. A preliminary estimate of inferred resources there totals 8.6 million tonnes averaging 5.2 grams gold per tonne.

During the quarter, Cambior trimmed its hedge book by another 541,000 oz. to 205,000 oz. Based on a projected average market price for gold of US$425 per oz., the company figures its hedge position will cut into 2005 earnings to the tune of US$14.9 million. That’s down from the US$36.9-million bite (the mark-to-market of Doyon’s hedges) during 2004.

At the end of 2004, Cambior had cash and equivalents totaling US$54.9 million.