Doyon writedown drowns Cambior

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

The impairment charge at Doyon relates to problems of ground stability in the second quarter, which forced a 30% reduction in the underground mining rate and increased mining costs. As a result, Doyon’s value was trimmed by US$52.6 million to the net present value of future net discounted cash flows, which totals US$51 million. Another US$14.3 million is cut when losses on the mine’s hedge book are included, and US$4.3 million is lost because of 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. gold at an 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 totalled 146,500 oz. at US$374 apiece, a major drop-off from the 217,200 oz. poured at US$267 per oz. in 2003.

Cambior produced a total of 175,100 oz. gold at US$251 per oz. in the recent quarter, up from 143,100 oz. at US$231 apiece a year earlier. The increased unit costs reflect a stronger Canadian dollar, higher fuel prices, and the operating difficulties at Doyon. The Rosebel mine chipped in a record 93,300 oz. gold at a mine operating cost of US$170 per oz. Rosebel began operating in February 2004.

Cambior produced a record 694,100 oz. for all of 2004, a third more than in 2003, owing to Rosebel’s startup. The company’s other mines, Omai, Doyon and Sleeping Giant, all produced fewer ounces than in 2003 (T.N.M., Jan. 24-30/05).

The company lost US$76.7 million (or 28 per share) on revenue of US$81.9 million in the recent quarter, a far cry from the US$4.6-million (2-per-share) profit earned on US$58.7 million a year earlier. Cash flow from operations was more than quartered to US$3.8 million.

For 2004, the company incurred a loss of US$73.8 million (30 per share), compared with earnings of US$800,000 in 2003. However, revenue between the two periods rose by 55% to US$300.9 million on higher gold sales, and cash flow climbed by US$13.8 million, to US$38 million.

Cambior expects to produce 621,000 oz. gold at US$250 per oz. in 2005. The decrease from 2004 reflects the plan to close the Omai mine in Guyana by the end of the third quarter, as well as reduced throughput at Doyon. Slightly more than half the projected ounces are slated to come from Rosebel.

“We are 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 a financial report. But he says he expects a major improvement in 2005.

“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 aRosebel mining property, and advance the Camp Caiman, La Arena-El Toro and Westwood projects [in French Guiana, Peru and Quebec, respectively] toward production decisions. We will also continue the search for new business opportunities.”

Cambior’s exploration efforts in 2004, mainly at Camp Caiman and Rosebel, boosted measured and indicated resources by 24% to 3.5 million ounces of contained gold; inferred resources rose by 42% to around 3.7 million contained ounces, mostly owing to the Westwood project, only 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 (including the mark-to-market of Doyon’s hedges) during 2004.

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