Echo Bay posts loss

Echo Bay Mines (ECO-T) posted a loss for 1997 based upon substantial writedowns and special charges, though the company returned improved results in the fourth quarter.

The Denver-based gold and silver producer reported a net loss of US$57.8 million (or 46cents per share) before non-recurring items. Those items included writedowns and provisions for impaired assets that added up to US$362.7 million (US$2.60 per share). Including the special charges, the company suffered a net loss of US$420.5 million (US$3.06 per share).

In 1996, the company reported a net loss of US$176.7 million (US$1.31 per share), including non-recurring charges of US$77 million to write off the costs of a development project in Alaska and provide for a pit-wall slide at the McCoy/Cove mine in Nevada.

The special charges during 1997 included US$309.8 million in write downs in the third quarter, when its financial situation forced the company to re-evaluate some assets. During the fourth quarter, Echo Bay wrote off its remaining US$36.2-million investment in 58%owned Brazilian subsidiary Santa Elina Mines.

Echo Bay has been trying to sell Santa Elina since mid-1997, and has dealt away many of its exploration properties over that time.

The effects of corporate cuts and downsizing are beginning to show in the company’s bottom line. For the fourth quarter of the year, Echo Bay reduced its net loss to US$8.1 million (7cents per share), from US$17.7 million (14cents per share) in the previous quarter and a net loss of US$26.4 million (19cents per share) in the fourth quarter of 1996.

The company cut general and administrative costs to US$11 million last year, down from US$14 million in 1996. It also cut US$5 million in technical and support services spending, which was reflected in operating costs at its mines.

Echo Bay produced 721,075 oz. of gold last year at a cash operating cost of US$249 per oz. Production was roughly on target, while costs were lower than expected, down from US$254 per oz. in 1996.

Silver production was 11 million oz., better than the company’s target of 9 to 10 million oz. in 1997.

The company expects to produce about 500,000 oz. gold and 7 to 8 million oz.

silver during 1998. Cash operating costs should remain at the same level of US$245 to US$255 per oz.

The decline in expected 1998 production stems mainly from the shutdown of operations at the Lupin gold mine in the Northwest Territories, which was announced in January. The mine was placed on care and maintenance until the gold price improves.

The company will rely on production from its three remaining mines, Round Mountain and McCoy/Cove in Nevada and the Kettle River mine in Washington state.

Proven and probable reserves for 1997 total 7.5 million oz. gold, down from 8.6 million oz. in 1996. The calculations assumed a gold price of US$350 per oz., whereas a price of US$375 was used in 1996. The drop is attributed to ounces lost at Round Mountain because of a new mining plan that eliminated the need to mine 250 million tons of low-grade and waste material.

Silver reserves dropped to 46.5 million oz. silver at a result of 1997 production, while using a silver price of US$5 per oz.

At the Aquarius project, near Timmins, Ont., the company has nearly completed a freeze wall, which is designed to keep groundwater out of the pit. While construction on the project is delayed because of the low gold price, Echo Bay expects Aquarius to be its next new mine. The company’s other development-stage gold project, Paradones Amarillo in Mexico, is on hold.