Greek bombshell sinks TVX (March 18, 2002)

Massive writedowns eroded an otherwise profitable year for TVX Gold (TVX-T).

The gold miner lost US$227.9 million (or US$1.24 per share) in 2001 on revenue of US$158.3 million, compared with earnings of US$12.4 million (nil per share) on US$170 million in 2000. Without the writedowns, TVX would have recorded a gain of US$2.7 million last year.

Cash flow from operations amounted to US$45.8 million, including US$16.8 million in proceeds from replacing US$360-per-oz. gold puts with US$250-per-oz. puts. By comparison, cash flow in 2000 was US$32.6 million.

Most of the 2001 loss is attributed to the fourth quarter, when the company wrote down its Olympias polymetallic project in Greece to the tune of US$198.5 million. The writedown followed the annulment of the company’s development permit by Greece’s supreme administrative court, the Conseil d’Etat.

Also on the fourth-quarter balance sheet is a US$25-million writedown on the Skouries project, 20 km southwest of Olympias. TVX says that decision reflects low metal prices, not the court decision, which was restricted to Olympias.

TVX acquired both projects, as well as the producing Stratoni base metals mine, in 1995 via an international bidding contest. Since then, the company has spent more than US$200 million on Olympias alone, which it had intended to convert into a modern refractory gold operation.

Elsewhere, TVX took a US$13-million hit against the Coipa gold-silver mine in Chile, owing to the application of low metal prices. A re-evaluation of known reserves at the New Britannia gold mine in Manitoba resulted in a carrying-value reduction of US$8 million.

TVX has a 25% stake in each mine and is operator at New Britannia.

Meanwhile, TVX’s net losses in the final quarter of 2001 were US$228 million (64 per share) and its revenue was $39 million. This compares with year-ago earnings of US$2.6 million (minus 2 per share) and revenue of $39.7 million.

Fourth-quarter attributable production was off by 6.5% at 60,200 equivalent-gold ounces. Cash costs, in turn, climbed 5.5% to US$191 per oz.

For the year, attributable production slipped 7.5% to 237,800 oz. gold-equivalent, whereas cash costs climbed slightly to US$180 per oz.

In the fourth quarter, TVX realized US$271.10 per oz. for its gold and US$4.37 per oz. for its silver production, much less than a year ago. Realized prices over the year averaged US$305.80 per oz. for gold and US$3.94 per oz. for silver, which are lower and higher, respectively, than realized prices in 2000.

The 24.5%-owned Brasilia open-pit mine in Brazil produced 18% less gold than in 2000. Unscheduled repairs to the ball mills and heavy rains were to blame.

Rio Tinto (RTP-N), which operates and owns 51% of Brasilia, has accused TVX and its affiliate, Normandy Mining (now a unit of Newmont Mining), of breaching the shareholders’ agreement. The major intends to rescind the agreement but not without a fight from the accused.

The partly owned New Britannia mine provided a ray of light by pumping out a record 114,500 oz. gold in 2001, or 9% more than in 2000. The increase is attributed to higher grades, less dilution and better-than-expected gold recoveries.

Cash costs fell 12% to US$187 per oz., the lowest level ever.

Exploration this year is focused on downdip projections of known deposits. Minable reserves are down 25% at the mine.

Two pillar failures at the Musselwhite mine translated into a 5% drop in production, to 233,600 oz. Cash costs, in turn, climbed 19% to US$192 per oz.

An underground conveyor and crushing facility is expected to be finished during the second quarter. So far, the program is over budget and behind schedule.

Production at the wholly owned Stratoni polymetallic mine provided TVX with 2 million oz. silver, 26,500 tonnes lead and 31,700 tonnes zinc. Stratoni milled 84% more ore than in 2000, increased the mining schedule to six days and implemented mechanized mining methods.

TVX expects its attributable gold-equivalent production in 2002 to be 240,000 oz. Cash costs are expected to average US$185 an oz.

At the end of 2001, TVX had US$54.5 million in short-term investments and about 357.2 million common shares outstanding. Subject to shareholder approval, the company will consolidate the shares on a 1-for-10 basis.