Philex pins hopes on Boyongan project

Vancouver — Low gold prices and a high debt load underscore the need for Philippine producer Philex Gold (PGI-V) to advance its Boyongan copper-gold discovery on the island of Mindanao. The project is a joint venture with Anglo American (AAUK-Q).

In September, Anglo American cut 0.81% copper and 1.90 grams gold per tonne gold over 365 metres at the Boyongan deposit, which is part of Philex’s North property. The announcement sent shares of Philex flying from 8 per share to a lofty $2.50. Subsequent results sent investors on a roller-coaster ride with shares gyrating between 50 and $2.10, closing recently at 80.

The initial 10,000 metres of diamond drilling planned for this year have been increased to 13,000 metres. Next year, Philex expects to complete 15,000 metres of definition drilling, along with 3,000 metres of reconnaissance drilling on the surrounding properties.

Anglo American can earn 40% of the North property by spending $2.2 million, and 30% more by completing a bankable feasibility study.

Meanwhile, negative cash flow generated from the Bulawan mine on the island of Negros has prompted the company to stop all development work there. As a result, a US$40-million writedown will be charged in the fourth quarter.

“We have struggled for some time with the Bulawan mine, which has been marginal, especially in relation to a gold price that stubbornly refuses to increase,” says Philex Chief Executive Officer Gerard Brimo. “While the decision is disappointing, it will ensure no further deterioration of our financial condition and allow us to focus on the important joint venture with Anglo American.”

The juniors’ financial picture includes some US$14 million in debts owed to Philippine banks and US$40 million owed to its parent company, Manila-based Philex Mining. Both debts are payable on demand, but Philex Gold expects to have sufficient time to repay the bank debts by raising funds through a private placement or through the sale of certain assets.

In the quarter ended Sept. 30, the junior incurred a loss of US$3.8 million (or 10 per share), compared with a loss of US$2.1 million (5 per share) in the corresponding period of the previous year. Cash flow from the Bulawan mine was negative US$1.4 million (4 per share), compared with a year-ago deficit of US$2.1 million (5 per share). The company poured 14,392 oz. gold at a cash operating cost of US$198 per oz., significantly more than the 6,257 oz. produced at US$245 per oz. in the third quarter of 2000. Philex’s average gold price for the quarter was US$277 per oz., compared with US$298 per oz. a year earlier.

For the first nine months of the year, the company posted a loss of US$6.7 million (17 per share), compared with a loss of US$8 million (20 per share) in the year-earlier period. Revenues amounted to US$12.2 million, up from the US$7.6 million recorded in 2000. Gold output was 45,062 oz. at a cash operating cost of US$203 per oz., compared with 26,869 oz. at a cash operating cost of US$334 per oz. in the first nine months of 2000, when milling operations were suspended for two months.