Property writedowns lead to year-end loss for Viceroy Resource

Writedowns to the tune of $9.3 million contributed to a year-end loss for Vancouver-based Viceroy Resource (VOY-T).

The company recorded a loss of $5.5 million (or 11cents per share) on sales of $89.5 million during 1997, compared with a $39-million loss (80cents per share) on sales of $51.1 million in 1996.

Viceroy owns and operates the Brewery Creek open-pit gold mine in the Yukon Territory and holds a 75% interest in the Castle Mountain open-pit gold mine in southern California. MK Gold (MKAU-Q) owns the remaining 25% of Castle Mountain.

The operations generated a cash flow of $24.8 million (49cents per share) for Viceroy in 1997.

The bulk of the $9.3-million writedown is attributed to a $6.2-million reduction in the carrying value of the Brewery Creek mine based on forecasts of operating, capital and reclamation costs as well as future cash flows from proven and probable reserves. Viceroy used a gold price of US$300 per oz. for the calculations.

Additional writedowns included a $2-million change in the carrying value of the Bouroum concession in Burkina Faso, West Africa. Other investments were written down by a total of $1.1 million.

The Brewery Creek mine produced 72,387 oz. gold in 1997, of which 66,545 oz.

were produced after commercial production began in May 1997 at a cash operating cost of US$184 per oz. Gold recovery has proven to be slower than expected, with a 78% recovery taking 350 to 360 days, versus the predicted 240 days. The mine is forecast to produce 77,500 oz. gold in 1998 at a cash operating cost of US$200 per oz. Beyond 1998, Brewery Creek is projected to produce an estimated 75,000 oz. gold annually at a similar cash cost.

Minable reserves at year-end stood at 13.3 million tonnes grading 1.44 grams gold per tonne, equivalent to 613,000 contained ounces. An additional 94,000 oz. is contained in pad inventory that has not yet been placed under leach.

The stripping ratio at Brewery Creek will average 1.35 to 1 over the life of the mine. Production from the Castle Mountain mine totalled 122,403 oz.

gold, of which 91,803 oz. is attributed to Viceroy. Cash costs were US$288 per oz.

In March, Viceroy announced that a revised mining plan for Castle Mountain would see production continue until 2001 at a cash cost averaging US$258 per oz. gold. However, this plan calls for high stripping ratios in 1998 that would raise cash costs to US$360 per oz. for the year and lower production volume to 82,570 oz. gold.

Linda Thorstad, vice-president of corporate relations, said operations at Castle Mountain are still under review, focusing on addressing the high stripping requirements with the objective of optimizing output.

Minable reserves are currently estimated at 12.7 million tonnes grading 1.17 grams gold, for 479,000 contained ounces.

Low gold prices have forced Viceroy and 60% joint-venture partner Echo Bay Mines (ECO-T) to defer a final construction decision on the US$92-million Paredones Amarillos project in Baja California, Mexico.

At higher prices, the deposit was estimated to contain a minable reserve of 44.5 million tonnes grading 1.11 gram gold, equivalent to 1.5 million contained ounces. Viceroy says the project is sufficiently advanced to be placed into production within 12 to 13 months.

At year-end, Viceroy had $44 million in working capital. The company has approximately 51 million shares outstanding, or 55 million fully diluted.