TVX plans writedowns, share consolidation

Facing local protests and a rocky permitting road in Greece, TVX Gold (TVX-T) will take a charge of up to $250 million against 2001 fourth-quarter earnings, owing mostly to writedowns on development projects in Greece.

Some $200 million will be taken against the Olympias polymetallic project in Greece. On Friday, TVX announced that the Greek Conseil d’Etat had annulled permits already issued by the government allowing the development of the past-producing base metals mine into a gold producer, after protests by environmental groups and local citizens.

TVX inked a deal with the Greek government in 1995 for the purchase of the Kassandra Mines assets, which included the Olympias mine and mill facilities, the Stratoni mill and associated mines, plus the Skouries deposit. The deal included assurances by the government that permits, among other things, would be issued to TVX’s Hellas division for the development of a gold recovery plant at Olympias.

First put into production in 1976 for lead, zinc and silver, TVX laid plans to turn Olympias into a gold operation and refurbish existing operations to include a gold recovery plant. Before TVX got its hands on the project, the refractory gold mineralization was either stockpiled or disposed of with the tailings. At the end of 1999, stockpiled reserves tallied to 285,000 tonnes running 22.9 grams gold and 24.5 grams silver per tonne. The tailings contained more than 2.4 million tonnes averaging 3.42 grams gold.

Olympias is also host to reserves of 11.5 million tonnes of 9 grams gold, 138 grams silver, 6.1% zinc and 4.6% lead in two underground zones. The reserves are based on metal prices of US$325 per oz. for gold; US$5.50 per oz. silver, US25 per lb. lead and US50 per lb. zinc.

In 2000, SNC-Lavalin pegged Olympias’ capital costs at US$258 million. About US$40-50 million of that could be covered by European government grants.

TVX’s plan at Olympias calls for production over the first five years to average 235,000 oz. gold, 2 million oz. silver, 19,700 tonnes zinc and 18,200 tonnes lead. During the subsequent 14 years, production would average 153,000 oz. gold, 2.4 million oz. silver, 31,300 tonnes lead and 25,000 tonnes zinc. Cash costs would fall to US$50 per oz. after running US$72 per oz. gold (net of byproduct credits) for the first five years.

At last report, Olympias’ internal rate of return was estimated at 16.7%, and the net present value about US$199 million, at a 5% discount. Tax credits are not considered, but the required metal prices are: US$325 per oz. for gold, US$5.50 per oz. for silver, US55 per lb. for zinc and US25 per lb. for lead.

TVX’s president and CEO said in a prepared statement, “Taking into consideration our significant expenditures made to date in Greece and given the recent ruling prohibiting construction at Olympias resulting in the significant writedown of the company’s investment in that project, we will be reviewing all of our options, including possible legal remedies.”

Harvey added, “We will be meeting with the Greek Government soon to discuss with them their response to the Court decision which annulled the permits issued by them for the Olympias project. TVX will take whatever actions it deems necessary to maximize value for our shareholders.”

The company will also take a partial writedown on its Skouries project, also is in Greece. TVX remains hopeful that Skouries can be developed with a joint venture partner should metal prices improve.

Situated about 20 km southwest of the Olympias mine, the Skouries porphyry deposit boasts reserves of about 130 million tonnes grading 0.9 gram gold per tonne and 0.6% copper, based on a gold price of US$300 per oz. and a copper price of US80 per lb. TVX’s plan is to develop Skouries after Olympias. No permits have been obtained to date. A 1999 feasibility study concluded that the deposit could support a 16,000-tonne-per-day operation over 20 years. Production in the first five years is forecast at 200,000 oz. gold and 32,500 tonnes copper. Cash costs are pegged at US$22 per oz., net of copper credits. Capital costs are estimated at US$240 million.

A local protest group also has its sights set on an annulment of recently issued permits allowing the continuation of mining at the Stratoni base metal operation. The group has filed a petition against the government permits. TVX does not expect a decision on the challenges in the near future and the mines continue to operate.

Mining recently resumed at Stratoni after a study by a committee of six independent professors from the National Technical University of Athens (NTUA) concluded that TVX’s proposed mining method was both safe and appropriate considering the nature of the Mavres Petres orebody. The plan includes drilling underneath the village of Stratoniki.

The permit comes with a set of conditions, including the installation of monitors to measure noise and vibration levels, limits on the amount of explosives used and on the speed of vibrations.

During the first nine months of 2001, Stratoni pumped out 1.5 million oz. silver, 19,600 tonnes lead and 21,300 tonnes zinc. Of that, 505,000 oz. silver, 6,400 tonnes lead and 7,200 tonnes zinc were produced from 92,000 tonnes of ore during the third quarter.

Elsewhere, TVX will take a partial write-down on its investment in the La Coipa gold-silver mine in Chile and New Britannia gold mine in Manitoba. TVX has a 25% stake in each of the mines and is operator at New Britannia.

The La Coipa writedown comes after re-evaluating the carrying value of the mine using lower long-term metal prices. The New Britannia charge reflects a review of remaining known reserves.

In other news, TVX plans a 1-for-10 share consolidation to help push its U.S. share value above US$1, as required by the New York Stock Exchange, and allow the company’s inclusion in the S&P/TSE Composite Index, which will replace the TSE 300 Index by year-end. The move will be put to a shareholder vote at the company’s upcoming 2002 annual and special meeting.

TVX currently has more than 357.2 million issued and outstanding shares. The company’s largest shareholder, with more than 20% of outstanding shares, is behind the consolidation.

Last summer, TVX completed the early conversion of its US$250-million, gold-linked notes into 321.5 million shares ballooning the number of outstanding shares to 357.2 million. The deal eliminated U$9 million in interest payments. The former noteholders own about 90% of the stock.

TVX posted a net loss US$1.1 million on revenue of US$40.1 million for the 2001 third quarter. For the first nine months of the year, earnings rang in at US$79,000 on revenue of US$119.3 million, versus US$9.9 million on US$130.3 million in the year-ago period. A relatively strong first quarter kept the company in the black.