Mr. David Petroff reports
BREAKWATER RESOURCES LTD.'S 2010 AND FOURTH QUARTER FINANCIAL AND OPERATING RESULTS
Breakwater Resources Ltd. realized net earnings of $18.2-million or 25 cents per share in the fourth quarter of 2010, compared with $5.4-million or eight cents per share in the fourth quarter of 2009.
The company realized net earnings of $87.2-million or $1.23 per share during 2010, compared with $800,000 or one cent per share in 2009.
David M. Petroff, president and chief executive officer, stated: "We are pleased to have posted another solid quarter. Two thousand ten was a successful and eventful year as the company undertook to implement its strategic plan. In so doing and buoyed by healthy commodity prices, financial strength was improved through the generation of $45-million free cash flow and $46-million net new equity."
Revenues higher, costs higher
Gross sales revenue was 62 per cent higher in the fourth quarter of 2010, at $80.5-million, primarily due to higher metal prices and 52 per cent more concentrate sold, partially offset by a stronger Canadian dollar and no copper revenue being recognized in the fourth quarter of 2010.
Gross sales revenue in 2010 was 64 per cent higher, at $371.3-million, primarily due to significantly higher metal prices and more concentrate sold, partially offset by a stronger Canadian dollar. Concentrate produced during 2010 increased 3 per cent to 221,738 tonnes, compared with 2009, due to a 13-per-cent increase at Myra Falls, partially offset by a 5-per-cent decrease at Toqui.
Realized prices denominated in U.S. dollars increased for all metals in the fourth quarter of 2010, compared with the fourth quarter of 2009. The company periodically hedges against fluctuations in metal prices and foreign exchange rates using forward sales or put contracts. Additionally, certain of the company's contracts with customers allow it to lock in the price received for contained metals payable.
Direct operating costs were 91 per cent higher in the fourth quarter of 2010, at $33.1-million, compared with $17.3-million in the fourth quarter of 2009. The increased direct operating costs were primarily due to 52 per cent more concentrate sold, and higher costs at Mochito and Toqui. On a cost-per-tonne-of-concentrate-sold basis, direct operating costs increased to $569 in the fourth quarter of 2010, from $451 in 2009.
At Mochito, direct operating costs increased $8.0-million in the fourth quarter of 2010, primarily due to 62 per cent higher concentrate sales, higher costs for power, diesel, rehabilitation, contractors, haulage, materials and supplies, as well as a contract signing bonus of $800,000 (U.S.). Direct operating cost per tonne of concentrate sold was $534 in the fourth quarter of 2010, compared with $327 in 2009, primarily due to the factors noted above. A rain event in the third quarter of 2010 disrupted mill and certain mine operations with a return to normal operations after approximately one month of emergency repairs to roads, bridges, slopes and general cleanup. Underground operations were not affected by the rain event.
At Toqui, direct operating costs in the fourth quarter of 2010 were $7.9-million higher than in the same period of 2009, primarily due to:
- 140 per cent higher tonnes of concentrate sold;
- The mix of concentrates sold;
- A $1.5-million (U.S.) signing bonus on contract renewal, a $1.0-million (U.S.) inventory obsolescence provision, $500,000 (U.S.) for repairs and maintenance consultants;
- $500,000 (U.S.) for increased wages;
- $200,000 (U.S.) for increased maintenance and repairs;
- $100,000 (U.S.) for increased fuel;
- $100,000 (U.S.) higher royalties partially offset by a stronger Canadian dollar.
Direct operating costs per tonne of concentrate sold increased in 2010, to $760, compared with $600 in 2009, primarily due to the factors noted above.
At Myra Falls, direct operating costs in the fourth quarter of 2010 were 1 per cent lower than in the same period of 2009, primarily due to lower operating costs, partially offset by 9 per cent higher quantities of concentrate sold and an increase of $600,000 to the tailings dam liability.
For the year, direct operating costs were 38 per cent higher at $143.3-million, compared with $103.7-million in 2009. The increased costs were primarily due to 24 per cent higher quantity of concentrate sold, and higher costs at Toqui and Mochito. On a cost-per-tonne-of-concentrate-sold basis, direct operating costs increased to $569 in 2010, from $512 in 2009, primarily due to the factors noted above.
Cash
Cash and cash equivalents increased to $133.9-million in the fourth quarter of 2010, from $88.5-million at Sept. 30, 2010.
Net cash provided by operating activities
Net cash provided by operating activities was $33.1-million for the three-month period ended Dec. 31, 2010, compared with $22.5-million in the same period in 2009.
Capital expenditures
The company invested $74.0-million in mineral properties and fixed assets during 2010. At mining operations, $19.9-million, $37.7-million, $9.2-million and $6.9-million were spent at Mochito, Toqui, Myra Falls and Langlois, respectively.
Operations
Mochito:
-
Rehabilitation of the 2100 level is largely complete, with the exception
of the warehouse area, where additional ground support remains to be
installed. A trial operation of the rail transport facility was carried
out during the second week of January, 2011, prior to commissioning the
changeover to transport men and materials on the 2350 level.
-
A new labour agreement was entered into and expires Oct. 1, 2013
Toqui:
- The paste backfill facility, which will allow for paste tailings
deposition and enhanced ore extraction through greater recovery of
current and future pillars, was under commissioning at the end of the
fourth quarter of 2010. Delays in commissioning resulted from corrective
work carried out on mechanical components. The paste backfill facility
commenced delivery of cemented paste tails to the mine for deposition in
designated areas during January, 2011.
- As planned, the installation of a primary ball mill was completed during
the fourth quarter of 2010 and is operational. The anticipated 15-per-cent
increase in annual mill throughput has been realized and commissioning
is continuing in order to optimize grinding performance.
- Over the first two quarters of 2010, Toqui constructed a 1.5-megawatt
wind farm which was placed in operation by July, 2010, and, subsequently,
as a safety precaution, taken out of service in late October, 2010, due to
a blade design error. It is expected that the construction, delivery and
installation of the new blades will be completed early in the second
quarter of 2011, at a negligible cost to the company. Toqui's hydro power
and diesel generators are sufficient to replace the approximate 10 per cent of
Toqui power needs, which are generated when the wind farm is operational.
- A new labour agreement was entered into and expires Oct. 1, 2013.
Myra Falls:
- Work to improve metallurgical recoveries continued with favourable
results.
- Production of a saleable lead concentrate was achieved.
- Marshall drift development for the year was 243 metres. Drifting was
slower than planned due to ground conditions.
- Development and rehabilitation required to drill test the Price-South
Flank connection have been completed with initial diamond drilling
resulting in encouraging intersections.
- Tailings disposal facility seismic outer berm upgrade was completed,
with the exception of a till cap, which will be placed in 2011.
Langlois:
- Development continued at Langlois during the fourth quarter of 2010,
including completion of ramps from surface to the top of zone 4 and a
ramp internal to zone 3, and development of selective production
headings.
- The rate of mine development was increased during the fourth quarter of
2010, with commencement of preparation work to develop zone 97.
Development will be continuing throughout 2011 and into 2012.
- The current plan is to restart production during the first quarter of
2012.
- Additional work was conducted during the fourth quarter of 2010. As a
result, the company exceeded its 2010 guidance for capital expenditures
by approximately $600,000.
BREAKDOWN OF GROSS SALES REVENUE FOR THE FOURTH QUARTERS OF 2010 AND 2009
Fourth quarter of 2010
Concentrate Realized gross sales
sold Payable price (1) revenue
(tonnes) metal (1) (US$) ($000s)
Zinc 52,003 22,834 2,289 52,267
Copper (2) 129 7,066 908
Lead 4,823 2,810 2,425 6,812
Gold (2) 1,382 8,830 1,318 11,637
Silver NA 318,551 28.17 8,972
Price protection loss (3) NA (904)
-------- --------
58,206
========
Gross sales revenue in U.S.
dollars 79,692
Exchange rate 1.0106
--------
Gross sales revenue in
Canadian dollars 80,540
========
Fourth quarter of 2009
Concentrate Realized gross sales
sold Payable price (1) revenue
(tonnes) metal (1) (US$) ($000s)
Zinc 32,618 14,564 2,119 30,861
Copper 1,943 488 6,249 3,050
Lead 2,387 1,385 2,313 3,204
Gold (2) 1,453 6,964 1,094 7,622
Silver NA 216,068 17.75 3,836
Price protection loss (3) NA (1,497)
-------- --------
38,401
========
Gross sales revenue in U.S.
dollars 47,076
Exchange rate 1.0567
--------
Gross sales revenue in
Canadian dollars 49,744
========
(1) Payable metal and realized prices for zinc, copper and lead are per
tonne, and prices for gold and silver are per ounce.
(2) Gold concentrate sales are principally from Toqui, while payable gold is
from all operations except Mochito.
(3) Price protection gains (losses) for zinc, copper, gold and silver were
$238,000 (U.S.), ($488,000 (U.S.)), ($148,000 (U.S.)) and ($506,000 (U.S.)),
respectively, in the fourth quarter of 2010.
NA means not applicable.
BREAKDOWN OF GROSS SALES REVENUE FOR THE YEARS 2010 AND 2009
Year 2010
Concentrate Realized gross sales
sold Payable price (1) revenue
(tonnes) metal (1) (US$) ($000s)
Zinc 192,545 83,549 2,180 182,176
Copper 19,035 4,395 7,157 31,456
Lead 31,488 19,234 2,186 42,052
Gold (2) 8,736 52,916 1,195 63,209
Silver NA 2,241,601 19.64 44,014
Price protection loss (3) NA (2,000)
Other (4) NA (437)
-------- --------
251,804
========
Gross sales revenue in U.S.
dollars 360,470
Exchange rate 1.0301
--------
Gross sales revenue in
Canadian dollars 371,338
========
Year 2009
Concentrate Realized gross sales
sold Payable price (1) revenue
(tonnes) metal (1) (US$) ($000s)
Zinc 159,286 70,152 1,545 108,358
Copper 16,640 3,653 4,475 16,348
Lead 20,017 12,183 1,654 20,147
Gold (2) 6,771 35,959 956 34,368
Silver NA 1,729,954 14.09 24,367
Price protection loss (3) (4,034)
Other (4) NA (441)
-------- --------
202,714
========
Gross sales revenue in U.S.
dollars 199,113
Exchange rate 1.1372
--------
Gross sales revenue in
Canadian dollars 226,438
========
(1) Payable metal and realized prices for zinc, copper and lead are per
tonne, and prices for gold and silver are per ounce.
(2) Gold concentrate sales are principally from Toqui, while payable gold is
from all operations except Mochito.
(3) Price protection (gains) losses for zinc, copper, lead, gold and silver
were ($1,654,000 (U.S.)), $1,658,000 (U.S.), $252,000 (U.S.),
$553,000 (U.S.) and $1,191,000 (U.S.), respectively, in 2010.
(4) Other gross sales revenue represents revaluations of prior-period
concentrate receivables.
NA means not applicable.
Price protection strategy
HEDGE POSITION
(as at Feb. 24, 2011)
Swaps/forwards
Metal Quantity (1) Price (US$) (1) 2011 period
Zinc 16,850 $2,464 May to December
Lead 2,500 $2,670 February
Silver 233,000 $29 February to May
Gold 210 $1,368 May
Puts and calls
Puts Calls Calls
bought sold bought
price price price
Metal Quantity (1) (US$) (1) (US$) (1) (US$) (1) 2011 period
Zinc 10,000 $2,040 NA NA February to June
Copper 1,400 $7,716 NA NA April to July
Copper 800 $8,269 $9,665 $12,000 April to July
Lead 1,100 $2,315 $2,565 NA May
Silver 885,000 $ 25 NA NA February to December
Silver 170,000 $ 26 $ 31 NA October to November
Gold 16,000 $1,256 NA NA March to December
(1) Quantities and prices for zinc, copper and lead are per tonne, and
prices for gold and silver are per ounce.
NA means not applicable.
PRODUCTION RESULTS
(on a production basis, the company's metal contained in concentrate,
before smelting deductions)
Metal in concentrate Fourth quarter Year
2010 2009 2010 2009
Zinc (tonnes)
Mochito 8,255 10,683 33,839 36,370
Toqui 4,254 4,815 20,014 19,635
Myra Falls 6,843 9,113 32,686 30,900
--------- --------- ---------- ----------
19,352 24,611 86,539 86,905
--------- --------- ---------- ----------
Copper (tonnes)
Myra Falls 822 893 4,769 3,349
--------- --------- ---------- ----------
822 893 4,769 3,349
--------- --------- ---------- ----------
Lead (tonnes)
Mochito 3,580 4,798 16,954 14,471
Toqui - 172 415 1,025
Myra Falls 248 - 511 -
--------- --------- ---------- ----------
3,828 4,970 17,880 15,496
--------- --------- ---------- ----------
Gold (ounces)
Toqui 9,339 13,102 36,581 44,079
Myra Falls 4,365 5,873 20,003 15,526
--------- --------- ---------- ----------
13,704 18,975 56,584 59,605
--------- --------- ---------- ----------
Silver (ounces)
Mochito 441,737 540,972 1,869,833 1,855,018
Toqui 24,481 51,470 118,754 233,382
Myra Falls 183,922 222,309 732,796 578,008
--------- --------- ---------- ----------
650,140 814,751 2,721,383 2,666,408
--------- --------- ---------- ----------
The unaudited consolidated interim financial statements for the periods ended Dec. 31, 2010, with the comparative figures for the periods ended Dec. 31, 2009, and the related segmented information have been posted on the company's website. Additionally, the audited consolidated financial statements for the year ended Dec. 31, 2010, and management's discussion and analysis of the annual financial and operating results have been filed on SEDAR.
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