Derivative losses hit Bema’s bottom line (November 22, 2005)

Vancouver — A 21% increase in gold revenue wasn’t enough to push Bema Gold (BGO-T, BGO-X) into the black during the recent quarter ended Sept. 30. The company lost US$24.9 million, or US62 a share, on sales of 62,753 oz. gold that generated revenue of US$27.1 million.

The third-quarter results include an unrealized derivative loss of US$10.9 million, related mostly to contingent gold-forward contracts assigned to the Petrex mines in South Africa. Also contributing to the loss was US$3 million for restart costs at the Refugio mine in Chile.

During the comparable period a year earlier, Bema sold 63,223 oz. gold and generated revenue of US$24.9 million. The loss for the 2004 third-quarter was US$21.6 million, including US$25.5 million of unrealized non-hedge derivative losses, partially offset by a realized non-hedge derivative gain of US$14.4 million.

The latest results pushed Bema’s 9-month loss to US$52 million, or US13 per share, on revenue of US$71 million, compared with a loss of US$35 million a year earlier. This loss includes unrealized derivative losses of US$14.1 million, Refugio restart costs of US$10.3 million, and a US$3-million write-down of the Lo Increible property in Veneuzuela.

Bema produced 174,064 oz. gold at an operating cash cost of US$325 per oz. and total costs of US$344 per oz. in the first nine months of this year.

Bema’s best performer is the 79%-owned Julietta mine in Far East Russia. The mine produced 24,177 oz. gold at cash costs of US$183 per oz. and total costs of US$228 per oz. in the latest quarter. The wholly owned Petrex mines in South Africa produced 35,477 oz. at a total cash cost of US$449 per oz. Improvements are expected in the next quarter from improved underground mining productivity and other factors.

Looking ahead, Bema expects to increase production and lower costs by developing its 75%-owned Kupol project in Far East Russia. The company has signed conditional commitment letters with various firms for a project loan of US$250 million. If all goes as planned, construction could begin next year with production scheduled for mid-2008.

A recent feasibility study concluded that the project could be developed into a high-grade mine with capital costs of US$364 million. The study was based on a probable reserve of 7.1 million tonnes averaging 16.9 grams gold and 214 grams silver per tonne.

Bema believes it is poised to become a low-cost, 1-million-oz. producer once the Refugio and Kupol mines are up and running. The company also sees potential to boost its production profile over the long term once a new senior partner is found to develop the huge Cerro Casale copper-gold project in Chile. Bema owns 24% of the project.