Echo Bay takes writedown

Echo Bay Mines (ECO-T) took a writedown of US$309.8 million for the third quarter, resulting in a net loss of US$327.5 million (or $2.36 per share).

Not including the restructuring charge, the loss amounts to US$17.7 million (14cents per share), compared with a loss of US$42.4 million (31cents per share) in the third quarter of 1996.

The restructuring provision is a non-cash charge that has no tax effect. It includes a US$107.4-million writedown of Echo Bay’s investment in Santa Elina Gold of Brazil. Echo Bay’s current carrying value stands at US$45 million.

The company also wrote down its US$50-million investment in the Kingking project in the Philippines, after a feasibility study concluded the project did not meet the desired rate of return.

Echo Bay responded to low gold prices by reducing the carrying value of its four mines by a total of US$127 million and announcing its intention to withdraw from several working agreements with junior companies.

The restructuring is designed as a bulwark against an extended period of low gold prices. Gold production costs are expected to be reduced by between US$20 and US$30 per oz.

Echo Bay produced 177,502 oz. gold in the third quarter, compared with 218,043 oz. in the corresponding period last year. Cash operating costs rose 3% to US$251 per oz.

In the meantime, Echo Bay continues to explore three projects in Nevada — Ratto Canyon, Bald Peak and Jessup — and one in Chile.

During the first nine months of the year, the company suffered a net loss of U$55.2 million (43cents per share), before the restructuring charge, compared with a loss of US$73.2 million (55cents per share) in the same period last year. When the writedowns are taken into account, the loss amounts to US$365 million ($2.65 per share).