Breakwater suffers credit crunch (November 20, 2002)

Zinc miner Breakwater Resources (BWR-T) has entered talks with its creditors after announcing it probably will be unable to make certain scheduled debt payments by Jan. 2.

The talks are aimed at extending or restructuring the credit facilities, but the company cautions that “there is no assurance that a satisfactory conclusion will be reached.”

At the end of the third quarter, short-term debt stood at $83.3 million, up from $34 million a year earlier. About $2.2 million remains as long-term debt. Breakwater repaid $11.4 million worth of debt during the quarter, leaving the company with cash and equivalents of $12.2 million at the end of September. The company’s working capital deficiency stood at $30.2 million, compared with a deficiency of $5 million at the end of 2001.

Breakwater incurred a third-quarter loss of $16.9 million (or 9 per share), owing to lower zinc prices, compared with a loss of $92.2 million (77 per share) in the corresponding period of 2001. The year-earlier loss includes a $69.8-million writedown on mineral properties and fixed assets. Revenue between the two periods slipped to $74.2 million from $87.3 million.

For the first nine months of 2002, Breakwater’s loss was $17.9 million (11 per share) on revenue of $199.6 million, compared with a year-earlier loss of $97.5 million (81 per share) on revenue of $224.7 million.

Third-quarter zinc-in-concentrate production amounted to 55,975, about 9% better than in the corresponding period of 2001, while cash costs fell US4, to US33 per lb. of payable zinc. For the 9-month period, zinc-in-concentrate production came to 173,111 tonnes at US32 per lb. of payable zinc, up from 154,677 tonnes at US36 per lb. a year earlier.

The improved zinc production is attributed to increased production at the Bouchard-Hebert polymetallic mine in Quebec, the recently closed Nanisivik mine on Baffin Island, and the El Toqui mine in Chile. At the same time, unit costs fell on increased production and lower treatment charges.

On the sales side, Breakwater realized an average of US34.7 per lb. (US$746 per tonne) for its zinc, down from US37.8 per lb. (US$834 per tonne) in 2001. Similarly, the average realized price for zinc during the first three quarters slipped to US35.3 per lb. (US$779 per tonne) from US41.6 per lb. (US$917 per tonne) a year earlier.

As for the company’s other metal production for the quarter, copper production was off 589 tonnes, at 1,132 tonnes; lead production slipped 1,004 tonnes, to 2,881 tonnes; silver output climbed 9,962 oz., to 717,376 oz.; and gold was 3,270 oz. lower, at 5,738 oz.

At Nanisivik, Breakwater has received a water licence relating to the mine’s closure and reclamation from the Nunavut Water Board (NWB). Breakwater expects to complete the closure and reclamation plans, as well as environmental and health studies, by year-end. The NWB pegs reclamation costs at $17.6 million; Breakwater puts them at $9.2 million.

Breakwater’s shares were off 3 at 10 in mid-afternoon trading in Toronto on Nov. 20.