Costs, writedown take toll on Bema

Vancouver — The triple-whammy of low gold prices, high production costs and a US$9.3-million writedown has pushed Bema Gold (BGO-T) deeper into the red.

The Vancouver-based company posted a third-quarter loss of US$11.3 million (or 8 per share) on revenue of US$6.5 million, compared with a loss of US$1.3 million (1 per share) on revenue of US$6.7 million a year ago. Bema attributes the recent loss to a US$9.3 million writedown of an investment in El Callao Mining (ECM-V), as well as lower-than-projected production at its half-owned Refugio gold mine in Chile.

Hedging caused the company to realize an average gold price of US$385 per oz. during the third quarter, compared with a spot price of US$277 gold per oz.

Refugio mine cranked out 32,827 oz. gold (Bema’s share: 16,414 oz.) during the recent 3-month period, or 24% less than expected, at an operating cost of US$308 per oz. In the comparable period of 1999, output totalled 35,334 oz. (Bema’s share: 17,667 oz.) at US$291 per oz.

The shortfall is blamed on poor throughput and freezing of the leach solution. The freezing occurred when the primary power supply was interrupted during a storm in June.

Bema has decided not to contribute its share of cash to Cia Minera Maricunga, the joint-venture company that holds the Refugio mine and which is owned on a 50-50 basis by Bema and Kinross Gold (K-T). Bema reasoned that Kinross, as mine operator, was responsible for the unauthorized operating budget overruns that resulted in the cash shortfall. Kinross did not agree, however, and ceased all mining and crushing operations in early November. Bema subsequently funded its cash call, though it says Kinross does not have the authority to cease mining unilaterally and is reviewing its legal options.

Meanwhile, at the 79%-owned Julietta project, in Russia’s Magadan region, the general contractor advanced concrete work to near completion. Erection of the mill building is on-schedule and should be completed by mid-December. In addition, a new camp facility has been completed and most of the equipment for the mill and mine has been procured. During the third quarter, Bema arranged US$35 million worth of loans for the project’s construction, which is now under way. Gold and silver production is scheduled to begin in the fourth quarter of 2001.

Julietta will employ mechanized cut-and-fill mining at the rate of 350 tonnes per day, and milling will consist of conventional flotation and Merrill-Crowe precipitation. The mine is expected to produce 113,000 oz. gold-equivalent annually over the initial five years of a 9-year life. Total operating cash costs are pegged at US$93 per oz.

Bema has a 45% interest in El Callao Mining, which has the right to earn a 70% stake in the Lo Increible gold project in Venezuela. Recently, Bema reached an agreement with Crystallex International (KRX-T) to sell its interest in El Callao, as well as a US$14.3-million debt owed to Bema, and a 2% net smelter return royalty from El Callao’s share of the Lo Increible project’s royalty. In return, Bema is to receive US$7.6 million and a 1% net smelter return royalty. Crystallex has taken an interim position in Bema’s US$14.3-million loan to El Callao by purchasing US$3 million of the loan. The remaining US$4.6 million will be paid in two instalments of US$2.3 million, which can be made in cash or Crystallex shares. In total, Bema wrote down US$9.3 million of its investment in El Callao.

Meanwhile, Bema has improved its cash position by selling 5 million shares of Arizona Star Resources (azs-v) for a net proceeds of US$2.75 million. Bema held a 32% interest in Arizona Star prior to the sale. Arizona Star owns a 51% interest in the Cerro Casale copper-gold project, in Chile, with Bema holding the remainder. Placer Dome (PDG-T), which has the right to earn a 51% interest in the property by spending US$1.3 billion on mine development, has delayed development of the project.

Bema also closed a portion of its gold-hedging facilities related to the Refugio mine, and realized an additional US$2 million.