Philex pulls plug on Bulawan

Vancouver — Low gold prices and a high debt load has Philippine producer Philex Gold (PGI-V) relying more heavily on the advancement of its Boyongan copper-gold discovery in eastern Mindanao.

Continued negative cash flow generated from its Bulawan mine on the island of Negros has prompted the company to stop all development work on the project. As a result, a US$40-million writedown will be charged in the fourth quarter of the year. Production is expected to continue through the first quarter of next year when the plant and equipment will be placed on care and maintenance.

“We have struggled for some time with the Bulawan mine, which has been marginal, especially in relation to a gold price that stubbornly refuses to increase,” says Philex’s CEO, Gerard Brimo. “While the decision is disappointing, it will ensure no further deterioration of our financial condition and allow us to focus on the important joint venture with Anglo (Anglo American [AAUK-Q]), which has led to the discovery of the Boyongan deposit.”

The juniors’ financial picture includes some US $14 million in debts owed to Philippine banks and about US$40 million owed to its parent company, Manila-based Philex Mining. Both debts are payable on demand, but Philex expects to have sufficient time to repay the bank debts by raising funds through a private placement of debt, equity securities or through the sale of certain assets. Philex also anticipates that the intercorporate debt will remain outstanding both before and after the repayment of the bank debts.

The focus of the company now shifts to its exploration potential. Last September, Anglo American cut 0.81% copper and 1.90 grams gold per tonne gold over 365 metres at the Boyongan prospect on Philex’s North property. The announcement sent shares of Philex flying from 8 per share to a lofty $2.50 each. Subsequent results sent investors on a roller coaster ride with shares gyrating between 50 and $2.10, closing recently at 80.

The initial 10,000 metres of diamond drilling planned for this year has been increased to 13,000 metres, and should be completed shortly. Next year, Philex expects 15,000 metres of resource definition drilling to be complete, along with 3,000 metres of reconnaissance drilling on the surrounding properties.

Anglo American can earn 40% of the North property by spending $2.2 million, and then 70% by completing a bankable feasibility study.

In the latest quarter ended Sept. 30, the junior recorded a loss of US$3.8 million or 10 per share, compared to a loss of US$2.1 million, or 5 in the same period last year. Cash flow from its Bulawan gold mine came in at a negative US$1.4 million, or 4 per share, compared to a deficit of US$2.1 million, or 5 per share in the third quarter of 2000. Gold production hit 14,392 oz at a cash operating cost of US$198 per oz. during the quarter, up significantly from the 6,257 oz. produced at a cash operating cost of US$245 per oz recorded in the third quarter of 2000. Philex averaged gold price for the quarter hit US$277 per oz, compared to the US$298 per oz received a year- earlier.

For the first nine months of the year, the Toronto-based company posted a loss of US$6.7 million, or 17 per share, compared to a loss of US$8 million, or 20 per share in the 2000 period. Revenues tallied US$12.2 million, up from the US$7.6 million recorded in 2000.Gold output jumped to 45,062 oz at a cash operating cost of US$203 per oz, compared to 26,869 oz at a cash operating cost of US$334 per oz in the same period last year, when milling operations were suspended for a two-month period.