TVX posts improved earnings (August 16, 2002)

Buoyed by a higher gold price and the sale of its residual interest in the Casa Berardi mine in northwestern Que., Toronto-based TVX Gold (TVX-T) has posted improved second-quarter earnings of US$800,000.

The earnings, which translate into US2 per share, compares with a year-ago loss of US$2.5 million. The recent quarter’s revenue rang in at US$44.5 million, up US$5 million from the year-ago period. Cash flow from operations jumped by about $10 million to $14.4 million.

For the first half of 2002, TVX’s earnings amount to US$2.3 million (6 per share) on revenue of US$89.2 million, compared with earnings of US$1.2 million on US$79.3 million during the first half of 2001. Cash flow more than doubled to of US$18.4 million.

The financial improvement during the recent three-month period is also attributed to an increase production from TVX Newmont America’s half-owned Brasilia mine in Brazil.

As part of TVX’s proposed three-way merger with Kinross Gold and Echo Bay Mines (ECO-T), TVX must purchase Newmont Mining‘s (NEM-N) 49.9% interest in TVX Newmont Americas, for US$180 million. The major has agreed to the sale as part of its own goal to offload US$400 million in non-core assets by year-end.

During the quarter, TVX’s share of gold from Brasilia (Rio Tinto [RTP-N] holds the remainder) piled up to 14,350 oz. produced at total cash costs of US$$162 per oz. With the major mill repairs completed during 2001 mill throughput during the latest quarter climbed by 22%. Gold grades grew by 27%. The partners are currently looking at boosting production, and the final results of a study of a pilot semi-autogenous-grinding mill are expected in early 2003.

Offsetting Brasilia’s improvement was the Musselwhite mine in Ontario (Placer Dome holds the remainder). Delays in the completion of the underground conveyor and crushing system reduced ore feed to the mill and pushed three- and six-month production down by 32% and 19%, respectively. A 10% drop-off in gold grades didn’t help matters much. All of that conspired to push the quarter’s total cash costs US87 per oz. higher to US$270 per oz. For the first half, cash costs were US$230 per oz., up US$45 from a year earlier.

TVX’s share of Musselwhite’s quarterly production was 6,300 oz. (off from 9,300 oz. during the same period of 2001), and 14,950 oz. (18,550 oz.) for the half-year.

TVX expects the operation to return to near planned production levels for the balance of the year, as testing of the conveyor and crushing facilities were wrapped up subsequent to the quarter’s end.

All in all, TVX’s stake in five mines brought in 57,500 oz. of gold produced at US$195 apiece during the second quarter. A year earlier the company’s account was credited with 56,700 oz. at US$180 each. For the first six months of 2002, production tallied to 116,000 at US$190 per oz., little changed form the 116,000 oz. at US4177 per oz. in the 2001 first-half.

During the quarter, TVX realized US346 for each gold oz. sold, and US$4.05 for each oz. of silver, both significantly improved form the previous year. For the six-month period the figures were US$336 and US$4.05 per oz., respectively. Both were again better than year-ago numbers.

In Greece, production at the wholly owned Stratoni polymetallic mine climbed from year-ago levels providing TVX with 631,000 oz. silver, 7,500 tonnes lead and 7,600 tonnes zinc. The operation milled 24% more ore than in the corresponding period of 2001. For the half-year, Stratoni produced 1.1 million oz. silver, 13,900 tonnes lead and 15,900 tonnes zinc.

During the quarter, the Greek Conseil d’Etat rejected a local group’s request for an immediate suspension of Stratoni’s operations. The Court has yet to rule on the same group’s petition to annul Stratoni’s mining permits. The court’s final decision is expected in late 2002.

On the merger front, the three companies are awaiting the U.S. Securities and Exchange Commission’s approval of Echo Bay’s information circular, a draft of which was filed on July 16. Once SEC approval is in hand, TVX will send shareholders details of the merger deal, which is expected to wrap up by the fourth quarter.

Under the proposed US$1.7-billion stock-and-cash deal, TVX shareholders will receive 6.5 Kinross shares for each TVX share held and Echo Bay shareholders will receive 0.52 of a Kinross share for each Echo Bay share held and.

Under the three-way plan, the new entity will retain the Kinross name, list on the Toronto and American stock exchanges, and be headquartered in Toronto. A third listing will be sought on the New York Stock Exchange, promising to boost the merged company’s projected 297 million shares outstanding.

At the end of June, TVX had cash and short-term investments of US$118.9 million, up from US$61.9 million at the end of 2001. Long-term debt fell to $5.3 million from $74.2 million. In June, export loans of US$67 million relating to the Brazilian mine were assigned to a Brazilian bank; the corresponding long-term cash deposits were removed from the consolidated balance sheet.