TVX posts improved earnings (August 26, 2002)

Buoyed by a higher gold price and a US$1.2-million gain on the sale of its residual interest in the Casa Berardi mine in northwestern Que., Toronto-based TVX Gold (TVX-T) posted improved second-quarter earnings of US$800,000.

The earnings, which translate into US2 per share, compare with a loss of US$2.5 million in the second quarter of 2001. In the recent quarter, TVX generated US$44.5 million in revenue, up US$5 million from the year-earlier period. Cash flow from operations jumped by about $10 million to $14.4 million.

For the first half of 2002, earnings totalled US$2.3 million (or 6 per share) on revenue of US$89.2 million, compared with a year-earlier profit of US$1.2 million on revenue of US$79.3 million. Cash flow more than doubled to US$18.4 million.

The financial improvement during the recent 3-month period is partly due to an increase in production at TVX Newmont Americas’ half-owned Brasilia mine in Brazil.

As part of a proposed 3-way merger with Kinross Gold (K-T) 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 a total cash cost of US$$162 per oz. With major mill repairs having been completed in 2001, throughput during the latest quarter climbed by 22%, while gold grades grew by 27%. The partners are considering boosting output, and the results of a study into using a semi-autogenous grinding mill are expected in early 2003.

Offsetting Brasilia’s improvement was the Musselwhite mine in Ontario, the remainder of which is held by Placer Dome (PDG-T). Delays in the completion of the underground conveyor and crushing system reduced mill feed, and reduced 3- and 6-month production by 32% and 19%, respectively. A 10% dropoff in gold grades did not help matters. These and other factors 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. in the second quarter of 2001), and 14,950 oz. (18,550 oz.) for the half-year.

TVX expects the operation to return to 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. 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 per oz. For the first six months of 2002, production amounted to 116,000 at US$190 per oz., little-changed from the 116,000 oz. produced at US$177 per oz. in the first half of 2001.

During the quarter, TVX realized US$346 for each ounce of gold sold, and US$4.05 for each ounce of silver — in both cases, significant improvements from the year-earlier period. For the first half, the figures were US$336 and US$4.05 per oz., respectively.

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 second quarter of 2001. For the half-year, Stratoni produced 1.1 million oz. silver, 13,900 tonnes lead and 15,900 tonnes zinc.

Legal wrangle

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 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 in mid-July. Once SEC approval is in hand, TVX will send shareholders details of the merger deal, which is expected to be completed by the fourth quarter.

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

The 3-way plan would see the new entity retain the Kinross name, list on the Toronto and American stock exchanges, and be based in Toronto. A third listing will be sought on the New York Stock Exchange, which would 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.