Breakwater Resources Ltd.'s 2010 and Fourth Quarter
Financial And Operating Results
Breakwater
Resources Ltd. (TSX: BWR)(TSX: BWR.WT.A) realized net earnings of $18.2 million
or $0.25 per share in the fourth quarter of 2010 compared with $5.4 million or
$0.08 per share in the fourth quarter of 2009.
The
Company realized net earnings of $87.2 million or $1.23 per share during 2010
compared with $0.8 million or $0.01 per share in 2009.
David
M. Petroff, President and Chief Executive Officer, stated that, "We are
pleased to have posted another solid quarter. 2010 was a successful and
eventful year as the Company undertook to implement its strategic plan. In so
doing, and buoyed by healthy commodity prices, financial strength was improved
through the generation of $45 million free cash flow and $46 million net new
equity."
Revenues
Higher, Costs Higher
Gross
sales revenue was 62% higher in the fourth quarter of 2010 at $80.5 million
primarily due to higher metal prices and 52% more concentrate sold partially
offset by a stronger C$ and no copper revenue being recognized in the fourth
quarter of 2010.
Gross
sales revenue in 2010 was 64% higher at $371.3 million primarily due to
significantly higher metal prices and more concentrate sold partially offset by
a stronger C$. Concentrate produced during 2010 increased 3% to 221,738 tonnes
compared with 2009 due to a 13% increase at Myra Falls partially offset by a 5%
decrease at Toqui.
Realized
prices denominated in US$ increased for all metals in the fourth quarter of
2010 compared with the fourth quarter of 2009. The Company periodically hedges
against fluctuations in metal prices and foreign exchange rates using forward
sales or put contracts. Additionally, certain of the Company's contracts with
customers allow it to lock-in the price received for contained metals payable.
Direct
operating costs were 91% higher in the fourth quarter of 2010 at $33.1 million
compared with $17.3 million in the fourth quarter of 2009. The increased direct
operating costs were primarily due to 52% more concentrate sold and higher
costs at Mochito and Toqui. On a cost per tonne of concentrate sold basis,
direct operating costs increased to $569 in the fourth quarter of 2010 from
$451 in 2009.
At
Mochito, direct operating costs increased $8.0 million in the fourth quarter of
2010 primarily due to 62% higher concentrate sales, higher costs for power,
diesel, rehabilitation, contractors, haulage, materials and supplies as well as
a contract signing bonus of US$0.8 million. Direct operating cost per tonne of
concentrate sold was $534 in the fourth quarter of 2010 compared with $327 in
2009 primarily due to the factors noted above. A rain event in the third
quarter of 2010 disrupted mill and certain mine operations with a return to
normal operations after approximately one month of emergency repairs to roads,
bridges, slopes and general cleanup. Underground operations were not affected
by the rain event.
At
Toqui, direct operating costs in the fourth quarter of 2010 were $7.9 million
higher than in the same period of 2009 primarily due to: 140% higher tonnes of
concentrate sold; the mix of concentrates sold; a US$1.5 million signing bonus
on contract renewal, a US$1.0 million inventory obsolescence provision, US$0.5
million for repairs and maintenance consultants; US$0.5 million for increased
wages; US$0.2 million for increased maintenance and repairs; US$0.1 million for
increased fuel; and, US$0.1 million higher royalties partially offset by a
stronger C$. Direct operating costs per tonne of concentrate sold increased in
2010 to $760 compared with $600 in 2009 primarily due to the factors noted
above.
At
Myra Falls direct operating costs in the fourth quarter of 2010 were 1% lower
than in the same period of 2009 primarily due to lower operating costs
partially offset by 9% higher quantities of concentrate sold and an increase of
$0.6 million to the tailings dam liability.
For
the year, direct operating costs were 38% higher at $143.3 million compared
with $103.7 million in 2009. The increased costs were primarily due to 24%
higher quantity of concentrate sold and higher costs at Toqui and Mochito. On a
cost per tonne of concentrate sold basis, direct operating costs increased to
$569 in 2010 from $512 in 2009 primarily due to the factors noted above.
Cash
Cash
and cash equivalents increased to $133.9 million in the fourth quarter of 2010
from $88.5 million at September 30, 2010.
Net
Cash Provided By Operating Activities
Net
cash provided by operating activities was $33.1 million for the three month
period ended December 31, 2010 compared with $22.5 million in the same period
in 2009.
Capital
Expenditures
The
Company invested $74.0 million in mineral properties and fixed assets during
2010. At mining operations, $19.9 million, $37.7 million, $9.2 million and $6.9
million were spent at Mochito, Toqui, Myra Falls and Langlois respectively.
Operations
Mochito
-- Rehabilitation of the
2100 level is largely complete with the exception
of the
warehouse area where additional ground support remains to be
installed. A
trial operation of the rail transport facility was carried
out during the
second week of January 2011 prior to commissioning the
changeover to
transport men and materials on the 2350 level.
-- A new labour agreement
was entered into and expires October 1, 2013
Toqui
-- The paste backfill
facility, which will allow for paste tailings
deposition and
enhanced ore extraction through greater recovery of
current and
future pillars, was under commissioning at the end of the
fourth quarter
2010. Delays in commissioning resulted from corrective
work carried
out on mechanical components. The paste backfill facility
commenced
delivery of cemented paste tails to the mine for deposition in
designated
areas during January 2011.
-- As planned, the
installation of a primary ball mill was completed during
the fourth
quarter of 2010, and is operational. The anticipated 15%
increase in
annual mill throughput has been realized and commissioning
is continuing
in order to optimize grinding performance.
-- Over the first two
quarters of 2010, Toqui constructed a 1.5 megawatt
wind farm which
was placed in operation by July 2010 and subsequently,
as a safety
precaution, taken out of service in late October 2010 due to
a blade design
error. It is expected that the construction, delivery and
installation of
the new blades will be completed early in the second
quarter of 2011
at a negligible cost to the Company. Toqui's hydro power
and diesel
generators are sufficient to replace the approximate 10% of
Toqui power
needs which are generated when the wind farm is operational.
-- A new labour agreement
was entered into and expires October 1, 2013
Myra Falls
-- Work to improve
metallurgical recoveries continued with favourable
results
-- Production of a saleable
lead concentrate was achieved
-- Marshall drift
development for the year was 243 metres. Drifting was
slower than
planned due to ground conditions.
-- Development and
rehabilitation required to drill test the Price - South
Flank connection
have been completed with initial diamond drilling
resulting in
encouraging intersections
-- Tailings disposal
facility seismic outer berm upgrade was completed,
with the
exception of a till cap which will be placed in 2011
Langlois
-- Development continued at
Langlois during the fourth quarter of 2010
including
completion of ramps from surface to the top of Zone 4 and a
ramp internal
to Zone 3 and development of selective production
headings.
-- The rate of mine development
was increased during the fourth quarter of
2010 with
commencement of preparation work to develop Zone 97.
Development
will be ongoing throughout 2011 and into 2012
-- The current plan is to
restart production during the first quarter of
2012
-- Additional work was
conducted during the fourth quarter of 2010. As a
result, the
Company exceeded its 2010 guidance for capital expenditures
by
approximately $0.6 million
GROSS SALES REVENUE - FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2010
AND
2009
A breakdown of gross sales revenue for the three and twelve month
periods
ended December 31, 2010 and 2009 is set forth in the following tables.
Fourth
Quarter 2010
----------------------------------------------------------------------------
Concentrate
Realized
Gross sales
sold
Payable
price(1)
revenue
(tonnes) metal(1)
(US$)
($000's)
----------------------------------------------------------------------------
Zinc
52,003
22,834
2,289 $ 52,267
Copper
(2)
129
7,066
908
Lead
4,823
2,810
2,425
6,812
Gold(2)
1,382
8,830
1,318
11,637
Silver
n.a. 318,551
28.17
8,972
Price protection
loss (3)
n.a.
(904)
--------------
----------------
58,206
--------------
Gross sales revenue in US$
79,692
Exchange rate
1.0106
----------------
Gross sales revenue in C$
$
80,540
----------------
Fourth Quarter 2009
----------------------------------------------------------------------------
Concentrate
Realized
Gross sales
sold
Payable
price(1)
revenue
(tonnes)
metal(1)
(US$)
($000's)
----------------------------------------------------------------------------
Zinc
32,618
14,564
2,119 $ 30,861
Copper
1,943
488 6,249
3,050
Lead
2,387
1,385
2,313
3,204
Gold(2)
1,453
6,964
1,094
7,622
Silver
n.a.
216,068
17.75
3,836
Price protection
loss (3)
n.a.
(1,497)
---------------
----------------
38,401
--------------
Gross sales revenue in US$
47,076
Exchange rate
1.0567
----------------
Gross sales revenue in C$ $ 49,744
----------------
(1) Payable metal and
realized prices for zinc, copper and lead are per
tonne and
for gold and silver are per ounce.
(2) Gold concentrate sales
are principally from Toqui while payable gold is
from all
operations except Mochito.
(3) Price protection gains
(losses) for zinc, copper, gold and silver were:
US$238,000; (US$488,000); (US$148,000); and, (US$506,000) respectively
in the
fourth quarter of 2010.
2010
----------------------------------------------------------------------------
Concentrate
Realized
Gross sales
sold
Payable
price(1)
revenue
(tonnes)
metal(1)
(US$)
($000's)
----------------------------------------------------------------------------
Zinc
192,545
83,549
2,180 $ 182,176
Copper
19,035
4,395
7,157
31,456
Lead
31,488 19,234
2,186
42,052
Gold(2)
8,736
52,916
1,195
63,209
Silver
n.a.
2,241,601
19.64
44,014
Price protection
loss (3)
n.a.
(2,000)
Other(4)
n.a.
(437)
------------
---------------
251,804
------------
------------
Gross sales revenue in US$
360,470
Exchange rate
1.0301
---------------
Gross sales revenue in C$
$
371,338
---------------
---------------
2009
----------------------------------------------------------------------------
Concentrate
Realized Gross
sales
sold
Payable
price(1)
revenue
(tonnes) metal(1)
(US$)
($000's)
----------------------------------------------------------------------------
Zinc
159,286
70,152
1,545 $
108,358
Copper
16,640
3,653
4,475
16,348
Lead
20,017
12,183
1,654
20,147
Gold(2)
6,771
35,959
956
34,368
Silver
n.a.
1,729,954
14.09
24,367
Price protection
loss (3)
(4,034)
Other(4)
n.a.
(441)
------------
---------------
202,714
------------
------------
Gross sales revenue in US$
199,113
Exchange rate
1.1372
---------------
Gross sales revenue in C$
$
226,438
---------------
---------------
(1) Payable metal and
realized prices for zinc, copper and lead are per
tonne and
for gold and silver are per ounce.
(2) Gold concentrate sales
are principally from Toqui while payable gold is
from all
operations except Mochito.
(3) Price protection (gains)
losses for zinc, copper, lead, gold and silver
were:
(US$1,654,000); US$1,658,000; US$252,000; US$553,000; and,
US$1,191,000 respectively in 2010.
(4) Other gross sales
revenue represents revaluations of prior period
concentrate receivables.
PRICE PROTECTION STRATEGY
As at February 24, 2011, the Company's hedge position consisted of:
Swaps/Forwards:
Metal
Quantity(1)
Price(US$)(1)
2011 Period
-------------------------------------------------------------------
Zinc
16,850
$2,464
May to December
Lead
2,500
$2,670
February
Silver
233,000
$29 February to May
Gold
210
$1,368
May
Puts and Calls:
Puts
Calls
Calls
Bought
Sold
Bought
Price Price Price
Metal Quantity(1) (US$)(1) (US$)(1) (US$)(1)
2011 Period
----------------------------------------------------------------------------
Zinc
10,000 $ 2,040
n.a.
n.a.
February to June
Copper 1,400 $ 7,716
n.a.
n.a.
April to July
Copper
800 $ 8,269 $ 9,665 $ 12,000
April to July
Lead
1,100 $ 2,315 $ 2,565
n.a.
May
Silver
885,000 $ 25
n.a. n.a. February to December
Silver
170,000 $ 26 $ 31
n.a. October to
November
Gold
16,000 $ 1,256
n.a.
n.a. March
to December
(1) Quantities and prices
for zinc, copper and lead are per tonne and for
gold and
silver are per ounce.
PRODUCTION RESULTS
The table below summarizes, on a production basis, the Company's metal
contained in concentrate, before smelting deductions, for the periods
presented.
Metal in Concentrate
Fourth Quarter
Year
2010
2009
% 2010 2009 %
----------------------------------------------------------------------------
Zinc (tonnes)
Mochito 8,255 10,683 -23 33,839 36,370 -7
Toqui
4,254
4,815 -12 20,014 19,635 2
Myra Falls
6,843 9,113 -25 32,686 30,900 6
--------------------
--------------------
19,352
24,611 -21 86,539 86,905 -
--------------------
--------------------
Copper
(tonnes)
Myra Falls
822
893 -8 4,769 3,349 42
--------------------
--------------------
822
893 -8 4,769 3,349 42
--------------------
--------------------
Lead (tonnes)
Mochito
3,580
4,798 -25 16,954 14,471 17
Toqui
-
172 -
415 1,025 -60
Myra Falls
248
- -
511
- -
--------------------
--------------------
3,828
4,970 -23 17,880 15,496 15
--------------------
--------------------
Gold (ounces)
Toqui
9,339
13,102 -29 36,581 44,079 -17
Myra Falls
4,365 5,873 -26 20,003 15,526 29
--------------------
--------------------
13,704
18,975 -28 56,584 59,605 -5
--------------------
--------------------
Silver (ounces)
Mochito
441,737 540,972 -18 1,869,833 1,855,018 1
Toqui
24,481
51,470 -52 118,754 233,382 -49
Myra Falls
183,922 222,309 -17 732,796 578,008 27
--------------------
--------------------
650,140 814,751 -20 2,721,383 2,666,408 2
--------------------
--------------------
The
unaudited consolidated interim financial statements for the periods ended
December 31, 2010, with the comparative figures for the periods ended December 31,
2009 and the related segmented information have been posted on our website.
Additionally, the audited consolidated financial statements for the year ended
December 31, 2010 and management's discussion and analysis of the annual
financial and operating results have been filed on www.sedar.com. Additionally, the
documents are available on our website at http://www.breakwater.ca/Investors/AnnualandQuarterlyReports/default.aspx.