Western Goldfields Announces 2008 Financial Results
- 2008 gold sales of 110,880 ounces at $861 per ounce, cost of sales(1)
of $508 per ounce
- Net income of $14.6 million or $0.11 per share, including an after-
tax mark-to-market gain on our gold forward sales contracts of $8.0
million or $0.06 per share
- The Company completed the planned capital expansion of the Mesquite
mine during the year, within budget; going forward, sustaining
capital is minimal
- The Company reduced its debt by $17.7 million to $68.6 million at
December 31, 2008
TORONTO, March 6 /CNW/ - Western Goldfields Inc. ("Western Goldfields" or
the "Company") (TSX:WGI, NYSE Alternext:WGW) today announced financial results
for the year ended December 31, 2008. In 2008 the Company brought the Mesquite
mine back into production and strategically adjusted its mine plan to focus on
sequential mining of Mesquite's three open pits, thus increasing production
and cash flow in the next four years. Results are based on U.S. GAAP and
expressed in U.S. dollars unless otherwise indicated.
"During the early part of 2008, the Company met the challenges of our
start-up, and made appropriate changes to Mesquite to ensure it remains a
long-lived asset that will generate significant cash flow year over year with
very little additional capital requirement," stated Mr. Randall Oliphant,
Chairman.
Gold sales during the year totaled 110,880 ounces, at an average cost of
sales(1) of $508 per ounce. Gold revenues in 2008 were $861 per ounce(1). Gold
production was 108,325 ounces.
In 2008, Western Goldfields' production and sales were below expectations
due to a combination of factors including: equipment and parts availability,
optimization of process solution flow, a delay in placing the second ore lift
and the focus on stripping in the latter part of the year under the revised
mine plan. These production challenges, combined with an industry wide rise in
input costs, such as fuel, tires, explosives and process chemicals, made 2008
a challenging start-up year for the Company.
Western Goldfields proved to be both flexible and decisive in its
reaction to these challenges. A revised mine plan, announced in October, moved
to sequential mining of the pits, reducing costs and increasing efficiency,
while simultaneously improving the production profile. In addition, the
Company was proactive in controlling costs by hedging approximately 50% of its
diesel fuel requirements in each of 2009 and 2010 and also began procuring
lower-cost, better-performing radial tires.
"In 2008, a number of factors resulted in the Company not meeting its
expectations. While some were beyond our control, others were well within it
and we are committed to learning from this, continuously improving and meeting
our operational targets going forward," said Mr. Raymond Threlkeld, President
and Chief Executive Officer. "The combination of the gold inventory on the
pad, lower fuel costs, availability of radial tires, more experienced
operators and a solid gold price creates the potential for some very exciting
years for the Company going forward."
Fourth Quarter 2008 Results
---------------------------
For the fourth quarter 2008, gold sales totaled 30,625 ounces, at an
average cost of sales(1) of $522 per ounce. Gold revenues in the fourth
quarter 2008 were $799 per ounce(1). The Company produced 28,378 ounces of
gold in the quarter.
As a result of the new mine plan, during the fourth quarter the Company
did not produce as many ounces as anticipated. The plan resulted in increased
stripping activity at the Rainbow pit in the fourth quarter of 2008. The
combination of issues encountered throughout the year led to a delay in
placing the second ore lift on the leach pad. The resulting lack of secondary
leaching led to lower than expected recoveries and production particularly in
late 2008 when the benefit of these additional recoveries would have started
to be realized.
Operations Update
-----------------
During 2008, the Company showed continuous progress in mining operations,
most specifically, tons mined and gold ounces delivered to the leach pad. From
October forward, under the revised mine plan, Western Goldfields met budgeted
targets in both of these critical areas. The impact of this was a large build
of recoverable gold ounces on the leach pad. As the ounces were mined and
placed late in 2008, they did not have the necessary time to flow through the
full leach cycle into production and will instead add to production in 2009
and beyond. The following table presents a summary of key operational metrics
for the Mesquite mine for 2008 and the 2009 forecast:
-------------------------------------------------------------------------
2008 2009 Forecast
-------------------------------------------------------------------------
Total Tons Mined (millions) 54.5 52.0 - 56.0
-------------------------------------------------------------------------
Ore Tons Mined (millions) 8.9 13.0 - 14.0
-------------------------------------------------------------------------
Gold Ounces Placed (000's ounces) 201.1 205.0 - 215.0
-------------------------------------------------------------------------
Gold Sales (000's ounces) 110.9 140,000 - 150,000
-------------------------------------------------------------------------
Ending Gold Inventory (000's ounces) 54.6 63.0 - 67.0
-------------------------------------------------------------------------
Consistent with the experience of many of Western Goldfields' peers, 2008
represented a year of escalating input costs. The following table presents a
summary of the Company's cost metrics for 2008 and the 2009 forecast:
-------------------------------------------------------------------------
2008 2009 Forecast
-------------------------------------------------------------------------
Mining cost per ton mined $1.03 $0.80 - $0.84
-------------------------------------------------------------------------
Processing cost per ton of ore $1.55 $1.10 - $1.15
-------------------------------------------------------------------------
G&A cost per ton of ore $0.47 $0.35 - $0.38
-------------------------------------------------------------------------
Royalty cost per ton of ore $0.23 $0.20 - $0.22
-------------------------------------------------------------------------
2008 Financial Results
----------------------
For the full year 2008, Western Goldfields reported net income of $14.6
million, or $0.11 per share, compared to a net loss of $50.3 million, or $0.43
per share, for the full year 2007. Net income for 2008 and 2007 includes a
non-cash after-tax gain of $8.0 million and loss of $35.9 million,
respectively, arising from the mark-to-market on our gold forward sales
contracts, which were taken out as a requirement of our term loan facility.
Results for 2008, as compared with 2007, show an increase in gold sold to
110,880 ounces from 6,889 ounces; the average sales price per ounce rose to
$861 in 2008 from $677 in 2007.
Fourth Quarter 2008 Financial Results
-------------------------------------
For the fourth quarter 2008, Western Goldfields reported net income of
$7.8 million, or $0.06 per share, which included a non-cash after-tax gain of
$9.2 million, or 0.07 per share, arising from the mark-to-market on our gold
forward sales contracts. The mark-to-market gain in the fourth quarter 2008
reflects a decrease in the spot gold price from $885 per ounce at September
30, 2008 to $870 at December 31, 2008.
Liquidity and Capital Resources
-------------------------------
At December 31, 2008, the Company's cash balance was $18.8 million,
including restricted cash of $7.5 million. In the fourth quarter, the Company
repaid $17.7 million of debt under its credit facility, leaving $68.6 million
outstanding at the end of the year. Western Goldfields intends to continue
using Mesquite's cash flow to de-lever the balance sheet and pursue
disciplined growth opportunities.
Capital Expenditures
--------------------
During 2008, the Company substantially completed its capital program. The
expansion capital program was completed at a cost of $111.3 million, within 1%
of the budget. Total capital expenditures in 2008 were $22.1 million. Capital
expenditures in 2009 are forecast to be $1.5 million. Sustaining capital
requirements are expected to be nominal going forward.
Reserves and Resources
----------------------
Proven and probable mineral reserves as at December 31, 2008 are 151.61
million tons at 0.017 ounces per ton containing 2.57 million ounces of gold.
In addition, measured and indicated mineral resources as at December 31, 2008
are 100.68 million tons grading 0.015 ounces per ton containing 1.53 million
ounces of gold. These changes from the previous year reflect production
depletion. For more complete disclosure on our reserves and resources, please
see our Annual Report on Form 10-K to be filed on SEDAR and EDGAR on March 10,
2009.
2009 Outlook
------------
In 2009, the Company expects to produce and sell 140,000 to 150,000
ounces of gold at a cost of $68.0 to $72.0 million. Due to the timing of leach
pad recoveries and the impact of inventory adjustments, the Company forecasts
cost of sales per ounce(1) of $530 to $540. As higher cost leach pad gold
inventory at December 31, 2008 is planned to be replaced by lower cost
inventory at December 31, 2009, the planned cost of sales for 2009 includes
approximately $11 million (approximately $75 per ounce) from the expected
reduction in the value of leach pad gold inventory. These costs were included
in work in process inventory at December 31, 2008 and therefore do not affect
2009 operating cash flow. Operating cash flow is expected to be $40 - $45
million for 2009 assuming a gold price of $850 per ounce.
While total operating costs are expected to remain consistent on a
quarterly basis from $16.5 to $18.5 million, higher stripping ratios and lower
grades are expected to result in lower ounces placed on the leach pad and
lower production in the first three quarters of 2009. Approximately 50% of the
recoverable ounces placed in 2009 are forecast to be placed in the fourth
quarter. Production in each of the first three quarters is expected to be
33,000 to 38,000 ounces before increasing to 38,000 to 43,000 ounces in the
fourth quarter. The cost of sales per ounce(1) in the first three quarters of
the year is forecast to be $595 to $605 and includes approximately $4.0
million (approximately $110 per ounce) per quarter of costs from the expected
reduction in the value of leach pad gold inventory quarter to quarter. The
fourth quarter cost of sales per ounce(1) is expected decline to $365 to $375
and includes approximately a $1.0 million (approximately $25 per ounce)
reduction to cost of sales from the expected increase in the value of leach
pad gold inventory during the fourth quarter. The inventory related costs do
not impact the Company's cash flow in the respective quarters.
Assumptions:
------------
In providing the Company's 2009 forecast, Western Goldfields assumes an
average gold price for 2009 of $850 per ounce and fuel costs for the 50% of
the Company's diesel that is unhedged of $1.75 per gallon (including tax and
delivery). Western Goldfields utilizes an ultra low sulfur west coast red
diesel as specified by California and Imperial County.
(1) Cost of sales per ounce is defined as cost of sales as per the
Company's financial statements divided by the number of ounces sold.
Revenues per ounce are determined by the revenues from gold sales as
per the Company's financial statements divided by the number of
ounces sold.
Business Combination with New Gold
----------------------------------
On March 4, 2009, the Company announced a business combination with New
Gold Inc. ("New Gold"). Under the terms, New Gold will acquire by way of a
plan of arrangement all of the outstanding common shares of Western Goldfields
on the basis of one New Gold common share and CDN$0.0001 in cash for each
common share of Western Goldfields (the "Transaction"). Upon completion of the
Transaction, existing New Gold and Western Goldfields shareholders will own
approximately 58% and 42% of the combined company, respectively.
Based on the closing price of New Gold's common shares on the TSX of
CDN$2.30 on March 3, 2009, this offer represented a premium of 19.2% to the
closing price of Western Goldfields shares on the TSX on March 3, 2009 and
20.1% to the 20-day volume weighted average trading price of both companies'
shares on the TSX.
Highlights of the Transaction:
- Diversified gold production base from three gold mines in mining-
friendly jurisdictions with forecasted gold production of
approximately 335,000 ounces in 2009, expected to grow to over
400,000 ounces in 2012
- Strong cash flow to fully fund the development at the New Afton gold-
copper project in British Columbia
- Delivers on industry consolidation in a rising gold price environment
- Combines experienced management teams and boards of directors
- Enhances market presence
- Increases mineable reserves totaling 7.6 million gold ounces within a
measured and indicated resource of 12.2 million gold ounces
Western Goldfields Inc.
-----------------------
Western Goldfields Inc. is an independent gold production and exploration
company with a focus on precious metal mining opportunities in North America.
The Mesquite Mine, currently the Company's sole asset, was brought into
production in January 2008, and the Company's focus is now on achieving the
anticipated rate of production and completing planned improvements to the
property. The Company has 2.6 million ounces in Proven and Probable Reserves.
Western Goldfields common shares trade on the Toronto Stock Exchange under the
symbol WGI, and on the NYSE Alternext under the symbol WGW.
Mr. Wes Hanson, P.Geo., Vice President of Mine Development, Western
Goldfields Inc., is the qualified person under National Instrument 43-101 who
supervised the preparation of the technical information contained in this news
release.
Cautionary Note to U.S. Investors Concerning Estimates of Measured,
Indicated and Inferred Resources
-------------------------------------------------------------------------
This press release uses the terms "measured", "indicated" and/or
"inferred" mineral resources. United States investors are advised that while
such terms are recognized by Canadian regulations, the United States
Securities and Exchange Commission does not recognize them. United States
investors are cautioned not to assume that all or any part of mineral
resources will ever be converted into mineral reserves. Inferred mineral
resources have a great amount of uncertainty as to their existence, and as to
their economic and legal feasibility. It cannot be assumed that all or any
part of an inferred mineral resource will ever be upgraded to a higher
category. Under Canadian rules, estimates of inferred mineral resources may
not form the basis of feasibility or other economic studies. United States
investors are cautioned not to assume that all or any part of an inferred
mineral resource exists, or is economically or legally mineable.
Forward-Looking Information
---------------------------
Certain statements contained in this news release and subsequent oral
statements made by and on behalf of the Company may contain forward-looking
information within the meaning of the United States Private Securities
Litigation Reform Act of 1995 and similar Canadian securities law. Such
forward-looking statements are identified by words such as "intends",
"anticipates", "believes", "expects", "plans" and include, without limitation,
statements regarding the Company's plan of business operations, production and
cost estimates, receipt of working capital, anticipated revenues, and capital
and operating expenditures. These forward-looking statements are based on the
best estimates of management at the time such statements are made. Expected
production results and cost of sales (including without limitation, statements
made with respect to future production and costs contemplated by our new mine
plan) are based in part on current and historical production and cost data
factoring certain assumptions with respect to future metal prices, costs and
availability of supplies and labour and other parameters. There can be no
assurance that such statements will prove to be accurate; actual results and
future events could differ materially from such statements. Factors that could
cause actual results to differ materially include, among others, variations in
metal prices and/or cost of supplies, possible variations in ore grade or
recovery rates, failure of plant, equipment or processes to operate as
anticipated, accidents, labour disputes, as well as those set forth in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 2007
filed with the U.S. Securities and Exchange Commission and with SEDAR, under
the caption "Risk Factors" as well as other filings made by the Company with
securities regulatory authorities. Most of these factors are outside the
control of the Company. Investors are cautioned not to put undue reliance on
forward-looking statements. Except as otherwise required by applicable
securities statutes or regulations, the Company disclaims any intent or
obligation to update publicly these forward-looking statements, whether as a
result of new information, future events or otherwise.
WESTERN GOLDFIELDS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands U.S. dollars) (Unaudited)
December 31, December 31,
2008 2007
------------- -------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 11,275 $ 43,870
Restricted cash 7,500 7,500
Receivables 2,550 298
Inventories 35,098 11,201
Prepaid expenses 1,747 887
Current portion of deferred income
tax asset 2,045 755
------------- -------------
TOTAL CURRENT ASSETS 60,215 64,511
------------- -------------
Plant and equipment, net of accumulated
amortization 111,334 77,951
Construction in process - 21,864
Investments - reclamation and remediation 8,934 8,661
Long-term deposits 367 348
Long-term prepaid expenses 1,384 1,555
Deferred debt issuance costs, net of
accumulated amortization 2,766 3,227
Deferred income tax asset 22,368 36,378
------------- -------------
TOTAL OTHER ASSETS 147,153 149,984
------------- -------------
TOTAL ASSETS $ 207,368 $ 214,495
------------- -------------
------------- -------------
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 7,484 $ 8,781
Current portion of mark-to-market loss
on gold hedging contracts 5,606 1,935
Current portion of mark-to-market loss
on fuel hedging contracts 540 -
Current portion of loan payable 11,656 6,882
Current portion of reclamation and
remediation liabilities 339 129
------------- -------------
TOTAL CURRENT LIABILITIES 25,625 17,727
------------- -------------
LONG-TERM LIABILITIES
Mark-to-market loss on gold hedging
contracts 39,580 56,966
Mark-to-market loss on fuel hedging
contracts 391 -
Loan payable 56,984 69,581
Reclamation and remediation liabilities 4,737 4,932
------------- -------------
TOTAL LIABILITIES 127,317 149,206
------------- -------------
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDERS' EQUITY
Common stock, of no par value,
unlimited shares authorized; 134,801,286
and 135,049,685 shares issued and
outstanding, respectively 133,383 133,725
Stock options and warrants 8,291 7,551
Accumulated deficit (61,623) (75,987)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 80,051 65,289
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 207,368 $ 214,495
------------- -------------
------------- -------------
WESTERN GOLDFIELDS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(In thousands U.S. dollars)
(Unaudited)
Three Months
Ended December 31, Year Ended December 31,
--------------------------- ---------------------------
2008 2007 2008 2007
------------- ------------- ------------- -------------
REVENUES
Revenues from
gold sales $ 24,472 $ 606 $ 95,427 $ 4,666
------------- ------------- ------------- -------------
COST OF GOODS SOLD
Mine operating
costs 15,431 7,359 54,231 19,100
Royalties 540 38 2,073 192
------------- ------------- ------------- -------------
Cost of sales
(excludes
amortization and
accretion) 15,971 7,397 56,304 19,292
Amortization
and accretion 2,384 1,880 9,332 4,242
Reclamation costs
recovery (209) (22) (209) (22)
------------- ------------- ------------- -------------
18,146 9,255 65,427 23,512
------------- ------------- ------------- -------------
GROSS PROFIT (LOSS) 6,326 (8,649) 30,000 (18,846)
------------- ------------- ------------- -------------
EXPENSES
General and
administrative 1,570 3,239 6,061 8,370
Exploration and
business
development 170 36 1,106 795
------------- ------------- ------------- -------------
1,740 3,275 7,167 9,165
------------- ------------- ------------- -------------
OPERATING INCOME
(LOSS) 4,586 (11,924) 22,833 (28,011)
------------- ------------- ------------- -------------
OTHER INCOME
(EXPENSE)
Interest income 151 593 1,093 1,976
Interest expense
and commitment
fees (1,101) (1,015) (4,127) (1,863)
Amortization of
deferred debt
issuance costs (115) (115) (461) (342)
Realized and
unrealized gain
(loss) on
mark-to-market
of gold forward
sales contracts 15,121 (31,328) 13,078 (58,901)
Unrealized loss
on mark-to-market
of fuel forward
contracts (931) - (931) -
Gain on sale of
assets - - - 42
Loss on foreign
currency exchange (2,224) (637) (3,820) (343)
------------- ------------- ------------- -------------
10,901 (32,502) 4,832 (59,431)
------------- ------------- ------------- -------------
INCOME (LOSS)
BEFORE INCOME TAXES 15,487 (44,426) 27,665 (87,442)
INCOME TAX RECOVERY
(EXPENSE) (7,704) 37,133 (13,049) 37,133
------------- ------------- ------------- -------------
NET INCOME (LOSS) $ 7,783 $ (7,293) $ 14,616 $ (50,309)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
NET INCOME (LOSS)
PER SHARE
- BASIC $ 0.06 $ (0.06) $ 0.11 $ (0.43)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
- DILUTED $ 0.05 $ (0.06) $ 0.10 $ (0.43)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
WEIGHTED AVERAGE
NUMBER OF COMMON
STOCK OUSTANDING
- BASIC 135,864,664 132,554,570 136,169,809 116,903,752
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
- DILUTED 143,770,106 132,554,570 148,171,716 116,903,752
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
WESTERN GOLDFIELDS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands U.S. dollars)
(Unaudited)
Three Months
Ended December 31, Year Ended December 31,
--------------------------- ---------------------------
2008 2007 2008 2007
------------- ------------- ------------- -------------
CASH FLOWS FROM
OPERATING
ACTIVITIES
Net income
(loss) $ 7,783 $ (7,293) $ 14,616 $ (50,309)
Adjustments to
reconcile net
income (loss)
to net cash
provided (used)
by operating
activities:
Items not
affecting cash:
Amortization of
plant and
equipment 2,456 1,802 9,196 3,925
Amortization of
deferred debt
issuance costs 115 115 461 342
Accretion expense (38) 84 224 337
Deferred
income taxes 7,941 (37,133) 12,720 (37,133)
Reclamation cost
recovery (209) (22) (209) (22)
Reclamation costs
incurred - (148) - (148)
Gain on sale
of assets - - - (42)
Interest net of
reimbursed costs
- reclamation
and remediation (50) 42 (273) (234)
Stock based
compensation 260 611 1,335 2,561
Mark-to-market
(gain) loss on
gold hedging
contracts (15,120) 31,329 (13,715) 58,901
Mark-to-market
loss on fuel
hedging
contracts 931 - 931 -
Changes in assets
and liabilities:
Decrease
(increase) in:
Accounts
receivable (1,959) (169) (2,025) (74)
Inventories (4,793) (8,822) (23,897) (10,689)
Prepaid
expenses and
deposits (544) 970 (708) (610)
Increase
(decrease) in:
Accounts
payable (506) 1,819 (1,759) 2,156
Payroll and
related taxes
payable - - (1,561) -
Accrued
expenses (726) 1,772 3,447 2,101
Accrued
interest
expense (60) 68 (316) 360
------------- ------------- ------------- -------------
Net cash used by
operating
activities (4,519) (14,975) (1,533) (28,578)
------------- ------------- ------------- -------------
CASH FLOWS FROM
INVESTING
ACTIVITIES
Restricted cash - - - (7,500)
Purchase of plant
and equipment,
including
construction in
process (2,206) (19,930) (22,050) (94,611)
Proceeds from
sale of assets - 98 - 98
Increase in
reclamation and
remediation
investment - - - (2,090)
------------- ------------- ------------- -------------
Net cash used by
investing
activities (2,206) (19,832) (22,050) (104,103)
------------- ------------- ------------- -------------
CASH FLOWS FROM
FINANCING
ACTIVITIES
Shares acquired
under normal
course issuer bid (2,507) - (2,507) -
Advances under
loan facilities - 25,354 9,877 76,462
Repayments under
loan facilities (17,700) - (17,700) -
Deferred debt
issuance costs - (250) - (3,570)
Common stock
issued for cash - 33,417 - 92,608
Exercise of
options to
purchase common
stock 293 131 980 1,040
Exercise of
warrants to
purchase common
stock - 1,987 338 4,508
------------- ------------- ------------- -------------
Net cash provided
(used) by financing
activities (19,914) 60,639 (9,012) 171,048
------------- ------------- ------------- -------------
Change in cash
and cash
equivalents (26,639) 25,832 (32,595) 38,367
Cash and cash
equivalents,
beginning of period 37,914 18,038 43,870 5,503
------------- ------------- ------------- -------------
Cash and cash
equivalents, end
of period $ 11,275 $ 43,870 $ 11,275 $ 43,870
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
SUPPLEMENTAL CASH
FLOW DISCLOSURES:
Interest paid $ (1,161) $ (663) $ (4,358) $ (2,374)
Interest
received $ 215 $ 246 $ 887 $ 1,500
Taxes paid $ 570 $ - $ 570 $ -
NON-CASH FINANCING
AND INVESTING
ACTIVITIES:
Stock, options
and warrants
issued for
services $ 260 $ 625 $ 1,335 $ 2,575
Equipment
purchases
included in
accounts
payable $ 235 $ 852 $ 551 $ 1,886
Non-cash
component of
inventories $ (67) $ - $ 1,556 $ -
%CIK: 0001394186
For further information: please visit www.westerngoldfields.com, or contact:
Raymond Threlkeld, Chief Executive Officer, (416) 324-6005,
rthrelkeld@westerngoldfields.com; Brian Penny, Chief Financial Officer,
(416) 324-6002, bpenny@westerngoldfields.com; Hannes Portmann, Director,
Corporate Development and Investor Relations, (416) 324-6014,
hportmann@westerngoldfields.com
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