Breakwater has three producing underground mines:
Myra Falls in British Columbia, Canada;
Mochito in Honduras and
Toqui in Chile. Operations at the
Langlois mine in north western Quebec, Canada have been temporarily suspended. The Company will continue to closely monitor economic and market conditions to determine when it is economically feasible to restart the mine.
Outlook
In 2009, the Company’s objectives were to maximize cash flow in a challenging economic environment while maintaining safe, environmentally compliant and productive mines. Where necessary and appropriate the Company invested in capital projects to increase the productivity and efficiency of operations and advanced mine exploration and development. Until the completion of a strategic review later this year, management’s business plan in 2010 is to develop a strong, stable base from which to grow. Accordingly, management will invest capital prudently while continuing to contain costs.
Production
The Company’s projected metals production for 2010 is set forth in the following table:
|
Metal in Concentrate (1) (contained) |
Mochito |
Toqui |
Myra Falls |
Total |
|
Zinc (tonnes) |
33,000 |
23,000 |
32,000 |
88,000 |
|
Copper (tonnes) |
|
|
4,600 |
4,600 |
|
Lead (tonnes) |
13,000 |
600 |
|
13,600 |
|
Gold (ounces) |
|
35,000 |
17,000 |
52,000 |
|
Silver (ounces) |
1,563,000 |
83,000 |
651,000 |
2,297,000 |
|
|
|
|
|
|
(1)Metal contained in concentrate is before smelting deductions which, based on industry-wide practices, are approximately 15% for zinc and 5% for each of copper and lead. The actual smelting deductions negotiated by the Company may vary from the industry standards depending on a number of factors.
Estimates of production are subject to change and actual production may vary materially from such estimates.
There are numerous uncertainties inherent in estimating anticipated production including many factors beyond the control of the Company. While production forecasts are soundly engineered and detailed, the accuracy of any such estimates is a function of the quality of available data, reliability of production history, variability of grade encountered, mechanical, environmental, social or other issues, engineering and geological interpretation and operator judgment. Rates of production may be more or less than anticipated. Results of drilling, metallurgical testing and production, and the evaluation of mine plans subsequent to the date of any estimate may cause actual production to vary materially from such estimates. For these reasons we will provide updated guidance only when production of contained metal varies from previous guidance by a significant margin.
Capital Expenditures
In 2010, the Company plans to spend $49.5 million on capital with the bulk of the funds related to Mochito, Toqui and Myra Falls. Of the $15.9 million capital budget at Mochito, $9.4 million is for mine and mine development, $2.4 million is for mine equipment and $1.2 million is for delineation drilling. It is expected that approximately $9.8 million of Mochito’s total will be spent in the first six months of 2010. At Toqui, of the $19.6 million to be spent, $4.8 million is for mill equipment, $8.4 million is for a paste plant; $2.3 million is for mine equipment, infrastructure and development and approximately $1.9 million is for power generation initiatives. It is expected that approximately $16.5 million of Toqui’s capital expenditures will occur in the first six months of the year. Of the $10.0 million to be spent at Myra Falls, approximately $1.4 million is for surface projects, $3.9 million is for various development projects with the balance for mobile equipment, electrical upgrades, the mill and underground equipment. At Langlois, the $4.6 million is for a project to advance two ramps, one from surface to the top of zone 4 and one internal to zone 3. The Company has other capital projects that it may bring forward if metal prices and cash flow allow.
|
Capital Expenditures
($ millions) |
2010 Projection |
|
Mochito |
15.9 |
|
Toqui |
18.8 |
|
Myra Falls |
10.0 |
|
Langlois |
4.6 |
|
Other |
0.2 |
|
Total Capital |
49.5 |
Exploration
The Company expects to spend $3.9 million on exploration expenses in 2010 with the objective of increasing the mineral resources (both measured and indicated and inferred) at Mochito in Honduras and at Toqui in Chile as well as meeting the Company’s obligations under various joint venture agreements in Québec, Canada. If market conditions, and the Company’s financial position allow, additional exploration may be undertaken. The current forecast of exploration expenses is set forth in the following table.
|
Exploration Expenses
($ millions) |
2010 Projection |
|
Mochito |
1.6 |
|
Toqui |
0.6 |
|
Québec |
1.7 |
|
|
3.9 |
Key Assumptions
Sales
The Company’s Canadian dollar gross sales revenues are affected by the United States dollar (“US$”) denominated metals prices received and the exchange rate between the US$ and C$. With the current volatility in the markets, including the effect of government stimuli and interest rate decisions, it is difficult to forecast metal prices or exchange rates.
Mochito
Certain ground control issues have affected the mine off and on over the last several years necessitating the mining of ore in unaffected areas. While these issues are thought to be largely resolved, a recurrence could adversely affect the 2010 production. The current labour agreement with Mochito employees expires October 1, 2010. Meeting the above-noted production guidance for Mochito assumes a successful conclusion to labour negotiations.
Toqui
The 2010 mine plan at Toqui is focused on mining the zinc bearing deposits together with the gold bearing deposits and assumes a paste plant is installed and operational by mid-2010, as planned. Toqui’s current labour agreement expires October 1, 2010. Meeting the above-noted guidance for Toqui assumes a successful conclusion to labour negotiations.
Myra Falls
The 2010 plan at Myra Falls is focused on mining in the Battle/Gap, the HW and the South Flank. Additionally, it assumes that normal weather patterns prevail throughout the 2010 period.
Langlois
While the suspension of operations at Langlois is considered temporary, management is taking a cautionary approach. To this end, the Company has initiated a project to advance two ramps, one from surface to the top of zone 4 and one internal to zone 3. The capital to be spent will be $4.6 million which is expected to be provided in the form of loans and a training and employment grant from a consortium of local, regional and provincial government agencies. In the interim Langlois will remain on care and maintenance. The Company continues to closely monitor economic conditions to determine when production should recommence.
SENSITIVITY TO METAL PRICES AND EXCHANGE RATES
The Company's cash flow and net earnings are sensitive to movements in the price of zinc, lead, copper, silver and gold and to the US$/C$ exchange rate. The following table provides the Company’s estimates of the sensitivity of C$ cash flow to changes in the various metal prices and C$/US$ exchange rate movements based on the projections for 2010. The table assumes that all other prices and/or the exchange rate are held constant.
|
Variable |
Change |
Sensitivity
($millions) |
|
Zinc |
US10¢ per pound |
$11.8 |
|
Lead |
US10¢ per pound |
$2.3 |
|
Copper |
US20¢ per pound |
$2.0 |
|
Silver |
US$1 per ounce |
$1.5 |
|
Gold |
US$25 per ounce |
$1.0 |
|
Exchange rate |
C$/US$ 5¢ |
$3.8 |