newsWestern Goldfields earns $14.61-million (U.S.) in 2008
2009-03-06 09:18 EST - News Release
Mr. Raymond Threlkeld reports
WESTERN GOLDFIELDS ANNOUNCES 2008 FINANCIAL RESULTS
Western Goldfields Inc. has released financial resultsfor the year ended Dec. 31, 2008. In 2008 the company brought the Mesquitemine back into production and strategically adjusted its mine plan to focus onsequential mining of Mesquite's three open pits, thus increasing productionand cash flow in the next four years. Results are based on United States generally accepted accounting principles andexpressed in U.S. dollars unless otherwise indicated.
Highlights:
- Two thousand and eight gold sales of 110,880 ounces at $861 per ounce, cost of sales of $508 per ounce;
- Net income of $14.6-million or 11 cents per share, including an after-tax mark-to-market gain on the company's gold forward sales contracts of $8-million or six cents 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 Dec. 31, 2008.
"During the early part of 2008, the company met the challenges of ourstart-up, and made appropriate changes to Mesquite to ensure it remains along-lived asset that will generate significant cash flow year over year withvery little additional capital requirement," stated Randall Oliphant,chairman.
Gold sales during the year totalled 110,880 ounces, at an average cost ofsales of $508 per ounce. Gold revenues in 2008 were $861 per ounce. Goldproduction was 108,325 ounces.
In 2008, Western Goldfields' production and sales were below expectationsdue to a combination of factors including: equipment and parts availability,optimization of process-solution flow, a delay in placing the second ore liftand the focus on stripping in the latter part of the year under the revisedmine plan. These production challenges, combined with an industry wide rise ininput costs, such as fuel, tires, explosives and process chemicals, made 2008a challenging start-up year for the company.
Western Goldfields proved to be both flexible and decisive in itsreaction to these challenges. A revised mine plan, announced in October, movedto sequential mining of the pits, reducing costs and increasing efficiency,while simultaneously improving the production profile. In addition, thecompany was proactive in controlling costs by hedging approximately 50 per cent of itsdiesel fuel requirements in each of 2009 and 2010 and also began procuringlower-cost, better-performing radial tires.
"In 2008, a number of factors resulted in the company not meeting itsexpectations. While some were beyond our control, others were well within itand we are committed to learning from this, continuously improving and meetingour operational targets going forward," said Raymond Threlkeld, presidentand chief executive officer. "The combination of the gold inventory on thepad, lower fuel costs, availability of radial tires, more experiencedoperators and a solid gold price creates the potential for some very excitingyears for the company going forward."
Fourth quarter 2008 results
For the fourth quarter 2008, gold sales totlaled 30,625 ounces, at anaverage cost of sales of $522 per ounce. Gold revenues in the fourthquarter 2008 were $799 per ounce. The company produced 28,378 ounces ofgold in the quarter.
As a result of the new mine plan, during the fourth quarter the companydid not produce as many ounces as anticipated. The plan resulted in increasedstripping activity at the Rainbow pit in the fourth quarter of 2008. Thecombination of issues encountered throughout the year led to a delay inplacing the second ore lift on the leach pad. The resulting lack of secondaryleaching led to lower-than-expected recoveries and production particularly inlate 2008 when the benefit of these additional recoveries would have startedto be realized.
Operations update
During 2008, the company showed continuous progress in mining operations,most specifically, tonnes mined and gold ounces delivered to the leach pad. FromOctober forward, under the revised mine plan, Western Goldfields met budgetedtargets in both of these critical areas. The impact of this was a large buildof recoverable gold ounces on the leach pad. As the ounces were mined andplaced late in 2008, they did not have the necessary time to flow through thefull leach cycle into production and will instead add to production in 2009and beyond. The table presents a summary of key operational metricsfor 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, 2008represented a year of escalating input costs. The table presents asummary 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 and 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 year2008, Western Goldfields reported net income of $14.6-million, or 11cents per share, compared with a net loss of $50.3-million, or 43 centsper share, for the full year 2007. Net income for 2008 and 2007includes anon-cash after-tax gain of $8-million and loss of $35.9-million,respectively, arising from the mark-to-market on the company's goldforward salescontracts, which were taken out as a requirement of its term loanfacility.Results for 2008, as compared with 2007, show an increase in gold soldto110,880 ounces from 6,889 ounces; the average sales price per ouncerose 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 six cents per share, which included a non-cash after-tax gain of$9.2-million, or seven cents per share, arising from the mark-to-market on the company's goldforward sales contracts. The mark-to-market gain in the fourth quarter 2008reflects a decrease in the spot gold price from $885 per ounce at Sept.30, 2008, to $870 at Dec. 31, 2008.
Liquidity and capital resources
At Dec. 31, 2008, the company's cash balance was $18.8-million,including restricted cash of $7.5-million. In the fourth quarter, the companyrepaid $17.7-million of debt under its credit facility, leaving $68.6-millionoutstanding at the end of the year. Western Goldfields intends to continueusing Mesquite's cash flow to de-lever the balance sheet and pursuedisciplined growth opportunities.
Capital expenditures
During 2008, the company substantially completed its capital program. Theexpansion capital program was completed at a cost of $111.3-million, within 1 per centof the budget. Total capital expenditures in 2008 were $22.1-million. Capitalexpenditures in 2009 are forecast to be $1.5-million. Sustaining capitalrequirements are expected to be nominal going forward.
Reserves and resources
Proven and probable mineral reserves as at Dec. 31, 2008, are 151.61million tons at 0.017 ounces per ton containing 2.57 million ounces of gold.In addition, measured and indicated mineral resources as at Dec. 31, 2008,are 100.68 million tons grading 0.015 ounces per ton containing 1.53 millionounces of gold. These changes from the previous year reflect productiondepletion. For more complete disclosure on the company's reserves and resources, pleasesee its 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 150,000ounces of gold at a cost of $68-million to $72-million. Due to thetiming of leachpad recoveries and the impact of inventory adjustments, the companyforecastscost of sales per ounce of $530 to $540. As higher-cost leach pad goldinventory at Dec. 31, 2008, is planned to be replaced by lower-costinventory at Dec. 31, 2009, the planned cost of sales for 2009 includesapproximately $11-million (approximately $75 per ounce) from theexpectedreduction in the value of leach pad gold inventory. These costs wereincludedin work in process inventory at Dec. 31, 2008, and therefore do notaffect2009 operating cash flow. Operating cash flow is expected to be$40-million to $45-million for 2009 assuming a gold price of $850 perounce.
While total operating costs are expected to remainconsistent on aquarterly basis from $16.5-million to $18.5-million, higher strippingratios and lowergrades are expected to result in lower ounces placed on the leach padandlower production in the first three quarters of 2009. Approximately 50per cent of therecoverable ounces placed in 2009 are forecast to be placed in thefourthquarter. Production in each of the first three quarters is expected tobe33,000 to 38,000 ounces before increasing to 38,000 to 43,000 ounces inthefourth quarter. The cost of sales per ounce in the first three quartersofthe year is forecast to be $595 to $605 and includes approximately$4-million (approximately $110 per ounce) per quarter of costs from theexpectedreduction in the value of leach pad gold inventory quarter to quarter.Thefourth quarter cost of sales per ounce is expected to decline to $365to $375and includes approximately a $1-million (approximately $25 per ounce)reduction to cost of sales from the expected increase in the value ofleachpad gold inventory during the fourth quarter. The inventory-relatedcosts donot impact the company's cash flow in the respective quarters.
Assumptions:
In providing the company's 2009 forecast, Western Goldfields assumes anaverage gold price for 2009 of $850 per ounce and fuel costs for the 50 per cent ofthe company's diesel that is unhedged of $1.75 per gallon (including tax anddelivery). Western Goldfields utilizes an ultra-low sulfur west coast reddiesel as specified by California and Imperial county.Cost of sales per ounce is defined as cost of sales as per thecompany's financial statements divided by the number of ounces sold.Revenues per ounce are determined by the revenues from gold sales asper the company's financial statements divided by the number ofounces sold.
Business combination with New Gold
On March 4, 2009, the company announced in Stockwatch a business combination with NewGold Inc. Under the terms, New Gold will acquire by way of aplan of arrangement all of the outstanding common shares of Western Goldfieldson the basis of one New Gold common share and 0.01 cent Canadian in cash for eachcommon share of Western Goldfields. Upon completion of thetransaction, existing New Gold and Western Goldfields shareholders will ownapproximately 58 per cent and 42 per cent of the combined company, respectively.
Based on the closing price of New Gold's common shares on the Toronto Stock Exchange of$2.30 Canadian on March 3, 2009, this offer represented a premium of 19.2 per cent to theclosing price of Western Goldfields shares on the TSX on March 3, 2009, and20.1 per cent 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 totalling 7.6 million gold ounces within a measured and indicated resource of 12.2 million gold ounces.
Wes Hanson, PGeo, vice-president of mine development, WesternGoldfields, is the qualified person under National Instrument 43-101 whosupervised the preparation of the technical information contained in this newsrelease.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three months
ended Dec. 31 Year ended Dec. 31
2008 2007 2008 2007
Revenue
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)