Debt, low prices holding back company
Dave Sullivan
Northern News Services
Yellowknife (Jun 04/01) - Lupin Mine owner Echo Bay Mines will return two cents a share to investors this year, with gold production up nearly 40 per cent thanks to the re-opening of the mine early last year.
During the previous two years the stock lost an average of 30 cents.
According to its latest annual report, the company remains plagued by record-low gold prices, pegged this week on spot markets at just under $275 an ounce. Last year, the company managed to sell its gold for $319 per ounce.
Echo Bay mined 700,000 ounces of gold at an average cost of $193 an ounce, for a net income of $18.6 million.
At Nunavut's underground Lupin site, which was shut down for four years in 1997, the cost of getting gold from the ground was $213 per ounce.
The company paid down almost $25 million in bank debt but remains saddled with an $80-million deferred-interest payment due in 2003. It's from a $100-million debt issue of capital securities.
To cope with the debt and low gold prices, Echo Bay is restricting exploration to low-risk areas at or near existing mines.
Addressing the "burden" of the capital securities by trying to restructure the debt "is of paramount importance," chairman Robert Leclerc said in the report.
"Our employees company-wide have pulled together. Cost containment is the mantra," he said.
At Lupin, costs were cut by contracting out more and by installing hoists to deliver ore from 1.2-kilometre depths. The new system saved the cost of trucking along a spiral ramp to the crusher.
The annual report says it cost $12 million to re-commission the Lupin mine. When it re-opened in April 2000, production was expected to hit between 110,000 and 115,000 ounces of gold that year, at a cost of $245 an ounce.
Instead, almost 118,000 ounces were extracted at just $228. That figure drops to $213 when currency exchanges are taken into account.
The report says there are enough known reserves to keep the mine running until 2004, but drills that reach down 1.4 kilometres have yet to reveal the bottom of the deposit.
Echo Bay is also confident about another deposit it controls 160 kilometres north of Lupin. A study at the Ulu site indicates it will be economical to mine if the ore is trucked across an ice road to be processed at Lupin.
