EXHIBIT 1
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[LOGO] b MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
BREAKWATER
RESOURCES LTD. ----------------------------------------------------
2003 FIRST QUARTER
INTERIM REPORT
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BREAKWATER ON TARGET TO PRODUCE 325 MILLION POUNDS
...AHEAD OF THE TARGETED TOTAL CASH COST OF US$0.32 PER POUND IN 2003.
MANAGEMENT'S DISCUSSION AND ANALYSIS ("MD&A") FOR per share) on gross sales revenue of $64.5 million for the
THE FIRST QUARTER ENDED MARCH 31, 2003 SHOULD BE READ IN same period in 2002. Gross sales revenue decreased by $11.6
CONJUNCTION WITH THE COMPANY'S MD&A INCLUDED IN THE million from the same period of 2002. Lower sales volumes
2002 ANNUAL REPORT accounted for $9.0 million of the decrease. The stronger
Canadian dollar further reduced gross sales revenue by $3.0
OVERVIEW million. Zinc and lead prices were lower in the first quarter
of 2003 than in the same period of 2002, however, gold, silver
The price of zinc in real terms continued to trade at and copper prices were higher, more than offsetting the lower
historical lows during the first quarter of 2003. The average zinc and lead prices by $0.4 million. The stronger Canadian
realized price of zinc was $0.36 per pound, unchanged from the dollar also resulted in an exchange gain of $5.0 million on US
first quarter of 2002. dollar denominated debt. With the Company's existing debt
levels, a US$0.01 increase in the US dollar exchange rate
The effect of these low prices continues to put pressure would result in an increase in earnings of $373,000. Whereas,
on the finances of the Company. The successful rights offering without the US dollar denominated debt, earnings would
completed in 2002 and better than expected results for 2002 decrease by approximately $786,000. The difference of
combined with a modest improvement in the price of zinc and approximately $1.1 million would be a non-cash item in the
the recently announced sale of the Lapa property should earnings statement.
provide the working capital necessary to support operations
during 2003. The total cash cost to produce a pound of zinc The loss from mining activities increased by $2.2 million
during the first quarter of 2003 was US$0.31, its lowest ever in 2003 to a loss of $2.4 million compared with a loss of $0.2
and the same as during the first quarter of 2002. Other cash million in 2002. Direct operating costs during the first
requirements including general and administration, interest quarter of 2003 included higher cost prior period inventory
and financing, and capital expenditures represent an when compared with the same period of 2002 resulting in
additional US$0.04 per pound. At a zinc price of US$0.35 per increased direct costs and reduced margins.
pound of zinc, the Company breaks even on a cash basis.
Operating cash flow for the first quarter of 2003 was
The Company is on target to produce 325 million pounds of $0.4 million ($0.00 per share) compared with operating cash
payable zinc and ahead of the targeted total cash cost of flow of $4.1 million ($0.04 per share) for the first quarter
US$0.32 per pound of payable zinc in 2003. Production of zinc of 2002. Operating cash flow includes $1.2 million spent on
contained in concentrate decreased by 29 percent during the reclamation during the first quarter of 2003, of which $1.0
first quarter of 2003 compared with the same period of 2002 as million was for the Nanisivik mine, compared with $0.4 million
a direct result of the closure of the Nanisivik mine in for the same period of 2002.
September 2002.
As noted above total cash costs for the first three
FINANCIAL RESULTS - FIRST QUARTER, 2003 months of 2003 were US$0.31 per pound of payable zinc, the
same as the first three months of 2002. A continuing
NET EARNINGS AND CASH FLOW concentrate shortage kept smelter treatment charges lower and
decreased total cash costs by US$0.01 per pound of payable
For the quarter ended March 31, 2003, the Company had zinc. This component will increase as the price of zinc
consolidated net earnings of $69,000 ($0.00 per share) on increases. Lower treatment charges lead us to believe that our
gross sales revenue of $52.9 million compared with a previously forecasted total cash cost of US$0.32 per pound of
consolidated net loss of $3.3 million ($0.03 loss payable zinc for 2003 could drop to US$0.31 per pound.
First Quarter 2003
"THE STRENGTHENING OF THE CANADIAN DOLLAR TO 1.4693 AT THE END OF THE FIRST QUARTER
OF 2003 FROM 1.5796 AT THE END OF DECEMBER 2002 RESULTED
IN A $5.0 MILLION FOREIGN EXCHANGE GAIN".
STATEMENT OF OPERATIONS AND DEFICIT DATA With the proceeds of the sale of the Lapa property, and a
modest increase in the price of zinc the Company expects to
FIRST QUARTER end the year in a stronger financial position with debt
($000's except for per share numbers) ended March 31 reduced significantly from the March 31, 2003 level of $70.1
------------------- million. On closing, the sale of the Lapa property will result
2003 2002 in cash proceeds of approximately $13.0 million. A portion of
------------------------------------------------------------ the proceeds is to be used to repay the non-revolving
Gross Sales Revenue 52,910 64,517 facility. Discussions are ongoing with the Company's lenders
Treatment and Marketing Costs 22,432 31,289 to arrive at an acceptable sharing of the proceeds. The sale
Net Sales Revenue 30,478 33,228 of Lapa will result in a gain of approximately $11.6 million
Total Operating Costs 32,833 33,426 to be reported in the second quarter of 2003. An additional
(Loss) from Mining Activities (2,355) (198) non-refundable advance royalty of US$1 million is receivable
Net Earnings (Loss) 69 (3,271) when the total published inferred resources reach two million
Net Earnings (Loss) per Common Share - (0.03) ounces of gold.
Cash Provided by Operating Activities(1) 433 4,125
Capital Expenditures 3,264 2,297 CAPITAL EXPENDITURES
Weighted Average Number of
Common Shares Outstanding Capital expenditures were $3.3 million for the first
after Bonus Element 195,509 101,498 quarter of 2003 compared with $2.3 million for the same period
------------------------------------------------------------ of 2002. Capital expenditures for the full year of 2003 are
(1) Before changes in non-cash working capital items. expected to be $12.2 million. This compares with capital
expenditures of $11.0 million for 2002. In addition, during
OTHER EXPENSES (INCOME)/NON-PRODUCING PROPERTY COSTS 2003, $1.5 million (net of proceeds from asset disposals) is
expected to be spent on reclamation and mine closure at the
General and administrative expenses were relatively Nanisivik mine, which ceased production in September 2002.
unchanged from the comparable quarter of 2002 while interest During the first quarter ended March 31, 2003, $1.0 million
and financing costs were lower by 37 percent at $0.7 million. was spent on reclamation at the Nanisivik mine.
The strengthening of the Canadian dollar to 1.4693 at the end
of the first quarter of 2003 from 1.5796 at the end of METAL PRICES
December 2002 resulted in a $5.0 million foreign exchange
gain. The Company's debt is denominated in US dollars and acts The following table sets forth the average realized metal
as a hedge for operating costs incurred in currencies other prices for the three months ended March 31, 2003 and 2002.
than the US dollar.
FIRST QUARTER
LIQUIDITY AND FINANCIAL POSITION ----------------------------------
METAL PRICES 2003 2002 Change %
Working capital decreased from $22.3 million at December --------------------------------------------------------------
31, 2002, to a working capital deficiency of $23.7 million at Zinc (US$/pound) $ 0.36 $ 0.36 -
March 31, 2003 as a result of reclassification of $47.0 Copper (US$/pound) $ 0.76 $ 0.73 7
million of long-term debt to current debt. The Company's Lead (US$/pound) $ 0.20 $ 0.22 (9)
credit facilities include a US$30.0 million revolver and Silver (US$/ounce) $ 4.68 $ 4.49 4
non-revolving facilities totaling US$29.1 million. Drawings Gold (US$/ounce) $ 344.13 $ 272.40 26
under the revolver are determined based on the values of Exchange Rate, average
inventories and receivables. As of March 31, 2003 US$14.8 for the quarter (US/Cdn) 0.662 0.627 6
million had been drawn under the revolver, down from US$16.0 --------------------------------------------------------------
million at the end of 2002. These credit facilities are
repayable on January 2, 2004.
Breakwater Resources Ltd. 2
OPERATIONS propane costs, due to the excessively long and cold winter,
and an increase in stope preparation and mine backfilling
Production of zinc in concentrate in the first quarter activities, both unique to the first quarter, resulted in an
ending March 31, 2003 totalled 95 million pounds compared with increase of US$0.006. Lower treatment charges reduced the cost
133 million pounds in the first quarter of 2002. The reduced by US$0.002.
zinc production during the quarter reflects the closure of the
Nanisivik mine at the end of the third quarter of 2002. Total FIRST QUARTER
cash costs of US$0.31 per pound of payable zinc for the first -----------------------
quarter of 2003 were the same as for 2002 despite the closure 2003 2002
of the Nanisivik mine. Total cash costs are calculated on a --------------------------------------------------------
per pound of payable zinc basis and include all cash costs Ore Milled (tonnes) 271,059 267,434
incurred and expensed at the minesite, plus treatment charges, Zinc (%) 5.6 5.2
shipping and marketing costs, net of by-product credits Copper (%) 0.6 0.6
Silver (g/t) 42 47
The following table details the consolidated operating Gold (g/t) 1.3 1.6
statistics as well as consolidated operating costs and total Concentrate Production
cash costs. Zinc (tonnes) 24,768 22,069
Recovery (%) 88.9 86.6
FIRST QUARTER Grade (%) 54.6 54.4
----------------------- Copper (tonnes) 8,443 9,218
2003 2002 Recovery (%) 84.5 82.6
-------------------------------------------------------- Grade (%) 15.7 15.1
Ore Milled (tonnes) 655,616 820,890 Metal in Concentrates
Zinc (%) 7.4 8.1 Zinc (tonnes) 13,518 12,011
Concentrate Production Copper (tonnes) 1,328 1,391
Zinc (tonnes) 80,943 111,929 Silver (ounces) 132,649 152,136
Copper (tonnes) 8,443 9,218 Gold (ounces) 6,664 6,187
Lead (tonnes) 5,885 5,390 Minesite Operating Costs
Gold (tonnes) 848 1,181 Per tonne milled (Cdn.$) $36.73 $32.35
Metal in Concentrates Total Cash Costs
Zinc (tonnes) 43,125 60,470 Per lb. payable zinc (US$) $0.29 $0.26
Copper (tonnes) 1,328 1,391 --------------------------------------------------------
Lead (tonnes) 3,935 3,690
Silver (ounces) 588,602 937,545 The 2002-2003 deep-drilling program at Xxxxxxxx-Xxxxxx
Gold (ounces) 7,252 7,474 was essentially completed by the end of the first quarter with
Minesite Operating Costs a total of 5,293 metres drilled from both surface and
Per tonne milled (US$) $27.84 $26.61 underground.
Total Cash Costs
Per lb. payable zinc (US$) $0.31 $0.31 Two surface diamond drill holes were drilled to the
-------------------------------------------------------- north-west of the Xxxxxxxx-Xxxxxx mine to investigate a
Pulse-Em "off-hole" geophysical anomaly in hole XX-00-000,
XXXXXXXX-XXXXXX MINE however, both holes were abandoned due to excess hole
deviation. A new hole is presently being drilled to
At the Xxxxxxxx-Xxxxxx mine, production of zinc in investigate this anomaly and will be completed early in the
concentrate for the quarter increased by 12 percent over the second quarter.
same period in 2002 while the total cash cost was US$0.29 per
pound of payable zinc compared with US$0.26 per pound of A surface diamond drill hole drilled four kilometres
payable for the same period in 2002. The cash cost per pound south-east of the Xxxxxxxx-Xxxxxx mine, intersected 15 to 25
of payable zinc was higher during the first quarter of 2003 percent disseminated pyrite with massive sulphide sections
compared with the same period of 2002 for several reasons. over a core length in excess of 150 metres. A second hole was
While the zinc head grade was up slightly in the first quarter drilled 500 metres to the north and intersected a similar
of 2003, the copper head grade and precious metals production mineralized zone. Both of these holes had a Pulse-Em
were lower than the same period in 2002. The combination of "off-hole" geophysical anomaly. A third hole is currently
increased zinc production and lower credits for other metals being drilled to investigate these geophysical anomalies.
resulted in an increase of US$0.028 on a quarter over quarter
basis. As well, Xxxxxxxx-Xxxxxx costs are generally incurred Plans are currently being prepared for the resumption of
in Canadian dollars, which due to its recent strengthening, the surface exploration program during the second half of
increased costs by US$0.014 . Higher 2003.
3 First Quarter 2003
"PRODUCTION IN THE FIRST QUARTER FROM BREAKWATER'S FOUR OPERATING MINES IS ON SCHEDULE
TO PRODUCE THE 2003 YEARLY TARGET OF 325 MILLION POUNDS OF ZINC".
NANISIVIK MINE Confirmation was received during the quarter of the
renewal of eight existing exploration permits and the
At Nanisivik, there was no production during the first re-staking of four additional exploration permits with a
quarter of 2003 as operations ceased on September 30, 2002. combined area of 39.55 square kilometres covering the entire
Reclamation activities continued during the quarter and as prospective area of the Bougrine mine.
well, CanZinco Ltd. personnel continued discussions with a
number of interested parties in an effort to find alternative During the quarter, exploration resumed in the Koudiat
uses for the existing infrastructure. Xxxxxx area where zinc mineralization had previously been
targeted in brecciated limestone. The objective of the current
FIRST QUARTER program is to obtain a better understanding of the shape and
----------------------- orientation of the brecciated body.
2003 2002
-------------------------------------------------------- In an ongoing effort to increase the mineral reserves and
Ore Milled (tonnes) - 182,468 resources and the operating life of the mine, the Company has
Zinc (%) - 10.6 been engaged in discussions with the Tunisian authorities on
Silver (g/t) - 45 utilizing reserves currently being mined by a government
Concentrate Production enterprise.
Zinc (tonnes) - 33,415
Recovery (%) - 97.0 EL MOCHITO MINE
Grade (%) - 56.2
Metal in Concentrate At the El Mochito mine, production of zinc in concentrate
Zinc (tonnes) - 18,769 decreased by 4 percent in the first quarter of 2003 while lead
Silver (ounces) - 211,619 production increased by 21 percent over the same period in
Minesite Operating Costs 2002. Total cash costs decreased by 3 percent to US$0.29 per
Per tonne milled (Cdn.$) - $51.02 pound of payable zinc from US$0.30 in the first quarter of
Total Cash Costs 2002. The reduction in costs is attributable to lower
Per lb. payable zinc (US$) - $0.34 treatment charges, improvements in grade control and improved
-------------------------------------------------------- productivity.
BOUGRINE MINE FIRST QUARTER
-----------------------
Production of zinc in concentrate for the quarter 2003 2002
increased by 7 percent over the same period in 2002 while the --------------------------------------------------------
total cash cost remained the same at US$0.32 per pound of Ore Milled (tonnes) 166,494 159,494
payable zinc. Mine operating costs on a per tonne milled basis Zinc (%) 7.5 8.0
were higher in the first quarter of 2003 over the same quarter Lead (%) 1.9 1.7
of 2002 due to an increase in lubricant consumption, expected Silver (g/t) 84 108
to return to lower levels in the second quarter of 2003, and Concentrate Production
an increase in the annual rail and power rates. These two Zinc (tonnes) 21,924 22,755
factors accounted for 58 percent of the increase while the Recovery (%) 91.9 93.2
impact of the Tunisian Dinar to the US dollar exchange rate Grade (%) 52.1 52.3
accounted for the rest of the increase. The total cash costs Lead (tonnes) 4,011 3,209
remained constant due to improved zinc output in the first Recovery (%) 83.4 82.8
quarter of 2003. Grade (%) 66.9 69.2
Metal in Concentrates
FIRST QUARTER Zinc (tonnes) 11,422 11,908
----------------------- Lead (tonnes) 2,685 2,220
2003 2002 Silver (ounces) 398,785 495,574
-------------------------------------------------------- Minesite Operating Costs
Ore Milled (tonnes) 108,901 107,896 Per tonne milled (US$) $29.70 $30.06
Zinc (%) 10.9 10.3 Total Cash Costs
Lead (%) 1.6 1.7 Per lb. Payable zinc (US$) $0.29 $0.30
Concentrate Production --------------------------------------------------------
Zinc (tonnes) 17,729 16,514
Recovery (%) 81.9 81.5
Grade (%) 54.6 54.9
Lead (tonnes) 1,874 2,181
Recovery (%) 74.2 80.0
Grade (%) 66.7 67.4
Metal in Concentrates
Zinc (tonnes) 9,676 9,062
Lead (tonnes) 1,250 1,470
Minesite Operating Costs
Per tonne milled (US$) $34.56 $28.28
Total Cash Costs
Per lb. Payable zinc (US$) $0.32 $0.32
--------------------------------------------------------
Breakwater Resources Ltd. 4
EL TOQUI MINE Once the present drill program is complete, SRK will
update the feasibility study to include any new mineral
At the El Toqui mine, production of zinc in concentrate reserves. Management expects the study will be completed
decreased by 2 percent in the first quarter of 2003 from the during the second quarter of 2003.
first quarter of 2002 while the total cash cost was US$0.36
per pound of payable zinc compared with US$0.32. The principal LAPA PROPERTY, QUEBEC
reasons for the increased unit costs were the drop in the zinc
and gold head grades and the increased tonnes mined and On April 24, 2003, the Company announced that
milled. As well, construction of the new crushing system Agnico-Eagle Mines Limited has agreed to purchase 100 percent
necessitates the temporary use of a portable crusher, which of Breakwater's Tonawanda and Zulapa gold properties, known
added approximately US$1 per tonne to minesite operating collectively as the Lapa property, subject to the completion
costs. The new crusher will be commissioned during the second of a definitive legal agreement.
quarter of 2003 and costs for crushing will be reduced.
Agnico-Eagle will pay Breakwater US$7.925 million for
FIRST QUARTER Breakwater's interest in the Lapa property. Breakwater will
----------------------- retain a 1 percent net smelter royalty ("NSR") on all gold
2003 2002 production from the Tonawanda property and a 0.5 percent NSR
-------------------------------------------------------- on all gold production from the Zulapa property. Agnico-Eagle
Ore Milled (tonnes) 109,163 103,598 will also pay a non-refundable advance royalty of US$1 million
Zinc (%) 8.4 9.1 on closing and a further non-refundable advance royalty of
Gold (g/t) 0.3 0.8 US$1 million when the total published inferred resources reach
Concentrate Production 2 million ounces of gold on the Zulapa and Tonawanda
Zinc (tonnes) 16,522 17,176 properties.
Recovery (%) 92.3 92.0
Grade (%) 51.5 50.8 In addition to the Lapa property, Agnico-Eagle has
Gold (tonnes) 848 1,181 purchased Breakwater's 66 2/3 percent interest in the Chibex
Recovery (%) 34.1 48.2 South property, located four kilometres south of the Lapa
Grade (g/t) 13.1 33.9 property in Cadillac Township. Agnico-Eagle will pay
Metal in Concentrates Breakwater US$75,000 for the property as well as a 0.66
Zinc (tonnes) 8,509 8,720 percent NSR.
Gold (ounces) 588 1,287
Silver (ounces) 57,158 78,216 The Lapa and Chibex South properties are considered by
Minesite Operating Costs Breakwater to be non-core assets.
Per tonne milled (US$) $27.41 $26.33
Total Cash Costs OUTLOOK
Per lb. Payable zinc (US$) $0.36 $0.32
-------------------------------------------------------- Production in the first quarter from Breakwater's four
operating mines is on schedule to produce the 2003 yearly
Development work to access the Aserradero area, continued target of 325 million pounds of zinc. Total cash costs were
during the quarter. Production is expected from this higher US$0.31 per pound of payable zinc during the first three
grade gold area during the second half of 2003. months of 2003 compared with the Company's forecasted annual
total cash costs of US$0.32 as published in the Company's
Construction of a new crushing system began during the annual report.
first quarter and is expected to be completed during the
second quarter of 2003. The new crushing plant will have much The price of zinc is the prime determinant of the
greater capacity than the existing facility and will provide Company's earnings and cash flow. Each US$0.01 per pound
for a 25 percent plant capacity increase as well as increase increase in the price of zinc will increase 2003 earnings and
operator efficiency. cash flow by $4.2 million based on the 2003 annual production
forecast. Recent announcements of production cutbacks and mine
Exploration work for the quarter focussed on geological closures due to the low zinc price have produced a shortfall
mapping and soil sample collection in the area immediately in zinc concentrates resulting in lower treatment charges. In
east of the Toqui mine. addition, the recent weakness in the US dollar is placing
financial pressure on smelters. These two factors should
XXXXXXXX MINE eventually lead to a reduction in zinc output and, combined
with a recovery in the economy, should result in an increased
On February 12, 2003, the Company announced preliminary price of zinc in the latter half of 2003.
in-fill drilling results from the 7,935-metre drill program
currently underway at the Xxxxxxxx mine. The objective of this
program is to further delineate and upgrade resources to
reserves in Zone 97, both above 6 level and below 13 level.
5 First Quarter 2003
CONSOLIDATED BALANCE SHEETS
BREAKWATER RESOURCES LTD.
AS AT MARCH 31, 2003 AND DECEMBER 31, 2002
(Expressed in thousands of Canadian dollars)
MARCH 31, December 31,
2003 2002
(Unaudited)
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ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,845 $ 6,435
Accounts receivable - concentrate 5,213 17,061
Other receivables 5,691 6,921
Concentrate inventory 25,749 25,340
Materials and supplies inventory 26,912 28,967
Prepaid expenses and other current assets 3,496 2,387
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72,906 87,111
RECLAMATION DEPOSITS 1,462 1,387
MINERAL PROPERTIES AND FIXED ASSETS 126,925 134,882
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$ 201,293 $ 223,380
=================================
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 22,039 $ 25,577
Provisional payments for concentrate inventory shipped and not priced 4,221 8,642
Short-term debt including current portion of long-term debt (note 2) 70,106 30,227
Income and mining taxes payable 249 381
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96,615 64,827
LONG-TERM DEBT (note 3) 1,396 48,438
RECLAMATION AND CLOSURE COST ACCRUALS 13,833 13,697
FUTURE TAX LIABILITIES 888 822
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112,732 127,784
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SHAREHOLDERS' EQUITY
Capital stock (note 4) 258,481 257,759
Common shares to be issued - 618
Contributed surplus 1,582 1,582
Deficit (178,786) (178,855)
Cumulative translation adjustments 7,284 14,492
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88,561 95,596
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$ 201,293 $ 223,380
=================================
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
Breakwater Resources Ltd. 6
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
BREAKWATER RESOURCES LTD.
FOR THE PERIODS ENDED MARCH 31, 2003 AND 2002
(Expressed in thousands of Canadian dollars except share and per share amounts)
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
2003 2002
-----------------------------------------------------------------------------------------------------------------------------------
Gross sales revenue $ 52,910 $ 64,517
Treatment and marketing costs 22,432 31,289
-----------------------------------------------------------------------------------------------------------------------------------
Net revenue 30,478 33,228
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OPERATING COSTS
Direct operating costs 26,214 25,676
Depreciation and depletion 6,030 6,618
Reclamation and closure costs 589 1,132
-----------------------------------------------------------------------------------------------------------------------------------
32,833 33,426
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LOSS FROM MINING ACTIVITIES (2,355) (198)
-----------------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES (INCOME)
General and administrative 1,306 1,279
Interest and financing 703 1,115
Investment and other income (29) (168)
Foreign exchange (gain) loss on US dollar denominated debt (5,029) 25
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(3,049) 2,251
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EARNINGS (LOSS) BEFORE THE FOLLOWING: 694 (2,449)
-----------------------------------------------------------------------------------------------------------------------------------
Other non-producing property costs 583 477
Income and mining taxes 42 345
-----------------------------------------------------------------------------------------------------------------------------------
625 822
-----------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) 69 (3,271)
DEFICIT - BEGINNING OF PERIOD (178,855) (158,968)
-----------------------------------------------------------------------------------------------------------------------------------
DEFICIT - END OF PERIOD $ (178,786) $ (162,239)
=====================================
EARNINGS (LOSS) PER SHARE - BASIC (note 5) $ 0.00 $ (0.03)
=====================================
DILUTED EARNINGS PER COMMON SHARE (note 5) $ 0.00 $ N/A
=====================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING AFTER BONUS ELEMENT (note 5) 195,509,000 101,498,000
=====================================
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
7 First Quarter 2003
CONSOLIDATED STATEMENTS OF CASH FLOWS
BREAKWATER RESOURCES LTD.
FOR THE PERIODS ENDED MARCH 31, 2003 AND 2002
(Expressed in thousands of Canadian dollars except share and per share amounts)
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
2003 2002
-----------------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED FROM (USED FOR)
OPERATING ACTIVITIES
Net earnings (loss) $ 69 $ (3,271)
Non-cash items:
Depreciation and depletion 6,030 6,618
Foreign exchange (gain) loss on US dollar denominated debt
and other non-cash items (5,116) 26
Future income taxes 66 -
Reclamation and closure cost accruals 589 1,132
-----------------------------------------------------------------------------------------------------------------------------------
1,638 4,505
Payment of reclamation and closure costs (1,205) (380)
Changes in non-cash working capital items (note 7) 4,142 (16,193)
-----------------------------------------------------------------------------------------------------------------------------------
4,575 (12,068)
-----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issue of common shares for cash (note 4) 54 133
(Decrease) increase in debt (1,880) 13,977
-----------------------------------------------------------------------------------------------------------------------------------
(1,826) 14,110
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INVESTING ACTIVITIES
Reclamation deposits (75) -
Mineral properties and fixed assets (3,264) (2,297)
-----------------------------------------------------------------------------------------------------------------------------------
(3,339) (2,297)
-----------------------------------------------------------------------------------------------------------------------------------
DECREASE IN CASH (590) (255)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 6,435 3,305
-----------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 5,845 $ 3,050
=================================
Supplemental Disclosure of Cash Flow Information
Cash paid for:
Interest $ 743 $ 851
Income and mining taxes $ 108 $ -
THE ACCOMPANYING NOTES FORM AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
Breakwater Resources Ltd. 8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
BREAKWATER RESOURCES LTD.
FOR THE PERIODS ENDED MARCH 31, 2003 AND 2002
(Unaudited)
1. ACCOUNTING POLICIES AND BASIS OF PRESENTATION 2. SHORT-TERM DEBT
BASIS OF PRESENTATION MARCH 31, DECEMBER 31,
($000'S) 2003 2002
These interim consolidated financial statements of --------------------------------------------------------
Breakwater Resources Ltd. (the "Company") for the three months Syndicated Credit Facility
ended March 31, 2003 and 2002 have been presented using - Revolver 21,746 25,195
accounting principles applicable to a going concern, which - Term Credit Facility,
assumes that the Company will continue in operation for the current portion (note 3) 33,252 -
foreseeable future and be able to realize its assets and - Supplemental Term Credit
satisfy its liabilities in the normal course of business. Facility, current portion
(note 3) 9,550 -
Management of the Company has reviewed the Company's Customer prepayments for
working capital requirements for the period ending December zinc concentrate 2,939 3,159
31, 2003. The review was based on operating plans believed to Other 2,619 1,873
be achievable assuming that there is a modest recovery in the --------------------------------------------------------
price of zinc to US$800 per tonne. Based upon these 70,106 30,227
assumptions and the estimated operating cash flow, capital
expenditures and debt servicing requirements of the Company, Under the refinancing agreement as described in note 6 of
it is estimated that the Company will be able to meet its cash the Company's consolidated financial statements for the year
requirements until December 31, 2003. ended December 31, 2002, the Syndicated Credit Facility is
repayable on January 2, 2004.
The Company believes that it will not be able to repay
its debt under the Syndicated Credit Facilities on maturity on 3. LONG-TERM DEBT
January 2, 2004, unless metal prices recover. Accordingly, the
Company believes that it will be necessary for the Company to MARCH 31, DECEMBER 31,
negotiate the extension, restructuring or replacement of the ($000'S) 2003 2002
Syndicated Credit Facilities prior to their maturity on --------------------------------------------------------
January 2, 2004. Term Credit Facility (note 2) - 35,748
Supplemental Term Facility (note 2) - 10,267
These interim consolidated financial statements do not Reimbursable government assistance,
include any adjustments to the recoverability and discounted at rate of 8% 1,396 1,390
classification of recorded asset amounts and classification of Customer prepayments for
liabilities that might be necessary, if the Company was unable zinc concentrates - 3,159
to continue as a going concern. Other - 1,033
--------------------------------------------------------
ACCOUNTING POLICIES Total 1,396 51,597
Less current portion - 3,159
These interim consolidated financial statements of the --------------------------------------------------------
Company have been prepared in accordance with Canadian 1,396 48,438
generally accepted accounting principles ("Canadian GAAP") and
follow the same accounting principles and methods of 4. CAPITAL STOCK AND STOCK OPTIONS
application as those disclosed in note 1 of the Company's
consolidated financial statements for the year ended December (A) Common Shares
31, 2002. The accompanying interim unaudited consolidated
financial statements include all adjustments that are, in the NUMBER
opinion of management, necessary for fair presentation. These (000'S) OF SHARES AMOUNT
interim consolidated financial statements do not include all --------------------------------------------------------
disclosures required by Canadian GAAP for annual financial As at December 31, 2002 193,281 $ 257,759
statements and should be read in conjunction with the Shares issued as supplementary
Company's consolidated financial statements included in its payment to employee
2002 Annual Report. (see (I) below) 2,565 618
Employee share bonus plan
NEW PRONOUNCEMENTS (see (II) below) 200 50
Employee share purchase plan 451 54
In February 2003, the Canadian Institute of Chartered --------------------------------------------------------
Accountants ("CICA") issued Accounting Guideline 14, As at March 31, 2003 196,497 258,481
Disclosure of Guarantees ("AcG-14"). AcG-14 requires
disclosure for certain contracts or obligation that meet the (I) Under an agreement dated November 30, 2001, relating
definition of a guarantee. For the three months ended March to the resignation of an executive, the Company agreed to
31, 2003, the Company had no contracts or obligations that pay the executive a supplementary amount of up to
qualified as a guarantee under AcG-14. $700,000 either in cash or common shares of the Company
("Common Shares"). The amount to be paid was based on a
2002 FIGURES formula using the weighted average trading price for the
Common Shares
Certain of the 2002 figures have been reclassified to
conform to the 2003 presentation.
9 First Quarter 2003
for the month of January 2003. In December 2002, an time. During the three months ended March 31, 2003, the
amount of $618,000 representing 2,564,887 Common Shares Company issued 200,000 Common Shares under the Share
was recorded based on the number of shares to be issued Bonus Plan.
pursuant to the formula and was shown in the Company's
consolidated balance sheet as at December 31, 2002, as B) Options transactions were as follows:
"Common shares to be issued" in shareholders' equity (see
note 8(c)) of the Company's consolidated financial OPTIONS WEIGHTED-AVERAGE
statements for the year ended December 31, 2002). (000'S) EXERCISE PRICE
Pursuant to the agreement the shares were issued in ---------------------------------------------------
February 2003. As at December 31, 2002 8,796 $1.31
Granted 1,025 0.25
(II) The Company's share bonus plan (the "Share Bonus Cancelled (82) 4.28
Plan") permits Common Shares to be issued as a ---------------------------------------------------
discretionary bonus to any director, employee (full-time As at March 31, 2003 9,739 $1.18
or part-time), officer or consultant of the Company or
any subsidiary thereof who is designated under the Share
Bonus Plan from time to The following table summarizes the information about
the share options outstanding at March 31, 2003.
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------------------------------------------
NUMBER WEIGHTED- NUMBER
OUTSTANDING AVERAGE WEIGHTED- EXERCISABLE WEIGHTED-
AS AT REMAINING AVERAGE AS AT AVERAGE
MAR. 31, 2003 CONTRACTUAL EXERCISE MAR. 31, 2003 EXERCISE
RANGE OF EXERCISE PRICES (000'S) LIFE PRICE (000'S) PRICE
------------------------------------------------------------------------------------------------------------------------------
$0.18 - $0.19 3,685 9 years 157 days $0.19 1,228 $0.19
$0.20 - $2.00 3,631 6 years 26 days $0.66 3,072 $0.70
$2.05 - $3.35 1,511 4 years 138 days $2.92 1,511 $2.92
$3.75 - $8.20 912 6 years 179 days $4.35 912 $4.35
---------------------------------------------
C) The Company's share option plan is disclosed in note calculation of diluted earnings per share as the effect
8(e) of the Company's consolidated financial statements is anti-dilutive. The average quoted market price of the
for the year ended December 31, 2002. The Company has Common Shares during the three months ended March 31,
elected not to use the fair value method of accounting 2003 was $0.22 (2002 - $0.31).
and does not recognize compensation expense for its
stock-based compensation plan for employees. Had THREE MONTHS ENDED
compensation expense for the stock-based compensation MARCH 31,
plan for employees been determined based upon the fair -------------------
value of awards granted on or after January 1, 2002, the (000'S) 2003 2002
Company's net earnings for the three months ended March ------------------------------------------------------
31, 2003 would have decreased by $68,000 and for the Weighted-average number of Common
three months ended March 31, 2002 the net loss would have Shares outstanding (including
increased by $46,000. However, the earnings per share for bonus element on rights issue) 195,509 101,498
the three months ended March 31, 2003 and the loss per Incremental Common Shares on
share for the three months ended March 31, 2002 would assumed exercise of options
have been unchanged. and warrants 3,285 -
------------------------------------------------------
The fair value of each option grant is estimated on Weighted-average number of Common
the balance sheet date using Black-Scholes option-pricing Shares used for diluted
model with the following weighted-average assumptions: earnings per share 198,794 101,498
Expected life (years) 1 - 10 On May 1, 2002, the Company completed a rights issue with
Risk free interest rate 4.83% an exercise price of $0.20 per share. The market value of the
Expected volatility 48% Common Shares on April 2, 2002, the day prior to trading
Dividend yield 0% ex-rights was $0.37 per share. As a result of the bonus
element in the rights issue, the basic earnings (loss) per
5. EARNINGS (LOSS) PER SHARE share and the weighted-average number of Common Shares
outstanding have been adjusted retroactively as follows:
Earnings (Loss) per Share ("EPS") has been calculated
using the weighted-average number of shares outstanding during THREE MONTHS ENDED
the period. The diluted EPS gives effect to the exercise of MARCH 31,
all outstanding stock and compensation options. Diluted -------------------
earnings per Common Share data is not presented for 2002, as (000'S) 2003 2002
the exercise of options would not have been dilutive in 2002. ------------------------------------------------------
Earnings (Loss) per share
The calculation of diluted earnings per share assumes - before bonus element $0.00 ($0.03)
that options and warrants with an exercise price lower than Earnings (Loss) per share
the average quoted market price were exercised at the later of - after bonus element $0.00 ($0.03)
the beginning of the period, or time of issue. In applying the Diluted earnings per share
treasury stock method, options and warrants with an exercise - before bonus element $0.00 N/A
price greater than the average quoted market price of the Diluted earnings per share
Common Shares are not included in the - after bonus element $0.00 N/A
Weighted-average number of shares
outstanding 195,509 94,455
Additional shares due to bonus
element - 7,043
------------------------------------------------------
Weighted-average number of shares
outstanding after bonus element 195,509 101,498
Breakwater Resources Ltd. 10
6. SEGMENT INFORMATION
FOR THE THREE MONTHS ENDED MARCH 31, 2003
($000'S) (UNAUDITED)
CORPORATE
AND CONSO-
GEOGRAPHIC LOCATION LATIN AMERICA CANADA TUNISIA OTHER LIDATED
------------------------------------------------------------------------------------------------------------------------------
EL EL XXXXXXXX XXX-
MOCHITO TOQUI NANISIVIK CARIBOU -XXXXXX XXXXX BOUGRINE
OPERATING SEGMENT MINE MINE TOTAL MINE MINE MINE MINE TOTAL MINE
------------------------------------------------------------------------------------------------------------------------------
Net revenue 8,206 4,266 12,472 2,287 - 12,950 - 15,237 2,769 - 30,478
Depreciation and depletion (1,145) (546) (1,691) - - (2,307) - (2,307) (1,962) (70) (6,030)
Reclamation and closure costs (189) (107) (296) - - (202) - (202) (91) - (589)
(Loss) contribution from
mining activities (382) (115) (497) (383) - 416 - 33 (1,821) (70) (2,355)
General and administrative - - - - - - - - - (1,306) (1,306)
Interest and financing - - - - - - - - - (703) (703)
Investment and other income - - - - - - - - - 29 29
Foreign exchange gain - - - - - - - - - 5,029 5,029
Other non-producing property
costs - - - (141) (445) - (21) (607) - 24 (583)
Income and mining taxes (34) - (34) - - (66) 1 (65) 157 (100) (42)
Net earnings (loss) (416) (115) (531) (524) (445) 350 (20) (639) (1,664) 2,903 69
Capital expenditures 152 1,556 1,708 (19) - - 490 471 362 723 3,264
Identifiable assets 37,102 33,104 70,206 11,294 3,534 26,886 39,383 81,097 33,789 16,201 201,293
INFORMATION ABOUT MAJOR CUSTOMERS
Of the Company's total consolidated net revenue in the three months ended March 31 2003, revenue from one customer of
$12,454,000 was from the Xxxxxxxx-Xxxxxx Mine and revenue from another customer of $3,505,000 consisted of $2,057,000 from the El
Toqui Mine and $1,448,000 from the Bougrine Mine.
FOR THE THREE MONTHS ENDED MARCH 31, 2002
($000'S) (UNAUDITED)
CORPORATE
AND CONSO-
GEOGRAPHIC LOCATION LATIN AMERICA CANADA TUNISIA OTHER LIDATED
------------------------------------------------------------------------------------------------------------------------------
EL EL XXXXXXXX XXX-
MOCHITO TOQUI NANISIVIK CARIBOU -XXXXXX XXXXX BOUGRINE
OPERATING SEGMENT MINE MINE TOTAL MINE MINE MINE MINE TOTAL MINE
------------------------------------------------------------------------------------------------------------------------------
Net revenue 8,812 4,392 13,204 2,730 - 11,304 - 14,034 5,990 - 33,228
Depreciation and depletion (1,589) (667) (2,256) (853) - (1,641) - (2,494) (1,862) (6) (6,618)
Reclamation and closure costs (231) (17) (248) (104) - (590) - (694) (190) - (1,132)
(Loss) contribution from
mining activities (650) (942) (1592) 1,066 - 1,097 - 2,163 (763) (6) (198)
General and administrative - - - - - - - - - (1,279) (1,279)
Interest and financing - - - - - - - - - (1,115) (1,115)
Investment and other income - - - - - - - - - 168 168
Foreign exchange loss - - - - - - - - - (25) (25)
Other non-producing property
costs - - - - (412) - (41) (453) - (24) (477)
Income and mining taxes (12) - (12) (2) - (136) 2 (136) (73) (124) (345)
Net (loss) earnings (662) (942) (1,604) 1,064 (412) 961 (39) 1,574 (836) (2,405) (3,271)
Capital expenditures 218 207 425 6 - 638 211 855 766 251 2,297
Identifiable assets 49,179 32,300 81,479 40,826 3,892 34,641 38,329 117,688 42,483 12,465 254,115
INFORMATION ABOUT MAJOR CUSTOMERS
Of the Company's total consolidated net revenue in the three months ended March 31, 2002, revenue from one customer of
$9,222,000 consisted of $7,486,000 from the Xxxxxxxx-Xxxxxx Mine and $1,736,000 from the El Mochito Mine, revenue from another
customer of $3,598,000 consisted of $2,174,000 from the El Toqui Mine and $1,424,000 from the Bougrine Mine and revenue from a third
customer of $3,500,000 consisted of $2,238,000 from the El Mochito Mine and $1,262,000 from the Bougrine Mine.
11 First Quarter 2003
7. ANALYSIS OF CHANGES IN NON-CASH WORKING CAPITAL ITEMS 8. SUBSEQUENT EVENTS
THREE MONTHS ENDED On April 24, 2003, the Company announced the sale of the
MARCH 31, Company's Tonawanda and Zulapa gold properties (the "Lapa
------------------- property"), subject to the completion of a definitive
($000'S) 2003 2002 agreement.
----------------------------------------------------
Accounts receivable - The sale price is US$7,925,000 plus a US$1,000,000
concentrate 10,767 (172) non-refundable advance royalty payable on closing and a
Other receivables 1,230 376 further non-refundable advance royalty of US$1,000,000 when
Concentrate and supplies the total published inferred resources reach two million
inventory (613) (5,640) ounces of gold.
Prepaid expenses and other
current assets (1,211) (1,640) The Company will retain a 1.0 percent net smelter royalty
Accounts payable and accrued ("NSR") on all gold production from the Tonawanda property and
liabilities (1,641) (8,324) a 0.5 percent NSR on all gold production from the Zulapa
Provisional payments for property.
concentrate
inventory shipped and not The Company also sold its 66 2/3 percent interest in the
priced (4,258) (1,218) Chibex South property, located four kilometres south of the
Income and mining taxes payable (132) 425 Lapa property in Cadillac Township.
----------------------------------------------------
4,142 (16,193) The sale price is US$75,000 plus a 0.66 percent NSR. The
sale of these properties will result in the recognition of a
gain on disposal of approximately $11,600,000 during the
second quarter of 2003. An additional gain of US$1,000,000
will be recognized should the inferred resources reach two
million ounces of gold.
------------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT AND CORPORATE INFORMATION
DIRECTORS OFFICERS TRANSFER AGENT CORPORATE AND
AND REGISTRAR REGISTERED OFFICE
Xxxxx X. Benner+ Xxxxx X. X. XxxXxx Computershare Trust 00 Xxxxxxxxxx Xxxxxx Xxxx
CHAIRMAN Company of Canada Suite 2000
Xxxxxx X. Xxx 000 Xxxxxxxxxx Xxx. Xxxxxxx, Xxxxxxx
Xxxxx X. Xxxxxx 0xx Xxxxx X0X 0X0
XXXXXXXXX XXX Xxxxxxx, Xxxxxxx
Xxxxxx X. Charter CHIEF EXECUTIVE OFFICER M5H 2Y1 Tel: (000) 000-0000
Fax: (000) 000-0000
Xxxxxxxx X. Xxxxxxx*o Xxxx X. Galipeau+ Tel: (000) 000-0000
EXECUTIVE VICE PRESIDENT AND (000) 000-0000 E-MAIL
Xxxxx A. C. MacRae+ CHIEF FINANCIAL OFFICER Fax: (000) 000-0000 xxxxxxxxxxxx@xxxxxxxxxx.xx
(000) 000-0000
Xxxxx X. Xxxxxxxx*o Xxxx X. Xxxxxxx
VICE PRESIDENT, E-Mail: WEBSITE
LATIN AMERICA AND CORPORATE caregistryinfo@computer xxx.xxxxxxxxxx.xx
A. Xxxxxx Xxxxxxxx, Xx.*o LOGISTICS xxxxx.xxx
SHARES TRADED
J. Xxxxxx Xxxxx The Toronto Stock
VICE PRESIDENT, MARKETING AUDITORS Exchange
Symbol - BWR
* Member of Audit Committee Xxxxxxx X. Xxxxx Deloitte & Touche LLP
VICE PRESIDENT, ADMINISTRATION BCE Place, Suite 1400
o Member of Compensation 000 Xxx Xxxxxx
Xxxxxxxxx Xxxxxx X. Xxxxxx Toronto, Xxxxxxx
XXXXXXXXX X0X 0X0
+ Member of Hedging
Committee Xxxxx X. Xxxx Tel: (000) 000-0000
CONTROLLER
E. Xxx Xxxxxxxxx
CORPORATE SECRETARY
------------------------------------------------------------------------------------------------------------------------------------
[LOGO] b
BREAKWATER RESOURCES LTD.
Breakwater Resources Ltd. 12
[LOGO] COMPUTERHSARE
INVESTOR SERVICES
May 20, 2003
Computershare Trust Company of Canada
000 Xxxxxxxxxx Xxxxxx
To: Alberta Securities Commission Toronto, Ontario
British Columbia Securities Xxxxxxxxxx X0X 0X0
Xxxxxxxx Securities Commission Telephone 0-000-000-0000 CANADA
Office of the Administrator, New Brunswick xxx.xxxxxxxxxxxxx.xxx Australia
Securities Commission of Newfoundland Channel Islands
Nova Scotia Securities Commission Hong Kong
Ontario Securities Commission Germany
Registrar of Securities, Xxxxxx Xxxxxx Island Ireland
Commission des valeurs mobilieres du Quebec New Zealand
Saskatchewan Securities Commission Philippines
Securities Registry, Government of the Northwest Territories South Africa
Registrar of Securities, Government of the Yukon Territories United Kingdom
Nunavut Legal Registry USA
The Toronto Stock Exchange
Industry Canada
U.S. Securities & Exchange Commission
Dear Sirs:
Subject: Breakwater Resources Ltd.
We confirm that the following English material was sent by pre-paid mail on May 16, 2003, to the registered shareholders of Common
shares of the subject Corporation:
1. 2003 First Quarter Interim Report
We also confirm that a copy of the above was mailed to all non-registered shareholders of the subject Corporation whose names appear
on the Corporation's Supplemental Mailing List in compliance with current securities legislation requirements.
In compliance with regulations made under the Securities Act, we are providing this confirmation to you in our capacity as agent for
the subject Corporation.
Yours truly,
(Signed)
Xxxx Hyshka
Assistant Account Manager
Stock Transfer Services
(000) 000-0000
(000) 000-0000 Fax
cc : Breakwater Resources Ltd.
