Gammon Gold Reports Fourth Quarter and Year End Financial Results - Reports Record Adjusted Earnings, Operating Cash Flow and Net Free Cash Flow
By Gammon Gold Inc., PRNEMonday, March 29, 2010
TSX: GAM / NYSE: GRS / BSX: GL7
HALIFAX, Nova Scotia, March 30, 2010 - Gammon Gold Inc. ("Gammon") (TSX:GAM and NYSE:GRS): announces
its financial results for the three and twelve months
ended December 31, 2009. All figures reported are in U.S. dollars unless
otherwise indicated.
Strong Financial Performance
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- The Company reported its ninth consecutive quarter of positive
operating cash flow. During the fourth quarter the Company generated
$31.6 million in operating cash flow as compared to $10.0 million in
the same period in 2008, a $21.6 million, or 216%, improvement. This
improvement was primarily due to the ongoing operational enhancements
achieved throughout the Company's operations. For the 12 months ended
December 31, 2009, the Company reported $78.2 million in operating
cash flow as compared to $55.9 million in 2008, a $22.3 million, or a
40%, improvement.
- The Company reported $9.0 million in positive free cash flow, its best
quarter to date, for the fourth quarter as compared to negative free
cash flow of $6.5 million in the same period in 2008, a $15.5 million,
or a 238% improvement. This is primarily as a result of improved
operations, the reduction in capital expenditures due to the near
completion of the Ocampo capital expansion program and the strong
metal prices realized in the quarter. For the 12 months ended
December 31, 2009, the Company reported $1.4 million in free cash flow
as compared to negative free cash flow of $10.9 million in 2008,
a $12.3 million or a 113% improvement.
- In the fourth quarter, the Company reported earnings before other
items of $0.16 per share as compared to $0.04 per share in the same
period in 2008, a $0.12 per share, or a 300% improvement. This result
represents the Company's best ever performance to date. For the
12 months ended December 31, 2009, earnings before other items
increased to $0.22 per share as compared to $0.11 per share in the
same period in 2008, a $0.11 per share, or a 100% improvement.
- In the fourth quarter, the Company reported net earnings of $0.10 per
share. This compared to $0.26 per share in the same period in 2008
which is primarily related to a $0.14 per share foreign exchange gain
and a $0.08 per share future tax recovery recorded in the fourth
quarter of 2008 that were not realized in the fourth quarter of 2009.
Whereas earnings in the fourth quarter of 2009 were negatively
impacted by a foreign exchange loss of $0.01 per share and future tax
expense of $0.03 per share. Prior to these non-cash adjustments
earnings per share for the fourth quarter were $0.14 per share as
compared to earnings of $0.05 per share in the fourth quarter of
2008. Net earnings for the 12 months ended December 31, 2009
were $0.01 per share as compared to $0.34 per share in
the same period in 2008. The decrease in earnings
for the year as compared to 2008 is primarily related to a $0.14 per
share foreign exchange gain and a $0.08 per share future tax recovery
adjustment that were recorded in 2008 whereas 2009 earnings were
negatively impacted by a foreign exchange loss of $0.09 per share and
future tax expense of $0.05 per share. Prior to these non-cash
adjustments, earnings for the year were $0.16 per share as compared to
$0.09 per share in 2008.
- Revenues for the fourth quarter were $68.2 million as compared to
$48.3 million in the same period in 2008. During the quarter the
Company realized an average gold and silver price of $1,093 per ounce
and $17.54 per ounce, respectively, as compared to $796 per ounce and
$10.05 per ounce. Revenues for the 12-month period ended December 31,
2009 were $206.8 million as compared to $212.5 million in the same
period in 2008. During the year the Company realized an average gold
and silver price of $978 per ounce and $14.91 per ounce, respectively,
as compared to $864 per ounce and $14.66 per ounce.
- Operating margins in the fourth quarter improved to 56% or $615 per
gold equivalent ounce using the Company's long-term gold-to-silver
ratio of 55:1. Operating margins for the 12-month period ended
December 31, 2009 improved to 49% or $483 per gold equivalent ounce
using the Company's long-term gold-to-silver ratio of 55:1.
Strengthened Balance Sheet and Cash Profile
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- The Company ended the year with cash of $129.0 million, a
$125.7 million increase in cash on hand since December 31, 2008. As a
result, the Company was in a net cash position of $92.1 million at
December 31, 2009.
- On October 22, 2009, the Company completed a public offering of
12,926,000 common shares at a price of $8.90 per common share. The net
proceeds of over $108 million are available for funding expanded
exploration programs at the Ocampo and El Cubo mine sites, the
advancement of the Guadalupe y Calvo project, debt repayments,
greenfields exploration and general corporate purposes.
- As a result of the gross proceeds received through the public offering
and the Company's improved cash flow profile, the Company's Balance
Sheet has been significantly strengthened, which provides management
with considerable flexibility in executing its future business plans.
Additionally, the current debt-to-equity ratio has improved to 4.7%,
which is well below industry standards.
- As of December 31, 2009, the Company's $30 million revolving line of
credit facility was increased to $50 million following the
participation of Societe Generale as the second syndicate partner. All
terms and conditions remain as per the originally established facility
with the approximate undrawn capacity on this facility now
representing $22.6 million.
Strong Production and Cash Costs Reduction
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- During the fourth quarter, cash costs were $423 per gold equivalent
ounce using the Company's long-term gold-to-silver ratio of 55:1.
Using the realized gold-to-silver ratio of 62:1 reported in the
quarter, cash costs were $445 per gold equivalent ounce.
- During the year, cash costs were $430 per gold equivalent ounce using
the Company's long-term gold-to-silver ratio of 55:1, a decrease of
$82 per gold equivalent ounce over 2008, a 16% improvement. Using the
realized gold-to-silver ratio of 66:1 reported for the year, cash
costs were $462 per gold equivalent per ounce, a decrease of $66
per gold equivalent ounce, a 13% improvement.
- During the fourth quarter, the Company produced 36,829 gold ounces and
1,465,098 silver ounces, or 63,467 gold equivalent ounces at the
Company's long-term gold-to-silver ratio of 55:1. Using the realized
gold-to-silver ratio of 62:1 reported in the fourth quarter, the
Company produced 60,407 gold equivalent ounces. The fourth quarter was
the best gold and silver production quarter in 2009.
- During the year, the Company produced 136,309 gold ounces and
5,165,514 silver ounces, or 230,228 gold equivalent ounces at the
Company's long-term gold-to-silver ratio of 55:1. Using the realized
gold-to-silver ratio of 66:1 for the year, the Company produced
214,072 gold equivalent ounces.
Ocampo Capital Expansion Program Essentially Complete and Operations
Improving
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- By the end of 2009, the Ocampo capital expansion program was
substantially complete. Both the Phase III mill expansion and the heap
leach expansion are expected to be fully commissioned during the
second quarter of 2010. Supported by the improved operational cash
flow profile achieved through the Company's improved operations,
the Company continued to internally fund the Ocampo capital
expansion program in 2009.
- The planned reinvestment and reorganization program in the underground
operation has facilitated a significant increase in production volume.
Production from the underground averaged 1,434 tonnes per day in the
month of December, exceeding the Company's year-end target of
1,200 tonnes per day by 20%.
- During the fourth quarter the mill facility was impacted by unforeseen
issues including required maintenance of the third mill and the
replacement of five under-sized cyclones. The issues with the third
mill were resolved by mid-December. Two cyclones of the five cyclones
were installed by the end of December 2009 and by the end of the first
quarter of 2010, the three remaining cyclones were installed at the
Ocampo mill facility. This will allow the Company to complete the
commissioning of the Phase III mill expansion and begin to ramp up to
target production levels of 3,300 to 3,400 tonnes per day during Q2
2010. Also during the fourth quarter a heavy and unseasonal rainfall
impacted production at the Ocampo underground mine over a period of
5 days and at the Ocampo open pit mines for a period of 10 days. The
significant rainfall also impacted the mine's heap leach operations
through the dilution of the pregnant pond and the overall leaching
solutions. This issue was remediated over a 4-week period, after which
the heap leach processing facility was producing at targeted output
levels.
- The expansion and re-optimization of the heap leach pad through the
conversion to a valley leach design will provide an additional
10 million tonnes of stacking capacity. This initiative has
successfully deferred the construction of the Phase III expansion for
additional heap leach capacity until 2012. The current heap leach
conversion to valley fill is progressing on schedule and is expected
to be fully commissioned by the end of the second quarter.
- The operations continue to benefit from the cost savings realized
through the access to the more reliable and cost effective 20
megawatts of grid power at the Ocampo mine. Previously, the Company
had relied on diesel generated power for its energy requirements.
This diesel generated power now serves as a back-up power supply
should there be any interruptions in grid power service.
El Cubo Delivers Productivity Improvements
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- During the year, the Company was able to negotiate the adoption of a
7-day continuous work schedule at the El Cubo mine that, once
implemented in mid-2009, began to deliver continually improved
productivity. In the fourth quarter, the El Cubo mine reported record
productivity levels, with December reporting the highest levels
reported in the mine's history. The mine's performance was further
supported by the adoption of a new production incentive bonus program
that was introduced during the fourth quarter. By mid-year, the
Company anticipates that the El Cubo mine will be operating at its
targeted level of 1,850 tonnes per day.
- On October 1, 2009 the Company announced that it had successfully
renewed the Las Torres Lease Agreement for an additional three-year
term. The Las Torres Lease Agreement provides Gammon with the mining
rights and use of the Las Torres processing and administration
facilities located at Gammon's El Cubo Mine.
- In early, 2010 the Company entered into a toll milling agreement with
a subsidiary of Fresnillo, whereby 50,000 tonnes of ore from its Los
Chorros mine will be toll-milled at the El Cubo Las Torres mill. The
processing of Los Chorros ore will allow the Company to utilize unused
capacity in its 2,000 tonne per day Las Torres mill facility while the
El Cubo mine ramps up production to targeted levels. The revenue fees
generated from this agreement will be offset against operating
expenses.
Strategic Exploration Program Launched
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- In mid-2008 the Company launched a strategic exploration program, the
first dedicated and strategic program since 2004. 2009 was the first
full year where the strong cash flow profile supported an aggressive
115,500 metre exploration program at Ocampo. The 2009 program was
focused on in-fill drilling of open pit reserves to increase reserve
confidence, drilling open pit resources within existing resource open
pit limits and the identification of new grassroots targets.
- During the past six months, the Company focused on drilling at the
Santa Eduviges underground target at Ocampo. Santa Eduviges is located
under the current open pits and is within close proximity of the main
crushing circuit. Development of Santa Eduviges was a key focus of the
exploration program of the Company during the latter part of 2009 and
early 2010. Currently, the Company is targeting to have Santa Eduviges
in production in the second half of 2010.
- The 2009 Ocampo exploration program implemented priority drilling
programs at Las Molinos, Altagracia, Picacho SE, San Amado, Cerro
Colorado and Santa Librada. The $13.3 million 2010 exploration program
will continue to develop these and other new potential targets
identified throughout the year.
- In the fourth quarter of 2009, an exploration program was launched at
the El Cubo mine. Until the launch of this 44,000 metre program, there
had not been a strategic exploration program conducted on this
property in more than a decade. Early drill results from the Dolores
- Capulin and the Fenix target have been very encouraging and follow
up drilling on these targets continue as part of the $9.6 million
2010 exploration program.
- During 2009, activity at the advanced Guadalupe y Calvo project was
restricted by a production covenant imposed by the Company's lenders.
In the fourth quarter of 2009 this restrictive covenant was lifted and
the Company will focus on completing a Scoping Study during the third
quarter of 2010.
Recent Highlights
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- On March 16, 2010, the Ontario Superior Court of Justice certified the
proposed class action commenced by Ed J. McKenna in 2008 in respect of
investors who purchased the securities through underwriters in Canada
under the Company's April 2007 prospectus. Certification is a
procedural step in the litigation and no determination has been made
of the merits of the claim. Management continues to be of the opinion
that the claim is without merit, and that a strong defence exists
against the claim.
- On March 23, 2010 the Company announced that it has signed definitive
purchase option agreements on a group of properties called the
Mezquite Project ("Mezquite") in Zacatecas State, Mexico. The Mezquite
Project, in Zacatecas State, covers 460 hectares and is located
45 kilometres southeast of Goldcorp's Penasquito property and 22
kilometres northeast of Camino Rojo (Goldcorp recently announced the
acquisition of Camino Rojo). The property lies within a 70 kilometre
belt with over 27.4 million ounces of gold and 1,611 million ounces
of silver, or approximately 57 million gold equivalent ounces at a
gold-to-silver ratio of 55:1, in published reserves and resources
in all categories.
"2009 was a year where we successfully advanced the majority of our
internal growth strategy. We have reported record operating and free cash
flow levels. Earnings before other items for the quarter and for the year
were strong, with the fourth quarter reporting our best ever quarterly
result. We are near the completion of the strategic capital expansion
program at Ocampo. Operations are running well and we launched an
aggressive exploration program after years of inactivity. Although
production was impacted by certain unforeseen events during the
fourth quarter, we delivered on the majority of our targets for
the year. With operations steadily moving to planned levels,
we look forward to consistently delivering targeted production levels by
mid-2010," stated Rene Marion, President and Chief Executive Officer.
Fourth Quarter 2009
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(all amounts are in U.S. dollars and are in thousands, except ounces,
per share amounts, average realized prices and total cash costs)
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Three Months Ended Dec. 31/09 Dec. 31/08
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Gold ounces sold 38,249 41,004
Silver ounces sold 1,509,511 1,534,318
Gold equivalent ounces sold(1) 62,462 60,662
Gold equivalency rate 62 79
Gold ounces produced 36,829 43,768
Silver ounces produced 1,465,098 1,649,893
Gold equivalent ounces produced(1) 60,407 64,889
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Revenue from mining operations $68,220 $48,262
Production costs, excluding amortization
and depletion $27,113 $24,521
Net earnings $13,452 $31,555
Net earnings per share $0.10 $0.26
Net earnings per share, diluted $0.10 $0.26
Cash flows from operations $31,597 $9,965
Net free cash flow(2) $8,950 ($6,446)
Total cash $128,977 $3,258
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Total cash costs per gold equivalent ounce(2) $445 $413
Total cash costs per gold ounce(2) $35 $234
Average realized gold price per ounce $1,093 $796
Average realized silver price per ounce $17.54 $10.05
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Gold equivalent ounces sold (55:1)(3) 65,694 68,901
Gold equivalent ounces produced (55:1)(3) 63,467 73,766
Total cash costs per gold equivalent
ounce (55:1)(3) $423 $364
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(1) Gold equivalent ounces include silver ounces produced and sold
converted to a gold equivalent, based on the ratio of the actual
realized sales prices of the commodities.
(2) See the Non-GAAP Measures section on page 29 of the 2009 Annual
Management's Discussion and Analysis.
(3) Gold equivalent ounces include silver ounces produced and sold
converted to a gold equivalent, based on the Company's long-term
gold equivalency ratio of 55:1.
Twelve Months Ended December, 31 2009 Highlights
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(all amounts are in U.S. dollars and are in thousands, except ounces,
per share amounts, average realized prices and total cash costs)
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Twelve Months Ended Dec 31/09 Dec 31/08
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Gold ounces sold 133,003 150,646
Silver ounces sold 5,146,584 5,606,539
Gold equivalent ounces sold(1) 210,853 245,028
Gold equivalency rate 66 59
Gold ounces produced 136,309 154,428
Silver ounces produced 5,165,514 5,778,874
Gold equivalent ounces produced(1) 214,072 251,510
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Revenue from mining operations $206,801 $212,522
Production costs, excluding amortization
and depletion $96,504 $127,651
Net earnings $1,732 $39,994
Net earnings per share $0.01 $0.34
Net earnings per share, diluted $0.01 $0.33
Cash flows from operations $78,218 $55,933
Net free cash flow(2) $1,357 ($10,908)
Total cash $128,977 $3,258
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Total cash costs per gold equivalent ounce(2) $462 $528
Total cash costs per gold ounce(2) $156 $313
Average realized gold price per ounce $978 $864
Average realized silver price per ounce $14.91 $14.66
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Gold equivalent ounces sold (55:1)(3) 226,577 252,583
Gold equivalent ounces produced (55:1)(3) 230,228 259,498
Total cash costs per gold equivalent
ounce (55:1)(3) $430 $512
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(1) Gold equivalent ounces include silver ounces produced and sold
converted to a gold equivalent, based on the ratio of the actual
realized sales prices of the commodities.
(2) See the Non-GAAP Measures section on page 29 of the 2009 Annual
Management's Discussion and Analysis.
(3) Gold equivalent ounces include silver ounces produced and sold
converted to a gold equivalent, based on the Company's long-term
gold equivalency ratio of 55:1.
The financial statements along with the Management's Discussion and
Analysis will be available on the Company's website at
www.gammongold.com or www.sedar.com.
Financial Results Conference Call & Webcast
The Company's audited quarterly and year-end financial results for the
three month and twelve month period ended December 31, 2009 will be released
before the market opens on Tuesday, March 30, 2010. The financial statements
will be available on the Company's website at www.gammongold.com or
www.sedar.com.
A webcast and conference call will be held on Tuesday, March 30, 2010
starting at 10:00 am Eastern Time (11:00 am Atlantic Time). Senior management
will be on hand to discuss the results. Directly following the Company's
fourth quarter and year-end 2009 results conference call and webcast, the
Company will host a live webcast of its Analyst Day presentations beginning
at 11:00 a.m. Eastern Time. The fourth quarter and year-end 2009 results
webcast and the Analyst Day webcast will be available through the
following link:
www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2975940
Fourth Quarter and Year End Financial Results Conference Call Access:
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- Canada & US Toll Free: 1-(888) 231-8191
- International & Toronto: 1-(647) 427-7450
When the Operator answers please ask to be placed into the Gammon Gold
Fourth Quarter and Year End 2009 Results Conference Call. Please note the
Analyst Day presentations will only be available via the live webcast.
Archive Fourth Quarter and Year End Financial Results Conference
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Call Access:
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If you are unable to attend the conference call, a replay will be
available until midnight, April 6, 2010 by dialing the appropriate number
below:
- Local Toronto Participants: 1-416-849-0833
Passcode: 58806907(number sign)
- North America Toll Free: 1-800-642-1687
Passcode: 58806907(number sign)
Archive Fourth Quarter and Year End Financial Results and
---------------------------------------------------------
Analyst Day Webcast:
--------------------
The Fourth Quarter and Year End Financial Results and the Analyst Day
webcast will be archived for 90 days by following the link provided below:
www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2975940
or via the Company's website at www.gammongold.com.
About Gammon Gold
Gammon Gold Inc. is a Nova Scotia based mid-tier gold and silver
producer with properties in Mexico. The Company's flagship Ocampo Project
in Chihuahua State achieved commercial production in January 2007.
Gammon Gold also operates its El Cubo operation in Guanajuato State and
has the promising Guadalupe y Calvo development property in Chihuahua State.
Cautionary Statement
Cautionary Note to US Investors - The United States Securities and
Exchange Commission permits US mining companies, in their filings with the
SEC, to disclose only those mineral deposits that a company can economically
and legally extract or produce. This press release uses certain terms, such
as "measured," "indicated," and "inferred" "resources," that the SEC
guidelines strictly prohibit US registered companies from including
in their filings with the SEC. US Investors are urged to consider closely
the disclosure in Gammon Gold's Annual Report on Form 40-F, which may
be secured from Gammon Gold, or from the SEC's
website at www.sec.gov/edgar.shtml.
No stock exchange, securities commission or other regulatory authority
has approved or disapproved the information contained herein.
Certain statements included herein, including information as to the
future financial or operating performance of the Company, its subsidiaries
and its projects, constitute forward-looking statements. The words "believe",
"expect", "anticipate", "contemplate", "target", "plan", "intends",
"continue", "budget", "estimate", "forecast", "may", "will", "schedule" and
similar expressions identify forward-looking statements. Forward-looking
statements include, among other things, statements regarding its financial
exposure to litigation, targets, estimates and assumptions in respect of gold
and silver production and prices, operating costs, results and capital
expenditures, mineral reserves and mineral resources and anticipated grades,
recovery rates, future financial or operating performance, margins, operating
and exploration expenditures, costs and timing of completion of the Ocampo
expansion program and improvements to the heap leach pad, costs and timing of
the development and commencement of production of new deposits, costs and
timing of construction, costs and timing of future exploration and
reclamation expenses including, anticipated 2010 results, operating
performance projections for 2009 and 2010, our ability to fully fund our
business model internally, 2010 gold and silver production and the cash and
operating costs associated therewith, the ability to achieve productivity
and operational efficiencies, the ability to access grid power at Ocampo,
further reduction in the open pit stripping ratio and the timing of each
thereof. Forward-looking statements are necessarily based upon a number of
estimates and assumptions that, while considered reasonable by the Company,
are inherently subject to significant business, economic, competitive,
political and social uncertainties and contingencies. Many factors could
cause the Company's actual results to differ materially from those expressed
or implied in any forward-looking statements made by, or on behalf of, the
Company. Such factors include, among others, known and unknown uncertainties
and risks relating to additional funding requirements, reserve and resource
estimates, commodity prices, hedging activities, exploration, development
and operating risks, illegal miners, political and foreign risk, uninsurable
risks, competition, limited mining operations, production risks,
environmental regulation and liability, government regulation, currency
fluctuations, recent losses and write-downs, restrictions in the Company's
loan facility, dependence on key employees, possible variations of ore grade
or recovery rates, failure of plant, equipment or process to operate as
anticipated, accidents and labour disputes. Investors are cautioned that
forward-looking statements are not guarantees of future performance and,
accordingly, investors are cautioned not to put undue reliance on
forward-looking statements due to the inherent uncertainty therein.
For further information: Scott Perry, Chief Financial Officer, Gammon
Gold Inc., +1-(416)-646-3825; Anne Day, Director of Investor Relations,
Gammon Gold- Inc., +1-(902)-468-0614; www.gammongold.com
For further information: Scott Perry, Chief Financial Officer, Gammon Gold Inc., +1-(416)-646-3825; Anne Day, Director of Investor Relations, Gammon Gold- Inc., +1-(902)-468-0614; www.gammongold.com
Tags: Gammon Gold Inc., Halifax, March 30, Nova Scotia
