FORM 6K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REPORT OF FOREIGN ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of: May, 2004
Commission File Number 0-15276
MIRAMAR MINING CORPORATION
(Translation of registrant's name into English)
#300 - 889 Harbourside Drive
North Vancouver, British Columbia
Canada V7P 3S1
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F
Form 20-F [_} Form 40-F [X]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(1): _________
Indicate by check mark if the registrant is submitting the Form 6-K in paper as
permitted by Regulation S-T Rule 101(b)(7): ___________
Indicate by check mark whether by furnishing the information contained in this
Form, the registrant is also thereby furnishing the information to the
Commission pursuant to rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes [_] No [X]
If "Yes" is marked, indicate below the file number assigned to the registrant in
connection with Rule 12g3-2(b) 82 -
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MIRAMAR MINING CORPORATION
--------------------------
(Registrant)
By: /s/ A. David Long
------------------------------------
A. David Long, Corporate Secretary
Dated: May 18, 2004
[COMPANY MIRAMAR MINING CORPORATION
LOGO] 300 - 889 Harbourside Drive, North Vancouver, B.C. V7P 3S1 Canada
Tel: (604) 985-2572 Fax: (604) 980-0731 Toll Free: 1-800-663-8780
May 14, 2004 NEWS RELEASE 03-07 MAE - TSE
MNG-AMEX
MIRAMAR MINING REPORTS FINANCIAL RESULTS FOR FIRST QUARTER 2004
- OPERATIONAL LOSSES NOT EXPECTED TO CONTINUE -
VANCOUVER -- Miramar Mining Corporation today announced its financial results
for the first quarter ended March 31, 2004. For the period Miramar reported a
loss of $7.1 million, largely as a result of production shortfalls from its
Yellowknife operations.
"Our Yellowknife operations had a challenging first quarter, which contributed
to a loss during the period," said Tony Walsh, President and CEO. "This
operational loss is primarily attributable to a longer than expected ramp up of
production from the new third level C shaft area combined with ore losses from
several key mining areas at the Giant Mine. These issues have been addressed and
are not expected to continue for the remainder of the year, however, operations
at Giant will be closely monitored for their viability to continue mining" he
said. The prime focus for the Company continues to be its Nunavut gold projects,
Hope Bay and Back River, where on-going work programs are providing encouraging
results.
Financial Results
For the three months ended March 31, 2004, the Company reported a consolidated
net loss of $7.1 million or $0.05 per share compared to a loss of $0.8 million
or $0.01 per share for the same period in 2003 as restated. The financial
results were lower than planned due largely to lower gold production from the
Giant Mine and higher operating costs of $1.2 million due to increased fuel
prices, higher labour costs and higher reagent consumption. In addition, the
Company has recorded an expense of $2.1 million in the quarter for stock-based
compensation for employees and directors in accordance with the adoption of new
accounting standards As a result of adopting new accounting standards with
respect to asset retirement obligations and stock-back compensation on a
retroactive basis, prior period earnings have been restated. Net earnings in the
first quarter of 2003 were restated from $0.04 million to a loss of $0.8
million.
Miramar had working capital of approximately C$60 million at March 31, 2004, and
cash and cash equivalents of $61 million. In the first quarter, Miramar realized
an average selling price of C$466 per ounce of gold which compares to the C$545
average price achieved in the same period in 2003. While the average spot market
price of gold was C$538 for the first quarter of 2004, the Company delivered all
gold production into hedge contracts and financially settled those call options
for which gold production was not available in the quarter.
Operating Results
In Yellowknife, mining operations were ongoing only at the Giant Mine as
underground mining at the Con Mine terminated in November 2003. In the first
quarter of 2004, gold production from Giant Mine was significantly lower than
forecast due to delays in developing ore from the new third level C-shaft area
due to temporary manpower shortages (since corrected) and ore losses from
several key mining areas. With no production from the Con Mine, the Yellowknife
operations were unable to offset these ore losses.
1
Total gold production was 6,103 ounces in the first three months or 37% below
forecast at cash costs of US$607 per ounce. These high unit costs are largely
attributable to the high fixed cost base in Yellowknife. At lower production
levels, operating costs do not vary significantly, therefore fewer ounces
generated significantly higher cost per ounce. In addition, operating costs were
higher than planned, due to higher fuel prices, increased labour costs and
increase reagent consumption. For the corresponding period in 2003, operations
produced and shipped 28,237 ounces at cash costs of US$314 per ounce.
The Yellowknife operations are in the final stages of their production lives,
and the prime focus of the company is minimising cash outflows as the operations
prepare for abandonment and reclamation. Since there are a number of fixed costs
that will be incurred in Yellowknife whether or not the mines are operating, the
Company will continue to produce gold provided the net financial position is
better than if the mines were closed. When the Con Mine could no longer meet
these objectives, underground mining operations were terminated at the end of
2003. The Giant Mine will continue to be assessed for its ability to meet this
objective. At both the Con and Giant Mine, the estimated abandonment and
restoration costs have been provided for with cash or equivalent bonds that do
not form part of Miramar's working capital, ensuring these costs can be covered
without undue strain on the Company's balance sheet.
Hedging
The Board of Directors has approved a hedging policy and reviews the Company's
hedging position periodically. As at March 31, 2004 the Company had the
following outstanding gold contracts:
-------------------------------------------------------------------------------
Average Average Call Average
Anticipated Hedged Price Options Price Per
Delivery/Expiry Ounces Per Ounce Sold Ounce
-------------------------------------------------------------------------------
2004 13,200 C$478 27,000 C$478
-------------------------------------------------------------------------------
The fair value of the call options and the forward sales contracts was negative
$3.7 million on March 31, 2004 compared to negative $3.9 million on December 31,
2003. The Company will continue to reduce the hedging position through gold
delivery and financial settlement. The Company does not expect that gold
production will be sufficient to deliver into the all of above noted outstanding
contracts Unless otherwise indicated, all financial information in this press
release is presented in accordance with Canadian generally accepted accounting
principles and in Canadian dollars.
Forward Looking Statements
This news release contains forward looking statements within the meaning of the
United States Private Securities Litigation Reform Act of 1995 including
statements relating to planned work and development at the Hope Bay and Back
River projects; plans for activities at the Con and Giant Mines; estimated
production costs and results for the Con and Giant Mines; or anticipated
financial results or future events. These forward-looking statements are subject
to a variety of risks and uncertainties which could cause actual events or
results to differ materially from those reflected in the forward-looking
statements, including, without limitation: risks related to fluctuations in gold
prices; uncertainties related to raising sufficient financing to fund the
planned work in a timely manner and on acceptable terms; uncertainties related
to the accuracy of the assumptions made in the principal parameters related to
the development of Doris North; changes in planned work resulting from weather,
logistical, technical or other factors; the possibility that results of work
will not fulfill expectations and realize the perceived potential of the
Company's properties; uncertainties involved in the interpretation of drilling
results and other tests and the estimation of gold reserves and resources; the
possibility that required permits may not be obtained on a timely manner or at
all; the possibility that capital and operating costs may be higher than
currently estimated and may preclude commercial development or render operations
uneconomic; the possibility that the estimated recovery rates may not be
achieved;
2
risk of accidents, equipment breakdowns and labour disputes or other
unanticipated difficulties or interruptions; the possibility of cost overruns or
unanticipated expenses in the work program; the possibility that mine
reclamation costs may exceed estimates or that difficulties may be experienced
in mine reclamation; the risk of environmental contamination or damage resulting
from Miramar's operators and other risks and uncertainties which could cause
actual events or results to differ materially from those reflected in the
forward looking statements described in this release and the Miramar Annual
Report on Form 40F for the year ended December 31, 2003 and Reports on Form 6K
filed with the Securities and Exchange Commission and the Company's Annual
Information Form ("AIF") filed with the Ontario Securities Commission.
Forward-looking statements are based on the beliefs, estimates and opinions of
management at the date the statements are made. Miramar does not undertake to
update forward-looking statements if management's beliefs, estimates or opinions
or other circumstances should change.
This news release has been authorized by the undersigned on behalf of Miramar
Mining Corporation
For further information contact:
Tony Walsh
President & CEO
Miramar Mining Corporation
Tel: (604) 985-2572 Fax: (604) 980-0731
Toll Free: 1-800-663-8780
Email: info@miramarmining.com
3
Consolidated Financial Statements of
MIRAMAR MINING CORPORATION
Periods ended March 31, 2004 and 2003
MIRAMAR MINING CORPORATION
Consolidated Balance Sheets
(expressed in thousands of Canadian dollars, except per share amounts)
(unaudited)
-----------------------------------------------------------------------------------------------------------
March 31 December 31
2004 2003
-----------------------------------------------------------------------------------------------------------
As restated
(note 2)
Assets
Current assets:
Cash and cash equivalents $ 61,167 $ 69,921
Short-term investments - -
Accounts receivable 617 1,577
Inventory 6,428 6,443
Prepaid expenses 1,130 554
-----------------------------------------------------------------------------------------------------------
69,342 78,495
Note receivable 9,696 9,592
Power credits receivable 3,745 4,345
Property, plant and equipment 141,824 135,270
Cash collateral deposits 6,274 6,274
Investment in Northern Orion Explorations Ltd. (note 3) 9,212 10,112
Investment in Sherwood Mining Corporation 274 294
Other assets 106 100
-----------------------------------------------------------------------------------------------------------
$ 240,473 $ 244,482
-----------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 9,563 $ 9,537
Deferred gain 3,745 4,345
Provision for site reclamation and closure costs (note 2) 8,710 8,529
Deferred retirement benefits 53 84
Future income tax liability 19,444 17,881
-----------------------------------------------------------------------------------------------------------
41,515 40,376
Shareholders' equity
Share capital (note 4) 370,418 371,309
Contributed surplus 4,572 1,775
Deficit (176,032) (168,978)
-----------------------------------------------------------------------------------------------------------
198,958 204,106
-----------------------------------------------------------------------------------------------------------
$ 240,473 $ 244,482
-----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financials statements.
Page 1
MIRAMAR MINING CORPORATION
Consolidated Statements of Operations and Deficit
(expressed in thousands of Canadian dollars, except per share amounts)
------------------------------------------------------------------------------------------------------------------
Three months ended March 31
2004 2003
(unaudited) (unaudited)
------------------------------------------------------------------------------------------------------------------
As restated
(note 2)
Revenue
Sale $ 2,844 $ 15,388
Other income 1,124 289
------------------------------------------------------------------------------------------------------------------
3,968 15,677
Expenses
Cost of sales 7,295 12,603
Depreciation, depletion and accretion 504 2,037
General and administration 1,052 945
Stock-based compensation (note 2) 2,070 829
Foreign exchange gain (18) (46)
------------------------------------------------------------------------------------------------------------------
10,903 16,368
------------------------------------------------------------------------------------------------------------------
Loss from operations before items noted below (6,935) (691)
Equity loss (20) (21)
------------------------------------------------------------------------------------------------------------------
Loss before income taxes (6,955) (712)
Income taxes:
Current (99) (97)
------------------------------------------------------------------------------------------------------------------
(99) (97)
------------------------------------------------------------------------------------------------------------------
Loss for the period (7,054) (809)
Deficit, beginning of the period, as previously reported (169,383) (151,828)
Adjustment on adoption of new accounting standards (note 2(c)) 405 1,315
------------------------------------------------------------------------------------------------------------------
Deficit, beginning of the period as restated (168,978) (150,513)
------------------------------------------------------------------------------------------------------------------
Deficit, end of the period $ (176,032) $ (151,322)
------------------------------------------------------------------------------------------------------------------
Loss per share, basic and diluted $ (0.05) $ (0.01)
------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares outstanding 151,811,968 123,246,730
------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Page 2
MIRAMAR MINING CORPORATION
Consolidated Statements of Cash Flows
(expressed in thousands of Canadian dollars)
-------------------------------------------------------------------------------------------------------
Three months ended March 31
2004 2003
(unaudited) (unaudited)
-------------------------------------------------------------------------------------------------------
As restated
(note 2)
Cash provided by (used in):
Operations
Loss for the period $ (7,054) $ (809)
Items not involving cash:
Depreciation, depletion and accretion 504 2,037
Equity loss 20 21
Stock-based compensation 2,151 829
Other (107) (33)
Net change in non-cash working capital:
Accounts receivable 961 (353)
Inventory 15 183
Prepaid expenses (576) (1,070)
Accounts payable and accrued liabilities (4) (529)
-------------------------------------------------------------------------------------------------------
(4,090) 276
-------------------------------------------------------------------------------------------------------
Investments:
Expenditures on plant, equipment and deferred exploration (6,144) (6,369)
Proceeds on sale of short term investments - 23,694
Proceeds on sale of Northern Orion shares (note 3) 900 150
-------------------------------------------------------------------------------------------------------
(5,244) 17,475
-------------------------------------------------------------------------------------------------------
Financing:
Issue of common shares for cash 579 374
-------------------------------------------------------------------------------------------------------
579 374
-------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents (8,755) 18,125
Cash and cash equivalents, beginning of the period 69,921 16,085
-------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of the period $ 61,166 $ 34,210
-------------------------------------------------------------------------------------------------------
Supplementary information
Income taxes paid $ 94 $ 97
-------------------------------------------------------------------------------------------------------
Non-cash investing and financing activities
Fair value of stock options exercised $ 133 $ 230
Stock-based compensation included in deferred exploration $ 733 $ -
See accompanying notes to consolidated financial statements.
Page 3
MIRAMAR MINING CORPORATION
Consolidated Statements of Cash Flows
(expressed in thousands of Canadian dollars)
1. Interim Financial Statements:
These interim consolidated financial statements (the "financial
statements") of Miramar Mining Corporation (the "Company") have been
prepared in accordance with the accounting principles and methods of
application disclosed in the consolidated financial statements for the year
ended December 31, 2003, except for those indicated below. These interim
consolidated financial statements as at March 31, 2004 and for the three
months ended March 31, 2004 and 2003 are unaudited; however they reflect
all adjustments necessary for a fair presentation of the results for the
interim periods presented.
The accompanying interim unaudited consolidated financial statements
include all adjustments that are, in the opinion of management, necessary
for a fair presentation. These financial statements do not include all
disclosures required by Canadian Generally Accepted Accounting Principles
for annual financial statements and accordingly the financial statements
should be read in conjunction with the financial statements and notes
thereto contained in the Company's annual report for the year ended
December 31, 2003.
2. Changes in Accounting Policies
(a) Asset retirement obligations
The Company has adopted the new provisions of the Canadian Institute
of Chartered Accountants (CICA) Handbook Section 3110 on asset
retirement obligations. Under this standard, future costs to retire an
asset including dismantling, remediation and ongoing treatment and
monitoring of the site have been recognized and recorded as a
liability at fair value, assuming a credit adjusted risk-free discount
rate of 9.8% and an inflation factor of 2.0%. The liability is
accreted over time through periodic charges to operations. In
addition, the asset retirement cost is capitalized as part of the
asset's carrying value and amortized over the asset's useful life.
Previously, the Company accrued these costs on a units-of-production
basis over the life of the asset. This change in accounting policy has
been applied retroactively and has resulted in a decrease in long-term
liability of $1.3 million, an increase to property, plant and
equipment of $0.4 million, and a decrease to opening deficit of $1.7
million at January 1, 2004.
Although the ultimate amount to be incurred is uncertain, the
liability for retirement and remediation, on an undiscounted basis
before an inflation factor of 2.0% and a market risk adjustment of
$1.7 million, is estimated to be approximately $8.4 million.
Under the standard, future asset retirement obligations are not
recorded where timing or amount of remediation costs cannot be
reasonably estimated. The cost and timing of asset retirement
obligations for the Company's mines and exploration sites can be
estimated and provisions are recorded for each of these sites.
(b) Stock-based compensation
Effective January 1, 2004, the Company adopted the new provisions of
the CICA Handbook Section 3870 on "Stock-Based Compensation and other
Stock-Based Payments", which now requires companies to adopt the fair
value based method for all stock-based awards granted on or after
January 1, 2004. As a result, the Company is required to expense the
fair value of stock options issued to employees, directors and
non-employees over the vesting period. Previously, the Company was
only required to disclose the pro forma fair value effect of stock
options issued to employees and directors in the notes to the
financial statements.
The Company has applied the new provisions retroactively with
restatement. As a result, a cumulative increase of $1.3 million to the
deficit, an increase to contributed surplus of $1.1 million and
increase to share capital of $0.2
Page 4
MIRAMAR MINING CORPORATION
Consolidated Statements of Cash Flows
(expressed in thousands of Canadian dollars)
million has been recorded on January 1, 2004 with respect to stock
options granted to employees and directors in 2002 and 2003.
(c) Prior period restatements
The following is a summary of the after-tax effect on retained
earnings and net earnings (loss) arising from changes in accounting
policies, applied retro-actively:
---------------------------------------------------------------------------------------------------
Three months ended
2004 2003
---------------------------------------------------------------------------------------------------
Deficit, beginning of period, as previously reported $(169,383) $(151,828)
Asset retirement obligation (note 2(a)) 1,666 1,708
Stock-based compensation (note 2 (b)) (1,261) (393)
---------------------------------------------------------------------------------------------------
Deficit, beginning of period, as restated $(168,978) $(150,513)
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
3 months ended Year ended
March 31 December 31
2003 2003
---------------------------------------------------------------------------------------------------
Loss, prior to restatement 44 $ (17,555)
Asset retirement obligation (note 2(a)) (24) (41)
Stock-based compensation (note 2 (b)) (829) (868)
---------------------------------------------------------------------------------------------------
Loss, as restated on adoption of new accounting standards $ (809) $ (16,646)
---------------------------------------------------------------------------------------------------
3. Investment in Northern Orion Explorations Ltd. ("Northern Orion"):
On February 13, 2004, the Company sold a total of 250,000 shares of
Northern Orion for proceeds of $0.9 million. The Company has recorded the
proceeds as a reduction of the carrying values of its interests in Northern
Orion. Recovery of the remaining carrying value of the combined investment
amounting to $9.2 million is dependant upon the sale of Northern Orion
shares and receipt of net proceeds from eventual production from the
properties or their sale by Northern Orion.
Page 5
MIRAMAR MINING CORPORATION
Consolidated Statements of Cash Flows
(expressed in thousands of Canadian dollars)
4. Share Capital:
(a) Authorized:
500,000,000 common shares without par value.
(b) Issued:
-------------------------------------------------------------------------------------------------
Number of shares Amount
-------------------------------------------------------------------------------------------------
Balance, December 31, 2003 151,634,893 371,309
Issued:
Common share issuance costs - (41)
Future income tax effect of flow through shares - (1,562)
On exercise of warrants 211,437 412
On exercise of stock options 179,500 300
-------------------------------------------------------------------------------------------------
Balance, March 31, 2004 152,025,830 $ 370,418
-------------------------------------------------------------------------------------------------
(c) Stock options:
At March 31, the Company had stock options outstanding as follows:
---------------------------------------------------------------------------------------
Shares Average
options exercise price
---------------------------------------------------------------------------------------
Outstanding, December 31, 2003 4,107,339 $ 1.54
Granted 2,664,060 3.12
Exercised (179,500) 1.16
Forfeited or expired (499,000) 2.62
---------------------------------------------------------------------------------------
Outstanding, March 31, 2004 6,092,899 $ 2.15
---------------------------------------------------------------------------------------
(d) Warrants and brokers compensation options:
At March 31, the Company had warrants and brokers compensation options
outstanding as follows:
---------------------------------------------------------------------------------------
Warrants Average
and options exercise price
---------------------------------------------------------------------------------------
Outstanding, December 31, 2003 1,361,204 $ 2.26
Exercised (211,437) 1.95
---------------------------------------------------------------------------------------
Outstanding, March 31, 2004 1,149,767 $ 2.32
---------------------------------------------------------------------------------------
5. Business segments:
(a) Reportable Segments - The Company's operating mine produces gold and
is located in Canada. Hope Bay is an exploration stage gold property
located in Canada. Reportable assets and revenues do not differ
materially from the amounts disclosed in these consolidated financial
statements, as there are no material inter-segment sales. (b)
Geographic Segments - The Company operates in Canada.
The Company's property, plant and equipment and expenditures, revenues
and earnings (loss) before equity loss and income taxes by operating
and geographic segment are as follows:
Page 6
MIRAMAR MINING CORPORATION
Consolidated Statements of Cash Flows
(expressed in thousands of Canadian dollars)
-----------------------------------------------------------------------------------------------------------
Three months ended March 31, 2004 Property, Expenditures on Earnings (loss)
plant and property, plant and before equity loss
equipment equipment Revenues and income taxes
-----------------------------------------------------------------------------------------------------------
Gold operations $ 5,886 $ 49 $ 3,549 $ (4,392)
Gold exploration 134,591 6,797 - -
Other 1,347 31 419 (2,533)
-----------------------------------------------------------------------------------------------------------
$ 141,824 $ 6,877 $ 3,968 $ (6,925)
-----------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
Three months ended March 31, 2003 Property, Expenditures on Earnings (loss)
plant and property, plant and before equity loss
equipment equipment Revenues and income taxes
-----------------------------------------------------------------------------------------------------------
Gold operations $ 20,424 $ 1,641 $ 15,388 $ 653
Gold exploration 112,422 4,668 - -
Other 988 60 289 (1,344)
-----------------------------------------------------------------------------------------------------------
$ 133,835 $ 6,369 $ 15,677 $ (691)
-----------------------------------------------------------------------------------------------------------
6. Financial risk management:
As at March 31, 2004, the Company had the following gold sales contracts:
-----------------------------------------------------------------------------------------------------
Anticipated Hedged Average price Call options sold Average price
delivery/expiry ounces per ounce per ounce
-----------------------------------------------------------------------------------------------------
2004 13,200 CAD $478 27,000 CAD $478
-----------------------------------------------------------------------------------------------------
7. Financial instruments:
The fair value excess (deficiency) of derivative instruments and the fair
values based on the quoted market values and carrying values of the
investment in Sherwood and other assets, at March 31 are as follows:
-------------------------------------------------------------------------------------
Carrying Fair
value value
-------------------------------------------------------------------------------------
Investment in Sherwood $ 274 $ 2,000
Other assets 106 1,610
Derivatives:
Gold forward sales contracts - (1,304)
Gold calls sold (1,180) (2,384)
-------------------------------------------------------------------------------------
Page 7
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
The Company's mining and exploration assets are primarily gold assets in
Canada's North. They include the Hope Bay belt in Nunavut, an option on the Back
River project in Nunavut, and the Giant and Con operations in Yellowknife in the
Northwest Territories. The Company has developed considerable experience in
operations, exploration and logistics in the North as this is where the Company
has focused its activities. The future for the Company continues to be heavily
weighted to the successful exploration and development of the Hope Bay and Back
River projects as its mining operations in Yellowknife are nearing the end of
their mining life.
First Quarter Highlights
o Hope Bay:
o $18 million exploration program announced for 2004.
o First drill results expand Naartok deposit in Madrid area.
o Deep drilling at Boston re-initiated to build off positive
results in 2003.
o Back River:
o Completion of an option agreement with Kinross to earn 60%
interest on the George and Goose Lake projects (collectively the
Back River project).
o Earn-in period extended by six months.
o $6.5-$7.0 million exploration budget announced for 2004, focused
on the Goose Lake deposit.
o Production of 6,103 ounces of gold at cash costs of US$607 per ounce.
o Consolidated net loss of $7.1 million, $0.05 per share, which includes
an expense of $2.1 million for the fair value of stock-based
compensation in accordance with the adoption of new accounting
standards.
Highlights of the first exploration activities at Hope Bay in 2004 included the
completion of two drill holes in the Madrid area which have extended
mineralization in the Naartok deposit both to the northeast and west by more
than 200m and 75m, respectively, at grades higher than the average for the
current Naartok resource.
In Yellowknife, mining operations were limited to the Giant mine as a result of
the cessation of underground mining at the Con mine in November 2003. In the
first quarter of 2004, gold production from Giant mine was significantly lower
than forecast due to delays in developing ore from the new third level C shaft
area and ore losses from several key mining areas. As a result, total gold
production was 6,103 ounces for the first three months or 37% below forecast,
the
Page 8
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
lower production was the primary driver for higher operating costs per ounce of
gold produced. Operating costs were higher than forecast in the quarter due to
higher fuel prices, labour and higher reagent consumption. Difficulties
experienced in the first quarter in realizing forecast gold production are not
expected to continue for the remainder of the year; however, the Giant Mine
operations are being closely monitored to determine the viability of continued
mining.
EARNINGS AND CASH FLOW
For the three months ended March 31, 2004, the net loss was $7.1 million or
$0.05 per share compares with net earnings of $0.8 million or $0.01 per share
for the same period in 2003 as restated. The loss resulted from lower gold
production from the Yellowknife operations during the first quarter of 2004.
Gold production was 37% below forecast levels and resulted in a larger operating
loss than planned. Gold production significantly decreased relative to 2003 as
underground mining was terminated at the Con Mine in November 2003. Gold
production in 2004 was primarily from the Giant Mine and totaled 6,103 ounces,
or 22,134 ounces fewer than the first quarter of 2003. Additionally, included in
the first quarter of 2004 was an expense for the fair value of stock-based
compensation for employees and directors of $2.1 million. This compares with
$0.8 million for stock-based compensation for the same period in 2003.
As a result of adopting new accounting standards with respect to asset
retirement obligations and stock-based compensation on a retroactive basis,
prior period earnings have been restated. Net earnings in the first quarter of
2003 were restated from $0.04 million to a loss of $0.8 million after deducting
$0.8 million with respect to asset retirement obligations and stock-based
compensation expense.
Free cash flow in 2004 was an outflow of $4.1 million compared to an outflow of
free cash of $1.4 million for the same period in 2003. "Free cash" flow from
operations is a non-GAAP measure of financial performance which the Company uses
to measure the net cash generated or used by its gold mining operations, and is
derived by subtracting cash invested in mine capital and development at the
Company's operating mines from cash from operations as shown in the following
table.
$000s Q1 2004 Q1 2003
---------------- ------------
Cash from operations (4,090) 276
(Includes corporate general and administration)
Less: mine capital and development (49) (1,641)
---------------- ------------
Net free cash flow from gold operations (4,139) (1,365)
---------------- ------------
Page 9
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OPERATIONS OVERVIEW
Revenue
For the three months ended March 31, 2004, the Company produced 6,103 ounces of
gold compared to 28,237 ounces in the same period in 2003. Revenue from gold
sales was $2.8 million compared to $15.4 million in 2003.
Q1 2004 Q1 2003
-------------------------------------
Gold $ 2,282 $ 13,718
Effects of hedging 562 1,670
-------------------------------------
Total gold sales 2,844 15,388
-------------------------------------
Interest and other income 1,124 289
-------------------------------------
Revenue $ 3,968 $ 15,677
======================================
During the first three months of 2004, the Company effectively realized US$308
per ounce of gold sold compared to US$316 per ounce in the same period of 2003.
The average price for gold in the spot market was US$408 per ounce in the first
quarter of 2004. In Canadian dollar terms, the realized price per ounce was $466
in the first quarter of 2004 as compared to $538 per ounce on the spot market
and $545 in the same period of 2003. Other income was $1.1 million in the first
quarter of 2004 compared to $0.3 million in the same period of 2003. Other
income includes interest earned on short-term cash investments of $0.5 million
and income of $0.6 million on the realization of a portion of the gain on the
power credits which were received as part of the sale of the Bluefish
hydroelectric facility as described in note 4 of the annual consolidated
financial statements.
MINING OPERATIONS
In Yellowknife, mining operations were limited to the Giant mine as the result
of the cessation of underground mining at the Con Mine in November 2003. In the
first quarter of 2004, gold production from Giant Mine was significantly lower
than forecast due to delays in developing ore from the new third level C shaft
area and ore losses from several Supercrest stopes. Total gold production was
6,103 ounces in the first three months or 37% below forecast at cash costs of
US$607 per ounce. For the corresponding period in 2003, 28,237 ounces were
produced and shipped at a cash cost of US$314 per ounce.
Page 10
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------------------------------------------------------------
Three months ended March 31
Yellowknife Operations 2004 2003
--------------------------------
Giant - Refractory
Tons of ore processed 22,710 17,489
Average grade (ounce per ton) 0.312 0.324
Average recovery rate (%) 86.83 85.78
Ounces of gold recovered 6,158 4,854
Con - Free Milling
Tons of ore processed - 45,509
Average grade (ounce per ton) - 0.381
Average recovery rate (%) - 92.91
Ounces of gold recovered - 16,482
Con - Refractory
Tons of ore processed - 17,284
Average grade (ounce per ton) - 0.244
Average recovery rate (%) - 84.20
Ounces of gold recovered - 3,548
Arsenic tailings
Tons of tailings processed 3,568 1,521
Ounces of gold recovered 868 455
Total ounces of gold recovered 7,389 25,339
------------------------------------------------------------------------------------------
Total ounces of gold shipped 6,103 28,237
------------------------------------------------------------------------------------------
Production Cost per Ounce Shipped $US
Direct mining expense $ 673 $ 293
Deferred mining expense (net) - (6)
Work-in-progress inventory and other (66) 27
--------------------------------
Cash operating cost * $ 607 $ 314
--------------------------------
Depreciation 25 21
Reclamation and mine closure 6 3
Other 1 1
--------------------------------
Total production cost** $ 639 $ 339
------------------------------------------------------------------------------------------
* Excludes the non-cash charge for "free" power as described below in
Operating Costs which is offset by a gain of equal value in Other Income.
** Excludes write down of assets and severance and closure costs.
As discussed, mining operations at the Giant Mine were disappointing. Total tons
mined and processed were 22,710, or 22% below forecast. The major cause for the
shortfall stemmed from longer development times required to bring on additional
mining areas from the C shaft area. The longer times were driven primarily
manpower shortages which have been corrected in the second quarter. In addition,
several key high-grade mining areas planned in the first quarter failed to
produce at planned grades. This resulted in both grade and tonnage shortfalls
from the plan. Some of these losses were offset by gains elsewhere; however, the
net impact was a loss of approximately 2,300 mined ounces which is not expected
to reverse in the remainder of the year.
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MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
The significant increase in direct mining expenses per ounce of gold shipped in
2004 compared to 2003 resulted from the significant shortfall in recovered
ounces.
OPERATING COSTS
The cost of sales in the first quarter of 2004 was $7.3 million compared to
$12.6 million in the same period of 2003. The decrease in cost of sales resulted
from the decrease in gold production because of the termination of underground
mining activities at the Con Mine. General and administrative expenses in the
first quarter of 2004 were $1.1 million compared to $0.9 million in the same
period of 2003. Commencing in 2004, the Company has expensed stock-based
compensation for employees and directors (as described below under New
Accounting Policies) and has applied the change retroactively to January 1,
2002. The expense for the first quarter 2004 was $2.1 million compared to $0.8
million in 2003, due to an increase in the calculated fair value per option and
an increased number of options granted. Depreciation, depletion and accretion
expense in the first quarter 2004 was $0.5 million compared to $2.0 million in
the same period of 2003 as restated. A lower depreciation expense resulted from
the write down of Con Mine assets in the second quarter of 2003.
EXPLORATION AND DEVELOPMENT ACTIVITIES
The focus for the Company continues to be the Hope Bay project. The Company is
committed to a two-pronged strategy to explore the project and to advance a
portion of the project to a production decision. The 2004 budget of $18 million
will fund approximately 38,000m of core drilling, 5,000 of reverse circulation
drilling and the ongoing permitting process for the proposed high grade Doris
North gold mine. As part of the 2004 work program, the Company commenced a drill
program in April which seeks to upgrade portions of the inferred resource at the
Boston deposit to the indicated resource category during 2004-2005. An updated
resource estimate will provide the basis for a preliminary assessment to
evaluate the economics of mining the upper portions of the Boston resource. The
objective of the in-fill drilling is to demonstrate the potential for an
extended production life at Hope Bay. The Company expects to complete this study
in early 2005. The focus for additional production is concentrated on Boston as
it appears to provide the most rapid and lowest capital cost opportunity at Hope
Bay given the work completed to date and the underground development already in
place. The Boston deposit has a current resource of approximately 1.6 million
ounces of gold (comprised of an indicated resource of 687,000 ounces grading
15.4 g/t plus and an additional inferred resource of 901,000 ounces grading
10.9g/t gold). These resources do not yet take into account the results of
drilling in 2003, which extended the mineralization to depths of over 1,000
meters below surface.
Page 12
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
In the first quarter of 2004, the Company announced results of two drill holes
in the Madrid area which have extended mineralization in the Naartok deposit
both to the northeast and west by more than 200m and 75m, respectively, at
grades higher than the average for the current Naartok resource.
The Company continues to work towards making a production decision on the Doris
North project. The permitting process continued to advance during the quarter.
In February, Nunavut Impact Review Board ("NIRB") set the dates for the public
hearings for June 13-18, 2004 to discuss the permitting of the Doris North
Project in four communities in Nunavut, and issued requirements for additional
information as requested by the various agency conformity reviews. In March,
NIRB held a technical and conformity review meeting with all interested parties
to address these additional information requirements. No parties have asserted
that the Doris North Mine should not be permitted to proceed. Assuming permits
are obtained and a final production decision is made, start-up of the mine is
forecast for the fourth quarter of 2005.
During the first quarter, Bateman Engineering initiated further updates to the
Doris North feasibility study to address the final process design criteria which
will be completed in the second quarter. No material change is expected. Final
engineering is expected to commence in the fourth quarter of 2004.
CAPITAL PROGRAMS
During the first quarter of 2004, the Company had capital expenditures of $6.8
million for exploration and project activities at Hope Bay and Back River
compared to expenditures of $4.7 at Hope Bay in the same period of 2003.
Additionally, the Company incurred $0.05 million on mine capital and development
at the Yellowknife operations. This compares with capital expenditures of $1.6
million for mine capital and development at Yellowknife in the same period of
2003.
NEW ACCOUNTING POLICIES
ASSET RETIREMENT OBLIGATION
Effective January 1, 2004, the Company has adopted the new accounting standard
on asset retirement obligations. Under this standard, asset retirement
obligations are recognized for the costs associated with exit activities and
recorded as a liability at fair value. The liability is accreted over time
through periodic charges to earnings. In addition, the asset retirement cost is
capitalized as part of the asset's carrying value at its initial discounted
value and is amortized
Page 13
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
over the asset's useful life. This change in accounting policy has been applied
retroactively and has resulted in a decrease in long-term liability of $1.3
million, an increase in property, plant and equipment of $0.4 million and a
decrease to opening wdeficit of $1.7 million at January 1, 2004.
STOCK-BASED COMPENSATION
The CICA Accounting Standards Board has amended CICA Handbook Section 3870 -
Stock-based Compensation and Other Stock-based Payments - to require entities to
account for employee stock options using the fair value based method, beginning
January 1, 2004. Under the fair value based method, compensation cost is
measured at fair value at the date of grant and is expensed over the award's
vesting period. In accordance with one of the transitional options permitted
under amended Section 3870, the Company has retroactively applied the fair value
based method to all employee stock options granted on or after January 1, 2002,
and has restated prior periods. The effect of retroactively adopting the fair
value based method is to decrease net income by $0.4 million and $0.9 million
for the years ended December 31, 2002 and 2003, respectively, to increase
deficit by $1.3 million as at December 31, 2003 ($0.4 in 2002), and to increase
contributed surplus by $1.1 million as at December 31, 2003 ($0.4 million in
2002) and an increase to share capital of $0.2 million as at December 31, 2003
(nil in 2002). The effect of the change on basic and diluted earnings per share
was immaterial.
FINANCING AND LIQUIDITY
At March 31, 2004, the Company had consolidated working capital of $59.8 million
compared to $69.0 million at the end of 2003. Of the $59.8 million working
capital, $61.2 million was cash and cash equivalents compared to $69.9 million
at the end of 2003. In addition to working capital, at March 31, 2004 the
Company had $6.3 million in cash collateral deposits for reclamation bonds,
unchanged from December 31, 2003 and $9.7 million in notes receivable from the
sale in the second quarter of 2003 of the Company's Bluefish hydroelectric power
plant compared to $9.6 million at December 31, 2003.
During the first quarter of 2004, the Company completed a debt financing
agreement for $4 million with a financial institution. The proceeds of this
credit line may be used for expenditures related to the feasibility and
construction of the Doris North Mine. No amounts have been drawn down from this
credit line to-date.
During the first quarter of 2004, the Company sold a portion of its shares in
Northern Orion Exploration Ltd. ("Northern Orion") for proceeds of $0.9 million.
The Company will retain the net
Page 14
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
proceeds royalty interest with Northern Orion as described in note 3 to the
annual consolidated financial statements.
The Company believes it has sufficient cash resources and liquidity to sustain
its planned operations for the near term. The Company further believes that the
repayment of the note received on the sale of Bluefish will provide sufficient
cash to meet the current and future closure obligations of the Con Mine. The
ongoing exploration and development of the Hope Bay project will require the
Company to raise additional capital through a combination of project debt
financing and equity offerings. The Company's strategy is to use equity
financing to finance exploration activities and maximize project debt to build
mining infrastructure until sufficient cash flow is generated from mining
production.
LIABILITIES AND CONTINGENCIES
As a condition of a water license held by the Con Mine, the Company maintains
security deposits for the cost of future reclamation. On April 4, 2003, the
Company completed an agreement with the Department of Indian Affairs and
Northern Development ("DIAND") to fund security deposits by assigning the
proceeds from the repayment of the $10 million promissory note received on the
sale of the Bluefish power plant to a reclamation security trust. The Company
will also maintain the existing bond of $1.5 million described in note 8 to the
annual consolidated financial statements until such time as the promissory note
is repaid. The reclamation security trust will be used to fund the reclamation
of the site on completion of mining operations.
In 1995, the Company entered into a joint exploration transaction with an
investor that resulted in the sale of an interest in the assets comprising the
Con Mine. The transaction was based upon an independent valuation prepared for
the Company. In 2000, Canada Revenue Agency ("CRA") issued a re-assessment
notice challenging the valuation that formed the basis for this transaction.
This re-assessment does not give rise to any taxes payable by the Company.
However, as part of the transaction in 1995, the Company agreed to compensate
the investor for any shortfall in the value of the assets transferred, to a
maximum of $2.7 million plus accrued interest, which amounts to approximately
$1.9 million, such amounts to be payable should a ruling denying the transfer of
certain tax pools be made against the Company. At present, the Company has
requested information from CRA and is awaiting a response. While management
intends to strenuously defend the independent valuation, the outcome of this
matter is not yet determinable. No provision for these costs has been recorded
at March 31, 2004.
Page 15
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
COMMITMENTS
To mitigate the risk of adverse price fluctuations and to ensure that the
Yellowknife operations achieve cash flow projections necessary to complete the
planned closure, the Company has entered into spot deferred forward sales
contracts and written call options for all of the Yellowknife mine's expected
future production. The Company has hedged foreign currency risk by fixing
exercise prices in Canadian dollars. The Company does not hold these financial
instruments for speculative or trading purposes and the Company is not subject
to margin requirements on any of its hedging lines. The Company, however, has an
agreement with a financial institution for the purchase and sale of swaps and
derivatives that contain certain financial covenants that the Company must
maintain with respect to net tangible assets, current ratio, total liabilities,
trade creditors and liquid assets. If the Company fails to meet any of these
covenants, the financial institution has the right to demand payment of the net
value of any contracts that are outstanding at the time of default. As a result
of the termination of underground mining at the Con Mine, the Company is in
breach of certain of these financial covenants. However, the financial
institution has agreed to modify affected covenants for a period of time which
the Company believes is adequate to comply with the covenants.
As a result of the termination of underground mining at Con Mine, forecast gold
production is expected to be insufficient to meet all of the remaining
obligations under its gold commodity derivative contracts and the Company plans
to financially settle affected contracts. The following table sets out the
outstanding number of contract ounces, average expected realized prices and
maturities for the gold commodity derivative contracts as at March 31, 2004:
-------------------------------------------------------------------------
Call
options Average
Period Hedged ounces Average Price sold strike price
-------------------------------------------------------------------------
2004 13,200 CAD$478 27,000 CAD$478
-------------------------------------------------------------------------
The fair value of 27,000 ounces of other call options was negative $2.4 million
at March 31, 2004 and was negative $2.6 million at December 31, 2003. The
Company has recorded a cumulative unrealized loss of $1.2 million for these call
options to reflect the ineffectiveness of the hedge as a result of the
termination of underground mining at the Con Mine and the forecast reduction in
gold production. The changes in the fair value of the remaining call options
will be recorded in financial statements at maturity in accordance with
accounting recommendations in place prior to October 24, 2000, as the contracts
were written prior to the date of issuance of the accounting recommendations for
written call options.
Page 16
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
The fair value of the gold forward sales and spot deferred forward sales
contracts was negative $1.3 million at March 31, 2004. The Company has not
entered into any gold sales or option contracts since July 2003 and will
continue to reduce the position through gold delivery and financial settlement.
On November 17, 2003, the Company entered into a letter agreement with Kinross
Gold Corporation for an option to earn a 60% interest in the Back River project
in Nunavut for expenditures of C$25 million over a thirty month period. On
February 26, 2004, a formal agreement was finalized and executed.
OUTLOOK
The longer term outlook for the Company continues to be heavily weighted to the
successful exploration and development of the Hope Bay and Back River projects.
As a result of the acquisition of Hope Bay Gold in 2002, the Company owns 100%
of the Hope Bay project, which has measured and indicated resources of 1.8
million ounces of gold at 9.9 g/t and an inferred resource of a further 3.6
million ounces of gold at 6.9 g/t.
The Company's strategy is to build an initial small, low capital cost mining
operation that will generate significant cash flow to continue exploration and
development of the Hope Bay belt. The feasibility study on Doris North projected
positive economics; at a US$325 per ounce (CAD$512 per ounce) gold price, the
project is projected to have a 136% rate of return and generate $69 million cash
flow after payback of construction capital. The Company plans to continue to
work towards making a development decision on the Doris North project, including
advancement of the permitting process and negotiation of an Inuit Impact and
Benefits Agreement ("IIBA"). When the permitting process and IIBA are completed,
the Company will make the final decision on commitment to the construction
process. If approved by the Company, production could commence by late 2005.
As part of the 2004 work program, the Company commenced a drill program seeking
to upgrade portions of the inferred resource at the Boston deposit to the
indicated resource category during 2004-2005. An updated resource estimate will
provide the basis for a preliminary assessment to evaluate the economics of
mining the upper portions of the Boston resource. The objective of the in-fill
drilling is to demonstrate the potential for the extended production life at
Hope Bay. The Company expects to complete this study in early 2005. A major
focus for additional production is concentrated on Boston as it appears to
provide the most rapid and lowest capital cost
Page 17
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
opportunity at Hope Bay given the work completed to date and the underground
development already in place.
The Company also intends to assess the potential of the Back River project to
become additional mining assets.
Future operations in Yellowknife depend upon profitable mining at the Giant Mine
and the continued processing of gold bearing arsenic sludges and calcines from
the Con Mine. The disappointing performance of the Giant mine during the first
quarter of 2004 has lead management to reassess mining plans for the remainder
of the year. Although management believes that the losses incurred have been
fully accounted for in the Company's planning, there is no assurance that other
negative events will not occur. Management will continue to monitor the Giant
Mine's performance on a monthly basis and if warranted will curtail operations.
Yellowknife operations are now expected to produce approximately 35,000 ounces
in 2004. The Company anticipates that final approval for the Con Mine
abandonment and restoration plan will be received in 2004 which will permit the
Company to conduct final reclamation activities in subsequent periods.
RISKS AND UNCERTAINITIES
The Company must obtain additional capital to pursue its exploration and
development work at Hope Bay. Given the nature of capital market demand for
speculative investment opportunities, there is no assurance that additional
financing will be available for the appropriate amounts and at the times
required. The Company has developed a cash management plan that will enable it
to invest on a priority basis in projects likely to generate favourable results
in the near-to-medium term. The impact of fluctuations in the price of gold is a
risk to the Company's future profitability and cash flow. As the gold market
price is denominated in U.S. currency, the Company is also at financial risk as
the currency exchange rate between Canadian and U.S. dollars can fluctuate and
impact the reported earnings and resulting cash flow. If the Canadian dollar
strengthens compared to the U.S. dollar, revenue from gold sales, which is
generated in U.S. dollars, will convert to fewer Canadian dollars available to
pay for operating costs that are almost entirely incurred in Canadian dollars.
However, the Company does not expect a rise in the Canadian dollar to have a
material impact on mining operations in Yellowknife as a hedge price of Canadian
dollar gold price of $478 was used in short-term cash forecasting for the
purpose of establishing cut-off grades and life-of-mine planning.
Page 18
MIRAMAR MINING CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
NON GAAP MEASURES
The Company has included certain non-GAAP performance measures ("free cash flow"
and "cash costs per ounce") throughout this document. These non-GAAP performance
measures do not have any standardized meaning prescribed by GAAP and, therefore,
are unlikely to be comparable to similar measures presented by other companies.
The Company believes that, in addition to conventional measures, prepared in
accordance with Canadian GAAP, certain investors use this information to
evaluate the Company's performance. Accordingly, they are intended to provide
additional information and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with Canadian
GAAP.
Page 19