Benguet Announces First Quarter 1998 Results

May 29, 1998 PSE CIRCULAR FOR BROKERS NO. 1183-98 BENGUET ANNOUNCES FIRST QUARTER 1998 RESULTS Mandaluyong City, Philippines, May 27, 1998 Benguet Corporation today announced a consolidated net loss of P82,600,000 (US$2,227,000), or P0.72 (US$0.019) per share, 49% lower when compared to the P162,500,000 (US$6,164,000) or P1.42 (US$0.054) per share recorded in the same quarter of 1997. This was mainly due to the Benguet Antamok Gold Operation and foreign exchange losses experienced during the first quarter. Operating revenues for the quarter amounted to P126,600,000 (US$3,414,000), 76% lower than the revenues of P526,500,000 recorded for the same period in 1997. To lessen the losses, Benguet redoubled its efforts to use corporate resources more efficiently and implemented a retrenchment program at corporate headquarters in Manila. Benguet has regained full operational control of the Kingking Copper-Gold Project after Kingking Mines, Inc. (KMI), the joint venture company of Echo Bay Mines Ltd. and TVI Pacific, Inc., decided not to exercise its option to acquire the Kingking property under an October 1995 option agreement with Benguet. Benguet is studying new alternatives for the development and operation of the Kingking mines based on additional data gathered by KMI over the past 24 months. Several parties have expressed an interest in the Kingking Project, which is a copper-gold mineral property of world-class significance. The Company has entered into a tripartite agreement with the Palm Avenue Realty & Development Corporation and Palm Avenue Holdings Company, Inc. (the "Palm Avenue Companies", a major shareholder of Benguet) and the Presidential Commission on Good Government (PCGG) for the private placement of a major block of Benguet's shares. This agreement will generate an increased inflow of funds in the amount of P275.4 million in cash, from the Palm Avenue Companies in the form of a subscription for 22,677,701 Class A shares and 18,000,000 Class B shares to be issued from Benguet's present authorized but unissued capital stock. Funds of the Palm Avenue Companies in Benguet which were sequestered by the PCGG will serve as the source for the subscription payment. Approval of this tripartite agreement is still pending in the Sandiganbayan. Mining Operations Losses from the Benguet Antamok Gold Operation during the first quarter were P57,300,000 (US$1,544,000), a 21% decrease from the P72,800,000 registered loss for the same quarter in 1997 primarily due to lower production costs. Gold production output aggregated 3,600 ounces at US$300 per ounce, down from 11,639 ounces at US$350 per ounce for the same period in 1997. The Masinloc Chromite Operation generated net earnings of P4,200,000 (US$112,000) for the three-month period ended March 31, 1998, compared to losses of P430,000 for the same period during the previous year. Shipment volume was 4,498 tonnes this quarter compared to the 3,793 tonnes shipped in 1997. Due to increasing demand for aggregates from various private construction and government infrastructure projects, the feasibility study for concrete aggregate production and marketing is now being finalized. Inquiries regarding export of aggregates and limestone have already been received. Value-Added Tax Claims The Department of Finance favorably granted Benguet tax credit certificates of P14.2 million, increasing the Company's aggregate amount of tax credits for direct export shipments to P253.7 million. The balance of Benguet's claims awaiting administrative review for direct exports totaled P329.6 million. In a similar case involving another mining company, the appellate court recently reversed an earlier decision of the lower tax court that denied the mining companies' claims for tax credit for gold sold to the Bangko Sentral ng Pilipinas. This precedent-setting decision is a highly positive development for the entire Philippine mining industry. More specifically, at the end of March 1998, Benguet's claims under judicial review for gold sold to the Bangko Sentral ng Pilipinas amounted to P253.4 million. Kingking Copper-Gold Project In October, 1997, Kingking Mines, Inc. (KMI), the joint venture company of Echo Bay Mines, Ltd. and TVI Pacific, Inc., reiterated its decision not to exercise its option to acquire the Kingking Project under an option agreement signed in October in 1995. KMI's decision followed its earlier proposal to renegotiate the terms of its option agreement and other agreements with Benguet and Nationwide Development Corporation (NADECOR), the claimowner of the Kingking mineral properties, which was not accepted. KMI's decision forfeits previous option payments made to Benguet totaling US$30 million. Full operational control over the Kingking project reverted to Benguet, which is now free to re-market the project to other interested parties. Benguet is considering forming a consortium of capital investors for the project whereby it remains the sole operator responsible for the operations and development of the mine. Several parties have already expressed an interest in the Kingking Project, which is a copper-gold mineral property of world-class significance. During the past 24 months, KMI has conducted drilling and exploration studies which have indicated the geologic resource of the Kingking mineral properties to be at more than one billion tonnes grading 0.31% total copper and 0.41 grams of gold per tonne at a cut-off grade of 0.20% T-Cu, which demonstrates that the project is a copper-gold mineral property of world-class significance. The Kingking project is located in Southeastern Mindanao, approximately 8 miles from the town of Pantukan, province of Compostela Valley (formerly a part of Davao Del Norte). The claims are covered by a Mineral Production Sharing Agreement between the Philippine government and NADECOR, with Benguet as the operator. Other Projects Real Estate Benguet formally organized a new division for the management and development of its real estate holdings, BC Property Management (BCPM), which initiated extensive pre-feasibility studies of Benguet's real estate projects. The Indicative Land Use Plan and marketing feasibility study which identifies the qualitative economic and social benefits of the Company's real estate development project in the Benguet Province have been completed. The Kelly Ecozone/Gumatdang Plan has also been presented to the different line agencies of the national and local governments which favorably endorsed the plan and committed their full support. Also, Benguet has obtained government approval for its Kelly 130-hectare special economic zone for light industries. Documentary requirements for the land conversion and an application for a Presidential Proclamation as a Special Economic Zone are currently being prepared. The Company is also pursuing possible tie-ups on housing projects on its titled properties. Benguet's strategic land development program will substantially enhance the value of its landholdings. Water Business Benguet, as a natural resource corporation, has embarked on a water business and has organized the Agua de Oro Ventures, Inc. In line with its policy of sustainable development, Benguet has conducted engineering studies for the conversion of the mined-out Antamok 440V open pit into a water reservoir. The Company engaged the services of an independent consulting engineering firm which confirmed the geotechnical, hydrological and economic viability of Benguet's in-house feasibility study with respect to supplying neighboring Baguio City with potable water. For this project, Benguet is now evaluating possible joint ventures with foreign firms and/or the proponents of the Water Supply Project of the Baguio Water District. Benguet has also approved the pilot Bottled Water Project in Antamok using the natural water spring in the area and the existing reverse osmosis plant of the mill. The first Agua de Oro bottled water will be in the market by June 1998. Natural water sources in Coto and Balatoc are slated for further development Eco-Tourism Benguet has also organized the Parkland Development Corporation, a new subsidiary assigned to plan, implement and operate eco-tourism projects. Already in operation are the Balatoc Mines Tour and Crosby Park, the newest attractions in Metro Baguio. Projects slated for development are the Villaluna Resort, Balatoc Lake, Bobok Camping Grounds and Coto Mines Resort. These projects have already fulfilled their mandates to demonstrate that mining is not destructive, as perceived by environmentalists, but sustainable and scientific. Outlook Benguet continues to be in tight liquidity position. The funds to be sourced from the private placement of the Company's shares of stock will provide the necessary cash resources both for operations and for major projects. The return of full control over the Kingking project allows Benguet to remain a major player in the Philippine mining industry, while Benguet's real estate and water projects are expected to produce cash flow in the medium to long term.