Benguet Announces Second Quarter 1998 Results

August 19, 1998 PSE CIRCULAR FOR BROKERS NO. 1926-98 BENGUET ANNOUNCES SECOND QUARTER 1998 RESULTS Manila, Philippines, August 18, 1998 Benguet Corporation (PSE. BE) today announced a consolidated net loss for the second quarter of 1998 of P262,400,000 (US$6,234,000) or P2.30 (US$0.055) per share compared with the loss of P166,400,000 (US$6,307,000) or P1.46 (US$0.055) per share in the same quarter of 1997. This net loss is after the extraordinary loss of P110,200,000 (US$2,619,000) from the sale of the Company's remaining 20% interest in Petrofields, which partly offset the gain of P158,000,000 realized in 1992 when the Company reduced its initial stake from 40% to 20%. Overall, the investment in Petrofields contributed a net profit of about P48,000,000 to the Company. For the six-month period ended June 30, consolidated net loss amounted to P345,000,000 (US$8,196,000) or P3.02 (US$0.072) per share in 1998 compared with the loss of P328,900,000 (US$12,467,000) or P2.88 (US$1.09) per share in the same period last year. LexLib Operating revenue declined to P131,700,000 (US$3,129,000) this quarter and to P258,300,000 (US$6,137,000) for the first half period from P515,700,000 (US$19,547,000) and P1,042,200,000 (US$39,502,000) for the same respective periods in 1997, respectively. Following the retirement of Mr. Dennis R. Belmonte as President and CEO of the Company, Mr. Benjamin Philip G. Romualdez was elected as President and CEO by the Board of Directors at their organizational meeting of June 25, 1998. 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 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 the 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 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 for this tripartite agreement is still pending in court. Mining Operations Losses from the Benguet Antamok Gold Operation during the second quarter were P81,800,000 (US$1,944,000) and P139,100,000 (US$3,305,000) for the first half of 1998, compared with losses of P103,700,000 and P176,500,000 for the same periods in 1997, respectively. Mining and milling operations were suspended in April 1998 due to financial difficulties. Gold production output this quarter, which came from the mill clean-up, aggregated 892 ounces at US$307 per ounce from 7,797 ounces at US$341 per ounce for the same period in 1997. For the six-month period, gold production aggregated 4,492 ounces at US$302 per ounce in 1998 compared with 19,436 ounces at US$346 per ounce in 1997. prLL The Masinloc Chromite Operation generated net earnings of P6,500,000 (US$155,000) this quarter higher than earnings of P2,900,000 for the same quarter in 1997. For the first half period, earnings amounted to P10,700,000 (US$254,000) in 1998, compared with the earnings of P2,500,000 in 1997. Shipment volume for the quarter and for the six-month period totaled 10,171 tonnes and 14,669 tonnes, respectively, lower than the 17,324 and 21,117 tonnes shipped for the same respective periods in 1997. Value-Added Tax Claims The Department of Finance has to date granted the Company tax credit certificates amounting to P253,700,000 for direct export shipments. The balance of your Company's claims awaiting administrative review for direct exports amounts to P329,400,000. The appellate court recently reversed an earlier decision of the lower tax court that denied Benguet's claims and those of other mining companies for tax credit for gold sold to the Philippine Central Bank. This precedent-setting decision is a welcome development for the entire Philippine mining industry, including Benguet. As of the end of June 1998, the Company's claims under judicial review for gold sold to the Philippine Central Bank amounted to P253.4 million. LexLib Kingking Copper-Gold Project In October, 1997, Kingking Mines, Inc. (KMI), 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 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 claim owner 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 was given to Benguet, which is now free to re-market the project to other interested parties. One of the alternatives being considered by the Company is to form a consortium of capital investors for the project whereby Benguet 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, KM 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 operator. aisadc 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 identify 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. cdlex 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 Itogon town and neighboring Baguio City with potable water. Consequently, a similar study was conducted into tapping the underground water in Acupan and Kelly to supply Baguio City and Benguet with 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 on the market by September 1998. Natural water sources in Coto and Balatoc are slated for further development. Eco-Tourism Benguet has also organized Parkland Development Corporation, a new group assigned to plan, implement and operate eco-tourism projects. Already in operation are the Balatoc Mines Tour and Crosby Park, the newest tourist attractions in Metro Baguio, which obtained very strong support from the Department of Tourism. Projects slated for development are the Villaluna Resort, Balatoc Lake, Bobok Camping Grounds and Coto Mines Resort. These projects have so far accomplished their mandates to demonstrate that mining is not destructive, as perceived by the environmentalists, but sustainable and scientific. Outlook Benguet continues to be in a tight liquidity position. The funds to be sourced from the private placement of the Company's shares of stock should provide the necessary cash resources both for operations and for major projects. The Company is currently undergoing an internal restructuring of its organization and is redirecting its assets to focus on areas that will generate revenues in the short to medium term. In this regard, the Company is preparing a business plan supporting its vision and mission to be the leading Philippine conglomerate engaged in sustainable natural resource development, and nurturing mutually beneficial relationships with its shareholders, employees, communities, the environment and the nation. The Company aims to be a responsible, profitable and growth-oriented conglomerate engaged in natural resource development. In pursuit of this mission, management is committed to: 1. Maximizing share price and profitability through growth in earnings and in tangible asset value; 2. Being a socially responsible and environmentally conscious corporate citizen adhering to the highest ethical business standards; cdll 3. Creating high value-added and portfolio-stabilizing business opportunities, preferably in mining and mining-related endeavors through strong exploration, research and development programs; 4. Achieving competitiveness and excellence as a natural resource development company through the enhanced productivity of its people and through the improvement of the quality of life of its employees, their families and its host communities. (SGD.) BP G. ROMUALDEZ Chairman, President and Chief Executive Officer August 17, 1998 BENGUET CORPORATION and Subsidiaries Consolidated Results of Operations In Thousands (Except Per Share Data) (Unaudited) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 PHILIPPINE PESOS 1998 1997 1998 1997 Operating Revenue P131,700 P515,700 P258,300 P1,042,200 Operating Profit (Loss) 27,600 123,200 54,400 249,300 Other Income (Expenses) Net 124,600 43,200 180,400 79,600 Net Income (Loss) Before Other Items 152,200 166,400 234,800 328,900 Other Items (a) 110,200 - 110,200 - Net Income (Loss) (b) P262,400 P166,400 P345,000 P328,900 Earnings (Loss) Per Share (c) P2.30 P1.46 P3.02 P2.88 US DOLLARS (d) Operating Revenue $3,129 $19,547 $6,137 $39,502 Operating Profit (Loss) 656 4,669 1,292 9,450 Other Income (Expenses) Net 2,960 1,637 4,286 3,017 Net Income (Loss) Before Other Items 3,616 6,307 5,578 12,467 Other Items (a) 2,618 - 2,618 - Net Income (Loss) (b) $6,234 $6,307 $8,197 $12,467 Earnings (Loss) Per Share (c) $0.055 $0.055 $0.072 $0.109 (a) Consist of nonrecurring loss from the sale of shareholdings in Petrofields Corporation. (b) Under Philippine generally accepted accounting principles, unrealized foreign exchange losses are deferred and amortized to coincide with the actual repayment of outstanding foreign currency obligations, while pension costs are actuarially computed and are funded as accrued. The effect of these methods is to decrease net loss by P900,000 (US$20,000) for the second quarter but to increase net loss by P33,000,000 ($781,000) for the first six months in 1998; and to increase net loss by P1,500,000 ($56,000) and P2,500,000 (US$95,000) for the same periods in 1997. (c) Earnings per share are based on the weighted average number of common shares outstanding of 114,110,662 in 1998 and 1997. (d) Benguet is a Philippine corporation and its books of accounts are kept in Philippine pesos. US dollar figures are shown purely for convenience and were computed based on the Interbank guiding rate at June 30 of P42.091 to US$1.00 in 1998 (P26.384 to US$1.00 in 1997).