Philippine Mining Corporation

September 20, 1999 PSE CIRCULAR FOR BROKERS NO. 2349-99 SUBJECT : Philippine Mining Corporation Philex Mining Corporation ("PX") furnished the Exchange a copy of its Interim Report for the first six months of 1999 showing comparative results and highlights of its operations for the first semesters of 1999 and 1998. cdll Attached is a copy of PX's Interim Report for your reference. For your information. SGD.) JOSE LUIS U. YULO, JR. President and CEO PHILEX MINING CORPORATION INTERIM REPORT FIRST SIX MONTHS OF 1999 TO THE STOCKHOLDERS: Consolidated net income during the first half or 1999 amounted P43.5 million on revenues of P2.0 billion. The comparative figures for the prior year were a net income of P73.1 million on revenues of P2.4 billion. Metal prices during the period in review continued declining, reaching lows not seen in over a decade in the case of copper and in two decades in the case of gold. With respect to copper, the average market price of 65% per pound during the first half was 18% lower than for the comparable period last year. A 12-year low of 61 per pound was reached in March. Since then, however, the closure of a number of high cost mines world wide coupled with improving demand from the Asian region have led to a recovery in the price to over 70 per pound. With respect to gold, the average market price of $280 per ounce was $20. per ounce lower than last year's comparable period. In June, the price reached a 20-year low of $253 per ounce and has since only slightly recovered to the $260 per ounce level. While the recovery in the copper price has been particularly strong, indicating that the bottom has been reached, the picture remains uncertain for gold. LexLib In light of lower metal prices experienced during this first half, the modest income could not have been achieved without gains realized on hedging of metals and foreign currency as well as significant cost reduction programs throughout the organization. Forward sales of copper have resulted in a realized price of 72 per pound during the first half, 7 per pound higher than the average market price. With respect to gold, a realized consolidated price of $292 per ounce, $12 per ounce higher than the average market price, was achieved. A total of 56,400 ounces of gold remain hedged through the second half at a price close to $290 per ounce. Our realized average exchange rate of P40.31 on our exports, inclusive of hedging gains, also compares favorably with the average peso to dollar exchange rate of P38.36 during this period. Cost reduction programs, including a retrenchment of over 400 personnel company-wide, have lowered operating expenses a corporate overheads by about P150 million compared to a year ago. LibLex Production at the Bulawan gold mine under our 81.8%-owned subsidiary Philex Gold amounted to 44,981 equivalent ounces of gold, a 50% improvement from the first half of last year. The operations were problematical last year, particularly due to the entry of back-fill material from previous cut-and-fill stopes above the South Block, which became fluidized due to the heavy rainfall. The material reported to the draw points earlier than predicted by the block cave model, diluting average ore grades to below target levels and depressing production. To remedy the situation, at the end of last year, mining from the fringe draw points of the block with lower grade ore was suspended in order to boost average ore grades. This move proved effective and resulted in a 35% improvement in ore grades to 2.3 grams per ton in the first half, as well as better metal recoveries of 88% compared to 82% last year. The higher gold output coupled with cost reduction programs led to a significant drop in total production cash costs from $325 per equivalent ounce of gold last year to $183 per ounce. The mine posted an operating income of P87.7 million compared to a loss of P103.1 million last year. While the remedial measure to improve ore grades proved effective, this shortened the life of the South Block, requiring the immediate development of the Central Block, the next source of ore at Bulawan Development work is progressing on schedule and block caving of the initial draw points at this higher grade source is expected to start in October. The Sibutad open pit leach gold project, also under Philex Gold was suspended during this period due to the low gold price and a slump at the back slope of the leach pad, the result of record rains in Mindanao. The project, which has not achieved commercial operations, will be placed on a care and maintenance basis. At the Padcal mine copper production declined by 19% from the comparable period last year as a result of lower ore grades. By-product output of gold and silver were, however, largely unchanged. Substantial cost reduction programs instituted at the operations have led to an 8% drop in operating expenses in spite of a 4% increase in tonnage milled compared to the same period last year. Total production cash costs on a per pound of copper basis, net of by-product credits, amounted to a respectable 26 during this period. Profitable operations were maintained with direct operating income before tax amounting to P129.5 million compared to P408.2 million last year. The drop is largely the result of lower copper production and metal prices. An improvement in output and profitability is expected in the second half as a result of higher grade one blocks coming on stream. As we steer through the worst cyclical downturn in metal prices that our industry has seen in a long time, every effort will continue to be made to maximize production and reduce costs to every extent possible. Gerard H. Brimo Leonardo P. Josef President and CEO Senior Vice-President & COO BOARD OF DIRECTORS Henry A. Brimo Chairman Emeritus Gerard H. Brimo Chairman Albert C. Aguirre Carlos A. Arellano Albert Awad Rafael B. Buenaventura John Gokongwei, Jr. Raul S. Roco Manuel B. Zamora, Jr. OFFICERS Henry A. Brimo Chairman Emeritus Gerard H. Brimo President & CEO Leonardo P. Josef Senior Vice-President & COO Alfredo A. Figueras Senior Vice-President & Treasurer Fernando G. Agustin Vice-President Padcal Operations Jose B. Anievas Vice-President Bulawan Operations Deogracias G. Contreras, Jr. Vice-President Legal & Human Resources Ermelo R. Escalante Vice-President Purchasing & Materials Management Renato N. Migrio Vice-President Finance Edgardo C. Crisostomo Assistant Vice-President Purchasing Barbara Anne C. Migallos Corporate Secretary Guadaflor C. Malonzo Assistant Corporate Secretary PHILEX MINING CORPORATION HIGHLIGHTS OF OPERATIONS For the Six Months Ended June 30, 1999 and 1998 (UNAUDITED) 1999 1998 PADCAL BULAWAN(1) PADCAL BULAWAN(1) CONSOLIDATED OPERATIONS OPERATIONS CONSOLIDATED OPERATIONS OPERATIONS Copper Produced Kgs. 9,901,503 9,901,503 12,296,734 12,296,734 Lbs. 21,829,051 21,829,051 27,109,625 27,109,625 Gold Produced(2) Gms. 3,664,544 2,548,782 1,364,013 3,325,586 2,581,815 909,255 Ozs. 117,818 81,945 43,854 106,920 83,007 29,234 Silver Produced(2) Gms. 4,390,281 2,774,851 1,974,853 3,751,528 2,778,651 1,189,336 Ozs. 141,151 89,213 63,493 120,615 89,336 38,238 Average Realized Metal Prices Copper (per pound) $0.72 $0.72 $0.84 $0.84 Gold (per ounce) $291.55 $292.63 $289.87 $327.06 $313.00 $337.58 Silver (per ounce) $5.21 $5.25 $5.15 $6.04 $6.02 $6.11 Operating Revenues(3) P1,966,390 P1,445,561 P520,829 P2,378,423 P1,924,581 P453,842 Less: Smelter/Refining/Freight 187,069 180,624 6,445 290,963 286,060 4,903 Net Operating Revenues 1,779,321 1,264,937 514,384 2,087,460 1,638,521 448,939 Less: Operating Expenses 1,562,130 1,135,471 426,659 1,782,319 1,230,319 552,000 Income (Loss) from Operations 217,191 P129,466 P87,725 305,141 P408,202 P(103,061) General & Administrative Expenses 77,887 100,525 Other Income (Charges): Interest net (119,954) (96,958) Equity & Other Income 26,982 14,490 Net Income Before Tax & Minority Interest 46,332 122,148 Benefit from (Provision for) Income Tax 4,044 (82,739) Minority Interest (6,871) 33,697 Net Income P43,505 P73,106 Earnings per share(4) P0.015 P0.025 (1) Under 81.8%-owned subsidiary, Philex Gold, Inc. (2) Consolidated production includes 81.8% of gold and silver output from Bulawan operations and excludes 2,318 ozs. of gold and 2,997 ozs. of silver produced in the Sibutad project, not in commercial operation, under Philex Gold, Inc. (3) All peso amounts in thousand, except per share data. (4) Based on the total outstanding shares as of June 30, 1999.