PSE Circular for Brokers No. 2626-98

November 20, 1998 PSE CIRCULAR FOR BROKERS NO. 2626-98 BENGUET ANNOUNCES THIRD QUARTER 1998 RESULTS Manila, Philippines, November 18, 1998 Benguet Corporation today announced a consolidated net loss for the third quarter of 1998 of P109,700,000 (US$2,504,000) P0.96 (US$0.022) per share, an improvement over the loss of P271,100,000 (US$8,003,000) or P2.38 (US$0.070) per share in the same quarter of 1997. For the nine-month period ending September 30, 1998, consolidated net loss amounted to P454,700,000 (US$10,379,000) or P3.98 (US$0.091) per share in 1998, also an improvement over the loss of P600,000,000 (US$17,713,000) or P5.26 (US$0.155) per share in the same period last year. Operating revenues for the quarter declined to P73,500,000 (US$1,676,000) this quarter and to P331,800,000 (US$7,573,000) for the nine-month period, from operating revenues of P307,300,000 (US$9,072,000) and P1,349,500,000 (US$39,840,000) for the same respective periods in 1997. During the quarter, in response to the deepening regional economic crisis, management and key staff conducted a series of strategic planning sessions to review Benguet's operations and resources with the following objectives: (1) to determine a means by which to immediately retire the Company's obligations to creditor banks and (2) to identify new business opportunities that will not only carry it over the present crisis, but serve as the new direction that will sustain Benguet's viability into the next millennium. cdll On September 15, 1998, Benguet met with the consortium of creditor banks to attempt to find a solution to the Company's current debt burden. Benguet is in on-going negotiations with the banks in hopes of extinguishing the debt before year end. The Company has engaged SyCip Gorres Velayo & Co. (SGV) to assist in these discussions, as well as to advise us on the development of a consolidated business plan. Benguet is likewise continuing to reorganize itself based on opportunities it has identified in land, water, and services, alongside its traditional core business in mining. A new table of organization and management accounting are being prepared. 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. In July, a Geostatistical Resource Estimation and Pit Optimization Study was completed using WHITTLE 4-D programs. Economic parameters instead of straight copper cut-off grades were used. The study showed that Kingking can be mined at better Internal Rate of Return (IRR) and cash flows at lower throughputs (hence lower capital costs) but higher grades. The study also demonstrates the possibility of shifting to higher production tonnage if metals prices gain, thus improving the overall mining recovery of the minable reserve. We are currently doing simulations on 25,000 to 50,000 tons per day production. Mining Operations The Benguet Antamok Gold Operation (BAGO) will continue to be suspended until La Nia ends. Pit development will be adversely affected if recommenced during the projected heavy rainfall of La Nia. Acupan which used to contribute seventy percent of BGO's production is being reviewed for potential future development, possibly with a joint venture partner. Acupan has about 4.0M million metric tonnes of ore containing 2.27 grams of gold per tonne and 10.3 million metric tonnes of ore containing 2.47 grams of gold per tonne amenable for surface and underground mining, respectively. A foreign mining company has shown interest in this property which has the advantage of having support facilities still intact, including power, equipment shops, camp, water roads, etc. In addition, the flooded levels of Acupan have proven to be a potential source of water for Itogon and adjacent towns. cdlex The Masinloc Chromite Operation generated net earnings of P2,600,000 (US$60,000) this quarter, slightly higher than earnings of P2,400,000 for the same quarter in 1997. For the nine-month period, earnings amounted to P13,300,000 (US$304,000), compared with the earnings of P4,900,000 in 1997. Shipment volume for the quarter and for the nine-month period aggregated 7,476 tonnes and 22,145 tonnes this year, lower than the 8,945 and 30,062 tonnes shipped for the same respective periods in 1997. The Masinloc mine's mining and million operations were temporarily suspended since of this year due to sluggish sales resulting from the decline in market demand for chromite products, increasing production costs, and the piling up of inventory of processed ore which is equivalent to more than one year of production. Benguet however, will conduct periodic reviews to determine if market conditions warrant the resumption of the mine operation. In the meantime, the Company will continue to market the inventory of processed ore and evaluate the business potential of other mineral assets of the project. The Company submitted an application for exploration drilling for gold/copper in Boringot, Pantukan, Davao after a successful surface exploration. There are now two sites where exploration drilling may be started once the permits are approved, with Pantingan in Bataan, being the second area. In the meantime, the drilling teams of its Exploration Division are drilling for water wells under contract, thereby generating revenue to Benguet. LLphil The Company's Ampucao area, south of Acupan, is being considered for exploration and development, and a joint venture partner is being considered for this copper and gold resource. The current absence of a definitive rule on the Indigenous People's Rights Act (IPRA) and matters related to the National Commission on Indigenous Peoples (NCIP) are delaying government agencies from taking actions on our applications for exploration drilling and our Mineral Production Sharing Agreement (MPSA) on most of the company's mining claims. Value-Added Tax Claims The Department of Finance has favorably granted Benguet tax credit certificates of P13.4 million, bringing the aggregate amount of tax credits so far granted to the Company for direct export shipments to P267.1 million. The balance of Benguet's claims awaiting administrative review for direct exports amounts to P316.7 million. The appellate court recently reversed an earlier decision of the lower tax court that denied Benguet's and those of other mining companies for tax credit for told sold to the Bangko Sentral ng Pilipinas. This precedent-setting decision is a welcome development for the entire Philippine mining industry, including Benguet. As of the end of September 1998, the Company's claims under judicial review for gold sold to the Bangko Sentral ng Pilipinas amounted to P253.4 million. LexLib 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 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 returned 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, 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 Kingking 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 (MPSA) 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 Kelley Ecozone/Gumatdang Plan has also been presented to the different line agency units of the national and local governments which favorably endorsed the plan and committed their full support. A Presidential Proclamation has been obtained for Benguet's Kelly 133-hectare Special Economic Zone. The Company is also pursuing possible tie-ups on industrial and housing projects on its titled properties. Benguet's strategic land development program will substantially enhance the value of its landholding. Benguet has stated the construction of the housing units of the Woodsdale project in Virac, Itogon, Benguet, and the subdivision is scheduled for occupancy before the end of the year. Various options are being reviewed to convert a property in Irisan, Baguio City into an industrial subdivision. Water Business Benguet, as a natural resource corporation, has embarked on the water business and has organized the Agua de Oro Ventures Corporation. 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 and other towns of Benguet Province 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 Province with water. For these projects, Benguet is now evaluating possible joint ventures with foreign firms and/or 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 launching of the first Agua de Oro bottled water, under the brand name Danum , was rescheduled and will be on the market by December 1998. Natural water sources in Coto and Balatoc are slated for further development. LLjur Eco-Tourism Benguet has also organized Benguet Parkland Development Corporation, a new group assigned to plan, implement and operate eco-tourism projects. Already in operation are the Balatoc Mines Tour, Balatoc Lake, Villaluna Resort and Crosby Park, the newest tourist attractions in Metro Baguio, which attract more than one thousand visitors per month. Projects slated for development are the Bobok Camping Grounds and Coto Mines Resort. These projects have so far accomplished their mandates to demonstrate the mining is not destructive, as perceived by environmentalists, but sustainable, scientific, and people-friendly. Private Placement The tripartite agreement entered into by Benguet with the Palm Avenue Realty & Development Corporation and Palm Avenue Holdings Company, Inc. and the Presidential Commission on Good Government for the private placement of a major block of the Company's shares is still pending approval by the Court (Sandiganbayan). 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 should provide the necessary funds both for operations and for major projects. Benguet's management is very optimistic that the present difficulties will soon be overcome. In line with these expectations, the Company is restructuring its finances and streamlining the management of its assets toward its vision and mission to be the leading Philippine conglomerate engaged in sustainable natural resource development while it continues to nurture a mutually beneficial relationship with its shareholders, employees and communities. BENGUET CORPORATION and Subsidiaries Consolidated Results of Operations in Thousands (Except Per Share Data) (Unaudited) THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 PHILIPPINE PESOS 1998 1997 1998 1997 Operating Revenue P73,500 P307,300 P331,800 P1,349,500 Operating Profit (Loss) 50,100 141,500 104,500 390,800 Other Income (Expenses) - Net 59,600 129,600 240,000 209,200 Net Income (Loss) Before other items 109,700 271,100 344,500 600,000 Other Items (a) 110,200 Net Income (Loss) (b) P109,700 P271,100 454,700 P600,000 Earnings (Loss) Per Share (c) P0.96 ) P2.38 3.98 P5.26 US DOLLARS (d) Operating Revenue $1,676 $9,072 $7,573 $39,840 Operating Profit (loss) 1,143 4,177 2,385 11,537 Other Income (Expenses) - Net 1,361 3,826 5,479 6,176 Net Income (Loss) Before Other Items 2,504 8,003 7,864 17,713 Other Items (a) 2,515 Net Income(Loss) (b) $2,504 ($8,003 $10,379 $17,713 Earnings (Loss) Per Share (c) $0.022 $0.070 $0.091 $0.155 (a) Consists 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 increase net loss by P6,600,000 (US$151,000) for the third quarter and by P39,500,000 (US$901,000) for the first nine months in 1998; but to decrease net loss by P37,100,000 (US$1,100,000) and P34,500,000 (US$1,000,000) for the same periods in 1997. (c) Earnings per share 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 September 30 of P43,809 to US$1.00 in 1998 (P33.873 to US$1.00 in 1997).