Benguet Announces 1998 Results

April 15, 1999 PSE CIRCULAR FOR BROKERS NO. 758-99 BENGUET ANNOUNCES 1998 RESULTS Manila Philippines April 15, 1999 Benguet Corporation today announced that after an extraordinary loss of P110,200,000 (US$2,822,000) from the sale of the Company's shareholdings in Petrofields, consolidated net loss for 1998 was P620,000,000 (US$15,858,000) or P5.42 (US$0.139) per share, a significant improvement over the loss of P1,987,000,000 (US$49,531,000) or P17.42 (US$0.434) per share in 1997. Before the extraordinary loss, consolidated net loss in 1998 totaled P509,800,000 (US$13,036,000) or P4.46 (US$0.114) per share due primarily to the Benguet Antamok Gold Operation and the Company's principal subsidiary, Benguet Management Corporation. The loss for 1997 included an extraordinary provision for losses of P857,700,000 from mining operations. Operating revenues declined to P406,300,000 (US$10,401,000) in 1998, a 71% decrease from the operating revenues of P1,385,700,000 (US$34,542,000) in 1997. The average composite price of gold in 1998 was US$302 per ounce, lower than the 1997 average price of US$335 per ounce. During 1998, Benguet was in transition as it celebrated its 95th anniversary amid the Asia economic turmoil. With metal prices and production output remaining at low levels, the Company made difficult decisions to ensure its continued viability. In order to stave off heavy losses, a retrenchment program was implemented involving the Benguet Antamok Gold Operation, the Masinloc Chromite Operation, and Corporate Headquarters. In June 1998, Benguet sold its remaining shareholdings in Petrofields Corporation to generate additional funds for its ongoing development projects. While the loss from the sale of the remaining 20% shareholdings in Petrofields partly offset the gain of P158 million realized in 1992 when the Company reduced its shareholdings from 40% to 20%, the investment in Petrofields contributed an overall net profit of approximately P48 million to Benguet. Cdphil Following the retirement of Mr. Dennis R. Belmonte as President and CEO of Benguet, the Board of Directors elected Mr. Benjamin Philip G. Romualdez as President and CEO in the organizational board meeting on June 25, 1998. Management and key staff then conducted as 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. 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 ongoing negotiations with the banks with the assistance of the consulting arm of Sycip Gorres Velayo & Co. (SGV) which the Company engaged to develop 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 is being prepared. A comprehensive review of Benguet's asset base has revealed an array of vastly undervalued holdings, which, if recognized at their proper worth, will indicate brighter prospects for Benguet's future. These assets are essentially mining properties whose true significance, estimated at P6 billion, is excluded from Benguet's book under Generally Accepted Accounting Principles (GAAP). These assets include the Kingking, Acupan and Ampucao prospects, the Paracale Gold Operation mining rights, and several major pieces of mine and mill equipment, among others. In 1998, a revaluation increment on real estate holdings amounting to P1.388 billion was recorded. Benguet has embarked on a programmed disposition of non-performing assets and a search for joint venture partners for under-performing assets, both of which comprise the core strategy of the financial rehabilitation plan which Benguet submitted to its creditor banks in March, 1999. This strategy will achieve three desired results. Firstly, it will eliminate expensive protection and maintenance costs. Secondly, it will generate cash to pay off Benguet's liabilities, support existing operations and fund future development projects. Thirdly, it will allow Benguet to recognize substantial income as well as the true worth of these heretofore undervalued assets on its balance sheet. 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. LLpr Mining Operations The Benguet Antamok Gold Operation (BAGO) will remain suspended until La Nia passes. Pit development would be adversely affected if recommenced during the projected heavy rainfall of La Nia. Acupan, which used to contribute seventy percent of Benguet Gold Operation (BGO)'s production is being reviewed for potential future development, possibly with a joint venture partner. Acupan has about 4.82 million metric tonnes of ore containing 2.28 grams of gold tonne suitable for surface mining, and 5.3 million metric tonnes of ore containing 2.26 grams of gold per tonne amenable for underground mining. A foreign mining company has shown interest in this property which has the advantage of having support facilities that are still intact, including power and water supply, road network, camp and equipment shop facilities. In addition, the flooded levels of Acupan have proven to be a potential source of water for Itogon and adjacent towns. LexLib The Masinloc Chromite Operation (MCO) incurred a net loss of P4,700,000 (US$121,500) in 1998, from earnings of P5,600,000 in 1997. Shipment volume was lower in 1998 at 28,673 tonnes compared with the 38,838 tonnes shipped in 1997. The Masinloc mine's mining and milling operations have temporarily suspended since October 1, 1998, due to sluggish sales resulting from the decline in market demand for chromite products, increasing production costs, and accumulation of inventory of processed ore 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's operations. 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, particularly its aggregate materials. These materials, together with limestone from Benguet's prospects in Alaminos Pangasinan, Sta. Cruz Zambales, and Tuba Benguet are being offered for export to various companies in Taiwan. cdlex 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 Company's drilling department is working on various water well projects as a source of additional revenues, and is actively marketing its services to other companies and institutions. 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 Benguet's applications for drilling and Mineral Production Sharing Agreement (MPSA) on most of the Company's mining claims. Value-Added Tax Claims In the third quarter of 1998, the Department of Finance 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 P318.3 million. cdll 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 gold 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 1998, the Company' 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 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 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 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 developments of the mine. Several parties have already expressed and 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 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. In July 1998, a Geostatistical Resources 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 International Rates of Return and cash flows at lower throughput (hence lower capital costs) but higher grades. The study also demonstrates the possibility of shifting to higher production tonnage if metal 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. cdll Other Projects Consistent with its stated vision to become a major natural resource development organization, Benguet incorporated BC Property Management, Inc. (BCPM), Benguet Parkland Development Corporation (BPDC), and Agua de Oro Ventures Corporation (AOV) to undertake projects utilizing its non-performing asset base as it awaits improvement in metal prices and a clearer picture of the prospects for the mining industry in the Philippines. BCPM was organized to consolidated all of the Company's real estate properties and initiate best land use and feasibility studies for each. In 1998, Benguet obtained a Presidential Proclamation declaring the Company's 133-hectare Kelly property a Special Economic Zone for light industries. BCPM works hand-in-hand with the real estate group of BMC Forestry Corporation (BFC) which is presently developing a residential subdivision at Virac, Itogon, Benguet, that is already 80% sold out. BPDC will plan, implement and operate Benguet's various eco-tourism projects. Already operational are the Balatoc Mines Tour, Crosby Park, Villaluna Resort and thousand Lake, the newest tourist attractions in Metro Baguio, visited by more than a thousand guests monthly. LLpr In December 1998, AOV successfully launched its 5-gallon bottled water product with the brand name "Danum". Encouraged by the immediate acceptance of the product by Baguio residents, AOV will also introduce smaller 250-ml, 500-ml, 1-liter and 1-gallon bottled water products in its quest to capture a major portion of the Baguio and Northern Luzon markets. Recognition the wealth of experience and skills within its organization, Benguet has established a Service Division that will offer engineering, technical and construction expertise to other companies are big volume earthworks / rocks excavation, road and bridge construction, earth dams, water systems, and tunnel driving/lining, among others. In the same vein, Benguet will open up its drilling reforestation departments to cater to the outside market. LexLib Finally, the Company is continuing its due diligence studies to supply bulk water to Baguio City and neighboring Benguet municipalities. Private Placement The tripartite agreement entered into by Benguet with plan Palm Avenue Realty and 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). Recently, the Palm Avenue Companies have written your Company indicating their commitment to infuse more capital into Benguet out of the sequestered funds held by the PCGG over and above the P275 million which already upon, subject to the approval of the appropriate government agencies and judicial bodies." Dividends Due to operating deficits and debt service requirements, and pursuant to the restrictions stipulated in Benguet's loan agreements with creditor banks, no cash dividends was declared for 1998 by the Company's Board of Directors. Outlook Benguet continues to be in a tight liquidity position. For the short term, it will focus on the generation of cash through the disposition of various non-performing assets and the realization of certain extraordinary receipts. The cash generated will be used for operating expenses, debt servicing and capital requirements of its various projects. In the process of disposition, Benguet will be able to recognize substantial income as well as the true worth of undervalued assets on its balance sheet. Benguet is determined to reach a mutually acceptable formula with its creditor banks to substantially reduce, if not totally retire, its debt obligations in the short to medium term. The search for joint venture partners for the development of Benguet's superior mining claims, as well as land and water resource projects are on-going. These efforts, plus the likelihood of a favorable resolution of Benguet's pending value-added tax claims and the private placement of Benguet's shares of stock, provide some positive medium-and-long-term prospects.