Benguet Corporation Announces Full-Year 1997 Results

April 29, 1998 PSE CIRCULAR FOR BROKERS NO. 859-98 BENGUET CORPORATION ANNOUNCES FULL-YEAR 1997 RESULTS Manila, Philippines, 28 April 1998 - Benguet Corporation today reported a consolidated net loss, after an extraordinary provision, of P1,987,000,000 (US$49,531,000) or P17.42 (US$0.434) per share for full-year 1997, as compared to a loss of P165,100,000 (US$6,281,000) or P1.45 (US$0.055) per share in 1996. The extraordinary provision was made for losses of P857,700,000 from mining operations, particularly for the undepleted capital mine development of the Company's gold operations in Benguet province. Before this provision, consolidated net loss for the year totaled P1,129,200,000 (US$28,149,000) or P9.90 (US$0.247), primarily due to the Benguet Antamok and the Dizon Copper-Gold Operations. In addition, the Company experienced trading losses from dollar forward contracts because of the peso's devaluation vis-a-vis the U.S. dollar. LLpr Operating revenues fell 46%, to P1,385,700,000 (US$34,542,000) in 1997, compared with operating revenue of P2,561,900,000 (US$97,455,000) in 1996. This decrease is due to a decline in average composite metal prices in 1997. The price per ounce for gold dropped to US$335.00 and to US$1.01 per pound for copper, both lower than the 1996 averages of US$385 per ounce and US$1.02 per pound, respectively. Highlights The Year was highlighted by two events in particular. First, Benguet regained full operational control of the Kingking Copper-Gold Project after Kingking Mines, Inc.(KMI) decided not to exercise its option to acquire the Kingking property under an October 1995 agreement with Benguet. Data gathered by KMI over the past 24 months indicate that the Kingking orebody contains more than one billion tons of ore resource grading, 0.31 % copper and 0.41 grams of gold per ton at a cut-off grade of 0.20% copper. Benguet is closely studying new alternatives for the development and operation of the Kingking mines. Several parties have already approached Benguet signifying interest in the Kingking Project. Second. the Company 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 a significant amount of funds as Benguet will receive 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 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. prLL Sources and Uses of Funds Benguet's operations (excluding subsidiaries) registered a net fund deficit of P402,000,000 (US$10,021,000) during the year. Pursuant to the Company's request to creditor banks to allow a one-year deferment of principal amortization due in 1997, no principal repayment of bank loans was made during the year. Only interest payments, which amounted to P75,300,000 (US$1,877,000) were made in 1997. Because of the decline in the peso to dollar foreign exchange rate from P26.288 at the beginning of 1997 to P40.116 at year-end, Benguet's outstanding loan balance increased to P1,107,200,000 at year-end from P844,600,000 (US$32,130,000) at the beginning of the year. Nevertheless, Benguet has gone a long way in reducing its outstanding loan obligations which initially totaled P4.2 billion (US$151.4 million) in 1993. Value-Added Tax Claim The Department of Finance favorably granted Benguet tax credit certificates of P14.2 million in the fourth quarter of 1997, bringing the aggregate amount of tax credits so far granted to the Company for direct export shipments to P253.7 million. The balance of Benguet's claims awaiting administrative review for direct exports totaled P326.9 million. In a related case involving another mining company, the appellate court recently reversed a decision of the lower tax court that denied the respective mining company's claims for tax credit for gold sold to the Philippine Central Bank.. The appellate court ruled that the controversial tax ruling issued by the government cannot be retroactively implemented to the prejudice of the mining company. This precedent-setting decision is a highly positive development for the entire Philippine mining industry. More specifically, as of the end of 1997, Benguet's claims under judicial review for gold sold to the Central Bank totaled P253.4 million. Kingking Copper-Gold Project The decision of Kingking Mines, Inc. (KMI) not to exercise its option to acquire the Kingking project forfeits its previous option payments to Benguet totaling US$30 million. Full control over the Kingking project reverts to Benguet which is now free to re-market the project to other interested parties. One alternative being considered is the establishment of a consortium of capital investors for the project where Benguet remains responsible for developing and operating the mine. cdlex Several parties have already approached Benguet signifying interest in the project. Drilling and exploration studies conducted by KMI during the past 24 months indicate the geologic resource of the Kingking mineral properties to be at more than one billion tonnes grading 0.3% total copper and 0.41 grams of gold per tonne at a cutoff grade of 0.20% T-Cu, which confirms the Kingking project is a copper-gold mineral property of world-class significance. Masinloc Chromite Operation The Masinloc Chromite Operation generated net earnings of P5,600,000 (US$141,000) in 1997, a 33% decrease from earnings of P8,400,000 in 1996. Shipment volume was lower in 1997 at 38,838 tonnes compared with the 53,956 tonnes shipped in 1996. However, the Company is seriously considering the expansion of aggregate production at the Masinloc minesite, because of the increasing demand for aggregates from various private construction and government infrastructure projects. A feasibility study on concrete aggregate production and marketing is being finalized. Dizon Copper-Gold Operation The Dizon mine operation has been suspended since midway of the third quarter in 1997 when continuous heavy rains destabilized all quadrants of the Dizon open pit walls, causing severe damage and flooding of the pit. The suspension of operations resulted in severely limited production output resulting in losses for the Dizon mine totaling P444,900,000 (US$11,089,000) in 1997, 952% higher than the loss of P42,300,000 in 1996. Studies showed that to rehabilitate the pit and develop the Pua Satellite Orebody, an additional capital investment of P241 million would be required. Moreover, during rehabilitation work, operations would have to be suspended for ten months starting August, 1997. Upon evaluation of the aforementioned situation, Benguet opted to relinquish its operating rights over the Dizon mines to the claimowners, the Dizon Copper-Silver Mines, Inc. (DCSMI). Under the terms of the agreement, Benguet was paid P10.0 million for the value of any remaining ore that can be extracted from the mine and P30.0 million representing the Company's share of Port Dizon, and P10.0 million as an advance for Benguet's share from the sale of the operation's assets. Benguet Antamok Gold Operation Given the uncertainty of recovering the unamortized mine capital development costs of the open pit gold mines, Benguet's management established reserves for losses of P647,600,000 (US$16,143,000). This provision was charged to year-end 1997 results and increased the Company's losses from the Antamok Gold Operation to P922,900,000 (US$23,005,000) for the year. Before this extraordinary provision, net loss from the Antamok mine totaled P275,300,000 (US$6,862,000), principally due to the continued decline in gold prices and low production output from low grade ore. The loss also reflects charges amounting to P3,200,000 (US$80,700) for pit rehabilitation work required under the mine's environmental compliance certificate. In 1996, net loss from, the Antamok mine totaled P218,700,000. Other Projects Benguet formally established a new division to manage and develop the Company's real estate holdings, the BC Property Management (BCPM), which initiated extensive pre-feasibility studies of Benguet's real estate projects. The Indicative Land Use Plan and marketing study which identifies qualitative economic and social benefits of Benguet's real estate development project in the Benguet province have been completed. In addition, the approval and full support of the different line agency units of the national and local governments have been obtained for Benguet's Kelly 130-hectare special economic zone for light industries. Documentary requirements for the land conversion and application for a Presidential Proclamation as a Special Economic Zone are currently being prepared. In line with its policy on sustainable development, Benguet has conducted engineering studies for the conversion of the Antamok open pit, which is mined out, into a water reservoir. The Company has hired an independent consulting engineering firm to review and substantiate the geotechnical, hydrological and economic aspects of Benguet's in-house feasibility study on the venture to supply neighboring Baguio City with water. At the same time, Benguet is evaluating a joint venture with foreign firms and/or proponents of the Water Supply Project of the Baguio Water District. LexLib These on-going projects are consistent with Benguet's stated vision to become a major natural resource development company by identifying and developing the total potential of the Company's mineral lands, real estate holdings and other natural resources under its control.