Lepanto sees P300-M profit this year due to surging gold prices

Lepanto sees P300-M profit this year due to surging gold prices
By Zinnia B. Dela Peña
The Philippine Star 04/19/2006

Banking on surging gold prices, Lepanto Consolidated Mining Co. expects to return to profitability this year with a P300-million net income from a net loss of P409.53 million in 2005.

Lepanto president Bryan Yap said the company intends to produce between 22,000 to 24,000 ounces of gold and silver per quarter to benefit fully from rising gold prices as it does not have any hedge position.

"We are bullish on gold prices this year. The price of gold peaked at $575.35 per ounce during the first quarter of 2006, the highest level in 17 years. If this favorable trend continues, and we hope it does, we will overcome the continuing increase in oil prices, materials and supplies, to give us a respectable bottomline at the end of this year," Yap said.

In the first quarter this year, Lepanto produced 15,500 ounces of gold and 20,000 ounces of silver, allowing it to break even during the period.

"The first quarter results were not unexpected as the company still had to catch up on development programs, having just come out of the strike," Yap said.

The company’s workers went on strike in May 2005 due to a deadlock in negotiations for pay increases. They specifically asked for a P27 salary increase for the first year, P27 for the second year and P40 for the third year, and other benefits such as the supply of liquefied petroleum gas and two sacks of rice every year.

The 100-day work strike last year resulted in an operating loss of about P307 million. The company produced only 55,749 ounces of gold from mine deliveries of 471,710 tons, compared with 96,068 ounces of gold last year.

Lepanto reported P51 million in labor retrenchment cost and P114 million in impairment losses, which formed part of its total cost in 2005.

For this year, Lepanto has earmarked P550 million to P600 million for its capital expenditures.

Yap said Lepanto is now in talks with an international outfit to help in maximizing production.

He added that the company may resume its copper production in light of the huge demand from Chinese smelters and the current record-high copper prices.

With the full settlement of its $3-million loan to Canada’s Ivanhoe Mines Ltd., Lepanto can now freely explore with any prospective partner the possibility of a joint venture on its assets, Yap said.

Lepanto, which began mining operations in 1936, was a major copper producer until it shut down its copper operation in 1997. It shifted to gold production through its Victoria Project. It now operates two mines, the Victoria and the Teresa, both in Mankayan town in the northern province of Benguet.

It has three wholly owned subsidiaries: Shipside Inc., Diamond Drilling Corp., and Lepanto Investment and Development Corp.