Breakwater Resources Ltd.
TSX : BWR

Breakwater Resources Ltd.

January 30, 2006 16:05 ET

Breakwater Provides 2006 Forecasts

TORONTO, ONTARIO--(Marketwire - Jan. 30, 2006) -

Attention Business/Financial Editors:

BREAKWATER RESOURCES LTD. (TSX:BWR) is pleased to provide a production forecast for 2006.

Commenting on the forecasts, George Pirie, Breakwater's President and Chief Executive Officer, stated, "Both El Mochito and El Toqui operated well in 2005 and are expected to do so in 2006. We continue to invest in Myra Falls to unlock the potential of that asset. Further, considerable effort has been made to identify the unrealized potential at each of Breakwater's operations and I am confident that the strategies we plan to implement will bear fruit. Furthermore, I am excited about the exploration potential in our landholdings in British Columbia, Quebec, Honduras, Chile and Tunisia. It is our expectation that the strong metals markets will continue to be the best our generation has experienced. It is management's intent to continue to grow Breakwater into a world class diversified mining company."

Our business plan is focused. In 2006 we plan to:

- Invest in capital projects to increase the productivity, efficiency and effectiveness of our operations;

- Increase the investment in overall exploration; advance mine exploration and development to increase reserves and resources, quantitatively and qualitatively, to increase the life of mines;

- Advance the Langlois and Concordia projects to commercial production by mid-2007; and

- Acquire value added projects or assets.



Our production projections for 2006 are:
<<
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(payable)
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Zinc 240,100,000 pounds
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Copper 18,700,000 pounds
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Lead 20,500,000 pounds
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Silver 1,889,500 ounces
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Gold 59,600 ounces
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The projections above are based on the following mine site production forecasts:



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Forecast 2006 Myra Falls El Mochito El Toqui All Sites
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Ore Milled
(tonnes) 1,000,000 650,000 515,600 2,165,600
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Zinc (%) 6.8 6.6 6.1 6.5
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Copper (%) 1.1 n/a n/a n/a
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Lead (%) 0.5 1.9 n/a n/a
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Gold (g/t) 1.4 n/a 3.0 n/a
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Silver (g/t) 52.7 88.0 5.6 n/a
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Concentrate
Production
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Zinc (tonnes) 111,100 74,600 57,000 242,700
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Copper (tonnes) 34,300 n/a n/a 34,300
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Lead (tonnes) 900 14,400 n/a 15,300
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Gold (tonnes) 56 n/a 4,100 4,156
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Payable Metal
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Zinc (pounds) 114,900,000 73,200,000 52,000,000 240,100,000
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Copper (pounds) 18,700,000 n/a n/a 18,700,000
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Lead (pounds) n/a 20,500,000 n/a 20,500,000
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Silver (ounces) 781,600 1,100,000 7,900 1,889,500
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Gold (ounces) 22,100 n/a 37,500 59,600
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Cash Cost
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Per lb. payable
zinc (US$) 0.51 0.37 0.36 0.43
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The forecast of cash costs per pound of payable zinc is net of by-product credits. In forecasting the by-product credits we have assumed a price of US$4,000 per tonne for copper, US$1,000 per tonne for lead, US$473 per ounce for gold and US$7.75 per ounce for silver.

The cash cost per pound of payable zinc is furnished to provide additional information and is a non-GAAP measure. This measure should not be considered in isolation as a substitute for measures of performance prepared in accordance with generally accepted accounting principles and is not necessarily indicative of operating expenses as determined under generally accepted accounting principles. This measure is intended to provide investors with information about the cash generating capabilities of the Breakwater's mining operations. Management uses this information for the same purpose. Mining operations are capital intensive. This measure excludes capital expenditures. Forecast capital expenditures are discussed later in this release.

Risks

Actual sales of concentrates and corresponding revenues can vary from quarter to quarter depending on customer agreements and the timing of shipments. Additionally, Breakwater's sales are all denominated in US dollars, however Breakwater reports in Canadian dollars. Therefore, at the revenue level, changes in the US$/C$ exchange rate will affect the reported revenues. Additionally, Breakwater operates in Canada, Chile and Honduras; therefore, a portion of the operating profit will be affected by fluctuations in the currencies of these countries.

Our cash flows are significantly affected by fluctuations in metal prices and exchange rate changes between the Canadian dollar, US dollar and to a lesser extent, the Honduran lempira and Chilean peso.

The prices of metals that we produce vary with market supply and demand. The following table illustrates the sensitivity of our annualized cash flows to changes in metal prices based on 2006 sales estimates and constant foreign exchange rates.



Sensitivity to Prices
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Based on a C$0.85/US$1.00 Change to Assumption Sensitivity
(all other assumptions ($000)
remaining constant)
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Zinc Price US$0.01 per pound 1,796
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Gold Price US$10.00 per ounce 486
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Copper Price US$0.01 per pound 199
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Lead Price US$0.01 per pound 196
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Silver Price US$0.10 per ounce 116
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Currency Exchange Rate US$0.01 1,743
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Capital Expenditures

Capital expenditures for Breakwater's operations are planned to be $75.3 million in 2006. Of this amount the bulk of funds are related to the development of Langlois, the improvements to Myra Falls' mine and mill, and upgrading both mobile and stationary equipment at Myra Falls. The balance will be spent at the other mines and for exploration.



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Capital Expenditures (C$ millions) 2006 Budget
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Myra Falls $24.1
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Mochito $9.1
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Toqui $9.0
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Langlois $23.4
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Exploration(i) $9.7
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Total Capital $75.3
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(i)This amount is more fully described below in the exploration table.


Exploration

It is expected that Breakwater will spend $15.1 million on exploration in 2006. The breakdown of the exploration is set forth in the following table:



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Capitalized Exploration (millions)
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Mochito US$1.1
Toqui US$4.0
Tunisia US$0.5
Langlois C$3.1
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Total capitalized exploration C$9.7
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Expensed Exploration
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Bouchard-Hébert C$2.9
Myra Falls C$2.5
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Total expensed exploration C$5.4
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Total Exploration C$15.1
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Reclamation Expenditures

Cash required for reclamation work in 2006 is expected to be $8.3 million, significantly less than in 2005 as the bulk of the work at Nanisivik has been completed.



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Reclamation Expenditures (C$ million) 2006 Budget
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Nanisivik $2.8
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Bouchard-Hébert $3.1
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Bougrine $1.6
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Myra Falls (tailings dam facility seismic upgrade) $2.0
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Caribou $0.1
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Total Reclamation Expenditures $9.6
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At the end of 2006 it is expected that reclamation activities at Nanisivik will be complete. The site will then be subject to only long-term monitoring. Reclamation at Bouchard-Hebert will be 65 percent complete with the mill being held on care and maintenance pending the results of our exploration activities on the surrounding land package. Reclamation at Bougrine will be 90 percent complete with the remainder to be completed in 2007. The Bougrine mill will also be left in place pending the results of exploration activities focused on a recently acquired lead-zinc deposit located in northern Tunisia. The tailings dam facility seismic upgrade at Myra Falls is expected to be 85 percent complete with the remaining work to be completed in 2007 and 2008. The reclamation of the Anaconda tailings at Caribou is progressive in nature and by the end of 2006 will be 40 percent complete.

Development at Langlois

Langlois, which is situated in north-western Quebec approximately 213 kilometres north of Val-d'Or, is currently being developed to reach commercial production in mid-2007.

A feasibility study to reopen the Langlois Mine, including a technical solution for the ore pass problem, was completed by SRK in August 2001, following an extensive drilling program. The SRK feasibility study was updated in 2003 and the project economics were reviewed again by Breakwater late in 2005. The 2005 Breakwater review concluded that based on a life-of-mine average price for zinc of US$0.53 per pound, a copper price of US$1.05 per pound, a silver price of US$6.59 per ounce and an exchange rate of US$0.80 per C$1.00 the project had an internal rate of return of 16.6 percent based on mining and milling the proven and probable mineral reserves of 3.3 million tonnes at the grades and recoveries set forth in the Proven and Probable Mineral Reserves Production table below.



Proven and Probable Mineral Reserves Production Table
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Tonnes Milled 3,323,000
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Head Grade Zn (%) 10.8
Cu (%) 0.8
Au (g/t) 0.1
Ag (g/t) 52.1
Recoveries Zn (%) 93.6
Cu (%) 82.6
Au (%) 29.0
Ag (%) 35.5
Concentrate Grade Zn (%) 54.7
Cu (%) 23.8
Tonnes Concentrate Zn (t) 613,100
Cu (t) 96,300
Contained Metal Zn (t) 335,100
Cu (t) 22,900
Au (oz) 2,600
Ag (oz) 1,961,300
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The operating plan incorporates several improvements to ensure the reliability of production and to control costs. These improvements include the elimination of ore passes for Zone 97, a new, level 9, ore dump and loading pocket, pre-development of several sublevels in Zone 97 and improvements for the underground mobile equipment fleet. Additionally, the operating plan includes continuing the exploration of Zone 97 which remains open to the east and at depth.

The high-grade mining alternative in the feasibility study does not isolate the lower grade mineral resources, some of which could be brought into the production plan under the current economic conditions.

The following table sets forth the mineral resources and mineral reserves as they have been calculated pursuant to National Instrument 43-101.




Mineral Resources and Mineral Reserves

Zinc Copper Silver Gold
Category Tonnage (%) (%) (g/t) (g/t)
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Proven & Probable
Mineral Reserves
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Zones 3 and 4 1,203,500 9.49 0.49 39.52 0.07
Zone 97 2,119,200 11.51 1.02 59.28 0.09
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Total 3,322,700 10.78 0.82 52.13 0.09
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Measured &
Indicated
Resources(ii)
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Zones 3 and 4 1,779,200 9.98 0.53 34.82 0.08
Zone 97 3,201,500 11.80 0.93 64.60 0.09
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Total 4,980,700 11.15 0.79 53.96 0.09
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Inferred
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Zones 3 and 4 750,500 8.68 0.29 26.04 0.12
Zone 97 504,000 11.24 0.86 60.83 0.17
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Total 1,254,500 9.71 0.52 40.02 0.14
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(ii) Measured and Indicated Mineral Resources include Proven and
Probable Mineral Reserves


Operating Costs

The average total site operating cost is estimated at C$57.44 per tonne milled based on the above tonnages, in-line with the historical 2000 operating cost. The cash cost, including smelting, shipping and by-product credits for copper, silver and gold, is forecast to average US$0.42 per pound of payable zinc.

Capital Costs

The development capital, including inventory build up, is forecast to be $27.0 million during 2006 and 2007, net of revenue from development ore. The majority of the capital requirements are related to underground development, with the mill accounting for only $1.5 million of the total. Total capital required to extract the above noted tonnages is estimated to be $47.6 million.

Breakwater is a mineral resource company engaged in the acquisition, exploration, development and mining of base metal and precious metal deposits in the Americas and North Africa. Breakwater has three producing zinc mines: the Myra Falls mine in British Columbia, Canada; the El Mochito mine in Honduras; and the El Toqui mine in Chile. The Company is also developing the Langlois mine in Canada.

Cautionary Note on Forward Looking Statements

Certain statements included in this news release are forward-looking statements, which are made pursuant to the "safe harbor" provisions of the United States Private Securities Litigation Reform Act of 1995. They include estimates and statements that describe the Company's future plans, objectives and goals, including words and phrases to the effect that the Company or management expects a stated condition or result to occur. When used herein, words and phrases such as "expect", "forecast", "assumptions", "estimates", "assume", "projections", "depending", which could", "will be", "are likely", "are planned" and other similar expressions are intended to identify forward- looking statements. Such forward-looking statements involve inherent risks and uncertainties and subject to other factors, many of which are beyond our control that may cause the actual results or performance to differ materially from those expressed or implied by such forward-looking statements. Such factors include, among others, fluctuations in ore grade, geological and environmental risks, problems during the development, construction and start-up phases of an underground mine, inadequacy of environmental insurance. For a more comprehensive review of risk factors, please refer to the Company's most recent annual report under "Management's Discussion and Analysis of Financial Results" and Form 40-F under "Risk Factors" on file with the Canadian provincial securities regulatory authorities and the U.S. Securities and Exchange Commission filed on SEDAR at www.sedar.com. The Company disclaims any obligation to update or revise any forward-looking statements whether as a result of new information, events or otherwise. Readers are cautioned not to put undue reliance on these forward-looking statements.

Contact Information

  • Breakwater Resources Ltd. Torben Jensen Vice President, Engineering (416) 363-4798 Ext. 2 Email: tjensen@breakwater.ca
    or
    Breakwater Resources Ltd. Ann Wilkinson Vice President, Investor Relations (416) 363-4798 Ext. 277 Email: awilkinson@breakwater.ca