Breakwater Resources Ltd.
TSX : BWR

Breakwater Resources Ltd.

May 04, 2007 17:15 ET

Breakwater Resources Ltd.'s First Quarter 2007 Financial and Operating Results

TORONTO, ONTARIO--(Marketwire - May 4, 2007) -

Attention Business/Financial Editors:

Breakwater Resources Ltd. (TSX:BWR), a mining, exploration and development company which produces and sells zinc, copper, lead and gold concentrates to customers around the world, announces its financial and operating results for the three month period ended March 31, 2007. The Company's concentrate production is derived from mines located in Canada, Chile and Honduras. All dollar amounts in this news release are in Canadian dollars unless otherwise stated.

HIGHLIGHTS



- The Company realized net earnings of $15.3 million or $0.04 per share
in the first quarter of 2007 after recording an income tax provision
of $7.2 million ($0.02 per share) compared with $38.3 million or
$0.10 per share after recording an income tax recovery of
$25.7 million ($0.07 per share) in the first quarter of 2006. The
2006 recovery was primarily due to the establishment of a
$27.2 million future tax recovery for the Myra Falls mine
- Sales of concentrate in the first quarter of 2007 decreased to
39,333 tonnes from 67,355 in the first quarter of 2006. The decrease
was primarily due to 19,381 more tonnes of concentrate in inventory
at the beginning of the first quarter of 2006 compared with the first
quarter of 2007
- At March 31, 2007, cash and cash equivalents were $93.2 million and
total debt was $2.9 million
- Gross sales revenue decreased by 3% to $77.9 million in the first
quarter of 2007 from $80.7 million in the first quarter of 2006
because of lower sales partially offset by higher prices
- Total cash costs per pound of payable zinc decreased to US$0.49 per
pound in the first quarter of 2007 from US$0.63 per pound in the
first quarter of 2006. See the non-GAAP reconciliation section in
this news release

OUTLOOK

- Development of the Langlois mine is on track to achieve commercial
production by mid-2007. Langlois is currently in pre-production and
as a result, sales of concentrate produced are not reflected in the
income statement
- The Concordia deposit at the El Toqui mine remains on track with
production expected in the second half of 2007
- The Company expects to meet its payable metals forecast for 2007


STATEMENT OF OPERATIONS REVIEW - THREE MONTHS ENDED MARCH 31, 2007 AND 2006

The Langlois mine has been producing concentrate since November 2006; however, since it has not achieved commercial production, sales of concentrate and their associated costs are not being recognized in the income statement.

Gross Sales Revenue

Gross sales revenue from the sale of zinc, copper, lead, and gold concentrates for the three month period ended March 31, 2007 (the "first quarter of 2007") decreased by $2.7 million (3%) compared with the three month period ended March 31, 2006 (the "first quarter of 2006"). Concentrate sales decreased 42% to 39,333 tonnes in 2007 compared with 67,355 tonnes in 2006. The decrease was primarily due to much higher inventory levels at the beginning of 2006 (19,381 more tonnes at December 31, 2005 than December 31, 2006) resulting in lower concentrate sales at Myra Falls and El Mochito partially offset by higher concentrate sales at El Toqui. Partially offsetting the lower concentrate sales were significantly higher realized prices for all metals sold.

The Company periodically hedges against fluctuations in metal prices and foreign exchange rates with the use of forward sales or options.



Gross Sales Revenue by Metal First Quarter
-------------------------------------------------------------------------
($ millions) 2007 2006
-------------------------------------------------------------------------
Zinc (US$) 42.7 62.4
Copper (US$) 7.6 0.0
Lead (US$) 3.5 2.7
Gold (US$) 7.7 3.7
Silver (US$) 5.2 2.4
Hedging mark-to-market and other 0.0 (1.4)
-------------------------------------------------------------------------
Total gross sales revenue (US$) 66.7 69.8
C$/US$ realized exchange rate 1.1683 1.1559
-------------------------------------------------------------------------
Total gross sales revenue (C$) 77.9 80.7
-------------------------------------------------------------------------


Sales by Concentrate First Quarter
-------------------------------------------------------------------------
(tonnes) 2007 2006
-------------------------------------------------------------------------
Zinc 30,056 63,571
Copper 5,651 0
Lead 2,800 3,300
Gold 826 484
-------------------------------------------------------------------------
Total 39,333 67,355
-------------------------------------------------------------------------


Sales by Payable Metal First Quarter
-------------------------------------------------------------------------
2007 2006
-------------------------------------------------------------------------
Zinc (tonnes) 12,555 28,093
Copper (tonnes) 1,184 0
Lead (tonnes) 1,815 2,107
Gold (ounces) 11,302 9,420
Silver (ounces) 373,529 329,089
-------------------------------------------------------------------------


Realized Prices First Quarter
-------------------------------------------------------------------------
2007 2006
-------------------------------------------------------------------------
Zinc (US$/tonne) 3,434 2,221
Copper (US$/tonne) 6,452 0
Lead (US$/tonne) 1,914 1,277
Gold (US$/ounce) 647 388
Silver (US$/ounce) 13.03 7.40
-------------------------------------------------------------------------


Average Metal Prices & Foreign Exchange Rate First Quarter
-------------------------------------------------------------------------
2007 2006
-------------------------------------------------------------------------
Zinc (US$/tonne) 3,456 2,248
Copper (US$/tonne) 5,930 4,943
Lead (US$/tonne) 1,785 1,239
Gold (US$/ounce) 650 554
Silver (US$/ounce) 13.31 9.74
C$/US$ exchange rate 1.1716 1.1547
-------------------------------------------------------------------------


The Company has a conservative revenue recognition policy which, among other things, requires final pricing of concentrate inventories prior to recognition of revenue. Using commodity prices and exchange rates prevailing at March 31, 2007, the following schedule provides details regarding inventories shipped but not recognized for revenue purposes and the related provisional payments. Estimated net smelter return, earnings before taxes and weighted-average months to settlement are non-GAAP measures and are furnished to provide additional information.



-------------------------------------------------------------------------
Net Earnings Provi- Weighted-
smelter Inventory before sional average
Concentrate return value taxes payments months to
(DMT) ($000s) ($000s) ($000s) ($000s) settlement
-------------------------------------------------------------------------
Zinc 30,815 35,329 17,928 17,401 18,395 1.3
Copper 4,950 12,538 7,834 4,704 - 3.0
Lead 4,728 10,066 2,186 7,880 5,711 1.0
Gold 466 1,545 515 1,030 1,654 1.0
-------------------------------------------------------------------------
40,959 59,478 28,463 31,015 25,760
-------------------------------------------------------------------------


As at March 31, 2006, the Company estimated that inventories shipped but not recognized for revenue purposes had earnings before tax of $20.2 million consisting of $53.7 million of net smelter return less $33.5 million of inventory value.

Net Revenue

Net revenue, the value of concentrates sold after deducting treatment charges and freight and marketing costs, increased by 4% to $58.0 million in the first quarter of 2007 from $55.8 million in the first quarter of 2006. Treatment and marketing costs were 20% lower at $19.9 million in the first quarter of 2007 compared with $24.8 million in the first quarter of 2006. On a per tonne of concentrate sold basis, total treatment and marketing costs increased to $506 per tonne in the first quarter of 2007 compared with $369 per tonne in the first quarter of 2006 primarily due to higher metal prices triggering price escalators in the treatment charges partially offset by certain spot sales which did not have any escalators.

Direct Operating Costs

Direct operating costs were 18% lower in the first quarter of 2007 at $23.6 million compared with $28.8 million in the first quarter of 2006, as 42% fewer tonnes of concentrate were sold and the average direct operating cost per tonne of concentrate sold increased to $600 in the first quarter of 2007 from $428 in the first quarter of 2006. Average direct operating costs per tonne sold are impacted by the type of concentrate sold and the volume of concentrate sales relative to fixed costs. The Myra Falls and Toqui mines sold proportionately higher copper and gold concentrates respectively in the first quarter of 2007 compared with the first quarter of 2006 with their relatively higher costs per tonne compared with zinc concentrate. Significantly lower concentrate sales at Myra Falls and El Mochito resulted in fixed costs being spread over fewer tonnes. El Mochito was also impacted by higher export taxes due to higher metal prices in the first quarter of 2007 compared with the same period in 2006.



Direct Operating Costs

First Quarter 2007 First Quarter 2006
-------------------------------------------------------------------------
Concentrate Cost per Concentrate Cost per
Aggregate sold tonne Aggregate sold tonne
($ millions) (tonnes) ($) ($ millions) (tonnes) ($)
-------------------------------------------------------------------------
Myra Falls 10.6 7,763 1,357 17.9 33,357 537
El Mochito 4.8 12,123 398 7.9 24,580 320
El Toqui 8.2 19,447 423 3.0 9,418 323
-------------------------------------------------------------------------
Total 23.6 39,333 600 28.8 67,355 428
-------------------------------------------------------------------------


Total Cash Cost per Pound of Payable Zinc Sold

The total cash cost per pound of payable zinc sold, which includes all mine site cash costs, treatment charges, ocean freight and other marketing costs, net of by-product credits, was US$0.49 in the first quarter of 2007 compared with US$0.63 in first quarter of 2006 (see non-GAAP reconciliation). The decrease was primarily due to higher by-product credits and reduced aggregate direct operating costs at Myra Falls and El Mochito due to lower concentrate sales partially offset by lower pounds of zinc sold, unfavourable movements in treatment and marketing costs and aggregate direct operating costs at El Toqui.

Depreciation and Depletion

Depreciation and depletion decreased by $0.9 million to $4.1 million in the first quarter of 2007 compared with the corresponding period in 2006 primarily due to the impact of lower concentrate sales for assets depreciated and depleted using the units-of-production method.

Other Expenses (Income)

Other expenses (income) in the first quarter of 2007 decreased by $0.9 million compared with the corresponding 2006 period primarily due to a 2006 loss on gold loan of $1.1 million which did not recur in 2007 partially offset by a $0.4 million increase in general and administrative expenses.

Exploration Expenses

Exploration expenses of $2.7 million in the first quarter of 2007 increased by $1.1 million from the corresponding period in 2006. The increase was due to expanded exploration programmes at El Toqui, Myra Falls and El Mochito partially offset by decreased expenses at Bouchard-Hebert and Bougrine. The increased expenditures reflect further delineation of recently identified exploration successes as well as a continued strategic effort to address past underinvestment in exploration of the Company's assets.

Other Non-Producing Property Costs

Other non-producing property costs include care and maintenance costs, holding costs, settlement costs and other costs associated with non-producing properties net of proceeds received from those properties related to property options sold and assets sold. Other non-producing property costs in the first quarter of 2007 decreased by $1.6 million compared with the corresponding 2006 period primarily due to $1.8 million of costs incurred at the Caribou mine prior to its sale in August 2006.

Income and Mining Tax Provision (Recovery)

Income and mining tax provision in the first quarter of 2007 was $7.2 million compared with a recovery of $25.7 million in the first quarter of 2006. The $32.9 million change was primarily due to the recognition of $29.3 million of tax recoveries at Myra Falls and other properties in 2006 compared with tax provisions of $2.0 million and $1.7 million at El Toqui and Myra Falls respectively in the first quarter of 2007.

LIQUIDITY AND FINANCIAL POSITION REVIEW

Working Capital

Working capital as at March 31, 2007 was $116.6 million compared with $109.9 million at December 31, 2006, an increase of $6.7 million.

Current Assets

Total current assets increased by $11.1 million to $208.6 million as at March 31, 2007 compared with December 31, 2006. The main components of current asset changes were as follows:



- Cash and cash equivalents increased by $11.7 million reflecting
improved cash flow generated by stronger metal prices
- Accounts receivable - concentrate decreased by $11.5 million
primarily due to a lower volume of production shipped late in the
first quarter of 2007 compared with late in the fourth quarter of
2006
- Concentrate inventory increased by $11.3 million primarily due to
higher inventory levels at Myra Falls and El Mochito at March 31,
2007 compared with December 31, 2006
- The current portion of future income tax assets decreased by
$3.1 million primarily due to utilization of $1.9 million and
$1.2 million of current future income tax assets at the Myra Falls
and El Toqui mines


Current Liabilities

Current liabilities increased by $4.4 million to $92.0 million as at March 31, 2007 compared with December 31, 2006. The main components of the current liabilities changes were as follows:



- Accounts payable and accrued liabilities increased by $4.2 million
primarily due to increased accounts payable at Myra Falls
- Provisional payments for concentrate inventory shipped and not priced
represent payments received for concentrate shipments that were not
recognized as revenue. The balance as at March 31, 2007 was
$23.4 million slightly lower than at December 31, 2006. Please refer
to the table in Gross Sales Revenue section of this news release for
additional details
- Income and mining taxes payable increased by $1.5 million primarily
due to tax provisions established in the first quarter of 2007 at El
Mochito


Long-term Investments

As at March 31, 2007, long-term investments were $34.3 million an increased of $19.6 million from $14.7 million at December 31, 2006. The increase was primarily due to new accounting requirements for financial instruments and comprehensive income required by the Canadian Institute of Chartered Accountants ("CICA") and adopted by the Company on January 1, 2007.

Restricted Promissory Note

The Company held two restricted promissory notes at the end of March 31, 2007 and December 31, 2006 of $62.3 million related to the Red Mile transactions(1) in 2004 and 2005. The interest earned and a portion of the principal of these restricted promissory notes will be used to meet the Company's royalty obligation.

---------------
(1) For further information on the Red Mile transactions please see the
Company's most recent Annual Report filed on SEDAR or available at
the Company's website at www.breakwater.ca.

Royalty Obligation

The royalty obligation of $62.5 million relates to the royalty amounts received from the 2004 and 2005 Red Mile transactions. See restricted promissory note above.

Reclamation and Closure Cost Accrual

Reclamation and closure costs represent the Company's obligation for reclamation and severance costs accrued for its mine sites. As there is no law, regulation or contract in Honduras related to reclamation and closure costs, GAAP does not permit the Company to set up a liability for reclamation at the El Mochito mine.

At March 31, 2007, total accrued reclamation and closure costs were $40.2 million compared with $40.6 million at December 31, 2006. Of the $40.2 million, $7.5 million is classified as current and is expected to be spent over the next 12 months at Myra Falls, Bouchard-Hebert, Nanisivik and Bougrine.



Reclamation and Closure Cost Accrual at March 31, 2007

($ millions) Current Long-term Total
-------------------------------------------------------------------------
Myra Falls 2.2 25.2 27.4
El Mochito 0.0 1.6 1.6
El Toqui 0.0 3.8 3.8
Langlois 0.0 1.3 1.3
Bouchard-Hébert 2.0 0.1 2.1
Nanisivik 2.3 0.4 2.7
Bougrine 1.0 0.3 1.3
-------------------------------------------------------------------------
Total 7.5 32.7 40.2
-------------------------------------------------------------------------


The Company incurred expenditures of $1.2 million in reclamation and closure costs in the first quarter of 2007 compared with $1.7 million in the first quarter of 2006.

Future Income Tax Liabilities

As at March 31, 2007, future tax liabilities were $10.2 million, an increase of $3.1 million from December 31, 2006. The increase in future tax liabilities was primarily due to tax liabilities associated with adoption of new CICA accounting requirements and additional mining duties taxes established for the Langlois mine.

Shareholders' Equity

Shareholders' equity at March 31, 2007 was $348.3 million compared with $308.6 million at December 31, 2006. The increase of $39.7 million was primarily due to net earnings of $15.3 million, the exercise of warrants of $6.2 million and the impact of adopting new accounting policies as required by the CICA of $17.2 million.



Shareholders' Contri- Retained
Equity Capital buted earnings
($000's) stock Warrants surplus (deficit)
-------------------------------------------------------------------------
As at December 31, 2006 167,093 8,561 793 139,795
Adjustment of opening balance on
adoption of CICA accounting
policy - - - 5,706
Value ascribed to options
exercised under stock-based
compensation 321 - (321) -
Employee share option plan -
proceeds of options exercised 537 - - -
Employee share purchase plan 60 - - -
Exercise of warrants 6,160 - - -
Stock-based compensation - - 529 -
Net earnings - - - 15,290
-------------------------------------------------------------------------
As at March 31, 2007 174,171 8,561 1,001 160,791



Cumu-
lative
Other trans- Total
Shareholders' compre- lation share-
Equity hensive adjust holders'
($000's) income -ments equity
-------------------------------------------------------------------------
As at December 31, 2006 - (7,689) 308,553
Adjustment of opening balance on
adoption of CICA accounting
policy 3,804 7,689 17,199
Value ascribed to options
exercised under stock-based
compensation - - 0
Employee share option plan -
proceeds of options exercised - - 537
Employee share purchase plan - - 60
Exercise of warrants - - 6,160
Stock-based compensation - - 529
Net earnings - - 15,290
-------------------------------------------------------------------------
As at March 31, 2007 3,804 0 348,328


In the first quarter of 2007, the Company issued the following Common Shares: 1,041,131 following the exercise of employee share options; 36,990 pursuant to the Company's employee share purchase plan; and, 30,801,410 pursuant to warrants exercised. On March 2, 2007 and March 14, 2007, Dundee Corporation ("Dundee") exercised 15,400,705 and 15,400,705 warrants respectively to purchase 30,801,410 Common Shares at $0.20 per Common Share.

Capital Expenditures

The Company invested $23.7 million in mineral properties and fixed assets in the first quarter of 2007.

In the first quarter of 2007, $9.4 million of capital expenditures at Langlois consisted primarily of $4.7 million of underground development for Langlois, $4.9 million of underground development, preproduction and equipment for Grevet B and $3.2 million of equipment, buildings and infrastructure at Langlois partially offset by $3.7 million of preproduction contribution from mining operations.

Myra Falls' capital expenditures of $6.5 million in the first quarter of 2007 consisted primarily of $1.6 million of mobile equipment purchases, $1.6 million for development at Lynx 5/6, $1.3 million of deferred development, $0.8 million Lynx pit development and $0.7 million for ramp development.

In the first quarter of 2007, $3.3 million of capital expenditures at El Mochito consisted primarily of $1.3 million repairs to the new tailings facility and upgrading and closure costs of the old tailings facility, $0.8 million for equipment and buildings and $0.8 million of mine development.

El Toqui capital expenditures of $4.0 million in the first quarter of 2007 consisted primarily of $1.6 million of development, $0.9 million of equipment purchases, $0.6 million of Concordia development and $0.4 million for the intense leach reactor construction and commissioning.

Financial Capability

With the existing working capital, the current metal prices and current C$/US$ exchange rate, the Company is well positioned to carry out its operating, capital, exploration and environmental remediation programs in 2007. The Company's financial capability is sensitive to metal prices, smelter treatment charges and the C$/US$ exchange rate. Please refer to pages seven and eight of the Company's 2006 Annual Report.



OPERATING REVIEW - QUARTER ENDED MARCH 31, 2007 AND 2006

-------------------------------------------------------------------------
Depreciation,
Contribution depletion,
(loss) from reclamation
mining and closure Capital
Net revenue activities(1) costs expenditures
-------------------------------------------------------------------------
($ millions) 2007 2006 2007 2006 2007 2006 2007 2006
-------------------------------------------------------------------------
Myra Falls 14.3 28.2 2.0 7.1 1.7 3.2 6.5 3.7
El Mochito 20.9 21.5 15.1 11.8 1.0 1.8 3.3 2.1
El Toqui 22.8 10.0 12.5 6.4 2.1 0.6 4.0 1.2
Langlois(a) 0.0 0.0 0.0 0.0 0.0 0.0 9.4 2.2
Other 0.0 (3.9)(2) (0.2) (4.3) 0.3 0.4 0.5 0.0
-------------------------------------------------------------------------
Total 58.0 55.8 29.4 21.0 5.1 6.0 23.7 9.2
-------------------------------------------------------------------------
(1) After non-cash costs. (a) First concentrate shipped
November 2006.
(2) Net realised from metal
hedging activities.


Production Results
Consolidated production is set forth in the following table.

First Quarter
-----------------------
All Mines 2007 2006
-------------------------------------------------------------------------
Ore Milled (tonnes) 547,415 527,580
Zinc (%) 5.7 6.0
Concentrate Production (tonnes)
Zinc 54,798 53,877
Copper 6,214 7,343
Lead 4,554 3,723
Gold 1,329 1,186
Metal in Concentrates
Zinc (tonnes) 27,534 27,878
Copper (tonnes) 1,352 1,751
Lead (tonnes) 3,134 2,536
Silver (ounces) 819,867 670,137
Gold (ounces) 20,198 17,275
-------------------------------------------------------------------------


Aggregate production of zinc in concentrate in the first quarter of 2007 was 60.7 million pounds compared with 61.4 million pounds in 2006, a 1% reduction. The reduction was primarily due to lower zinc head grades and lower milled tonnes at Myra Falls and El Mochito, offset by production at Langlois.



Zinc Production (million pounds of zinc
contained in concentrate) First Quarter
-------------------------------------------------------------------------
2007 2006 %
-------------------------------------------------------------------------
Myra Falls 15.3 22.8 (32.9)
El Mochito 18.5 23.1 (19.9)
El Toqui 17.3 15.5 11.6
Langlois(a) 9.6 0.0 -
-------------------------------------------------------------------------
Total zinc production 60.7 61.4 (1.1)
-------------------------------------------------------------------------
(a) First concentrate shipped November 2006.


Production of copper in concentrate decreased 26% in the first quarter of 2007 from the same period in 2006 due to lower milled tonnes and lower copper grades at Myra Falls, offset by production at Langlois.



Copper Production (million pounds of copper
contained in concentrate) First Quarter
-------------------------------------------------------------------------
2007 2006 %
-------------------------------------------------------------------------
Myra Falls 2.6 3.9 (33.3)
Langlois(a) 0.3 0.0 -
-------------------------------------------------------------------------
Total copper production 2.9 3.9 (25.6)
-------------------------------------------------------------------------
(a) First concentrate shipped November 2006.


Production of lead in concentrate increased 23% during the first quarter
007 due to higher lead head grades at El Mochito.

Lead Production (million pounds of lead
contained in concentrate) First Quarter
-------------------------------------------------------------------------
2007 2006 %
-------------------------------------------------------------------------
El Mochito 6.9 5.6 23.2
-------------------------------------------------------------------------
Total lead production 6.9 5.6 23.2
-------------------------------------------------------------------------


Silver in concentrate increased 22%, quarter over quarter due to higher silver head grades from Myra Falls and El Mochito and the addition of production from Langlois.



Silver Production (ounces of silver
contained in concentrate) First Quarter
-------------------------------------------------------------------------
2007 2006 %
-------------------------------------------------------------------------
Myra Falls 330,150 225,225 46.6
El Mochito 448,386 429,368 4.4
El Toqui 22,246 15,544 43.1
Langlois(a) 19,085 0 -
-------------------------------------------------------------------------
Total silver production 819,867 670,137 22.3
-------------------------------------------------------------------------
(a) First concentrate shipped November 2006.


Gold in concentrate increased due to higher gold production from Myra
Falls and higher gold production from the Aserradero zone at El Toqui.

Gold Production (ounces of gold
contained in concentrate) First Quarter
-------------------------------------------------------------------------
2007 2006 %
-------------------------------------------------------------------------
Myra Falls 6,316 5,977 5.7
El Toqui 13,882 11,298 22.9
-------------------------------------------------------------------------
Total gold production 20,198 17,275 16.9
-------------------------------------------------------------------------


Myra Falls Production
The following table sets forth Myra Falls' production for the periods
presented.
First Quarter
---------------------
2007 2006
-------------------------------------------------------------------------
Ore Milled (tonnes) 185,396 208,319
Zinc (%) 4.4 5.9
Copper (%) 0.9 1.1
Silver (g/t) 65 44
Gold (g/t) 1.6 1.7
Concentrate Production
Zinc (tonnes) 13,699 19,574
Zinc Recovery (%) 85.8 84.1
Zinc Grade (%) 50.8 52.8
Gold Recovery (%) 20.6 16.2
Gold Grade (g/t) 4.5 3.0
Copper (tonnes) 5,402 7,343
Copper Recovery (%) 73.6 74.5
Copper Grade (%) 22.1 23.9
Gold Recovery (%) 44.0 23.1
Gold Grade (g/t) 24.5 11.3
Gold (tonnes) 0.4 9.8
Recovery (%) 3.0 12.3
Grade (g/t) 6,393 4,525
Metal in Concentrates
Zinc (tonnes) 6,953 10,335
Copper (tonnes) 1,193 1,751
Silver (ounces) 330,150 225,225
Gold (ounces) 6,316 5,977
Total cash costs per lb. payable zinc sold (US$) (0.11) 0.74
-------------------------------------------------------------------------


Production of zinc in concentrate decreased during the first quarter of 2007 compared with the same period in 2006 due to fewer milled tonnes and lower zinc grades. The lower zinc head grade was related to a higher proportion of the production coming from development headings and mining of lower grade zones in the HW deposit. Production was hindered during the first quarter of 2007 due to delays in 2006 in establishing ventilation to the Battle-Gap area which curtailed development of new mining areas.

Production of gold in concentrate was higher during the first quarter of 2007 compared with the same period in 2006. During the latter half of 2006, production of a separate high grade gravity gold product commenced and during the first quarter of 2007, further gold recovery increases were achieved. By directing the gold rich gravity stream directly into the copper flotation cleaning circuit, gold recovery increased. During the first quarter of 2007, 45.8% of the gold was recovered in high payment products, with a 67.6% overall gold recovery. During the same period in 2006, 39.5% of the gold was recovered in high payment products, with a 51.6% overall gold recovery.

During the first quarter of 2007, production from the Lynx open pit added higher grade copper to the circuit.

Copper concentrate produced continues to show reduced lead and zinc penalty content. The re-designed copper flotation circuit, commissioned mid-2006, continues to be optimized. The first quarter 2007 lead and zinc penalty decreased from the fourth quarter 2006 penalty by an additional 1.9%. During the first quarter of 2007, the lead and zinc penalty averaged 12.5%. The first quarter 2006 penalty averaged 14.4%, which included both the old and new copper circuits. In the first quarter of 2005, the lead and zinc penalty averaged 17.0%.

Myra Falls Outlook

The ventilation raise connecting the surface ramp to the underground operation was completed in January 2007. Now that additional ventilation has been established, there will be an increase in development in the western portions of the mine which will open up more stoping areas, allowing production rates to rise. The Company has purchased an electric/hydraulic jumbo, two additional 30 tonne haulage trucks, a scooptram and a rock bolt jumbo. These pieces of equipment are expected to arrive during the second quarter of 2007.

Development of the Lynx 5 deposit continued during the first quarter of 2007 and production is expected to commence from this zone during the second quarter of 2007. Development is also proceeding on the Price deposit, with production expected later in 2007.

Underground directional drilling is planned in order to provide more information on the Marshall zone. The current limited geological information on the Marshall zone results in different interpretations of the geometry and orientation of the zone necessitating infill drilling. Marshall infill drilling was originally planned once the 24 Level development was completed in 2008. Directional drilling is expected to provide the data required to make a development decision in 2008 regarding the Marshall zone.

Myra Falls is expected to achieve its 2007 forecast for payable metal. Development in the Battle-Gap and additional equipment purchases are expected to remove production bottlenecks in the western portion of the mine.

El Mochito Production

The following table sets forth El Mochito's production for the periods presented.



First Quarter
---------------------
2007 2006
-------------------------------------------------------------------------
Ore Milled (tonnes) 155,184 183,429
Zinc (%) 6.0 6.3
Lead (%) 2.6 1.7
Silver (g/t) 104 84
Concentrate Production
Zinc (tonnes) 16,348 20,199
Recovery (%) 89.5 91.3
Grade (%) 51.2 52.0
Lead (tonnes) 4,554 3,723
Recovery (%) 79.1 80.7
Grade (%) 68.8 68.1
Metal in Concentrates
Zinc (tonnes) 8,378 10,500
Lead (tonnes) 3,134 2,536
Silver (ounces) 448,386 429,368
Total cash costs per lb. payable zinc sold (US$) (0.06) 0.42
-------------------------------------------------------------------------


As expected, milled tonnage decreased during the first quarter of 2007 compared with the same period in 2006. The focus of mining activities were on development of new production areas as well as development of exploration headings.

Production of zinc in concentrate decreased during the first quarter of 2007 compared with the same period in 2006 due to fewer milled tonnes and lower zinc grades. Production of lead in concentrate was higher during the first quarter of 2007 compared with the same period in 2006 due to higher lead head grades encountered in the Salva Vida deposit.

El Mochito Outlook

Recoveries of zinc and lead were slightly lower during the first quarter of 2007 due to the higher lead head grade. During the second quarter of 2007, an additional flotation cell bank will be added to the lead circuit which is expected to improve recoveries by the third quarter of 2007.

Storm damage in August 2006 necessitated a repair to the geomembrane liner of the new Soledad tailings facility which delayed commissioning into the third quarter of 2007. Once complete, Soledad is expected to have capacity for seven years at current production rates and the current tailings impoundment facility, Pozo Azul, will be reclaimed.

El Toqui Production

The following table sets forth El Toqui's production for the periods presented.



First Quarter
---------------------
2007 2006
-------------------------------------------------------------------------
Ore Milled (tonnes) 129,633 135,832
Zinc (%) 6.7 5.7
Gold (g/t) 4.0 2.9
Concentrate Production
Zinc (tonnes) 15,992 14,104
Recovery (%) 91.1 90.6
Grade (%) 49.2 49.9
Gold (tonnes) 1,329 1,176
Recovery (%) 56.7 68.2
Grade (g/t) 208.0 218.8
Metal in Concentrates
Zinc (tonnes) 7,868 7,043
Silver (ounces) 22,246 15,544
Gold (ounces) 13,881 11,298
Total cash costs per lb. payable zinc sold (US$) 0.86 0.31
-------------------------------------------------------------------------


Milled tonnage decreased during the first quarter of 2007 compared with the same period in 2006 due to a planned shutdown of the ball mills for maintenance. Commissioning of the Gekko intense leach reactor has taken longer than anticipated and the first dore was produced in April 2007.

Production of zinc and gold in concentrate increased during the first quarter of 2007 compared with the same period in 2006 due to higher zinc and gold grades respectively.

During the first quarter of 2007, ramp development to access the Concordia deposit continued with a total of 725 metres of development completed to date. In addition, a 24 hole - 1,792 metre - in-fill surface drilling campaign was performed on the Concordia-North block, which hosts Zn-Pb-Ag-Cu mineralization. Development of the Concordia deposit is on schedule with production expected in the second half of 2007.

El Toqui Outlook

During the first quarter of 2007, a total of 10,638 metres of surface exploration diamond drilling was completed on various targets at El Toqui including 3,094 metres on the Porvenir deposit to increase the indicated resources as part of an infill drilling campaign. The Porvenir deposit remains open to the north-west and south-east and the Company continues to attempt to delineate the outline of this deposit.

The Company also performed sediment sampling, geological mapping and rock sampling on other exploration targets in the first quarter of 2007.

The Company is encouraged by its exploration results and if these programs are successful in increasing the mineral reserves and resources at El Toqui, the Company will conduct a feasibility study to determine the optimal size and location of a mill to increase production throughput.

Langlois Production

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

Development drifts continue to be driven between Zone 3, Zone 4 and Zone 97 to the east on Levels 4, 9 and 13. A new ramp from surface was collared during the first quarter of 2007 which is expected to reach the existing Level 4 workings toward the end of the year. The new ramp will improve the overall efficiency of the operation while providing access to mine additional material in the upper portions of Zone 4 between the current mining areas and surface. The mining of this material is not included in the current mine plan and, although lower grade, is economic at current prices.

Production commenced during the fourth quarter of 2006 in Zones 3 and 4 with a total of 77,202 tonnes milled during the first quarter of 2007. The zinc head grade milled during the quarter was lower than the historic grades encountered at Langlois during operation in the late 1990s due to a higher percentage of material originating from mine development and the mining of lower grade but readily available economic material.

Production during the quarter also included the processing of the bulk sample from the Grevet B deposit, located three kilometres south-east of the Langlois mine. The metallurgical results of the Grevet B bulk sample have proven successful and accordingly, Grevet B material will be mined and milled during 2007 and 2008.

The Company currently has five diamond drills operating on the property on surface, three for exploration and two focused on the upper portion of Zone 97 for definition drilling.

The following table sets forth Langlois' production for the first quarter of 2007.



First Quarter
-------------------------------------------------------------------------
Ore Milled (tonnes) 77,202
Zinc (%) 6.4
Copper (%) 0.3
Silver (g/t) 27
Gold (g/t) 0.2
Concentrate Production
Zinc (tonnes) 8,759
Recovery (%) 87.3
Grade (%) 49.5
Copper (tonnes) 812
Recovery (%) 60.8
Grade (%) 19.6
Metal in Concentrates
Zinc (tonnes) 4,335
Copper (tonnes) 159
Silver (ounces) 19,085


Langlois Outlook

The quality of the concentrate increased steadily throughout the first quarter of 2007 as the mill was fine tuned. Iron content in the zinc concentrate was reduced while the concentrate grade was improved.

A 47,000 metre diamond drill program is currently being conducted to investigate the highly prospective extensions of all the known zones containing resources and reserves at the mine. This program will cover an area of 800 vertical metres from surface by two kilometres along the strike of the Langlois deposit. One objective of this program is to move some of the known inferred resources into the indicated category. Very few of the proximal zone extensions have been tested from underground due to a lack of development.

For the first quarter of 2007, Zones 3 and 4 surface extensions were drilled from surface and results are promising. Economic mineralization appears to extend to the surface and consequently a new resource estimate was done for Zone 4. For Zone 3, a resource estimate from surface to 130 metres below surface will be performed during the second quarter of 2007. A surface extension of Zone 97 is currently being tested using two drill rigs and results are expected during the second quarter of 2007.

Zone 3 east extension and the centre of the body located between Level 6 and 8 were partly drilled with two underground rigs. Massive veins with economic grades were identified in this area; however, additional drilling is required in order to upgrade the inferred resources to the reserve category. Drilling of the east extension is expected to be completed and the results compiled during the second quarter of 2007.

During the first quarter of 2007, drilling of the Zone 3 east plunge extension between Level 11 and 13 on Level 13 was started with an underground drill rig. Drilling is ongoing and the economic continuity has yet to be determined. One 350 metre exploration hole from Level 13 completed in March 2007, targeted an anomaly south of Zone 3 but did not intersect any significant mineralization.

During the second quarter of 2007, Zone 2 (parallel to Zone 3 but about 20-30 metres further north) will be tested from surface. The Zone 97 west extension will also be tested from underground on Level 13 in the second quarter of 2007, targeting a promising intersection obtained in 2006 from surface drilling. The target is located about 400 metres west of the currently known Zone 97. The Zone 3 and 4 east and west extensions will be tested from underground in the second quarter of 2007.

Reinterpretation and re-modeling of all the zones will be carried out during 2007 and will incorporate forecast base metal prices, a consideration of lower cut-off grades and incorporation of all diamond drill intersections and channel samples in order to redefine the economic envelope. By the end of 2007, Langlois will have a fully integrated 3D block model with which to calculate new resource and reserve estimates.

During the first quarter of 2007, the Company continued its systematic drilling program over the Langlois property. The main focus of this drill program is to cover un-explored ground around the Langlois mining leases, both with geological logging and geophysical probing with new technologies such as InfiniTEM(C).

During the first quarter of 2007, Metco Resources Inc. ("Metco") announced that a pre-feasibility study will be conducted in 2007 on the Orphee Deposit (50% Breakwater, 50% Metco). The Orphee deposit is located six kilometres from the Langlois mill. Should the results of the pre-feasibility be positive, the Orphee deposit could become a source of additional mill feed for Langlois, which currently has excess mill capacity. Following Metco's announcement, Breakwater decided to perform a delineation drilling program over the western part of the Orphee Deposit over which it has 100% of the mining rights to enhance the scope of the pre-feasibility study.

Virginia Mines Inc. - Coulon Project

In the first quarter of 2007, Virginia Mines Inc. ("Virginia") began a new campaign on the Coulon project, located in the James Bay region of Quebec. In accordance with an agreement entered into in May 2006, the Company has the option to acquire a 50% interest in the Coulon property in return for $6.5 million in exploration expenditures and cash payments totalling $180,000 over an 8-year period. Virginia is conducting geophysical surveying and diamond drilling. Mobilization of a second drill rig is scheduled early in the second quarter of 2007 in order to accelerate the exploration work. Both rigs will focus on delineating additional resources within known lenses, as well as exploring new drill targets. The geophysical surveys consist of expanding the ground InfiniTEM(C) coverage to the south of Lens 43 as well as conducting Max-Min(C) surveys over the 2006 heliborne EM targets.

Other Properties

The reclamation work is largely complete at the Bouchard-Hebert, Bougrine and Nanisivik properties, with Nanisivik to be fully reclaimed in 2007. The mills at Bouchard-Hebert and Bougrine remain intact pending exploration results in the immediate vicinity or elsewhere throughout the Company's properties.

NON-GAAP RECONCILIATION

Total cash costs per pound of payable zinc sold 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 GAAP and is not necessarily indicative of cash provided from operating activities or operating expenses as determined under GAAP. This measure is intended to provide investors with information about the cash generating capabilities of the Company's operating activities in a given period which is the same purpose for which the Company uses this information.



Non-GAAP reconciliation of total cash
cost per pound of payable zinc sold
to consolidated financial statements First Quarter
-------------------------------------------------------------------------
2007 2006
-------------------------------------------------------------------------
By-product credit ($ millions)
Gross sales revenue per financial statements (77.9) (80.7)
Less zinc sales revenue 50.4 72.2
-------------------------------------------------------------------------
(27.5) (8.5)
Treatments and marketing charges ($ millions)
per financial statements 19.9 24.8
Direct operating costs ($ millions) per
financial statements 23.6 28.8
-------------------------------------------------------------------------
Total cash costs - C$ ($ millions) 16.0 45.1
C$/US$ exchange rate 1.1683 1.1559
-------------------------------------------------------------------------
Total cash costs - US$ ($ millions) 13.7 39.0

Zinc pounds sold (millions) 27.7 61.9

Total cash cost per pound of payable zinc sold (US$)
By-product credit (0.85) (0.12)
Treatment and marketing costs 0.61 0.35
Direct operating costs 0.73 0.40
-------------------------------------------------------------------------
Total 0.49 0.63
-------------------------------------------------------------------------


SUMMARY OF QUARTERLY RESULTS
2005 2005 2005 2006
------------------------------------
Q2(a) Q3(a) Q4 Q1
-------------------------------------------------------------------------
Gross sales revenue ($ millions) 92.4 71.9 57.4 80.7
Net earning (loss) ($ millions) 2.1 (1.2) 9.3 38.3
Basic earnings per share $0.01 $0.00 $0.02 $0.10
Weighted-average number of Common
Shares outstanding (millions) 367.4 369.5 374.2 382.0
Diluted earnings per share $0.01 $0.00 $0.02 $0.09
C$/US$ realized exchange rate 1.2429 1.2019 1.1744 1.1559
Average realized zinc price (US$/t) 1,252 1,296 1,502 2,221
Average realized zinc price (C$/t) 1,556 1,558 1,764 2,567
Concentrate tonnes sold 118,022 80,205 60,391 67,355
Concentrate tonnes produced 88,782 76,014 68,841 66,129
-------------------------------------------------------------------------


------------------------------------
2006 2006 2006 2007
------------------------------------
Q2 Q3 Q4 Q1
-------------------------------------------------------------------------
Gross sales revenue ($ millions) 101.2 112.0 158.3 77.9
Net earning (loss) ($ millions) 28.6 39.2 50.4 15.3
Basic earnings per share $0.08 $0.10 $0.13 $0.04
Weighted-average number of Common
Shares outstanding (millions) 383.8 384.3 385.0 396.4
Diluted earnings per share $0.07 $0.09 $0.12 $0.04
C$/US$ realized exchange rate 1.1239 1.1187 1.1422 1.1683
Average realized zinc price (US$/t) 2,895 3,363 4,227 3,434
Average realized zinc price (C$/t) 3,226 3,762 4,828 4,012
Concentrate tonnes sold 59,779 61,385 73,230 39,333
Concentrate tonnes produced 59,906 59,420 67,058 66,895
-------------------------------------------------------------------------
(a) Includes results of the Bougrine mine which closed in September 2005.


The quantity and mix of concentrates sold directly affects gross sales revenue. The recognition of revenue from the sale of concentrate can vary from quarter to quarter for the reasons discussed in the "Gross Sales Revenue" section of this news release. As all sales are based in US dollars, the US dollar's general weakening against the Canadian dollar over the past eight quarters has reduced the realized Canadian dollar gross sales revenue.

TRANSACTIONS WITH RELATED PARTIES

In the first quarter of 2007, an affiliated company of a significant shareholder of the Company provided consulting services of $50,000.

ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES

The notes to the Company's December 31, 2006 audited consolidated financial statements outline the Company's significant accounting policies. The section below entitled Accounting Changes describes changes to the Company's accounting policies. Pages 25 and 26 of the 2006 Annual Report contain a discussion of certain accounting estimates that are considered particularly important, as they require management to make significant judgments, some of which relate to matters that are inherently uncertain. Readers are encouraged to refer to the 2006 Annual Report to review that discussion.

OUTSTANDING SHARE DATA AND FULL DILUTION CALCULATION

The Company is authorized to issue an unlimited number of Common Shares and 200,000,000 preferred shares, issueable in series. There are no preferred shares outstanding. Each Common Share entitles the holder of record thereof to one vote at all meetings of shareholders of the Company, except at meetings at which only holders of another class or series of shares of the Company are entitled to vote. The table set forth below summarizes the Capital Stock.



Common Shares or Securities Convertible into Common Shares May 3, 2007
-------------------------------------------------------------------------
Issued and outstanding 417,735,984
Share options outstanding weighted-average exercise
price $1.09 8,769,171
Warrants granted at $1.00, expire January 28, 2009
- traded on TSX 33,569,829
-------------------------------------------------------------------------
Future fully diluted 460,074,984
-------------------------------------------------------------------------
-------------------------------------------------------------------------


RISKS, UNCERTAINTIES AND OTHER INFORMATION

Readers are encouraged to read and consider the risk factors, and additional information regarding the Company, included in its most recent Annual Report and Form 40-F/Annual Information Form filed with the Canadian securities regulators and the United States Securities and Exchange Commission (the "SEC"), as applicable, a copy of which is posted on the SEDAR website at www.sedar.com and/or the SEC's website at www.sec.gov.

CAUTION ON FORWARD-LOOKING INFORMATION

This news release contains certain statements which constitute forward-looking information. These forward-looking statements are not descriptive of historical matters and may refer to management's expectations or plans. These statements include, but are not limited to, statements concerning the Company's business objectives and plans; future trends in the Company's industry; future production costs and volumes; mineral grades, reserve and resource estimates and types; sales volumes and realized prices; capital spending plans; exploration plans; expansion plans; expected market fundamentals and prices; availability of equipment and supplies; expected plant availability; success of process changes; the Company's processing technologies; global economic growth and industrial demand; production of base metal concentrates by the Company's operations; future metal prices and treatment charges; future royalties payable; changes in global metal and concentrate inventories; currency exchange rates; costs of energy, materials and supplies; the outcome of disputes and legal proceedings in which the Company is involved; future effective tax rates; and future benefits costs.

Inherent in forward-looking statements are risks and uncertainties beyond the Company's ability to predict or control, including risks that may affect the Company's operating or capital plans, including risks generally encountered in the development and operation of mineral properties and processing facilities such as unusual or unexpected geological formations, unanticipated metallurgical difficulties, ground control problems, process upsets and equipment malfunctions; risks associated with labour disturbances and unavailability of skilled labour; fluctuations in the market prices of the Company's principal products, which are cyclical and subject to substantial price fluctuations; risks created through competition for mining properties; risks associated with lack of access to markets; risks associated with mineral and resource estimates, including the risk of errors in assumptions or methodologies; risks posed by fluctuations in exchange rates and interest rates, as well as general economic conditions; risks associated with environmental compliance and permitting, including those created by changes in environmental legislation and regulation; risks associated with the Company's dependence on third parties in the provision of transportation and other critical services; risks associated with aboriginal title claims and other title risks; social and political risks associated with operations in foreign countries; and risks associated with legal proceedings.

Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this news release. Such statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to, the following assumptions: that there is no material deterioration in general business and economic conditions; that there is no unanticipated fluctuation of interest rates and foreign exchange rates; that the supply and demand for, deliveries of, and the level and volatility of prices of zinc, copper, lead, gold and silver and the Company's other primary metals and minerals develop as expected; that the Company receives regulatory and governmental approvals for its development projects and other operations on a timely basis; that the Company is able to obtain financing for its development projects on reasonable terms; that there is no unforeseen deterioration in the Company's costs of production or production and productivity levels; that the Company is able to continue to secure adequate transportation for its products; that the Company is able to procure mining equipment and operating supplies (including tires) in sufficient quantities and on a timely basis; that engineering and construction timetables and capital costs for the Company's development and expansion projects are not incorrectly estimated or affected by unforeseen circumstances; that costs of closure of various operations are accurately estimated; that there are no unanticipated changes to market competition; that the Company's reserve estimates are within reasonable bounds of accuracy (including with respect to size, grade and recoverability) and that the geological, operational and price assumptions on which these are based are reasonable; that environmental and other proceedings or disputes are satisfactorily resolved; and that the Company maintains its ongoing relations with its employees and with its business partners and joint venturers.

Readers are cautioned that the foregoing list of important factors and assumptions is not exhaustive. Forward-looking statements are not guarantees of future performance. Events or circumstances could cause the Company's actual results to differ materially from those estimated or projected and expressed in, or implied by, these forward-looking statements. Readers should also carefully consider the matters discussed under "Risk Factors" in the Company's Annual Information Form. The Company undertakes no obligation to update publicly or otherwise revise any forward-looking statements or the foregoing list of factors, whether as a result of new information or future events or otherwise, except as may be required under applicable laws.

ACCOUNTING CHANGES

Financial Instruments, Hedges and Comprehensive Income

On January 1, 2007, the Company adopted the CICA's new accounting requirements for securities, hedging derivatives and certain other financial instruments. Under these new rules, the Company is required to measure certain securities and hedging derivatives at fair value and include a new section in Shareholders' Equity, called Other Comprehensive Income, to report unrealized gains or losses related to: certain available-for-sale securities, cash flow hedges and foreign exchange gains or losses on the Company's net investment in foreign operations.

Certain of the Company's investment securities (referred to as available-for-sale securities) are recorded at fair value under the new rules; however, the requirements for recognizing gains or losses in net income are unchanged. Unrealized gains or losses are deferred in Other Comprehensive Income until the securities are sold or there is an impairment that is other than temporary. It is only at that time that any gain or loss is recorded in net earnings. Securities whose sale is restricted or that are not traded in an active market are also included in available-for-sale securities, but continue to be recorded at cost.

Any hedging derivatives that the Company enters into in the future will be recorded at fair value under the new rules, but changes in fair value will only impact net earnings to the extent that they do not perfectly offset changes in the fair value of the item that the Company is hedging (i.e.: hedge ineffectiveness). Any hedge ineffectiveness would be recorded in net earnings. For any of the Company's future hedging programs, it is expected that such hedges would very closely match the items that the Company hedges and, as a result, the Company would not expect a significant amount of hedge ineffectiveness to arise.



Breakwater Resources Ltd.
Consolidated Balance Sheets
(Expressed in thousands of Canadian dollars)
(Unaudited)
-------------------------------------------------------------------------
March 31, December 31,
2007 2006
-------------------------------------------------------------------------
Assets

Current
Cash and cash equivalents 93,156 81,412
Restricted cash 1,033 1,221
Short-term investments 4,112 4,120
Accounts receivable - concentrate 1,154 12,687
Other receivables 12,974 12,676
Concentrate inventory 55,034 43,686
Materials and supplies inventory 23,482 22,904
Prepaid expenses and other current assets 6,040 4,029
Future income tax assets 11,630 14,745
-------------------------------------------------------------------------
Total current assets 208,615 197,480

Future income tax asset, long-term 11,951 13,440
Reclamation deposits 13,500 13,500
Mineral properties and fixed assets 225,808 207,884
Long-term investments 34,277 14,704
Restricted promissory notes 62,285 62,285
-------------------------------------------------------------------------
556,436 509,293
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current
Accounts payable and accrued liabilities 47,350 43,128
Provisional payments for concentrate inventory
shipped and not priced 23,440 24,246
Short-term debt including current portion of
long-term debt 2,425 2,169
Income and mining taxes payable 11,314 9,798
Current portion of reclamation, closure cost
accruals and other environmental obligations 7,499 8,267
-------------------------------------------------------------------------
Total current liabilities 92,028 87,608
Deferred income 6,124 6,277
Long-term lease obligations 425 501
Royalty obligations 62,479 62,479
Reclamation, closure cost accruals and other
environmental obligations 32,713 32,293
Employee future benefits 4,148 4,493
Future income tax liabilities 10,191 7,089
-------------------------------------------------------------------------
Total liabilities 208,108 200,740
Shareholders' equity 348,328 308,553
-------------------------------------------------------------------------
556,436 509,293
-------------------------------------------------------------------------
-------------------------------------------------------------------------



Breakwater Resources Ltd.
Consolidated Statements of Operations and Retained Earnings (Deficit)
(Expressed in thousands of Canadian dollars except share and per share
amounts)
(Unaudited)

-------------------------------------------------------------------------
For the periods ended March 31 2007 2006
-------------------------------------------------------------------------

Gross sales revenue 77,947 80,658
Treatment and marketing costs 19,920 24,849
-------------------------------------------------------------------------
Net revenue 58,027 55,809
-------------------------------------------------------------------------

Operating costs
Direct operating costs 23,593 28,813
Depreciation and depletion 4,102 5,039
Reclamation and closure costs 953 942
-------------------------------------------------------------------------
28,648 34,794
-------------------------------------------------------------------------
Contribution from mining activities 29,379 21,015
-------------------------------------------------------------------------
Other expenses (income)
General and administrative 3,963 3,541
Interest and financing 1,156 1,413
Investment and other income (1,690) (1,587)
Other 291 1,255
-------------------------------------------------------------------------
3,720 4,622
-------------------------------------------------------------------------
Earnings before the following: 25,659 16,393
-------------------------------------------------------------------------

Exploration expenses 2,671 1,631
Other non-producing property costs 495 2,116
Income and mining tax provision (recovery) 7,203 (25,692)
-------------------------------------------------------------------------
10,369 (21,945)
-------------------------------------------------------------------------
Net earnings 15,290 38,338
Retained earnings (deficit), beginning of period 139,795 (172,928)
Change in accounting policy 5,706 (16,735)
-------------------------------------------------------------------------
Retained earnings (deficit), end of period 160,791 (151,325)
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Basic earnings per Common Share $ 0.04 $ 0.10
Diluted earnings per Common Share $ 0.04 $ 0.09
Basic weighted-average number of Common Shares
outstanding (000's) 396,441 382,030
-------------------------------------------------------------------------
-------------------------------------------------------------------------



Breakwater Resources Ltd.
Consolidated Statement of Accumulated Other Comprehensive Income (Loss)
(Expressed in thousands of Canadian dollars)
(Unaudited)

-------------------------------------------------------------------------
For the periods ended March 31 2007
-------------------------------------------------------------------------

Balance at beginning of period 11,980
Reclassification of cumulative translation adjustments (7,689)
Other comprehensive loss (487)
-------------------------------------------------------------------------

Balance at end of period 3,804
-------------------------------------------------------------------------
-------------------------------------------------------------------------



Breakwater Resources Ltd.
Consolidated Statement of Other Comprehensive Income (Loss)
(Expressed in thousands of Canadian dollars)
(Unaudited)

-------------------------------------------------------------------------
For the periods ended March 31 2007
-------------------------------------------------------------------------

Net earnings 15,290
-------------------------------------------------------------------------

Other comprehensive income (loss), net of income taxes:
Unrealized losses on translating financial statements
of self sustaining foreign operations (616)
Unrealized loss on short-term available-for-sale securities,
net of income tax provision of $37,000 (167)
Unrealized gain on long-term available-for-sale securities,
net of income tax provision of $66,000 296
-------------------------------------------------------------------------
Other comprehensive loss, net of income taxes (487)
-------------------------------------------------------------------------

Comprehensive income 14,803
-------------------------------------------------------------------------
-------------------------------------------------------------------------



Breakwater Resources Ltd.
Consolidated Statements of Cash Flow
(Expressed in thousands of Canadian dollars)
(Unaudited)

-------------------------------------------------------------------------
For the periods ended March 31 2007 2006
-------------------------------------------------------------------------
Operating Activities
Net earnings 15,290 38,338
-------------------------------------------------------------------------

Items not affecting cash:
Depreciation and depletion 4,102 5,039
Gain on sale of investment (306) -
Unrealized gain on investments (2,607) -
Unrealized loss on gold loan - 968
Foreign exchange loss on US dollar denominated
loans - 243
Other non-cash items 100 116
Stock-based compensation 529 396
Unrealized deferred income (153) (153)
Future income taxes 7,718 (25,991)
Reclamation, closure cost accruals and other
environmental obligations 953 942
Employee future benefits 395 443
-------------------------------------------------------------------------
10,731 (17,997)
-------------------------------------------------------------------------
Payment of reclamation, closure cost accruals
and other environmental obligations (1,235) (1,682)
Payment of employee future benefits (740) (747)
Changes in non-cash working capital items 3,194 8,796
-------------------------------------------------------------------------
Net cash provided by operating activities 27,240 26,708
-------------------------------------------------------------------------

Investing Activities
Reclamation deposits - (13,562)
Short-term investments 1,033 2,305
Mineral properties and fixed assets (23,678) (9,216)
Proceeds from sale of fixed assets 18 -
-------------------------------------------------------------------------
Net cash used in investing activities (22,627) (20,473)
-------------------------------------------------------------------------

Financing Activities
Decrease in restricted cash 188 403
Issue of Common Shares for cash 6,757 722
Deferred financing fees - (223)
Decrease in long-term lease obligations (76) (124)
Increase in short-term debt 262 2,847
-------------------------------------------------------------------------
Net cash provided by financing activities 7,131 3,625
-------------------------------------------------------------------------
Net increase in cash during the period 11,744 9,860
Cash and cash equivalents, beginning of period 81,412 18,749
-------------------------------------------------------------------------
Cash and cash equivalents, end of period 93,156 28,609
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Supplemental Information
Cash interest paid 207 218
Cash income and mining taxes paid - 181
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Contact Information

  • Breakwater Resources Ltd. Dave Langille Vice President, Finance and Chief Financial Officer (416) 363-4798 Ext. 236
    or
    Breakwater Resources Ltd. Ann Wilkinson Vice President, Investor Relations (416) 363-4798 Ext. 277