Breakwater Resources Ltd.
TSX : BWR
TSX : BWR.WT.A

Breakwater Resources Ltd.

May 07, 2009 17:01 ET

Breakwater Resources Ltd.'s First Quarter 2009 Financial and Operating Results

TORONTO, ONTARIO--(Marketwire - May 7, 2009) - Breakwater Resources Ltd. (TSX:BWR)(TSX:BWR.WT.A) reports the financial and operating results for the three and month period ended March 31, 2009. The reporting currency is Canadian dollars ("C$" or "$") and all amounts disclosed are in Canadian dollars unless otherwise indicated.

The unaudited interim consolidated financial statements of the Company for the three months ended March 31, 2009 and 2008 were prepared in accordance with GAAP applicable to a going concern which assume that the Company will realize its assets, discharge its liabilities and meet its future obligations in the normal course of business. Accordingly, the unaudited interim consolidated financial statements for the three months ended March 31, 2009 and 2008 do not include any adjustments to the recoverability and reclassification of recorded assets, or the amounts or classification of liabilities, that might be necessary should the Company be unable to continue as a going concern.

While the unaudited interim consolidated financial statements for the three months ended March 31, 2009 and 2008 were prepared on the basis of accounting principles applicable to a going concern, certain market conditions, including falling metal prices and higher operating costs, cast significant doubt upon the validity of this assumption. For the three month period ended March 31, 2009, the Company incurred a loss of $6.5 million, had a net cash decrease of $6.3 million and used $9.7 million net cash in operating activities.

The unaudited interim consolidated financial statements for the three months ended March 31, 2009 and 2008 do not give effect to adjustments to the carrying values of assets and liabilities and the reported revenues and expenses and balance sheet classifications that would be necessary should the Company be unable to continue as a going concern. These adjustments could be material.

The Company believes that cash on hand and the net proceeds of the Offering (as defined below in "Highlights" section), together with the cash generated from operations will be sufficient to fund its operations in 2009 at current commodity prices and operating expenses.

The Company is a mining, exploration and development company which produces zinc, copper, lead and gold concentrates. For the three months ended March 31, 2009, the Company's concentrate production was derived from mines located in Canada, Chile and Honduras. The Company also owns base metal and gold exploration properties in Canada, Honduras, Chile and Tunisia. On November 2, 2008, the Company temporarily suspended operations at Langlois due to the decline in commodity prices and the general deterioration of the economic outlook globally. The temporary suspension of Langlois affects all aspects of the Company's financial results which makes comparisons between years difficult.

CURRENT MARKET CONDITIONS

Current global financial conditions have negatively impacted the economic environment and numerous financial institutions have either gone into bankruptcy or have had to be rescued by governmental authorities. Access to public financing has significantly diminished for companies like Breakwater as a direct result of both sub-prime mortgages and the liquidity crisis affecting credit and equity markets. If the current negative economic environment and market turmoil continue, the Company's ability to operate could be adversely impacted. Also see Financial Capability section of this news release.

HIGHLIGHTS

The Company realized a net loss of $6.5 million or $0.01 per share in the first quarter of 2009 compared with $6.9 million or $0.02 per share in the first quarter of 2008. The change in the results quarter-over-quarter were primarily due to:

- $17.7 million (US$29.9 million) or 22% lower gross sales revenue due to decreases of 52%, 49%, 61% and 27% in the realized US$ prices of zinc, copper, lead and silver respectively partially offset by 12% higher concentrate sales and a 24% weaker C$ versus the US$

- $14.5 million or 30% lower direct operating costs primarily due to the impact of the temporary suspension of Langlois and cost improvements at all remaining operations partially offset by the impact of a weaker C$ versus the US$

- $4.2 million lower exploration expenses due to reduced exploration programs given the current market environment

Concentrate produced in the first quarter of 2009 decreased 33% to 49,803 tonnes primarily due to Langlois being placed on care and maintenance.

On March 26, 2009, the Company entered into a Royalty Agreement ("Agreement") with Red Mile Resources No. 6 Limited Partnership ("Red Mile") whereby the Company sold a "Basic Royalty" on a portion of the payable zinc production, over the life of the Myra Falls mine. The Company received $26.2 million which included royalty income of $23.4 million and indemnity fees and interest of $2.8 million. The royalty income is shown as Royalty Obligations on the balance sheet and will attract a royalty payment over the life of the obligation that will be recorded as interest expense. The fees and interest received will be brought into income over the life of the Agreement. Of the funds received, $23.4 million were placed with a financial institution, for which the Company took back a restricted promissory note. Interest earned on the promissory note and a portion of the principal must be used to fund the expected Basic Royalty payments. The remaining funds of $2.8 million will be used for general corporate purposes (see note 9 of the first quarter 2009 financial statements for details).

At March 31, 2009, the Company estimated that inventories shipped but not recognized for revenue purposes had earnings before tax of $4.0 million on 8,894 tonnes of concentrate compared with earnings before tax of $0.8 million on 25,407 tonnes of concentrate at December 31, 2008. Concentrate produced in the first quarter 2009 decreased to 49,803 tonnes from 73,481 tonnes primarily due to the temporary suspension of operations at Langlois and lower production at Myra Falls and Toqui offset by increased production at Mochito.

On April 9, 2009, the Company closed a public offering for gross proceeds of $20 million (the "Offering"). A total of 200,000,000 units were issued at a price of $0.10, with each unit ("Unit") comprising one common share ("Common Share") and one-half of a warrant (a "Warrant"). Each whole Warrant entitles the holder to purchase one Common Share at a price of $0.12 per share until April 9, 2014. The Common Shares continue to trade under the symbol "BWR" and the Warrants began trading on the Toronto Stock Exchange (the "TSX") on closing under the symbol "BWR.WT.A". The Company granted to the underwriters an over-allotment option to purchase up to 30,000,000 additional Units at a price of $0.10 for each additional Unit on the same terms and conditions of the Offering. On April 16, 2009, the Company completed the sale of an additional 30,000,000 Units for gross proceeds of $3,000,000, pursuant to the exercise of the underwriters' over-allotment option (the "Over-Allotment Exercise"). Net proceeds of the Offering, including the over-allotment option, were approximately $21.4 million. Dundee Corporation purchased 57,960,000 Units under the Offering (equal to 25.2% of the total number of Units that were issued on closing plus the Units issued in respect of the Over-Allotment Exercise) to maintain its approximate 25.2% equity interest in the Company.

OUTLOOK

Mochito

In the first quarter of 2009, Mochito exceeded previously disclosed guidance in all areas except lead and silver grades. Lower grades resulted in 9% less lead and silver contained in concentrate than anticipated. For the balance of 2009, Mochito is expected to meet or exceed previously provided guidance.

Changing metal prices have resulted in a shift of the Mochito exploration efforts away from searching for the large manto deposits towards exploring for small, high grade chimney deposits. Manto deposits typically have large tonnages with good zinc grades and lower silver and lead values. Chimney deposits are usually smaller however they can have high grades of silver, lead and zinc resulting in a higher net value. These deposits have not been focused on in recent years in favour of the bulk tonnage targets and a number of these deposits remain open along trend. Diamond drill stations are being prepared to allow additional drilling with the purpose of increasing the mineral reserves and resources in the chimney deposits.

Toqui

The Company continues to review production alternatives for Toqui. If base metal prices return to the low levels experienced in late 2008 and early 2009, the Company may yet reduce mill throughput and mine only the gold bearing deposits for the balance of 2009. In that case, the previously provided guidance, on a pro rata basis, would stand.

Myra Falls

In the first quarter of 2009, Myra Falls generally met previously disclosed guidance. With the higher grade South Flank lens anticipated to come into production sooner than previously projected, Myra Falls is expected to meet its annualized projections in terms of mill throughput, grades and metal contained in concentrate. Operating cost per tonne milled is expected to meet projections after adjusting for the restructuring costs and additional pension costs in the first quarter of 2009.

The Company continues to closely monitor economic and market conditions as they relate to any decision to temporarily suspend operations. Myra Falls personnel are executing a mine plan which includes a higher grade, lower tonnage scenario with the goal of producing positive cash flow over the year at forecast metal prices and exchange rates.

STATEMENT OF OPERATIONS REVIEW - THREE MONTHS ENDED MARCH 31, 2009 AND 2008

Gross Sales Revenue

Sales of concentrate fluctuate period-to-period due to production levels, shipping volumes, ship schedules, price determination terms, and risk and title transfer terms with the Company's various customers. The Company has a relatively conservative revenue recognition policy (see below) and the recognition of sales can be as much as six months after the date of concentrate production. The Company's sales are primarily denominated in United States dollars ("US$").



First Quarter
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Concentrate Sold (tonnes) 2009 2008
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Zinc:
Mochito 13,886 -
Toqui 16,022 21,002
Myra Falls 16,584 9,708
Langlois(1) 3,618 15,454
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50,110 46,164
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Copper
Myra Falls 9,235 4,634
Langlois(1) 321 1,658
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9,556 6,292
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Lead
Mochito 5,467 5,603
Toqui - -
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5,467 5,603
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Gold
Toqui 917 1,151
Myra Falls 1 -
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918 1,151
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All Metals 66,051 59,210
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(1) On November 2, 2008, Langlois operations were temporarily suspended.



First Quarter 2009
--------------------------------------------------------------------
Concentrate Realized Gross sales
sold Payable price(1) revenue
(tonnes) metal(1) (US$) ($000's)
--------------------------------------------------------------------
Zinc 50,110 22,174 1,156 25,629
Copper 9,556 2,032 3,635 7,389
Lead 5,467 3,471 1,202 4,172
Gold(2) 918 9,217 873 8,044
Silver n.a. 546,820 12.22 6,680
Other(3) n.a. (604)
----------- ------------
66,051
-----------
-----------
Gross sales revenue in US$ 51,310
Exchange rate 1.2499
-----------
Gross sales revenue in C$ 64,130
-----------
-----------

First Quarter 2008
--------------------------------------------------------------------
Concentrate Realized Gross sales
sold Payable price(1) revenue
(tonnes) metal(1) (US$) ($000's)
--------------------------------------------------------------------
Zinc 46,164 19,487 2,409 46,945
Copper 6,292 1,298 7,176 9,314
Lead 5,603 3,441 3,056 10,517
Gold(2) 1,151 8,190 931 7,625
Silver n.a. 556,545 16.81 9,357
Other(3) n.a. (2,507)
----------- ------------
59,210
-----------
-----------
Gross sales revenue in US$ 81,251
Exchange rate 1.0074
-----------
Gross sales revenue in C$ 81,856
-----------
-----------
(1) Payable metal and realized prices for zinc, copper and lead are per
tonne and for gold and silver are per ounce.
(2) Gold concentrate sales are principally from Toqui while payable gold is
from all operations except Mochito.
(3) Other gross sales revenue represents revaluations of prior period
concentrate receivables.


Concentrate sold increased 12% in the first quarter of 2009 compared with the first quarter of 2008. The 6,841 tonne increase in 2009 was due to increases of 245% and 80% at Mochito and Myra Falls respectively partially offset by 77% and 24% fewer tonnes sold at Langlois and Toqui respectively. In payable metal terms, zinc, copper, lead and gold increased by 14%, 57%, 1% and 13% respectively while silver decreased by 2% in the first quarter of 2009.

Realized prices denominated in US$ decreased for all metals with zinc, copper, lead, gold and silver prices decreasing by 52%, 49%, 61%, 6% and 27% respectively in the first quarter of 2009. The Company may periodically hedge against fluctuations in metal prices and foreign exchange rates using forward sales or options. The Company has not applied hedge accounting historically; therefore, mark-to-market gains or losses have been included in gross sales revenue at the end of each period. There were no hedges in place either in the first quarter of 2009 or the first quarter of 2008 and accordingly no hedging gains or losses.

Gross sales revenue decreased by US$29.9 million or 37% in the first quarter of 2009 due to the significant decline in prices noted above. A weaker C$ resulted in an increase in the average C$/US$ exchange rate of 24% in the first quarter of 2009. In C$ terms, gross sales revenue decreased $17.7 million or 22% in the first quarter of 2009 compared with the first quarter of 2008.

The Company's revenue recognition policy requires that, among other things, final pricing of concentrate inventories be known prior to the recognition of revenue. Using commodity prices and exchanges rates prevailing at March 31, 2009, the following schedule provides details regarding inventories shipped but not recognized for revenue purposes and the related provisional payments.



Net Earnings Weighted-
smelter Inventory before Provisional average
Concentrate return value taxes payments months to
(DMT) ($000's) ($000's) ($000's) ($000's) settlement
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Zinc 6,628 3,514 1,453 2,061 347 1.1
Gold 2,078 6,352 4,532 1,820 2,523 1.0
Lead 188 355 259 96 - 1.0
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8,894 10,221 6,244 3,977 2,870
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As at March 31, 2008, the Company estimated that inventories shipped but not recognized for revenue purposes had earnings before tax of $14.4 million consisting of $54.5 million of net smelter return less $40.1 million of inventory value on 58,103 tonnes of concentrate.

The following table provides the average base and precious metal prices and exchange rates for the periods indicated.



First Quarter
Average Metal Prices & Exchange Rate 2009 2008
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Zinc (US$/tonne) 1,172 2,431
Copper (US$/tonne) 3,428 7,794
Lead (US$/tonne) 1,157 2,901
Gold (US$/ounce) 908 928
Silver (US$/ounce) 12.61 17.68
C$/US$ exchange rate 1.2453 1.0048
---------------------------------------------------------------------------


Treatment and Marketing Costs

Treatment and marketing costs increased 13% to $23.7 million in the first quarter of 2009 from $21.0 million in the first quarter of 2008 in line with the 12% increase in the tonnes of concentrate sold. Treatment and marketing costs for the first quarter of 2009 were 37% of gross revenue compared with 26% in 2008. See details of treatment and marketing under each mine's Expenses in the Production Results section of this news release.

Direct Operating Costs

Direct operating costs were 30% lower in the first quarter of 2009 at $33.5 million compared with $48.0 million in the first quarter of 2008. The decreased costs were primarily due to the temporary suspension of Langlois and lower aggregate costs at Toqui. On a cost per tonne of concentrate sold basis, direct operating costs decreased to $507 in the first quarter of 2009 from $810 in 2008. Also see details of direct operating costs under each mine's Expenses in the Production Results section of this news release.

Depreciation and Depletion

Depreciation and depletion decreased $1.6 million in the first quarter of 2009 compared with the corresponding period in 2008. The decrease was primarily due to the temporary suspension of Langlois. Also see details of depreciation and depletion costs under each mine's Expenses in the Production Results section of this news release.

Reclamation and Closure Costs

Reclamation and closure costs increased by $1.0 million to an expense at $0.8 million in the first quarter of 2009 compared with a recovery of $0.2 million in the corresponding period in 2008. The increase was primarily due to a reduction of the estimated reclamation and closure cost obligation in 2008 which did not recur in 2009 resulting from a change in the timing of cash flows for reclamation due to the increased reserves at Toqui and Langlois which extended the life of the mines.

General and Administrative

General and administrative expenses decreased by $1.2 million in the first quarter of 2009 compared with 2008. The decrease was primarily due to decreased bonus accruals, stock-based compensation, consulting fees, investor relations expenses, exchange listing fees and travel costs.

Interest and Financing

Interest and financing costs increased by $0.5 million in the first quarter of 2009 compared with the equivalent 2008 period primarily due to higher royalty costs associated with the Myra Falls royalty transactions.

Investment and Other (Income) Expense

Investment and other income was $2.2 million in the first quarter of 2009 compared with an expense of $1.4 million in 2008. The $3.6 million positive swing was primarily due to $2.5 million lower unrealized losses on marking-to-market of investments held for trading in 2009 compared with 2008 and $0.5 million higher interest income on larger restricted promissory notes and restricted reclamation investments held.

Exploration

Exploration expenses decreased by $4.2 million in the first quarter of 2009 compared with 2008. Lower expenses at all operations particularly Toqui and on the Company's joint venture obligations accounted for the decrease.

Other Non-Producing Property Costs

Other non-producing property costs increased by $1.7 million for the first quarter of 2009 compared with the equivalent period in 2008 primarily due to $2.0 million of care and maintenance costs at Langlois.

Income and Mining Tax Provision

In the first quarter of 2009, income and mining tax provision increased by $1.2 million compared with the respective 2008 period. A $2.2 million tax recovery related to flow through shares in 2008 and a $0.8 million decrease in Quebec mining duties in 2008, neither of which recurred in 2009 together with a $2.0 million increase in Quebec mining duties in 2009 were partially offset by reduced tax provisions at Toqui, Mochito and Myra Falls due to lower profitability.

LIQUIDITY AND FINANCIAL POSITION REVIEW

Working Capital

Working capital at the March 31, 2009 was $34.4 million compared with $29.2 million at December 31, 2008, an increase of $5.2 million.

Current Assets

Total current assets decreased by $10.7 million to $90.6 million at March 31, 2009 compared with December 31, 2008. The main component of the current asset change was a decrease in cash and cash equivalents of $6.3 million reflecting lower cash flow from operating activities and expenditures on mineral properties and fixed assets partially offset by cash received from restricted investments, fixed asset sales proceeds and Red Mile prepaid interest and indemnity fees.

Current Liabilities

Current liabilities decreased by $15.8 million to $56.3 million at March 31, 2009 compared with December 31, 2008. The main components of the current liabilities change were:

- Accounts payable and accrued liabilities decreased by $7.8 million primarily due to a $3.2 million decrease at Langlois related to the temporary suspension of operations; $2.5 million lower payables at Mochito primarily related to lower capital expenditure and power cost accruals; and, a decrease of $6.9 million of provisional payments refundable to customers partially offset by $5.2 million cash advances from customers for inventory not yet shipped

- Provisional payments for concentrate inventory shipped and not priced, which represent payments received for concentrate shipments that were not recognized as revenue, decreased by $7.6 million. Refer to the table in Gross Sales Revenue section of this news release for additional details

Provisional payments for concentrate inventory shipped and not priced are based on prices prevailing on the date of payment. Recognition of sales can be as much as six months after the date of concentrate production based on contract terms. In the event that prices deteriorate significantly, a portion of the provisional payment may have to be repaid to the customer.

On April 9 and 16, 2009, the Company issued 230,000,000 Common Shares and 115,000,000 warrants pursuant to the Offering and Over-Allotment Exercise resulting in gross proceeds of $23.0 million.

Restricted Reclamation Investments

At March 31, 2009, the Company had restricted reclamation investments of $31.2 million compared with $35.0 million at December 31, 2008. Reclamation deposits of $10.9 million and $20.3 million are held under a safe keeping agreement and a trust indenture respectively to fund future reclamation requirements at Myra Falls.

Restricted Promissory Notes

The Company held four restricted promissory notes at March 31, 2009 totalling $104.3 million compared with three restricted promissory notes totalling $80.9 million at December 31, 2008. All promissory notes are related to Myra Falls royalty transactions1 completed in 2004, 2005, 2008 and 2009. The interest earned and a portion of the principal of these restricted promissory notes will be used to meet the Company's royalty obligations.

Deferred Income

Deferred income of $8.5 million at March 31, 2009 consisted of deferred indemnity agreement fees and prepaid interest income received in relation to the Myra Falls royalty transactions in 2004, 2005, 2008 and 2009 which will be taken into income over the lives of the four agreements. In March 2009, the Company entered into an additional Red Mile transaction which increased deferred income by $2.8 million.

(1) For further information on the Myra Falls royalty please see the Company's most recent audited consolidated financial statement filed on SEDAR at www.sedar.com or available on the Company's website at www.breakwater.ca.

Royalty Obligations

The royalty obligations of $101.9 million at March 31, 2009 relate to the royalty amounts received from the 2004, 2005, 2008 and 2009 Myra Falls royalty transactions. The 2009 Red Mile transaction increased royalty obligations by $23.4 million. See restricted promissory notes above.

Reclamation, Closure Cost Accruals and Other Environmental Obligations
Reclamation, closure cost accruals and other environmental obligations represent the Company's obligation for reclamation and severance costs accrued for its mine sites. At March 31, 2009, total reclamation, closure cost accruals and other environmental obligations were $28.4 million compared with $28.5 million at December 31, 2008.

Of the $28.4 million, $5.0 million is classified as current and is expected to be spent over the next 12 months at Nanisivik, Bouchard-Hebert, Bougrine and Myra Falls. The Company spent $1.1 million in reclamation and closure costs in the first quarter of 2009 compared with $0.5 million in the first quarter of 2008. As there is currently 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 Mochito mine. Closure and reclamation costs for Mochito are estimated to be $4.6 million.



Reclamation and Closure Cost Accruals and Other Environmental Obligations at
March 31, 2009
($ millions) Current Long-term Total
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Myra Falls 0.7 17.0 17.7
Mochito(1) 0.0 1.3 1.3
Toqui 0.0 3.3 3.3
Langlois 0.0 1.1 1.1
Bouchard-Hebert 2.2 0.1 2.3
Nanisivik 1.4 0.4 1.8
Bougrine 0.7 0.2 0.9
---------------------------------------------------------------------------
Total 5.0 23.4 28.4
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(1) Reclamation and closure cost accruals for Mochito relate to accrued
severances.


Future Income Tax Liabilities

Future income tax liabilities increased $1.4 million to $4.6 million at March 31, 2009. The increase was primarily due to a $2.0 million increase of Quebec mining duties at Langlois partially offset by a $0.6 million decrease at Toqui related to timing differences.

Shareholders' Equity

Shareholders' equity at March 31, 2009 was $307.1 compared with $309.7 million at December 31, 2008. The decrease of $2.6 million was primarily due to a net loss of $6.5 million partially offset by $3.7 million of other comprehensive income.



Total
Shareholders' Contri- Other share
Equity Capital buted Retained comprehen- holders'
($000's) stock Warrants surplus earnings sive income equity
---------------------------------------------------------------------------
---------------------------------------------------------------------------
As at December
31, 2008 212,374 8,538 4,925 80,568 3,257 309,662

Shares issued to
a third party 12 - - - - 12
Expiry of
warrants - (8,538) 8,538 - - -
Employee share
purchase plan 82 - - - - 82
Stock-based
compensation - - 170 - - 170
Other
comprehensive
income - - - - 3,696 3,696
Loss - - - (6,549) - (6,549)
---------------------------------------------------------------------------
As at March
31, 2009 212,468 - 13,633 74,019 6,953 307,073
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During the first quarter of 2009, the Company issued the following Common Shares: 100,000 shares to a third party and 822,016 pursuant to the Company's employee share purchase plan. The 33,481,849 warrants outstanding at December 31, 2008 expired on January 28, 2009. On April 9 and 16, 2009, the Company issued 230,000,000 Common Shares and 115,000,000 warrants pursuant to the Offering. See Highlights section of this news release for further details of the Offering.

Capital Expenditures

The Company invested $5.0 million in mineral properties and fixed assets in the first quarter of 2009. At mining operations, $2.2 million, $1.8 million, $0.3 million and $0.1 million were spent at Mochito, Toqui, Myra Falls and Langlois respectively. For details of these expenditures, please refer to the financial results discussion for each mine. Corporate capital expenditures of $0.6 million primarily related to earn-in payments made on certain joint venture properties.

Financial Capability

Recent market events and conditions, including disruptions in the Canadian, American and international credit markets and other financial systems and the deterioration of the Canadian, American and global economic conditions have had a significant material adverse impact on a number of financial institutions forcing them into bankruptcy or requiring government authorities to rescue them. These events and a general flight from risk have limited access to capital and credit. These unprecedented disruptions in the current credit and financial markets, could, among other things, impede access to, or increase the cost of, capital that the Company requires for its operations. The Company's access to additional capital may not be available on terms acceptable to the Company or at all.

In recent months, worldwide securities markets, particularly those in the United States and Canada, have experienced a high level of price and volume volatility, and the market price of securities of many companies have experienced unprecedented declines in price which have not necessarily been related to the operating performance, underlying asset values or prospects of such companies. In addition, significantly higher redemptions by holders of mutual and hedge funds has forced many of such funds (including those holding the Company's securities) to sell such securities at any price. Therefore, there can be no assurance that significant fluctuations in the trading price of the Company's Common Shares will not occur, or that such fluctuations will not materially adversely affect the Company's ability to raise equity funding without significant dilution to its existing shareholders, or at all.

PRODUCTION RESULTS

The table below contains the Company's production for the periods presented. On November 2, 2008, the Company temporarily suspended operations at Langlois due to the decline in commodity prices and the general deterioration of the economic outlook globally.



First Quarter
2009 2008
---------------------------------------------------------------------------
Tonnes Milled 399,143 566,466
Zinc (%) 5.8 6.2

Concentrate Production (tonnes)
Zinc:
Mochito 14,264 12,880
Toqui 10,537 16,290
Myra Falls 13,426 17,439
Langlois(1) - 13,922
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38,227 60,531
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Copper:
Myra Falls 3,954 5,383
Langlois(1) - 2,027
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3,954 7,410
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Lead:
Mochito 5,002 4,079
Toqui 524 1,461
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5,526 5,540
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Gold:
Toqui 2,094 -
Myra Falls 2 -
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2,096 -
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Total 49,803 73,481
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C$ operating costs, production basis ($000's) 31,626 55,827
C$ operating cost per tonne milled (production basis) 79 99
(1) On November 2, 2008, Langlois operations were temporarily suspended.


Concentrate produced in the first quarter of 2009 decreased by 32% to 49,803 tonnes primarily due to Langlois being placed on care and maintenance during the fourth quarter of 2008; decreased zinc concentrate production at Toqui and Myra Falls; and decreased copper concentrate production at Myra Falls.

Aggregate operating costs and operating costs per tonne milled decreased in the first quarter of 2009 compared with 2008 primarily due to the temporary suspension of the higher cost Langlois mine and reduced operating costs at all remaining operations partially offset by the impact of a weaker C$. Also see details under each mine's production in the respective production results section of this news release.

The table below summarizes the Company's metal contained in concentrate, before smelting deductions, for periods presented.



First Quarter
Metal in Concentrate 2009 2008 %
----------------------------------
Zinc (tonnes)
Mochito 7,705 6,764 13.9%
Toqui 5,092 8,163 -37.6%
Myra Falls 7,186 9,096 -21.0%
Langlois(1) - 7,373 n.a.
----------------------------------
19,983 31,396 -36.4%
----------------------------------
Copper (tonnes)
Myra Falls 821 1,279 -35.8%
Langlois(1) - 391 n.a.
----------------------------------
821 1,670 -50.8%
----------------------------------
Lead (tonnes)
Mochito 3,276 2,694 21.6%
Toqui 274 715 -61.7%
----------------------------------
3,550 3,409 4.1%
----------------------------------
Gold (ounces)
Toqui 11,100 1,393 696.8%
Myra Falls 2,593 4,000 -35.2%
Langlois(1) - 288 n.a.
----------------------------------
13,693 5,681 141.0%
----------------------------------
Silver (ounces)
Mochito 429,146 466,683 -8.0%
Toqui 70,841 78,735 -10.0%
Myra Falls 103,326 182,809 -43.5%
Langlois(1) - 66,193 n.a.
----------------------------------
603,313 794,420 -24.1%
----------------------------------
(1) On November 2, 2008, Langlois operations were temporarily suspended.


Aggregate production of zinc in concentrate in the first quarter of 2009 was 36% lower at 19,983 tonnes. The decrease in zinc production was primarily due to Langlois being placed on care and maintenance as well as lower planned production from Toqui and Myra Falls partially offset by higher production from Mochito. Production of copper in concentrate decreased 51% in the first quarter of 2009 from 2008 due to fewer tonnes milled at Myra Falls and no production from Langlois. Production of lead in concentrate increased 4% in the first quarter of 2009 due to more tonnes milled at higher lead grades at Mochito offset by lower production at Toqui. Gold in concentrate increased 141% the first quarter of 2009 primarily due to the planned increase in milling of gold material at Toqui partially offset by lower production from Myra Falls. Silver in concentrate decreased 24% primarily due to lower silver grades at Mochito and Myra Falls and no production from Langlois.

Mochito

(i) Mochito Financial Results



First Quarter
2009 2008
-------------------------
Gross sales revenue 19,582 16,866
Treatment and marketing costs (7,766) (1,751)
-------------------------
Net revenue 11,816 15,115
Direct operating costs (9,856) (6,065)
Depreciation and depletion (3,572) (1,339)
Reclamation and closure costs (369) (288)
-------------------------
(Loss) contribution from mining activities (1,981) 7,423
Exploration (123) (437)
-------------------------
(2,104) 6,986
Income and mining tax provision (103) (1,494)
-------------------------
Net (loss) earnings (2,207) 5,492
-------------------------
-------------------------

Capital expenditures 2,233 4,464
-------------------------
-------------------------


Revenue:

The following tables and discussion provide details of Mochito's gross sales revenue for the periods indicated:



First Quarter 2009
--------------------------------------------------------------------
Gross
Concentrate Realized sales
sold Payable price(1) revenue
(tonnes) metal(1) (US$) ($000's)
--------------------------------------------------------------------
Zinc 13,886 6,321 1,104 6,981
Lead 5,467 3,471 1,202 4,172
Silver n.a. 375,065 12.37 4,640
Other(2) n.a. (166)
----------- ------------
19,353
-----------
-----------
Gross sales revenue in US$ 15,627
Exchange rate 1.2530
-----------
Gross sales revenue in C$ 19,582
-----------
-----------


First Quarter 2008
--------------------------------------------------------------------
Gross
Concentrate Realized sales
sold Payable price(1) revenue
(tonnes) metal(1) (US$) ($000's)
--------------------------------------------------------------------
Zinc n.a. n.a. n.a. n.a.
Lead 5,603 3,441 3,056 10,516
Silver n.a. 458,114 16.99 7,783
Other(2) n.a. (1,514)
----------- ------------
5,603
-----------
-----------
Gross sales revenue in US$ 16,785
Exchange rate 1.0048
-----------
Gross sales revenue in C$ 16,866
-----------
-----------
(1) Payable metal and realized price(s) for zinc and lead are per tonne and
for silver is per ounce.
(2) Other gross sales revenue represents revaluations of prior period
concentrate receivables.


Concentrate sold in the first quarter of 2009 was 245% higher due to the sale of zinc concentrate in 2009 compared with none in 2008. Despite the significant increase in concentrates sold, significant declines in the realized prices of all the metals resulted in a 7% drop in gross sales revenues in US$ terms. A weakening of the C$ resulted in gross sales revenue in C$ terms increasing by 16% in the first quarter of 2009.

Expenses:

Aggregate treatment and marketing costs quarter-over-quarter increased 344% primarily due to the 245% increase in concentrate sold and the impact of a weaker C$.

Direct operating costs rose $3.8 million or 63% in the first quarter of 2009 due to the 245% increase in concentrate sold and the impact at the weaker C$ partially offset by operational issues in 2008 which did not recur in 2009. Direct operating cost per tonne of concentrate sold were $509 in the first quarter of 2009 compared with $1,082 in 2008 primarily due to the factors noted above.

Depreciation and depletion for the first quarter of 2009 increased $2.2 million or 167% when compared with 2008 primarily due to increased concentrate sales.

Exploration expenses in the first quarter of 2009 were $0.3 million lower compared with the respective period in 2008. Please refer to the drilling section below for additional details.

Income and mining tax provision for the first quarter of 2009 decreased by $1.4 million primarily due to significantly lower earnings before tax in the 2009 period compared with the respective period in 2008.

Capital Expenditures:

At Mochito, $2.2 million was spent in the first quarter of 2009 primarily as follows: $1.2 million for mine development; $0.6 million for capital spares and $0.2 million for tailings facilities.

(ii) Mochito Production

Mochito's production is set out in the following table.




First Quarter
2009 2008
---------------------------------------------------------------------------
Tonnes Milled 171,511 152,527
Zinc (%) 5.2 5.0
Lead (%) 2.3 2.2
Silver (g/t) 90 107
Concentrate Production
Zinc (tonnes) 14,264 12,880
Recovery (%) 86.6 89.2
Grade (%) 54.0 52.5
Lead (tonnes) 5,002 4,079
Recovery (%) 84.0 81.8
Grade (%) 65.5 66.0
Metal in Concentrates
Zinc (tonnes) 7,705 6,764
Lead (tonnes) 3,276 2,694
Silver (ounces) 429,146 466,683

US$ operating costs, production basis ($000's) 8,470 8,573
US$ operating cost per tonne milled (production basis) 49 56


Production of zinc in concentrate was 14% higher in the first quarter of 2009 compared with the same period in 2008 due to more tonnes milled at a slightly higher zinc head grade. Production of lead in concentrate was 22% higher in the first quarter of 2009 compared with the same period in 2008 due to higher lead grades and higher mill throughput.

Compared with projected production, mill throughput and zinc grades were higher than planned while lead and silver grades were below plan in the first quarter of 2009 resulting in higher zinc and lower lead and silver production on a metal contained in concentrate basis. Despite higher tonnes milled, operational costs were lower than projected due to cost controls implemented in late 2008 and early 2009 and no significant operational issues in 2009 compared with 2008. Costs per tonne of concentrate milled, capital expenditures and exploration costs were lower quarter-over-quarter and in the lower end of the range given as guidance resulting in a less negative cash flow than projected for the first quarter of 2009.

(iii) Mochito Drilling

There are three principal mineral trends that remain open at Mochito as well as numerous secondary mineral trends that remain prospective. Exploration efforts during the first quarter of 2009 continued to focus on the northeast extension of the Porvenir trend; the northeast extension of the Salva Vida trend; and the northern extension of the Barbasco-Imperial trend.

Widespread manto mineralization surrounds large chimneys such as Nacional, San Juan, Yojoa, and Santo Nino. At Deep North, on the northeast extension of the Porvenir trend, thick intersections of manto mineralization continue to suggest that another major chimney is located in this area. During 2008, a mineable grade zinc intersection was drilled to the northeast on the Deep North target. Drilling during the first quarter of 2009 continued to encounter zinc mineralization. Mineralized intersections encountered to-date in the drill program are of great benefit in the search for the next large chimney. The available target area is large and long drill holes are required to test this area. Indications are that the most prospective area is further east and north which would correlate better with the interpretation of the Porvenir trend in this area.

Drilling on the Salva Vida trend continues to produce encouraging results that confirm that the mineralizing system extends to the northeast. The extension of this trend has been tested by relatively few drill holes and there remains good potential for other major deposits along this trend. Drilling on the trend at Santa Rita during the quarter continued to define the location of this target.

Diamond drilling extended the Imperial zone to the north during the first quarter of 2009. The Imperial chimney appears to be closing to the north but remains open both above and below the current drilling. Below the existing drilling lies the intersection of the chimney with the manto, a geological setting which has been known to host large deposits at Mochito. Above the existing drilling, the chimney could extend well into the overlying limestone package and the grades may improve higher up in the mineralization as they have been known to do in other chimneys at Mochito.

Drilling commenced during the first quarter of 2009 to test the extension of the Santo Nino chimney. Drilling is intersecting the structure as predicted, with good mineralized intersections.

Drilling in the Palmar Dyke area intersected good mineralization to the west of the known deposit. Follow up drilling is required to determine the significance of this finding.

A total of 7,251 metres was drilled from underground during the first quarter of 2009. Definition and validation drilling accounted for 2,104 metres whereas exploration and extensional drilling accounted for 5,147 metres.

(iv) Mochito Outlook

In the first quarter of 2009, Mochito exceeded previously disclosed guidance in all areas except lead and silver grades. Lower grades resulted in 9% less lead and silver contained in concentrate than anticipated. For the balance of 2009, Mochito is expected to meet or exceed previously provided guidance.

Changing metal prices have resulted in a shift of the Mochito exploration efforts away from searching for the large manto deposits towards exploring for small, high grade chimney deposits. Manto deposits typically have large tonnages with good zinc grades and lower silver and lead values. Chimney deposits are usually smaller however they can have high grades of silver, lead and zinc resulting in a higher net value. These deposits have not been focused on in recent years in favour of the bulk tonnage targets and a number of these deposits remain open along trend. Diamond drill stations are being prepared to allow additional drilling with the purpose of increasing the mineral reserves and resources in the chimney deposits.

The Port Royal chimney is untested above the 1850 level. Geological mapping of existing workings suggests that previous drilling missed the target. The base of the Mochito shales is approximately 210 metres above this level and this small, high grade chimney could develop into a large deposit at this contact (as is typical of chimney deposits at Mochito). Drilling is possible from the 1850 level.

The San Juan deposit is the largest deposit found to-date at Mochito. This major deposit is the only key chimney that is not known to exist above the Mochito shales. Several efforts have been made over the years to discover the top of the San Juan deposit above the shales. In 2006, a hole drilled along the fringe of the existing drillhole coverage intersected mineable grade mineralization at the upper contact of the Mochito shales. This is the best intersection ever encountered above the San Juan deposit and could represent the fringe of a larger zone. In addition, the hole intersected 77 metres of intense alteration (skarnification) of the Mochito shales that indicates that a large volume of mineralizing fluids passed by this area. The untested (open) area is large enough to host the possible upper half of the San Juan deposit and can be tested by relatively short drill holes from within the current mine workings.

The upper extensions of the Santo Nino, McKenney, Barbasco and Imperial chimneys all remain untested. The Santo Nino and Imperial chimneys are being successfully extended by diamond drilling. Drill stations are being prepared to test the possible extensions of the Barbasco and McKenney chimneys. Mapping of the Barbasco zone on the 1850 level confirms that mineable widths and grades exist at the highest mine workings available and the zone is untested above this level.

The Barbasco and Imperial zones occur as two distinct lenses hosted along a mineralization-controlling structure. The mineralogy of the zones suggests that the heat source that formed these deposits is situated to the north. It is probable that other lenses lie in the undrilled area to the north. The northern extension of this trend is difficult to test from existing underground workings and a surface drill is being prepared to test for additional deposits along the productive Barbasco-Imperial trend.

Toqui

(i) Toqui Financial Results



First Quarter
2009 2008
-------------------------
Gross sales revenue 15,097 26,909
Treatment and marketing costs (7,558) (9,497)
-------------------------
Net revenue 7,539 17,412
Direct operating costs (3,219) (8,163)
Depreciation and depletion (1,198) (1,648)
Reclamation and closure (costs) recovery (62) 1,038
-------------------------
Contribution from mining activities 3,060 8,639
Exploration (52) (462)
-------------------------
3,008 8,177
Income and mining tax provision (246) (2,811)
-------------------------
Net earnings 2,762 5,366
-------------------------
-------------------------

Capital expenditures 1,777 7,946
-------------------------
-------------------------


Revenue:

The following tables and discussion provide details of Toqui's gross sales revenue for the periods indicated:



First Quarter 2009
--------------------------------------------------------------------
Gross
Concentrate Realized sales
sold Payable price(1) revenue
(tonnes) metal(1) (US$) ($000's)
--------------------------------------------------------------------
Zinc 16,022 6,609 1,196 7,903
Gold 917 5,238 876 4,587
Silver n.a. 12,131 11.33 137
Other(2) n.a. (500)
----------- ------------
16,939
-----------
-----------
Gross sales revenue in US$ 12,127
Exchange rate 1.2450
-----------
Gross sales revenue in C$ 15,097
-----------
-----------


First Quarter 2008
--------------------------------------------------------------------
Gross
Concentrate Realized sales
sold Payable price(1) revenue
(tonnes) metal(1) (US$) ($000's)
--------------------------------------------------------------------
Zinc 21,002 8,372 2,473 20,701
Gold 1,151 6,327 944 5,970
Silver n.a. 5,010 19.38 97
Other(2) n.a. n.a. n.a. 13
----------- ------------
22,153
-----------
-----------
Gross sales revenue in US$ 26,781
Exchange rate 1.0048
-----------
Gross sales revenue in C$ 26,909
-----------
-----------
(1) Payable metal and realized price(s) for zinc and lead are per tonne and
for gold and silver are per ounce.
(2) Other gross sales revenue represents revaluations of prior period
concentrate receivables.


Total concentrate sold in the first quarter of 2009 was 24% lower than in the first quarter of 2008 primarily due to 24% and 20% decreases in zinc and gold concentrate sold respectively. Lower payable zinc and gold combined with a 52% lower zinc price resulted in a 55% decrease in gross sales revenue in US$ terms. A 24% increase in the exchange rate resulted in 44% lower gross sales revenue in C$ terms.

Expenses:

Treatment and marketing costs were 20% lower on an aggregate basis in the first quarter of 2009 compared with the first quarter of 2008 primarily due to 24% fewer tonnes of concentrate sold partially offset by a 24% weaker C$. Treatment and marketing costs per tonne of concentrate sold decreased 35% in US$ terms but increased 4% in C$ terms to $446 per tonne concentrate sold primarily due to Chilean peso and C$ foreign exchange rate fluctuations respectively. As a percentage of gross revenue, treatment and marketing costs increased to 50% from 35% in the same period in 2008 primarily due to lower realized prices for all metals resulting in lower gross sales revenues.

Direct operating costs in the first quarter of 2009 were 61% lower than in the same period in 2008 primarily due to 24% lower tonnes of concentrate sold, significant cost savings and a net favourable exchange rate movement. In the first quarter of 2009, the Chilean peso was 33% weaker versus the US$ and the C$ was 24% weaker versus the US$ compared with 2008. On a cost per tonne sold basis, first quarter 2009 direct operating costs decreased to $190 from $368 primarily due to the factors noted above. As a percentage of gross sales revenue, direct operating costs decreased to 21% from 30% primarily due to the factors noted above partially offset by the 52% decrease in the realized zinc price.

Depreciation and depletion for the first quarter of 2009 decreased $0.5 million or 27% when compared with the respective period in 2008 primarily due lower concentrate sales.

Reclamation and closure costs increased to a cost of $0.1 million in the first quarter of 2009 from a recovery of $1.0 million in 2008. The $1.1 million change was primarily due to a reduction of estimated reclamation and closure cost obligations in 2008 which resulted from a change in the timing of cash flows for reclamation due to the increased reserves at Toqui which extended the mine's life.

Exploration expenses decreased in the first quarter of 2009 primarily due to reduced spending on regional exploration targets. Please refer to the drilling section below for additional details.

Income and mining tax provision for the first quarter of 2009 decreased by $2.6 million primarily due to significantly lower earnings before tax compared with the same period in 2008.

Capital Expenditures:

Toqui capital expenditures of $1.8 million in the first quarter of 2009 consisted primarily of: $1.0 million for development of Mina Profunda and $0.3 million for thickened tailings plant equipment.

(ii) Toqui Production

Toqui's production is set out in the following table.



First Quarter
2009 2008
----------------------------------------------------------------------------
Tonnes Milled 114,948 127,093
Zinc (%) 5.1 7.2
Lead (%) 0.5 1.0
Gold (g/t) 3.9 0.6
Silver (g/t) 28 26
Concentrate Production
Zinc (tonnes) 10,537 16,290
Recovery (%) 86.4 89.4
Grade (%) 48.3 50.1
Lead (tonnes) 524 1,461
Recovery (%) 47.6 55.5
Grade (%) 52.2 48.9
Gold (tonnes) 2,094 -
Recovery (%) 61.0 -
Grade (g/t) 115.6 -
Metal in Concentrates
Zinc (tonnes) 5,092 8,163
Lead (tonnes) 274 715
Gold (ounces) 11,100 1,393
Silver (ounces) 70,841 78,735

US$ operating costs, production basis ($000's) 4,947 6,583
US$ operating cost per tonne milled (production basis) 43 52


Production of zinc in concentrate was 38% lower in the first quarter of 2009 compared with the same period in 2008 due to lower zinc grades and recoveries and fewer tonnes milled. Production of lead in concentrate was 62% lower due to lower lead grades and fewer tonnes milled. Production of gold in concentrate was 697% higher in the first quarter of 2009 due to higher gold grades despite fewer tonnes milled.

Given liquidity constraints in the first quarter of 2009, the Company did not implement the manpower reductions initially projected for 2009 and was unable to implement a job sharing initiative. As a result, the Company did not reduce throughput as projected but continued to mine zinc bearing deposits in addition to the gold bearing deposits. Compared with projected production, actual results for all previously disclosed 2009 projections had favourable variances with the exception of gold grade. Mining the zinc deposits in addition to the gold deposits in the first quarter of 2009 resulted in higher than projected contained metals (including gold), higher cash flows and lower costs per tonne than planned.

(iii) Toqui Drilling

During the first quarter of 2009, a total of 3,762 metres of underground definition drilling was carried out on the south block of the Mina Profunda deposit. The drilling confirmed the continuity of the gold skarn system to the south as well as the mineralization and alteration characteristics.

(iv) Toqui Outlook

The Company continues to review production alternatives for Toqui. If base metal prices return to the low levels experienced in late 2008 and early 2009, the Company may yet reduce mill throughput and mine only the gold bearing deposits for the balance of 2009. In that case, the previously provided guidance, on a pro rata basis, would stand.

The Company has purchased a used thickened tails backfill plant that it plans to relocate to Toqui during 2009. It is anticipated this plant will be operational by the middle of 2010 and will enable Toqui to deposit thickened tails in a yet-to-be constructed tailings impoundment facility.

Myra Falls

(i) Myra Falls Financial Results




First Quarter
2009 2008
-------------------------
Gross sales revenue 26,459 18,514
Treatment and marketing costs (7,239) (4,956)
-------------------------
Net revenue 19,220 13,558
Direct operating costs (17,397) (15,890)
Restructuring provision (1,839) (2,500)
Depreciation and depletion (809) (1,120)
Reclamation and closure costs (273) (434)
-------------------------
Loss from mining activities (1,098) (6,386)
Exploration (1) (362)
-------------------------
(1,099) (6,748)
Income and mining tax provision - (946)
-------------------------
Net loss (1,099) (7,694)
-------------------------
-------------------------

Capital expenditures 274 2,080
-------------------------
-------------------------


Revenue:

The following tables and discussion provide details of Myra Falls' gross sales revenue for the periods indicated:



First Quarter 2009
--------------------------------------------------------------------
Gross
Concentrate Realized sales
sold Payable price(1) revenue
(tonnes) metal(1) (US$) ($000's)
--------------------------------------------------------------------
Zinc 16,584 7,584 1,165 8,834
Copper 9,235 1,975 3,647 7,205
Gold 1 3,953 869 3,436
Silver n.a. 150,109 12.02 1,805
Other(2) n.a. (158)
----------- ------------
25,820
-----------
-----------
Gross sales revenue in US$ 21,122
Exchange rate 1.2527
-----------
Gross sales revenue in C$ 26,459
-----------
-----------


First Quarter 2008
--------------------------------------------------------------------
Gross
Concentrate Realized sales
sold Payable price(1) revenue
(tonnes) metal(1) (US$) ($000's)
--------------------------------------------------------------------
Zinc 9,708 4,318 2,372 10,243
Copper 4,634 991 7,061 6,997
Gold n.a. 1,656 892 1,477
Silver n.a. 57,489 16.01 920
Other(2) n.a. n.a. n.a. (1,341)
----------- ------------
14,342
-----------
-----------
Gross sales revenue in US$ 18,296
Exchange rate 1.0119
-----------
Gross sales revenue in C$ 18,514
-----------
-----------
(1) Payable metal and realized prices for zinc and copper are per tonne and
for gold and silver are per ounce.
(2) Other gross sales revenue represents revaluations of prior period
concentrate receivables.


Concentrate sold in the first quarter of 2009 was 80% higher than in the first quarter of 2008. The increase in concentrate sold was partially offset by 51% and 48% decreases in the realized prices of zinc and copper respectively resulting in revenues for the quarter increasing by 15% in US$ terms. A 24% higher exchange rate resulted in gross sales revenue increasing 43% in C$ terms, to $26.5 million.

Expenses:

In the first quarter of 2009, treatment and marketing costs were 46% higher on an aggregate basis primarily due to 80% greater concentrate sales and lower freight and treatment and marketing costs partially offset by a 24% higher exchange rate. In the first quarter of 2009, treatment and marketing costs decreased 19% to $280 on a per tonne of concentrate sold basis compared with 2008 due to the factor noted above.

Despite an 80% increase in concentrate sold, aggregate direct operating costs increased by only 5% primarily due to cost reductions achieved in 2008. Direct operating costs per tonne sold decreased 42% to $745 per tonne in the first quarter of 2009 compared with the first quarter of 2008 primarily due to cost cutting measures, reduced write-downs related to marking inventory to the lower of cost and net realizable value and reduced restructuring expenses partially offset by increased pension expenses.

Reclamation and closure costs in the first quarter of 2009 decreased $0.2 million from the respective period in 2008 primarily due to the sale of certain non-core properties in November 2008 which reduced the reclamation liability.

Exploration expense decreased in the first quarter of 2009 compared with the respective period of 2008 due to a suspended exploration program in 2009 given the existing metal price environment. Please refer to the drilling section below for additional details.

Income and mining taxes decreased $0.9 million in the first quarter of 2009 primarily due to a write-down of a future tax asset in the first quarter of 2008 which did not recur in 2009.

Capital Expenditures:

Myra Falls' capital expenditures in the first quarter of 2009 of $0.3 million consisted primarily of $0.2 million for a new tailings disposal area and $0.1 million in ramp development.

(ii) Myra Falls Production

The following table sets forth Myra Falls' production for the periods presented.



First Quarter
2009 2008
----------------------------------------------------------------------------
Tonnes Milled 112,684 170,182
Zinc (%) 7.3 6.1
Copper (%) 1.0 1.0
Gold (g/t) 1.1 1.2
Silver (g/t) 39 42
Concentrate Production
Zinc (tonnes) 13,426 17,439
Zinc Recovery (%) 87.7 87.2
Zinc Grade (%) 53.5 52.2
Gold Recovery (%) 23.4 26.8
Gold Grade (g/t) 2.2 3.1
Copper (tonnes) 3,954 5,383
Copper Recovery (%) 73.0 73.0
Copper Grade (%) 20.8 23.8
Gold Recovery (%) 36.9 35.5
Gold Grade (g/t) 11.8 13.2
Gold (tonnes) 2 -
Recovery (%) 3.5 -
Grade (g/t) 2,431 -
Metal in Concentrates
Zinc (tonnes) 7,186 9,096
Copper (tonnes) 821 1,279
Gold (ounces) 2,593 4,000
Silver (ounces) 103,326 182,809

C$ operating costs, production basis ($000's) 14,894 26,435
C$ operating cost per tonne milled (production basis) 132 155


Tonnes milled for the first quarter 2009 were on plan. Production of zinc in concentrate was 21% lower in the first quarter of 2009 compared with the same period in 2008 due to fewer tonnes milled despite higher zinc grades and recoveries. Production of copper in concentrate was 36% lower in the first quarter of 2008 due to fewer tonnes milled.

Compared with projections, mill throughput and gold grade met expectations, zinc and silver grades were less than 10% below expectations while copper grades exceeded projections by 11%. Operating cost per tonne milled exceeded the upper end of projected costs by approximately $19 per tonne milled in the first quarter of 2009 primarily due to the restructuring costs ($16 per tonne milled) and pension plan increases ($3 per tonne milled). Metal contained in concentrate was within 10% of mining projections other than copper which was 15% higher and silver which was 11% lower than anticipated.

(iii) Myra Falls Drilling

During the first quarter of 2009, the peripheral drill program continued to evaluate targets closer to mine infrastructure. The diamond drill program was mainly directed towards the extension and bordering areas of the Battle and HW deposits. In addition to new lens definition, infill drilling was also conducted to augment resources. The program totalled 4,612 metres of diamond drilling and was carried out by company drillers using medium range drills, with the majority of the drill holes less than 200 metres in length. A more extensive program of exploration and property evaluation is evolving from the results of the current work.

The South Flank drill program has delineated an upper or east extension of the zone. It has an apparent vertical offset of 10 metres, maintaining the polymetallic mineralization, structure and elevated grade levels. The Main Zone has a strike length of 100 metres and the transition to the East zone has a length of 15 metres. The East extension has been traced to section 4400 E, giving a known strike length of 35 metres. The transition between the East and Main South Flank zones is currently being developed and mined. The drill program is ongoing.

Diamond drilling is ongoing in the West Gopher area where the lens continues to be traced as part of a down dropped western extension of the current mining block of the Gopher Zone. The South Battle (Bornite and Gnu extensions) drilling will proceed as the drill platforms become available.

An area north of the HW 43 Block is being tested and preliminary results are encouraging.

(iv) Myra Falls Outlook

In the first quarter of 2009, Myra Falls generally met previously disclosed guidance. With the higher grade South Flank lens anticipated to come into production sooner than previously projected, Myra Falls is expected to meet its annualized projections in terms of mill throughput, grades and metal contained in concentrate. Operating cost per tonne milled is expected to meet projections after adjusting for the restructuring costs and additional pension costs in the first quarter of 2009.

The Company continues to closely monitor economic and market conditions as they relate to any decision to temporarily suspend operations. Myra Falls personnel are executing a mine plan which includes a higher grade, lower tonnage scenario with the goal of producing positive cash flow over the year at forecast metal prices and exchange rates.

The collective bargaining agreement at Myra Falls was renewed during 2008 for eighteen months and has an expiry date of September 30, 2009.

Langlois

On November 2, 2008, the Company temporarily suspended operations at Langlois and the mine is being maintained on a care and maintenance basis. Langlois personnel have developed a re-opening plan which anticipates a minimum of six months of pre-production development in order to enable increased production rates. The Company will continue to closely monitor economic and market conditions as they relate to any decision to continue the temporary suspension or to restart the mine.

Due to the Company's revenue recognition policy, certain concentrate produced prior to the temporary suspension in 2008 was not recognized in revenue until the first quarter of 2009.

The following tables provide details of Langlois' gross sales revenue for the periods indicated:



First Quarter 2009
--------------------------------------------------------------------
Gross
Concentrate Realized sales
sold Payable price(1) revenue
(tonnes) metal(1) (US$) ($000's)
--------------------------------------------------------------------
Zinc 3,618 1,660 1,151 1,911
Copper 321 57 3,221 184
Gold n.a. 26 818 21
Silver n.a. 9,515 10.29 98
Other(2) n.a. 220
----------- ------------
3,939
-----------
-----------
Gross sales revenue in US$ 2,434
Exchange rate 1.2293
-----------
Gross sales revenue in C$ 2,992
-----------
-----------


First Quarter 2008
--------------------------------------------------------------------
Gross
Concentrate Realized sales
sold Payable price(1) revenue
(tonnes) metal(1) (US$) ($000's)
--------------------------------------------------------------------
Zinc 15,454 6,797 2,354 16,001
Copper 1,658 307 7,547 2,318
Gold n.a. 208 856 178
Silver n.a. 35,931 15.50 557
Other(2) n.a. 337
----------- ------------
17,112
-----------
-----------
Gross sales revenue in US$ 19,391
Exchange rate 1.0091
-----------
Gross sales revenue in C$ 19,567
-----------
-----------
(1) Payable metal and realized prices for zinc and copper are per tonne and
for gold and silver are per ounce.
(2) Other gross sales revenue represents revaluations of prior period
concentrate receivables.


For additional information on Langlois' first quarter 2008 results, please refer to the Company's 2008 first quarter report which can be found on SEDAR at www.sedar.com or available on the Company's website at www.breakwater.ca.

Other Properties

The Company has entered into various joint venture agreements with other companies. During the first quarter of 2009, there are no updates to provide on such agreements.

The reclamation work was largely complete at Bouchard-Hebert, Bougrine and Nanisivik by the end of 2008. The crushing and grinding circuits and certain other components at Bougrine remain intact, dismantling of the mill at Bouchard-Hebert is continuing and the tank farm remains intact at Nanisivik.

NON-GAAP RECONCILIATIONS

Operating cost per tonne milled on a production basis is a performance indicator. It is a non-GAAP measure and because there is no standard method for calculating it, operating costs per tonne milled on a production basis is not a reliable way to compare the Company against other companies. It can however allow an understanding of how production costs have changed from year-to-year and the impact on cash flows.



Three Months ended Myra
March 31, 2009 ($000's) Mochito Toqui Falls Langlois(1) Total
----------------------------------------------------------------------------
Direct operating costs
per financial
statements 9,856 3,219 19,236 1,145 33,456
Adjustment to production
basis 729 2,970 (4,301) (1,133) (1,735)
Less: stock-based
compensation (5) (12) (41) (12) (70)
Add: royalty adjustment n.a. (25) n.a. n.a. (25)
---------------------------------------------------
Operating costs on a
production basis 10,580 6,152 14,894 - 31,626
---------------------------------------------------
---------------------------------------------------

Average exchange rate 1.2491 1.2433 1.2453 n.a. 1.2462
Operating costs on
production basis (US$) 8,470 4,947 11,960 n.a. 25,377
---------------------------------------------------
---------------------------------------------------

Tonnes milled 171,511 114,948 112,684 n.a. 399,143
---------------------------------------------------
---------------------------------------------------

Operating cost per
tonne milled - US$ $49 $43 $106 n.a. $64
Operating cost per
tonne milled - C$ $62 $54 $132 n.a. $79
(1) On November 2, 2008, Langlois operations were temporarily suspended.


Three Months ended Myra
March 31, 2008 ($000's) Mochito Toqui Falls Langlois Total
----------------------------------------------------------------------------
Direct operating costs
per financial statements 6,065 8,163 18,390 15,348 47,966
Adjustment to production
basis 2,579 (1,137) 8,137 (1,172) 8,407
Less: stock-based
compensation (30) (59) (92) (13) (194)
Less: royalties n.a. (352) n.a. n.a. (352)
---------------------------------------------------
Operating costs on a
production basis 8,614 6,615 26,435 14,163 55,827
---------------------------------------------------
---------------------------------------------------

Average exchange rate 1.0048 1.0048 1.0048 1.0048 1.0048
Operating costs on
production basis (US$) 8,573 6,583 26,309 14,095 55,560
---------------------------------------------------
---------------------------------------------------

Tonnes milled 152,527 127,093 170,182 116,664 566,466
---------------------------------------------------
---------------------------------------------------

Operating cost per
tonne milled - US$ $56 $52 $155 $121 $98
Operating cost per
tonne milled - C$ $56 $52 $155 $121 $99



SUMMARY OF QUARTERLY RESULTS

2007 2007 2007 2008
Q2 Q3 Q4 Q1
----------------------------------------------------------------------------
Gross sales revenue ($ millions) 103.4 87.5 135.5 81.9
Net earning (loss) ($ millions) 38.7 7.8 (38.4) (6.9)
Basic earnings (loss) per share $0.09 $0.02 $(0.09) $(0.02)
Weighted-average number of Common
Shares outstanding (millions) 418.0 418.7 421.6 425.8
Diluted earnings (loss) per share $0.09 $0.02 $(0.09) $(0.02)
C$/US$ realized exchange rate 1.0914 1.0374 0.9857 1.0047
Average realized zinc price (US$/t) 3,710 3,200 2,608 2,409
Average realized zinc price (C$/t) 4,049 3,320 2,571 2,420
Concentrate tonnes sold(1) 51,553 50,748 102,415 59,210
Concentrate tonnes produced(1) 75,596 73,122 72,470 73,481


2008 2008 2008 2009
Q2 Q3 Q4 Q1
----------------------------------------------------------------------------
Gross sales revenue ($ millions) 115.1 101.0 100.1 64.1
Net earning (loss) ($ millions) 8.1 (36.1) (53.5) (6.5)
Basic earnings (loss) per share $0.02 $(0.08) $(0.12) $(0.01)
Weighted-average number of Common
Shares outstanding (millions) 446.4 446.5 446.8 447.7
Diluted earnings (loss) per share $0.02 $(0.08) $(0.12) $(0.01)
C$/US$ realized exchange rate 1.0100 1.0457 1.2050 1.2499
Average realized zinc price (US$/t) 2,205 1,830 1,331 1,156
Average realized zinc price (C$/t) 2,227 1,914 1,604 1,445
Concentrate tonnes sold(1) 95,188 87,978 104,229 66,051
Concentrate tonnes produced(1) 86,856 89,514 65,986 49,803

(1) Langlois commenced commercial production effective July 1, 2007. On
November 2, 2008, Langlois operations were temporarily suspended.
Included in concentrate produced in Q2 2007 was 14,921 tonnes which are
not included in concentrate tonnes sold.


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$, the US$'s movement against the C$ over the past eight quarters impacts the realized C$ gross sales revenue.

RELATED PARTY TRANSACTIONS

Dundee Corporation, a significant shareholder of the Company, purchased 57,960,000 Units under the Offering (equal to 25.2% of the total number of Units that were issued on closing plus the Units issued in respect of the Over-Allotment Exercise) to maintain its approximate 25.2% equity interest in the Company. See Highlights section of this news release for further details of the Offering.

CRITICAL ACCOUNTING ESTIMATES

Going Concern

The unaudited interim consolidated financial statements of the Company for the three months ended March 31, 2009 and 2008 were prepared in accordance with GAAP applicable to a going concern which assume that the Company will realize its assets, discharge its liabilities and meet its future obligations in the normal course of business. Accordingly, the unaudited interim consolidated financial statements for the three months ended March 31, 2009 and 2008 do not include any adjustments to the recoverability and reclassification of recorded assets, or the amounts or classification of liabilities, that might be necessary should the Company be unable to continue as a going concern.

While the unaudited interim consolidated financial statements for the three months ended March 31, 2009 and 2008 were prepared on the basis of accounting principles applicable to a going concern, certain market conditions, including falling metal prices and higher operating costs, cast significant doubt upon the validity of this assumption. For the three month period ended March 31, 2009, the Company incurred a loss of $6.5 million, had a net cash decrease of $6.3 million and used $9.7 million net cash in operating activities.

The unaudited interim consolidated financial statements for the three months ended March 31, 2009 and 2008 do not give effect to adjustments to the carrying values of assets and liabilities and the reported revenues and expenses and balance sheet classifications that would be necessary should the Company be unable to continue as a going concern. These adjustments could be material.

Asset Impairment

The carrying values of producing mineral properties, including properties placed on a care and maintenance basis and related deferred expenditures, are reviewed when events or changes in circumstances arise that may result in impairments in the carrying value of those assets. Estimated future net cash flows, on an undiscounted basis, are calculated for each property using: estimated recoverable reserves; estimated future metal price realization (considering historical and current prices, price trends and related factors); and, estimated operating, capital and other cash flows.

For 2008 testing purposes, the Company used the price assumptions contained in the Sensitivity to Metal Prices and Exchange Rates section in the MD&A dated February 26, 2009 and estimated future price realizations and exchange rates for 2010 to the end of each mine's life. Estimates of future cash flows are subject to risks and uncertainties. It is possible that changes may be required to these assumptions in the future which may affect the assessment of recoverability of the carrying value of mineral properties. See Sensitivity to Metal Prices and Exchange Rates section in the year-end MD&A dated February 26, 2009 at www.sedar.com.

Provisional Payments for Concentrate Shipped and Not Priced

Provisional payments for concentrate inventory shipped and not priced are based on price estimates prevailing close to the date the concentrate is shipped and final pricing can occur several months later, therefore, if there is a dramatic decline in metal pricing during this period, the Company could be required to remit funds back to its customers.

Employee Future Benefits

The Company measures its accrued benefit obligations and the fair value of plan assets for accounting purposes as at December 31 of each year. Actuarial reports valuing this hourly plan are prepared every three years using the projected accumulated benefit method, with December 31, 2007 being the most recent valuation. Employee future benefits relate only to employees at Myra Falls and include amounts related to unionized hourly employee defined benefit pension plan and post-retirement supplements and medical benefits to certain non-union employees. The determination of employee future benefit expenses, obligations and funding requirements require the use of estimates which can produce significant measurement uncertainty into the actuarial valuation process. Such estimates include: mine closure assumptions, expected average remaining service lifetime, termination of employment, retirement timing, mortality, marital status, discount rates, rate of return on plan assets and health care and dental cost inflation assumptions.

Due to the current general economic uncertainty and the volatility of the financial markets, readers are cautioned that there is no assurance the above estimates can be achieved and that the plan deficit could be significantly understated. Contributions significantly greater than those estimated may be required in the future.

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 Amended and Restated Annual Information Form filed with the Canadian securities regulators, a copy of which is posted on the SEDAR website at www.sedar.com.

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. For a more complete description of certain elements please refer to notes 13 and 21 to the first quarter 2009 unaudited consolidated financial statements of the Company.



Common Shares or Securities Convertible into Common Shares May 7, 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Issued and outstanding 678,394,079
Share options outstanding (weighted-average exercise
price $1.25) 6,261,074
Warrants granted at $0.12, expire on April 9, 2014 -
traded on TSX 115,000,000
----------------------------------------------------------------------------
Future fully diluted 799,655,153
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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 and freight 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 reserve 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 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 Amended and Restated Annual Information Form. Given these uncertainties, investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date made. 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.



BREAKWATER RESOURCES LTD.
Consolidated Balance Sheets
(Expressed in thousands of Canadian dollars)
(Unaudited)
----------------------------------------------------------------------------
March December
31, 2009 31, 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Assets

Current
Cash and cash equivalents 13,993 20,328
Restricted cash 761 761
Short-term investments 127 142
Accounts receivable - concentrate 2,186 614
Other receivables 11,940 12,451
Concentrate inventory 21,297 21,816
Materials and supplies inventory 35,531 37,278
Prepaid expenses and other current assets 3,424 5,748
Income and mining tax receivable 1,370 1,550
Future income tax assets - 621
----------------------------------------------------------------------------
Total current assets 90,629 101,309

Restricted reclamation investments 31,241 35,026
Mineral properties and fixed assets 278,428 277,990
Restricted promissory notes 104,314 80,886
----------------------------------------------------------------------------
504,612 495,211
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current
Accounts payable and accrued liabilities 43,084 50,837
Provisional payments for concentrate inventory
shipped and not priced 2,870 10,512
Short-term debt 4,857 4,854
Income and mining taxes payable 410 264
Current portion of reclamation, closure cost
accruals and other environmental obligations 5,040 5,622
----------------------------------------------------------------------------
Total current liabilities 56,261 72,089

Deferred income 8,464 5,924
Long-term lease obligations 85 125
Royalty obligations 101,877 78,449
Long-term debt 1,851 1,851
Reclamation, closure cost accruals and other
environmental obligations 23,329 22,906
Employee future benefits 1,056 994
Future income tax liabilities 4,616 3,211
----------------------------------------------------------------------------
Total liabilities 197,539 185,549
Shareholders' equity 307,073 309,662
----------------------------------------------------------------------------
504,612 495,211
----------------------------------------------------------------------------
----------------------------------------------------------------------------



BREAKWATER RESOURCES LTD.
Consolidated Statements of Operations and Retained Earnings
(Expressed in thousands of Canadian dollars
except share and per share amounts)
(Unaudited)
----------------------------------------------------------------------------

For the periods ended March 31 2009 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Gross sales revenue 64,130 81,856
Treatment and marketing costs 23,746 21,016
----------------------------------------------------------------------------
Net revenue 40,384 60,840
----------------------------------------------------------------------------

Direct operating costs 33,456 47,966
Depreciation and depletion 5,624 7,230
Reclamation and closure costs 833 (198)
----------------------------------------------------------------------------
39,913 54,998
----------------------------------------------------------------------------
Contribution from mining activities 471 5,842
----------------------------------------------------------------------------

General and administrative 2,429 3,595
Interest and financing 1,443 985
Investment and other (income) costs (2,173) 1,363
Foreign exchange and other (82) (39)
Exploration 264 4,482
Other non-producing property costs 2,165 512
----------------------------------------------------------------------------
4,046 10,898
----------------------------------------------------------------------------
Loss before income and mining tax provision (3,575) (5,056)
Income and mining tax provision 2,974 1,808
----------------------------------------------------------------------------
Net loss (6,549) (6,864)
Retained earnings, beginning of period 80,568 168,908
----------------------------------------------------------------------------
Retained earnings, end of period 74,019 162,044
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Basic loss per Common Share ($0.01) ($0.02)
Diluted loss per Common Share ($0.01) ($0.02)

Basic weighted-average number of Common Shares
outstanding (000's) 447,731 425,778
----------------------------------------------------------------------------
----------------------------------------------------------------------------



BREAKWATER RESOURCES LTD.
Consolidated Statements of Accumulated Other Comprehensive Income (Loss)
(Expressed in thousands of Canadian dollars)
(Unaudited)

----------------------------------------------------------------------------
March 31, December 31,
2009 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated other comprehensive income (loss),
beginning of period 3,257 (3,817)
Other comprehensive income 3,696 7,074
----------------------------------------------------------------------------

Accumulated other comprehensive income, end of
period 6,953 3,257
----------------------------------------------------------------------------
----------------------------------------------------------------------------



BREAKWATER RESOURCES LTD.
Consolidated Statements of Other Comprehensive (Loss) Income
(Expressed in thousands of Canadian dollars)
(Unaudited)
----------------------------------------------------------------------------
For the periods ended March 31 2009 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Net loss (6,549) (6,864)
----------------------------------------------------------------------------

Other comprehensive income (loss), net of income taxes:
Unrealized gains on translating financial statements
of self sustaining foreign operations 3,689 2,295
Unrealized gain (loss) on short-term available-for-
sale securities, net of income tax provision of
$1 (2008 - $1) 3 (7)
Unrealized gain on long-term available-for-sale
securities, net of income tax provision of $Nil;
(2008 - $87) - 485
Unrealized gain on restricted investment, net of
income tax provision of $1 4 -
----------------------------------------------------------------------------
Other comprehensive income, net of income taxes 3,696 2,773
----------------------------------------------------------------------------

Comprehensive loss (2,853) (4,091)
----------------------------------------------------------------------------
----------------------------------------------------------------------------



BREAKWATER RESOURCES LTD.
Consolidated Statements of Cash Flow
(Expressed in thousands of Canadian dollars)
(Unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
For the periods ended March 31 2009 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating Activities
Net loss (6,549) (6,864)
Items not affecting cash:
Depreciation and depletion 5,624 7,230
Gain on sale of investment (81) -
Unrealized loss on investments 35 2,507
Other non-cash items (85) 1,195
Stock-based compensation 170 365
Unrealized deferred income (203) (153)
Future income taxes 1,939 (836)
Reclamation, closure cost accruals and other
environmental obligations 833 (198)
Employee future benefits 859 354
Payment of reclamation, closure cost accruals and
other environmental obligations (1,113) (528)
Payment of employee future benefits (797) (888)
Changes in non-cash working capital items (10,370) (24,296)
----------------------------------------------------------------------------
Net cash used in operating activities (9,738) (22,112)
----------------------------------------------------------------------------

Investing Activities
Funds advanced on promissory note (23,428) -
Restricted reclamation investments 3,871 -
Mineral properties and fixed assets (5,021) (26,173)
Proceeds from sale of mineral properties and
fixed assets 1,906 27
----------------------------------------------------------------------------
Net cash used in investing activities (22,672) (26,146)
----------------------------------------------------------------------------

Financing Activities
Proceeds from sale of royalty interest 23,428 -
Issue of common shares for cash 82 83
Deferred income relating to royalties 2,743 -
Decrease in long-term lease obligations (40) (37)
(Decrease) increase in short-term debt (138) 326
----------------------------------------------------------------------------
Net cash provided by financing activities 26,075 372
----------------------------------------------------------------------------
Net decrease in cash during the period (6,335) (47,886)
Cash and cash equivalents, beginning of period 20,328 62,934
----------------------------------------------------------------------------
Cash and cash equivalents, end of period 13,993 15,048
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Supplemental Information
Cash interest paid 147 35
Cash income and mining taxes paid 608 -
Cash interest received 199 314
----------------------------------------------------------------------------
----------------------------------------------------------------------------

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
    www.breakwater.ca