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

Breakwater Resources Ltd.

August 06, 2009 17:03 ET

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

TORONTO, ONTARIO--(Marketwire - Aug. 6, 2009) - Breakwater Resources Ltd. (TSX:BWR)(TSX:BWR.WT.A) reports the financial and operating results for the three and six month periods ended June 30, 2009. The reporting currency is Canadian dollars ("C$" or "$") and all amounts disclosed are in Canadian dollars unless otherwise indicated.

The Company is a mining, exploration and development company which produces zinc, copper, lead and gold concentrates. For the six months ended June 30, 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.

HIGHLIGHTS

The second quarter results highlight a number of accomplishments including the continued lowering of costs at the Company's operations, the closing of an equity offering and the purchase of price protection for zinc while leaving the Company fully exposed to the upside potential for zinc prices. These actions have strengthened the Company's balance sheet while prudently managing risk which leaves the Company significantly stronger than it was six to nine months ago. Nonetheless, management will continue to make operating cost containment and a higher production profile its focus all while further strengthening the balance sheet.

The Company had a net loss of $4.5 million or $0.01 per share in the second quarter of 2009 compared with net earnings of $8.1 million or $0.02 per share in the second quarter of 2008. Included in the $4.5 million net loss were: $1.8 million of reclamation cost, $1.6 million restructuring costs and $1.2 million of price protection losses. In addition to the temporary suspension of operations at Langlois in the fourth quarter of 2008 and a weaker C$, other items producing the change in the results quarter-over-quarter were primarily:

- $74.2 million (US$78.7 million) or 64% lower gross sales revenue due to a 55% decrease in concentrate sold and 36%, 31% and 27% lower realized zinc, lead, and silver prices respectively

- $28.7 million or 70% lower treatment and marketing costs primarily due to lower concentrate sales, more favourable smelter terms and lower freight rates

- $31.3 million or 62% lower direct operating costs (including certain restructuring costs noted above) primarily due to lower concentrate sales and cost improvements at all operations

Concentrate produced in the second quarter of 2009 decreased by 38,344 tonnes to 48,512 tonnes primarily due to a 23,429 tonne decrease related to Langlois being placed on care and maintenance and lower planned production at Myra Falls and Toqui partially offset by higher 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 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 per 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 Exercise 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 second quarter of 2009, Mochito met previously disclosed guidance for throughput and costs, exceeded zinc production by 12% and fell short of guidance for lead and silver contained in concentrate by 22% and 26% respectively due to lower grades. For the balance of 2009, Mochito is expected to meet 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 objective of increasing the mineral reserves and resources in the chimney deposits.

Toqui

Review of production alternatives undertaken at Toqui during the second quarter of 2009 resulted in a mine plan that continues with strong gold production as per previous guidance and increases expected zinc production to 21,200 tonnes contained from 8,200 tonnes for the 2009 year.

Dismantling of a used thickened tailings backfill plant has been completed and transportation to Chile has commenced. This plant will enable Toqui to deposit thickened tails and provide greater pillar recovery in the future.

Myra Falls

Production from the South Flank area commenced ahead of plan and this area will continue as a significant source of mill feed for 2009 and 2010. Operating cost per tonne milled is expected to meet projections and while the grades of material mined may vary, Myra Falls expects to generally meet previously disclosed guidance for payable metal.

STATEMENT OF OPERATIONS REVIEW - THREE AND SIX MONTHS ENDED JUNE 30, 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$").



Second Quarter First Six Months
Concentrate Sold (tonnes) 2009 2008 2009 2008
----------------------------------------------------------------------------
Zinc:
Mochito 13,860 23,137 27,745 23,137
Toqui 10,985 25,684 27,007 46,686
Myra Falls 11,360 17,882 27,943 27,590
Langlois(1) n.a. 14,888 3,618 30,342
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36,205 81,591 86,313 127,755
----------------------------------------------------------------------------
Copper
Myra Falls - 4,692 9,235 9,326
Langlois(1) n.a. 2,547 321 4,205
----------------------------------------------------------------------------
- 7,239 9,556 13,531
----------------------------------------------------------------------------
Lead
Mochito 4,941 3,736 10,408 9,339
Toqui 423 1,418 423 1,418
----------------------------------------------------------------------------
5,364 5,154 10,831 10,757
----------------------------------------------------------------------------
Gold
Toqui 2,093 2,552 3,011 3,704
Myra Falls 8 - 9 -
----------------------------------------------------------------------------
2,101 2,552 3,020 3,704
----------------------------------------------------------------------------
All Metals 43,670 96,536 109,720 155,747
----------------------------------------------------------------------------
(1) On November 2, 2008, Langlois operations were temporarily suspended.



Second Quarter 2009
----------------------------------------------------------------------------
Gross
Concentrate Realized sales
sold Payable price(1) revenue
(tonnes) metal(1) (US$) ($000's)
----------------------------------------------------------------------------
Zinc 36,205 15,801 1,413 22,319
Copper n.a. (70) n.a. (247)
Lead 5,364 3,293 1,383 4,554
Gold(2) 2,101 8,797 931 8,192
Silver n.a. 119,588 12.54 1,500
Price protection loss n.a. n.a. n.a. (1,061)
Other(3) n.a. 41
--------- -------
43,670
---------
---------
Gross sales revenue in US$ 35,298
Exchange rate 1.1599
---------
Gross sales revenue in C$ 40,942
---------
---------


Second Quarter 2008
----------------------------------------------------------------------------
Gross
Concentrate Realized sales
sold Payable price(1) revenue
(tonnes) metal(1) (US$) ($000's)
----------------------------------------------------------------------------
Zinc 81,591 35,075 2,205 77,339
Copper 7,239 1,465 7,837 11,482
Lead 5,154 3,031 2,007 6,083
Gold(2) 2,552 9,544 902 8,608
Silver n.a. 603,022 17.09 10,305
Price protection loss n.a. n.a. n.a. n.a.
Other(3) n.a. 191
------- --------
96,536
-------
-------
Gross sales revenue in US$ 114,008
Exchange rate 1.0100
-------
Gross sales revenue in C$ 115,149
-------
-------

(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 decreased 55% in the second quarter of 2009 compared with the second quarter of 2008. The 52,866 tonne decrease in 2009 was primarily due to the impact of the temporary care and maintenance at Langlois (17,435 tonnes sold in the second quarter of 2008) and 8,072, 16,153 and 11,206 fewer tonnes of concentrate sold at Mochito, Toqui and Myra Falls respectively. In payable metal terms, zinc, copper, gold and silver decreased by 55%, 105%, 8% and 80% respectively while lead sales increased by 9%.

Realized prices denominated in US$ decreased for zinc, lead and silver by 36%, 31% and 27% respectively in the second quarter of 2009 while gold increased by 3%. There were no copper sales in the second quarter of 2009. The Company periodically hedges 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.

During the second quarter of 2009, the Company purchased zinc put options at a cost of $2.1 million to guarantee a minimum price on a significant portion of its zinc production for 2009. During the second quarter of 2009, the Company recorded a $1.2 million loss in gross sales revenue related to the mark-to-market of the puts outstanding at June 30, 2009 and the expiry of certain June 2009 puts. The remaining puts at June 30, 2009 have a fair market value of $1.0 million and are recorded as assets in other receivables. At June 30, 2009, the Company's zinc put option position consisted of:



----------------------------------------------------------------------------
Period Tonnes Strike price per tonne (weighted average)
----------------------------------------------------------------------------
Q3 9,700 US$ 1,372
----------------------------------------------------------------------------
Q4 7,200 US$ 1,362
----------------------------------------------------------------------------


Gross sales revenue decreased by US$78.7 million or 69% in the second quarter of 2009 primarily due to the significant decline in metal prices and sales volumes noted above. A weaker C$ resulted in an increase in the average C$/US$ exchange rate of 15%. In C$ terms, gross sales revenue decreased $74.2 million or 64% compared with the second 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 June 30, 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 6,300 4,162 3,218 944 1,347 1.9
Gold 1,606 5,300 3,425 1,875 3,481 1.0
Lead 1,869 8,056 5,161 2,895 7,572 1.0
----------------------------------------------------------------------------
9,775 17,518 11,804 5,714 12,400
----------------------------------------------------------------------------


As at June 30, 2008, the Company estimated that inventories shipped but not recognized for revenue purposes had earnings before tax of $5.2 million consisting of $40.2 million of net smelter return less $35.0 million of inventory value on 42,493 tonnes of concentrate.

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



Average Metal Prices Second Quarter First Six Months
& Exchange Rate 2009 2008 2009 2008
----------------------------------------------------------------------------
Zinc (US$/tonne) 1,473 2,113 1,323 2,272
Copper (US$/tonne) 4,663 8,444 4,046 8,119
Lead (US$/tonne) 1,499 2,305 1,328 2,603
Gold (US$/ounce) 922 896 915 912
Silver (US$/ounce) 13.73 17.17 13.17 17.43
C$/US$ exchange rate 1.1670 1.0099 1.2059 1.0073
----------------------------------------------------------------------------


Treatment and Marketing Costs

Treatment and marketing costs decreased 70% to $12.5 million in the second quarter of 2009 from $41.2 million in the second quarter of 2008 primarily due to the 55% decrease in concentrate sold, lower base metal prices, lower freight rates and more favourable smelter terms. Treatment and marketing costs for the second quarter of 2009 were 30% of gross revenue compared with 36% 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 62% lower in the second quarter of 2009 at $19.3 million compared with $50.6 million in the second quarter of 2008. The decreased costs were due to lower concentrate sales, the temporary suspension of Langlois and lower costs at Myra Falls. 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 $4.8 million in the second quarter of 2009 compared with the corresponding period in 2008. The decrease was primarily due to the temporary suspension of Langlois, lower concentrate sales and lower asset base at Myra Falls due to the $25.3 million write-down at December 31, 2008. 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 $1.9 million to $2.8 million in the second quarter of 2009 compared with $0.8 million in the corresponding period in 2008. The increase was primarily due to a $1.8 million increase in reclamation cost related to exploration oil and gas wells acquired with the purchase of Myra Falls in 2004.

General and Administrative

General and administrative expenses decreased by $0.9 million in the second quarter of 2009 compared with 2008.

Interest and Financing

Interest and financing costs decreased by $0.8 million in the second quarter of 2009 compared with the equivalent 2008 period primarily due to an adjustment of royalty obligations interest partially offset by increased miscellaneous interest.

Investment and Other Income

Investment and other income was $2.5 million in the second quarter of 2009 compared with $6.4 million in 2008. The $3.9 million swing was primarily due to a realized gain on sale of investment of $7.0 million partially offset by a $3.0 million unrealized loss on the mark-to-market of investments both in the second quarter of 2008.

Foreign Exchange and Other

The $3.4 million change in foreign exchange and other was primarily due to the weaker C$ at June 30, 2009 compared with June 30, 2008.

Exploration

Exploration expenses decreased by $3.8 million in the second quarter of 2009 compared with 2008. Significantly lower expenses at corporate, Myra Falls, Mochito and Langlois and non-producing properties accounted for the decrease.

Other Non-Producing Property Costs

Other non-producing property costs increased by $1.3 million for the second quarter of 2009 compared with the equivalent period in 2008 primarily due to $1.3 million of care and maintenance costs at Langlois.

Income and Mining Tax Provision

In the second quarter of 2009, income and mining tax provision decreased by $1.8 million compared with the respective 2008 period primarily due to reduced tax provisions at Mochito and a write-off of a tax asset at Myra Falls in 2008 partially offset by a reduction of future tax liabilities at Langlois in 2008.

LIQUIDITY AND FINANCIAL POSITION REVIEW

Working Capital

Working capital at the June 30, 2009 was $48.4 million compared with $29.2 million at December 31, 2008, an increase of $19.2 million.

Current Assets

Total current assets increased nominally to $103.0 million at June 30, 2009 compared with December 31, 2008. The main components of the current asset change were:

- Concentrate inventory increased by $11.0 million due to increased concentrate inventories at Toqui, Mochito and Myra Falls partially offset by the elimination of concentrate inventories at Langlois

- Materials and supplies inventory decreased by $4.8 million primarily due to lower supplies inventories at Mochito and Toqui and disposals of certain inventories at Langlois and Bougrine

Current Liabilities

Current liabilities decreased by $17.5 million to $54.6 million at June 30, 2009 compared with December 31, 2008. The main components of the current liabilities change were:

- Accounts payable and accrued liabilities decreased by $18.3 million primarily due to a decrease of $8.7 million of provisional payments refundable to customers, $4.7 million decrease at Langlois related to the temporary suspension of operations and $2.3 million lower payables at Mochito primarily related to a reduction in capital expenditures.

- Provisional payments for concentrate inventory shipped and not priced, which represent payments received for concentrate shipments that were not recognized as revenue, increased by $1.9 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. See Highlights section for additional details.

Restricted Reclamation Investments

At June 30, 2009, the Company had restricted reclamation investments of $31.3 million compared with $35.0 million at December 31, 2008. Reclamation deposits of $10.9 million and $20.4 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 June 30, 2009 totalling $105.7 million compared with three restricted promissory notes totalling $80.9 million at December 31, 2008. All promissory notes are related to Myra Falls royalty transactions(1) 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 $7.7 million at June 30, 2009 consisted of deferred indemnity agreement fees and prepaid interest income related to the Myra Falls royalty transactions in 2004, 2005, 2008 and 2009 which will be recognized as income over the terms of the four agreements. In 2009, the Company entered into an additional Red Mile transaction which increased deferred income by $2.8 million.

Royalty Obligations

The royalty obligations of $101.9 million at June 30, 2009 relate to the royalty amounts received from the 2004, 2005, 2008 and 2009 Myra Falls royalty transactions. The 2009 Red Mile transaction(1) increased royalty obligations by $23.4 million. See restricted promissory notes above.

(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.

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 June 30, 2009, total reclamation, closure cost accruals and other environmental obligations were $30.5 million compared with $28.5 million at December 31, 2008. The $2.0 million increase was primarily due to a $1.8 million increase in reclamation cost related to exploration oil and gas wells acquired with the purchase of Myra Falls in 2004.


Of the $30.5 million, $5.2 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 $0.2 million in reclamation and closure costs in the second quarter of 2009 compared with $1.0 million in the second 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 June 30, 2009

($ millions) Current Long-term Total
----------------------------------------------------------------------------
Myra Falls 0.7 19.0 19.7
Mochito(1) 0.0 1.4 1.4
Toqui 0.0 3.1 3.1
Langlois 0.0 1.1 1.1
Bouchard-Hebert 2.4 0.1 2.5
Nanisivik 1.5 0.4 1.9
Bougrine 0.6 0.2 0.8
----------------------------------------------------------------------------
Total 5.2 25.3 30.5
----------------------------------------------------------------------------
(1) Reclamation and closure cost accruals for Mochito relate to accrued
severances.


Future Income Tax Liabilities

Future income tax liabilities increased $1.5 million to $4.8 million at June 30, 2009. The increase was primarily due to a $2.0 million increase in Quebec mining duties at Langlois in the first quarter of 2009 partially offset by a $0.4 million decrease at Toqui related to timing differences.

Shareholders' Equity

Shareholders' equity at June 30, 2009 was $314.1 million compared with $309.7 million at December 31, 2008. The increase of $4.4 million was due to the Offering partially offset by a net loss of $11.0 million and an other comprehensive loss of $6.5 million.



Shareholders' Equity Capital Contributed
($000's) stock Warrants surplus
---------------------------------------------------------------------------
---------------------------------------------------------------------------
As at December 31, 2008 212,374 8,538 4,925
Common Shares issued to a
third party 12 - -
Unit offering 16,865 4,519 -
Value ascribed to options
exercised under stock-
based compensation 21 - (21)
Expiry of warrants - (8,538) 8,538
Employee share option plan -
proceeds of options exercised 29 - -
Employee share purchase plan 158 - -
Stock-based compensation - - 350
Other comprehensive loss - - -
Loss - - -
---------------------------------------------------------------------------
As at June 30, 2009 229,459 4,519 13,792
---------------------------------------------------------------------------

Other Total
Shareholders' Equity Retained comprehen- shareholders'
($000's) earnings sive income equity
---------------------------------------------------------------------------
---------------------------------------------------------------------------
As at December 31, 2008 80,568 3,257 309,662
Common Shares issued to a
third party - - 12
Unit offering - - 21,384
Value ascribed to options
exercised under stock-
based compensation - - -
Expiry of warrants - - -
Employee share option plan -
proceeds of options exercised - - 29
Employee share purchase plan - - 158
Stock-based compensation - 350
Other comprehensive loss - (6,488) (6,488)
Loss (11,032) - (11,032)
---------------------------------------------------------------------------
As at June 30, 2009 69,536 (3,231) 314,075
---------------------------------------------------------------------------


In the first six months of 2009, the Company issued the following Common Shares: 230,000,000 Common Shares and 115,000,000 warrants pursuant to the Offering; 100,000 Common Shares to a third party; 1,451,402 Common Shares pursuant to the Company's employee share purchase plan and 150,000 Common Shares pursuant to the Company's share option plan. The 33,481,849 warrants outstanding at December 31, 2008 expired on January 28, 2009. See Highlights section of this news release for further details of the Offering.

Capital Expenditures

The Company invested $11.9 million in mineral properties and fixed assets in the first six months of 2009. At mining operations, $6.3 million, $4.1 million, $0.7 million and $0.1 million were invested 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 $0.7 million primarily related to earn-in payments made on certain joint venture properties.

Financial Capability

With the existing working capital, the current metal prices and current C$/US$ exchange rate, the Company expects to be able to carry out its operating, capital, exploration and environmental programs in 2009. The Company's financial capability is sensitive to operating performance, metal prices, smelter treatment charges and the C$/US$ exchange rate.

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.




Second Quarter First Six Months
All Mines 2009 2008 2009 2008
----------------------------------------------------------------------------
Tonnes Milled 412,184 622,834 811,327 1,189,300
Zinc (%) 5.4 6.5 5.6 6.3

Concentrate Production
(tonnes)
Zinc:
Mochito 16,365 14,488 30,629 27,368
Toqui 9,831 16,990 20,368 33,280
Myra Falls 11,194 16,912 24,620 34,351
Langlois(1) - 20,210 - 34,132
----------------------------------------------------------------------------
37,390 68,600 75,617 129,131
----------------------------------------------------------------------------
Copper:
Myra Falls 3,569 7,652 7,523 13,035
Langlois(1) - 3,219 - 5,246
----------------------------------------------------------------------------
3,569 10,871 7,523 18,281
----------------------------------------------------------------------------
Lead:
Mochito 4,966 4,931 9,968 9,010
Toqui 645 1,379 1,169 2,840
----------------------------------------------------------------------------
5,611 6,310 11,137 11,850
Gold:
Toqui 1,942 1,075 4,036 1,075
Myra Falls - - 2 -
----------------------------------------------------------------------------
1,942 1,075 4,038 1,075
----------------------------------------------------------------------------
Total 48,512 86,856 98,315 160,337
----------------------------------------------------------------------------
----------------------------------------------------------------------------
C$ operating costs,
production basis ($000's) 29,440 50,605 61,065 106,431
C$ operating cost per tonne
milled (production basis) 71 81 75 89
(1) On November 2, 2008, Langlois operations were temporarily suspended.


Concentrate produced in the second quarter of 2009 decreased by 44% to 48,512 tonnes primarily due to Langlois being placed on care and maintenance during the fourth quarter of 2008 as well as lower planned zinc concentrate production at Toqui and Myra Falls and lower copper concentrate production at Myra Falls.

Aggregate operating costs and operating costs per tonne milled decreased in the second quarter of 2009 compared with 2008 due to the temporary suspension of Langlois and reduced operating costs at Toqui and Myra Falls 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.



Second Quarter First Six Months
Metal in Concentrate 2009 2008 % 2009 2008 %
--------------------------------------- ---------------------
Zinc (tonnes)
Mochito 8,697 7,634 14% 16,402 14,398 14%
Toqui 4,651 8,247 -44% 9,743 16,410 -41%
Myra Falls 6,126 9,392 -35% 13,312 18,488 -28%
Langlois(1) - 10,835 n.a. - 18,208 n.a.
---------------- ---------------------
19,474 36,108 -46% 39,457 67,504 -42%
---------------- ---------------------
Copper (tonnes)
Myra Falls 846 1,793 -53% 1,667 3,072 -46%
Langlois(1) - 580 n.a. - 971 n.a.
---------------- ---------------------
846 2,373 -64% 1,667 4,043 -59%
---------------- ---------------------
Lead (tonnes)
Mochito 3,251 3,231 1% 6,527 5,925 10%
Toqui 356 648 -45% 630 1,363 -54%
---------------- ---------------------
3,607 3,879 -7% 7,157 7,288 -2%
---------------- ---------------------
Gold (ounces)
Toqui 9,685 8,217 18% 20,785 9,610 116%
Myra Falls 3,041 4,128 -26% 5,634 8,128 -31%
Langlois(1) - 445 n.a. - 733 n.a.
---------------- ---------------------
12,726 12,790 -1% 26,419 18,471 43%
---------------- ---------------------
Silver (ounces)
Mochito 422,875 516,686 -18% 852,021 983,369 -13%
Toqui 59,745 85,775 -30% 130,586 164,510 -21%
Myra Falls 95,929 183,762 -48% 199,255 366,571 -46%
Langlois(1) - 100,341 n.a. - 166,534 n.a.
---------------- ---------------------
578,549 886,564 -35% 1,181,862 1,680,984 -30%
---------------- ---------------------
(1) On November 2, 2008, Langlois operations were temporarily suspended.


Aggregate production of zinc in concentrate in the second quarter of 2009 was 46% lower at 19,474 tonnes. The decrease in zinc production was primarily due to Langlois being placed on care and maintenance as well as planned lower production from Toqui and Myra Falls partially offset by higher production from Mochito. Production of copper in concentrate decreased 64% in the second quarter of 2009 due to fewer tonnes milled at Myra Falls and no production from Langlois. Production of lead in concentrate decreased 7% in the second quarter of 2009 due to more tonnes milled at slightly lower lead grades at Mochito offset by lower production at Toqui. Gold in concentrate decreased 1% in the second quarter of 2009 due to lower production from Myra Falls partially offset by the planned increase in milling of gold material at Toqui. Silver in concentrate decreased 35% primarily due to lower silver grades at Mochito and Myra Falls and no production from Langlois.

Mochito

(i) Mochito Financial Results



Second Quarter First Six Months
($000's) 2009 2008 2009 2008
----------------------------------------------------------------------------
Gross sales revenue 16,108 34,311 35,690 51,177
Treatment and marketing costs (5,672) (11,748) (13,438) (13,499)
----------------------------------------------
Net revenue 10,436 22,563 22,252 37,678
Direct operating costs (7,665) (10,585) (17,522) (16,651)
Depreciation and depletion (3,026) (2,440) (6,599) (3,778)
Reclamation and closure costs (330) (244) (698) (532)
----------------------------------------------
(Loss) contribution from
mining activities (585) 9,294 (2,567) 16,717
Exploration (84) (531) (207) (967)
----------------------------------------------
(669) 8,763 (2,774) 15,750
Income and mining tax
provision (91) (2,498) (195) (3,992)
----------------------------------------------
Net (loss) earnings (760) 6,265 (2,969) 11,758
----------------------------------------------
----------------------------------------------

Capital expenditures 4,075 9,492 6,308 13,956
----------------------------------------------
----------------------------------------------


Revenue:

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




Second Quarter 2009
----------------------------------------------------------------------------
Gross
Concentrate Realized sales
sold Payable price(1) revenue
(tonnes) metal(1) (US$) ($000's)
----------------------------------------------------------------------------
Zinc 13,860 6,182 1,397 8,638
Lead 4,941 3,081 1,383 4,261
Silver n.a. 78,576 12.46 979
Other(2) n.a. 82
-------- --------
18,801
--------
--------
Gross sales revenue in US$ 13,960
Exchange rate 1.1539
---------
Gross sales revenue in C$ 16,108
---------
---------


Second Quarter 2008
----------------------------------------------------------------------------
Gross
Concentrate Realized sales
sold Payable price(1) revenue
(tonnes) metal(1) (US$) ($000's)
----------------------------------------------------------------------------
Zinc 23,137 10,234 2,147 21,974
Lead 3,736 2,330 2,050 4,777
Silver n.a. 409,557 17.06 6,988
Other(2) n.a. 277
-------- -------
26,873
--------
--------
Gross sales revenue in US$ 34,016
Exchange rate 1.0087
--------
Gross sales revenue in C$ 34,311
--------
--------

(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.


Despite higher production, concentrate sold in the second quarter of 2009 was 30% lower due to the timing of shipments. The decrease in concentrates sold and significant declines in the realized prices of all the metals resulted in a 59% drop in gross sales revenues in US$ terms. A weakening of the C$ resulted in gross sales revenue in C$ terms decreasing by 53% in the second quarter of 2009.

Expenses:

Aggregate treatment and marketing costs quarter-over-quarter decreased 52% primarily due to the 30% decrease in concentrate sold, lower metal prices, more favourable smelter terms and lower freight rates partially offset by a weaker C$.

Direct operating costs decreased $2.9 million or 28% in the second quarter of 2009 due to the 30% decrease in concentrate sold and operational issues in 2008 which did not recur in 2009 partially offset by a restructuring charge in the second quarter of 2009 and the impact of the weaker C$. Direct operating cost per tonne of concentrate sold were $408 in the second quarter of 2009 compared with $394 in 2008 primarily due to the factors noted above.

Despite lower tonnes of concentrate sold, depreciation and depletion for the second quarter of 2009 increased $0.6 million or 24% when compared with 2008 largely due to depreciation of capital spares and fewer reserves used for depletion purposes.

Exploration expenses in the second quarter of 2009 were $0.4 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 second quarter of 2009 decreased by $2.4 million principally due to significantly lower earnings before tax in the 2009 period compared with the respective period in 2008.

Capital Expenditures:

At Mochito, $6.3 million was invested in the first six months of 2009 primarily as follows: $2.5 million for mine development; $1.1 million for spare parts for mining equipment, $1.0 million for road construction and $0.9 million for tailings facilities.

(ii) Mochito Production

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



Second Quarter First Six Months
2009 2008 2009 2008
----------------------------------------------------------------------------
Tonnes Milled 174,022 171,808 345,533 324,335
Zinc (%) 5.6 5.0 5.4 5.0
Lead (%) 2.2 2.3 2.2 2.2
Silver (g/t) 88 107 89 107
Concentrate Production
Zinc (tonnes) 16,365 14,488 30,629 27,368
Recovery (%) 88.6 88.5 87.7 88.8
Grade (%) 53.1 52.7 53.5 52.6
Lead (tonnes) 4,966 4,931 9,968 9,010
Recovery (%) 82.9 82.1 83.4 82.0
Grade (%) 65.5 65.6 65.5 65.8
Metal in Concentrates
Zinc (tonnes) 8,697 7,634 16,402 14,398
Lead (tonnes) 3,251 3,231 6,527 5,925
Silver (ounces) 422,875 516,686 852,021 983,369

US$ operating costs,
production basis ($000's) 9,529 8,950 18,000 17,523
US$ operating cost per tonne
milled (production basis) 55 52 52 54


Production of zinc in concentrate was 14% higher in the second quarter of 2009 compared with the same period in 2008 due to more tonnes milled at a higher zinc head grade. Production of lead in concentrate in the second quarter of 2009 was essentially equal to the same period in 2008 due to higher mill throughput at lower lead grades.

Compared with previously disclosed guidance, mill throughput was on target with higher zinc grades and lower lead and silver grades than planned resulting in higher zinc and lower lead and silver production on a metal contained in concentrate basis. In the second quarter of 2009, Mochito incurred restructuring costs of $1.0 million (US$0.9 million or US$5 per tonnes milled). Operating costs per tonne milled were US$3 higher than in the second quarter of 2008 primarily due to the US$5 per tonne milled charge noted above. Excluding the restructuring charge, operating costs were lower than projected due to cost controls implemented in late 2008 and early 2009.

(iii) Mochito Drilling

Exploration efforts during the second quarter of 2009 continued to successfully extend the Imperial, Santo Nino, and Barbasco chimneys. All three chimneys remain open in at least one direction and the Company expects to add additional mineral reserves and resources through ongoing diamond drilling.

Exploration indicates that the Imperial zone has the potential to become a significant deposit. The zone remains open above and below the current drilling and to the north. The current known configuration of the zone indicates that the Barbasco-Imperial trend has the potential to be a major mineral-bearing structure and further exploration of this trend is warranted. Access drifts are being driven towards the Imperial zone on both the 1850 and 2050 levels. The underground exploration program will be complemented by surface diamond drilling. Agreements with landowners have been reached and the surface drill program is expected to begin during the third quarter.

An underground diamond drill is being mobilized to test the upward extension of the Port Royal chimney. The upper extension of the Port Royal chimney is approximately 210 metres below the Mochito shales and there is potential for a larger deposit where the small, very high grade chimney intersects the shales.

There are indications that an alteration pipe exists within the Mochito shales and the first drill hole has been collared to search for the San Juan chimney above the Mochito shales. Diamond drilling will be used to trace the alteration pipe up through the shales. There is a prospect that the chimney reappears above the shale package where the mineralization-bearing fluids came into contact with the reactive limestones that occur there.

A total of 6,112 metres was drilled from underground during the second quarter of 2009. Definition and valuation drilling accounted for 356 metres while exploration and extensional drilling accounted for 5,756 metres.

(iv) Mochito Outlook

In the second quarter of 2009, Mochito met previously disclosed guidance for throughput and costs, exceeded zinc production by 12% and fell short of guidance for lead and silver contained in concentrate by 22% and 26% respectively due to lower grades. For the balance of 2009, Mochito is expected to meet 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 objective of increasing the mineral reserves and resources in the chimney deposits.

Toqui

(i) Toqui Financial Results



Second Quarter First Six Months
($000's) 2009 2008 2009 2008
----------------------------------------------------------------------------
Gross sales revenue 17,601 32,193 32,698 59,102
Treatment and marketing costs (4,225)(13,742) (11,783) (23,239)
---------------------------------
Net revenue 13,376 18,451 20,915 35,863
Direct operating costs (5,798) (9,521) (9,017) (17,683)
Depreciation and depletion (1,892) (2,326) (3,089) (3,974)
Reclamation and closure (costs) recovery (58) (44) (120) 994
---------------------------------
Contribution from mining activities 5,628 6,560 8,689 15,200
Exploration (312) (225) (364) (686)
---------------------------------
5,316 6,335 8,325 14,514
Income and mining tax recovery (provision) (173) 405 (419) (2,407)
---------------------------------
Net earnings 5,143 6,740 7,906 12,107
---------------------------------
---------------------------------

Capital expenditures 2,283 6,128 4,060 14,074
---------------------------------
---------------------------------


Revenue:

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



Second Quarter 2009
----------------------------------------------------------------------------
Gross
Concentrate Realized sales
sold Payable price(1) revenue
(tonnes) metal(1) (US$) ($000's)
----------------------------------------------------------------------------
Zinc 10,985 4,407 1,470 6,478
Lead 423 212 1,383 293
Gold 2,093 8,589 926 7,958
Silver n.a. 32,622 13.02 425
Other(2) n.a. 136
------------ --------
13,501
------------
------------
Gross sales revenue in US$ 15,290
Exchange rate 1.1511
--------
Gross sales revenue in C$ 17,601
--------
--------



Second Quarter 2008
----------------------------------------------------------------------------
Gross
Concentrate Realized sales
sold Payable price(1) revenue
(tonnes) metal(1) (US$) ($000's)
----------------------------------------------------------------------------
Zinc 25,684 10,544 2,251 23,732
Lead 1,418 701 1,863 1,306
Gold 2,552 6,888 899 6,195
Silver n.a 42,794 16.98 727
Other(2) n.a (66)
------------ --------
29,654
------------
------------
31,894
1.0094
--------
32,193
--------
--------
(1) Payable metal and realized prices 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 second quarter of 2009 was 54% less than in the second quarter of 2008 primarily due to lower planned production levels and the timing of shipments. Lower concentrate sales and lower prices for zinc, lead and silver resulted in a 52% decrease in gross sales revenue in US$ terms. A 14% increase in the exchange rate resulted in 45% lower gross sales revenue in C$ terms.

Expenses:

Treatment and marketing costs were 69% lower on an aggregate basis in the second quarter of 2009 compared with the second quarter of 2008 primarily due to 54% fewer tonnes of concentrate sold, lower metal prices, more favourable smelter terms and lower freight rates partially offset by a weaker C$. As a percentage of gross revenue, treatment and marketing costs decreased to 24% from 43% in the same period in 2008 primarily due to the factors noted above.

Direct operating costs in the second quarter of 2009 were 39% lower than in the same period in 2008 primarily due to 54% lower tonnes of concentrate sold and significant cost savings partially offset by a weaker C$.

Depreciation and depletion for the second quarter of 2009 decreased $0.4 million or 19% when compared with the respective period in 2008 primarily due to fewer tonnes of concentrate sold.

Income and mining tax provision for the second quarter of 2009 increased by $0.6 million primarily due to a future tax provision increasing by $0.5 million in 2009.

Capital Expenditures:

Toqui capital expenditures of $4.1 million in the first six months of 2009 consisted primarily of: $1.5 million for development of Mina Profunda; $0.7 million for other development; $1.2 million for thickened tailings plant equipment and tailings facilities and $0.3 million for equipment.

(ii) Toqui Production

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



Second Quarter First Six Months
2009 2008 2009 2008
----------------------------------------------------------------------------
Tonnes Milled 122,202 132,720 237,150 259,813
Zinc (%) 4.5 7.0 4.8 7.1
Lead (%) 0.5 0.8 0.5 0.9
Gold (g/t) 3.3 2.4 3.6 1.5
Silver (g/t) 23 27 25 27
Concentrate Production
Zinc (tonnes) 9,831 16,990 20,368 33,280
Recovery (%) 86.0 88.7 86.2 89.1
Grade (%) 47.3 48.5 47.8 49.3
Lead (tonnes) 645 1,379 1,169 2,840
Recovery (%) 68.3 47.0 53.9 48.0
Grade (%) 55.2 64.1 59.0 59.7
Gold (tonnes) 1,942 1,075 4,036 1,075
Recovery (%) 59.5 55.8 60.3 55.8
Grade (g/t) 114.0 144.0 114.8 144.0
Metal in Concentrates
Zinc (tonnes) 4,651 8,247 9,743 16,410
Lead (tonnes) 356 648 630 1,363
Gold (ounces) 9,685 8,217 20,785 9,610
Silver (ounces) 59,745 85,775 130,586 164,510

US$ operating costs, production basis
($000's) 5,308 6,150 10,255 12,733
US$ operating cost per tonne milled
(production basis) 43 46 43 49


Production of zinc in concentrate was 44% lower in the second 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 45% lower due to lower lead grades and fewer tonnes milled. Production of gold in concentrate was 18% higher in the second quarter of 2009 due to higher gold grades despite fewer tonnes milled.

As the price of zinc exceeded expected prices, the Company did not reduce throughput as projected but continued to mine zinc bearing deposits in addition to the gold bearing deposits. Compared with previously disclosed guidance, actual results had favourable variances with the exception of gold grade. Mining the zinc deposits in addition to the gold deposits in the second 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 second quarter of 2009, a total of 3,748 metres of underground definition drilling was carried out with 1,657 metres drilled 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. 952 metres were drilled below Aserradero Norte confirming the gold mineralization in the lower calcareous sandstone horizon. In Sector 9 of Dona Rosa, 784 metres were drilled but only encountered sub-economic mineralization of zinc and gold, while the 355 metres drilled below Aserradero only encountered a narrow horizon of calcareous sandstone with sub-economic mineralization of zinc and gold.

(iv) Toqui Outlook

Review of production alternatives undertaken at Toqui during the first quarter of 2009 resulted in a mine plan that continues with strong gold production as per previous guidance and increases expected zinc production to 21,200 tonnes from 8,200 tonnes contained for the 2009 year.

Dismantling of a used thickened tailings backfill plant has been completed and transportation to Chile has commenced. This plant will enable Toqui to deposit thickened tails and provide greater pillar recovery in the future.

Myra Falls

(i) Myra Falls Financial Results



Second Quarter First Six Months
($000's) 2009 2008 2009 2008
----------------------------------------------------------------------------
Gross sales revenue 8,467 28,622 34,926 47,136
Treatment and marketing costs (2,572) (8,188) (9,811) (13,143)
----------------------------------
Net revenue 5,895 20,434 25,115 33,993
Direct operating costs (5,852)(18,674) (25,087) (37,064)
Depreciation and depletion (13) (1,674) (822) (2,794)
Reclamation and closure costs (2,031) (427) (2,304) (861)
----------------------------------
Loss from mining activities (2,001) (341) (3,098) (6,726)
Exploration - (614) - (978)
----------------------------------
(2,001) (955) (3,098) (7,704)
Income and mining tax provision - (1,921) - (2,867)
----------------------------------
Net loss (2,001) (2,876) (3,098) (10,571)
----------------------------------
----------------------------------

Capital expenditures 441 887 715 2,967
----------------------------------
----------------------------------


Revenue:

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



Second Quarter 2009
----------------------------------------------------------------------------
Gross
Concentrate Realized sales
sold Payable price(1) revenue
(tonnes) metal(1) (US$) ($000's)
----------------------------------------------------------------------------
Zinc 11,360 5,212 1,382 7,203
Copper n.a. (70) n.a. (247)
Gold 8 208 1,123 234
Silver n.a. 8,390 11.39 96
Other(2) n.a. (177)
------------ --------
11,368
------------
------------
7,109
1.1910
---------
8,467
---------
---------



Second Quarter 2008
----------------------------------------------------------------------------
Gross
Concentrate Realized sales
sold Payable price(1) revenue
(tonnes) metal(1) (US$) ($000's)
----------------------------------------------------------------------------
Zinc 17,882 7,851 2,205 17,309
Copper 4,692 1,003 7,572 7,597
Gold n.a. 2,379 908 2,160
Silver n.a. 75,373 16.69 1,258
Other(2) n.a. n.a.
------------ --------
22,574
------------
------------
28,324
1.0105
---------
28,622
---------
---------
(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 second quarter of 2009 was 50% lower than in the second quarter of 2008. Lower concentrate sales and lower realized zinc prices resulted in revenues for the quarter decreasing by 75% in US$ terms. An 18% higher exchange rate resulted in gross sales revenue decreasing 70% in C$ terms to $8.5 million.

In the second quarter of 2009, treatment and marketing costs were 69% lower on an aggregate basis primarily due to 50% lower concentrate sales, lower freight rates and more favourable smelter terms partially offset by an 18% higher exchange rate. In the second quarter of 2009, treatment and marketing costs decreased 38% to $226 on a per tonne of concentrate sold basis compared with 2008 due to the factors noted above.

Aggregate direct operating costs decreased 69% primarily due to 50% lower concentrate sales and cost reductions achieved in 2008 and 2009, 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. Direct operating costs per tonne sold decreased 38% to $515 per tonne in the second quarter of 2009 compared with the second quarter of 2008 primarily due to the factors noted above.

Reclamation and closure costs in the second quarter of 2009 increased $1.6 million from the respective period in 2008 primarily due to a $1.8 million increase in reclamation cost related to exploration oil and gas wells acquired with the purchase of Myra Falls in 2004.

Exploration expense decreased in the second 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 $1.9 million in the second quarter of 2009 primarily due to a write-down of a future tax asset in the second quarter of 2008 which did not recur in 2009.

Capital Expenditures:

Myra Falls' capital expenditures in the first six months of 2009 of $0.7 million consisted primarily of $0.3 million for a new tailings disposal area; $0.3 million for equipment; and, $0.1 million in ramp development.

(ii) Myra Falls Production

Myra Falls' production is set out in the following table.



Second Quarter First Six Months
2009 2008 2009 2008
----------------------------------------------------------------------------
Tonnes Milled 115,960 164,707 228,644 334,889
Zinc (%) 6.0 6.7 6.6 6.4
Copper (%) 1.0 1.4 1.0 1.2
Gold (g/t) 1.3 1.3 1.2 1.2
Silver (g/t) 35 44 37 43
Concentrate Production
Zinc (tonnes) 11,194 16,912 24,620 34,351
Zinc Recovery (%) 88.4 86.2 88.0 86.7
Zinc Grade (%) 54.7 55.5 54.1 53.8
Gold Recovery (%) 17.9 23.9 20.9 25.4
Gold Grade (g/t) 2.4 2.9 2.3 3.0
Copper (tonnes) 3,569 7,652 7,523 13,035
Copper Recovery (%) 73.2 77.0 73.1 75.3
Copper Grade (%) 23.7 23.4 22.2 23.6
Gold Recovery (%) 29.5 36.7 33.4 36.2
Gold Grade (g/t) 12.4 10.2 12.1 11.4
Gold (tonnes) 0.1 - 1.9 -
Recovery (%) 15.5 - 9.9 -
Grade (g/t) 300,303 - 14,158 -
Metal in Concentrates
Zinc (tonnes) 6,126 9,392 13,312 18,488
Copper (tonnes) 846 1,793 1,667 3,072
Gold (ounces) 3,041 4,128 5,634 8,128
Silver (ounces) 95,929 183,762 199,255 366,571

C$ operating costs, production
basis ($000's) 12,310 19,757 27,203 46,192
C$ operating cost per tonne milled
(production basis) 106 120 119 138


Production of zinc in concentrate was 35% lower in the second quarter of 2009 compared with the same period in 2008 due to fewer tonnes milled and lower zinc grades despite higher recoveries. Production of copper in concentrate was 53% lower in the second quarter of 2009 due to fewer tonnes milled, lower copper grades and lower recoveries.

Compared with previously disclosed guidance, mill throughput exceeded expectations while zinc, copper, gold and silver grades were below expectations. Lower head grades were primarily due to ore dilution compounded by decreased mining recovery to plan, both associated with salvage mining. Mill recoveries were also negatively affected by the lower head grade.

(iii) Myra Falls Drilling

During the second quarter of 2009, the principle exploration effort was directed towards evaluating the South Flank and the West Battle lenses. A total of 3,024 metres was drilled during the quarter.

While the South Flank Main and East lenses have been delineated, the broad footwall alteration zone which contains the zones continues to be evaluated for higher grade centres of mineralization as well as Main Zone offset potential. A single drill will be dedicated to this area during the third quarter.

The deep drilling into the Battle West extension from 18 level is proceeding west from the current station at 1080 East. Drill platforms are in place to carry this program out to 800 East.

The peripheral drill program in the West Battle area has identified a narrow high grade polymetallic lens which lies immediately below infrastructure. It has been delineated over a strike length of 40 metres, and may extend east and west for a total of 100 metres.

A mid range drill is being moved into the Battle South area to resume the program in this area and will use existing platforms as well as new ones that are being developed.

A deep hole program is being developed to evaluate the Price - HW (South Flank) stratigraphy. A suitable drill platform has been identified on Price level 13 which would serve to test a 400 metre area from above Price 13 down to the South Flank.

(iv) Myra Falls Outlook

Production from the South Flank area commenced ahead of plan and this area will continue as a significant source of mill feed for 2009 and 2010. Operating cost per tonne milled is expected to meet projections and while the grades of material mined may vary, Myra Falls expects to generally meet previously disclosed guidance for payable metal.

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.

For additional information on Langlois' second quarter 2008 results, please refer to the Company's 2008 second 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 second quarter of 2009, there are no updates to provide on such agreements.

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 June 30, 2009 Myra
($000's) Mochito Toqui Falls Langlois(1) Total
----------------------------------------------------------------------------
Direct operating costs
per financial statements 7,665 5,798 5,852 17 19,332
Adjustment to production basis 3,436 681 6,469 n.a. 10,586
Less: stock-based compensation (3) (16) (11) (17) (47)
Less: royalty adjustment n.a. (431) n.a. n.a. (431)
---------------------------------------------
Operating costs on a production
basis (C$) 11,098 6,032 12,310 - 29,440
---------------------------------------------
---------------------------------------------

Average exchange rate 1.1647 1.1364 1.1614 n.a. 1.1574
Operating costs on production
basis (US$) 9,529 5,308 10,599 n.a. 25,436
---------------------------------------------
---------------------------------------------

Tonnes milled 174,022 122,202 115,960 n.a. 412,184
---------------------------------------------
---------------------------------------------

Operating cost per tonne milled
- US$ 55 43 91 n.a. 62
Operating cost per tonne milled
- C$ 64 49 106 n.a. 71

(1) On November 2, 2008, Langlois operations were temporarily suspended.



Three Months ended June 30, 2008 Myra
($000's) Mochito Toqui Falls Langlois Total
----------------------------------------------------------------------------
Direct operating costs per
financial statements 10,585 9,521 18,674 11,817 50,597
Adjustment to production basis (1,544) (2,944) 1,196 3,801 509
Less: stock-based compensation (5) (40) (113) (19) (177)
Less: royalties n.a. (324) n.a. n.a. (324)
---------------------------------------------
Operating costs on a
production basis (C$) 9,036 6,213 19,757 15,599 50,605
---------------------------------------------
---------------------------------------------

Average exchange rate 1.0096 1.0102 1.0106 1.0095 1.0101
Operating costs on
production basis (US$) 8,950 6,150 19,549 15,452 50,101
---------------------------------------------
---------------------------------------------

Tonnes milled 171,808 132,720 164,707 153,599 622,834
---------------------------------------------
---------------------------------------------

Operating cost per tonne
milled - US$ 52 46 119 101 80
Operating cost per tonne
milled - C$ 53 47 120 102 81



Six month period ended June 30, 2009 Myra
($000's) Mochito Toqui Falls Langlois(1) Total
----------------------------------------------------------------------------
Direct operating costs
per financial statements 17,522 9,017 25,087 1,162 52,788
Adjustment to production basis 4,165 3,651 2,168 (1,133) 8,851
Less: stock-based compensation (8) (28) (52) (29) (117)
Less: royalty adjustment n.a. (457) n.a. n.a. (457)
---------------------------------------------
Operating costs on a
production basis (C$) 21,679 12,183 27,203 - 61,065
---------------------------------------------
---------------------------------------------

Average exchange rate 1.2044 1.1880 1.2059 n.a. 1.2017
Operating costs on
production basis (US$) 18,000 10,255 22,559 n.a. 50,814
---------------------------------------------
---------------------------------------------

Tonnes milled 345,533 237,150 228,644 n.a. 811,327
---------------------------------------------
---------------------------------------------

Operating cost per tonne
milled - US$ 52 43 99 n.a. 63
Operating cost per tonne
milled - C$ 63 51 119 n.a. 75

(1) On November 2, 2008, Langlois operations were temporarily suspended.

Six month period ended June 30, 2008 Myra
($000's) Mochito Toqui Falls Langlois Total
----------------------------------------------------------------------------
Direct operating costs per
financial statements 16,651 17,683 37,064 27,165 98,563
Adjustment to production basis 1,035 (4,082) 9,333 2,629 8,915
Less: stock-based compensation (35) (99) (205) (32) (371)
Less: royalty adjustment n.a. (676) n.a. n.a. (676)
---------------------------------------------
Operating costs on a
production basis (C$) 17,651 12,826 46,192 29,762 106,431
---------------------------------------------
---------------------------------------------

Average exchange rate 1.0073 1.0073 1.0073 1.0073 1.0073
Operating costs on
production basis (US$) 17,523 12,733 45,857 29,547 105,660
---------------------------------------------
---------------------------------------------

Tonnes milled, production
basis 324,335 259,813 334,889 270,263 1,189,300
---------------------------------------------
---------------------------------------------

Operating cost per tonne
milled - US$ 54 49 137 109 89
Operating cost per tonne
milled - C$ 54 49 138 110 89



SUMMARY OF QUARTERLY RESULTS

2007 2007 2008 2008
Q3 Q4 Q1 Q2
----------------------------------------------------------------------------
Gross sales revenue ($ millions) 87.5 135.5 81.9 115.1
Net earning (loss) ($ millions) 7.8 (38.4) (6.9) 8.1
Basic earnings (loss) per share $0.02 $(0.09) $(0.02) $0.02
Weighted-average number of
Common Shares outstanding (millions) 418.7 421.6 425.8 446.4
Diluted earnings (loss) per share $0.02 $(0.09) $(0.02) $0.02
C$/US$ realized exchange rate 1.0374 0.9857 1.0047 1.0100
Average realized zinc price (US$/t) 3,200 2,608 2,409 2,205
Average realized zinc price (C$/t) 3,320 2,571 2,420 2,227
Concentrate tonnes sold(1) 50,748 102,415 59,210 95,188
Concentrate tonnes produced(1) 73,122 72,470 73,481 86,856



2008 2008 2009 2009
Q3 Q4 Q1 Q2
----------------------------------------------------------------------------
Gross sales revenue ($ millions) 101.0 100.1 64.1 40.9
Net earning (loss) ($ millions) (36.1) (53.5) (6.5) (4.5)
Basic earnings (loss) per share $(0.08) $(0.12) $(0.01) $(0.01)
Weighted-average number of
Common Shares outstanding (millions) 446.5 446.8 447.7 678.4
Diluted earnings (loss) per share $(0.08) $(0.12) $(0.01) $(0.01)
C$/US$ realized exchange rate 1.0457 1.2050 1.2499 1.1599
Average realized zinc price (US$/t) 1,830 1,331 1,156 1,413
Average realized zinc price (C$/t) 1,914 1,604 1,445 1,639
Concentrate tonnes sold(1) 87,978 104,229 66,051 43,670
Concentrate tonnes produced(1) 89,514 65,986 49,803 48,512

(1) Langlois commenced commercial production effective July 1, 2007.
On November 2, 2008, Langlois operations were temporarily suspended.


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

In the second quarter of 2009, Dundee Corporation, a significant shareholder of the Company, purchased 57,960,000 Units under the Offering 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

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.

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 note 16 to the 2008 audited consolidated financial statements and to note 13 to the second quarter 2009 unaudited consolidated financial statements of the Company.




Common Shares or Securities Convertible into Common Shares August 6, 2009
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Issued and outstanding 678,914,442
Share options outstanding (weighted-average exercise
price $1.14) 6,927,741
Warrants granted at $0.12, expire on April 9, 2014
- traded on TSX 115,000,000
----------------------------------------------------------------------------
Future fully diluted 800,842,183
----------------------------------------------------------------------------
----------------------------------------------------------------------------


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)
----------------------------------------------------------------------------
June 30, December
2009 31, 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Assets

Current
Cash and cash equivalents 19,348 20,328
Restricted cash 761 761
Short-term investments 81 142
Accounts receivable - concentrate 2,579 614
Other receivables 11,657 12,451
Concentrate inventory 32,769 21,816
Materials and supplies inventory 32,497 37,278
Prepaid expenses and other current assets 3,040 5,748
Income and mining tax receivable 265 1,550
Future income tax assets - 621
----------------------------------------------------------------------------
Total current assets 102,997 101,309

Restricted reclamation investments 31,257 35,026
Mineral properties and fixed assets 271,032 277,990
Restricted promissory notes 105,724 80,886
----------------------------------------------------------------------------
511,010 495,211
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current
Accounts payable and accrued liabilities 32,581 50,837
Provisional payments for concentrate inventory shipped
and not priced 12,400 10,512
Short-term debt including current portion of long-term
debt 3,998 4,854
Income and mining taxes payable 401 264
Current portion of reclamation, closure cost accruals
and other environmental obligations 5,219 5,622
----------------------------------------------------------------------------
Total current liabilities 54,599 72,089

Deferred income 7,734 5,924
Long-term lease obligations 136 125
Royalty obligations 101,852 78,449
Long-term debt 1,351 1,851
Reclamation, closure cost accruals and other
environmental obligations 25,315 22,906
Employee future benefits 1,188 994
Future income tax liabilities 4,760 3,211
----------------------------------------------------------------------------
Total liabilities 196,935 185,549
Shareholders' equity 314,075 309,662
----------------------------------------------------------------------------
511,010 495,211
----------------------------------------------------------------------------
----------------------------------------------------------------------------



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

Three Months Ended Six Months Ended
For the periods ended June 30 2009 2008 2009 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Gross sales revenue 40,942 115,149 105,072 197,005
Treatment and marketing costs 12,470 41,167 36,216 62,183
----------------------------------------------------------------------------
Net revenue 28,472 73,982 68,856 134,822
----------------------------------------------------------------------------

Direct operating costs 19,332 50,597 52,788 98,563
Depreciation and depletion 4,977 9,817 10,601 17,047
Reclamation and closure costs 2,772 831 3,605 633
----------------------------------------------------------------------------
27,081 61,245 66,994 116,243
----------------------------------------------------------------------------
Contribution from mining activities 1,391 12,737 1,862 18,579
----------------------------------------------------------------------------

General and administrative 3,248 4,132 5,677 7,727
Interest and financing 115 962 1,558 1,947
Investment and other income (2,505) (6,402) (4,678) (5,039)
Foreign exchange and other expense
(income) 2,588 (807) 2,506 (846)
Exploration 575 4,425 839 8,907
Other non-producing property costs 1,598 295 3,763 807
----------------------------------------------------------------------------
5,619 2,605 9,665 13,503
----------------------------------------------------------------------------
(Loss) earnings before income and
mining tax provision (4,228) 10,132 (7,803) 5,076
Income and mining tax provision 255 2,050 3,229 3,858
----------------------------------------------------------------------------
Net (loss) earnings (4,483) 8,082 (11,032) 1,218
Retained earnings, beginning of
period 74,019 162,044 80,568 168,908
----------------------------------------------------------------------------
Retained earnings, end of period 69,536 170,126 69,536 170,126
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Basic (loss) earnings per Common
Share ($0.01) $ 0.02 ($0.02) $ 0.00
Diluted (loss) earnings per Common
Share ($0.01) $ 0.02 ($0.02) $ 0.00
Basic weighted-average number of
Common Shares outstanding (000's) 678,444 446,382 563,088 436,080
----------------------------------------------------------------------------
----------------------------------------------------------------------------



BREAKWATER RESOURCES LTD.
Consolidated Statements of Accumulated Other Comprehensive (Loss) Income
(Expressed in thousands of Canadian dollars)
(Unaudited)
----------------------------------------------------------------------------
June 30, December 31,
2009 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated other comprehensive income (loss),
beginning of period 3,257 (3,817)
Other comprehensive (loss) income (6,488) 7,074
----------------------------------------------------------------------------

Accumulated other comprehensive (loss) income,
end of period (3,231) 3,257
----------------------------------------------------------------------------
----------------------------------------------------------------------------



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

Three Months Ended Six Months Ended
For the periods ended June 30 2009 2008 2009 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Net (loss) earnings (4,483) 8,082 (11,032) 1,218
----------------------------------------------------------------------------
Other comprehensive income (loss),
net of income taxes:
Unrealized (losses) gains on
translating financial statements of
self sustaining foreign operations (9,965) (102) (6,276) 2,193
Unrealized (loss) gain on short-term
available-for-sale securities, net
of income tax provision for the 3
months of $1 (2008 - $0.5)and
6 months of $0.9 (2008 - $1) (8) 2 (5) (5)
Unrealized (loss) gain on restricted
investments net of income tax
provision for the 3 months of $19
and 6 months of $18 (108) - (104) -
Unrealized (loss) gain on long-term
available-for-sale securities, net
of income tax provision for the 3
months of $Nil (2008 - $59)and
6 months of $Nil (2008 - $27) - (313) - 172

Reclassification of gains on sale
of available-for-sale securities
to income (103) (6,743) (103) (6,743)
----------------------------------------------------------------------------
Other comprehensive loss, net of
income taxes (10,184) (7,156) (6,488) (4,383)
----------------------------------------------------------------------------

Comprehensive (loss) income (14,667) 926 (17,520) (3,165)
----------------------------------------------------------------------------
----------------------------------------------------------------------------



BREAKWATER RESOURCES LTD.
Consolidated Statements of Cash Flow
(Expressed in thousands of Canadian dollars)
(Unaudited)

Three Months Ended Six Months Ended
For the periods ended June 30 2009 2008 2009 2008
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Operating Activities

Net (loss) earnings (4,483) 8,082 (11,032) 1,218
Items not affecting cash:
Depreciation and depletion 4,977 9,817 10,601 17,047
Gain on sale of investments (40) (6,976) (121) (6,976)
Unrealized loss on investments 198 3,342 233 5,849
Other non-cash items (129) 1,177 (214) 2,372
Stock-based compensation 180 346 350 711
Unrealized deferred income (732) (152) (935) (305)
Future income taxes 382 (1,856) 2,321 (2,692)
Reclamation, closure cost accruals
and other environmental obligations 2,772 831 3,605 633
Employee future benefits 860 355 1,719 709
Payment of reclamation, closure cost
accruals and other environmental
obligations (198) (1,019) (1,311) (1,547)
Payment of employee future benefits (728) (821) (1,525) (1,709)
Changes in non-cash working capital
items (11,077) 17,919 (21,447) (6,377)
----------------------------------------------------------------------------
Net cash (used in) provided by
operating activities (8,018) 31,045 (17,756) 8,933
----------------------------------------------------------------------------

Investing Activities
Decrease in restricted cash - 50 - 50
Short-term investments - 3,448 - 3,448
Long-term investments - 13,350 - 13,350
Funds advanced on promissory note - - (23,428) -
Restricted reclamation investments (345) - 3,526 -
Issue of common shares to purchase
Myra Falls Limited Partnership - (34) - (34)
Acquisition of Metco Resources Inc.,
net of cash acquired - 23 - 23
Mineral properties and fixed assets (6,840) (22,474) (11,861) (48,647)
Proceeds from sale of mineral
properties and fixed assets - 1 1,906 28
----------------------------------------------------------------------------
Net cash used in investing activities (7,185) (5,636) (29,857) (31,782)
----------------------------------------------------------------------------

Financing Activities
Proceeds from sale of royalty
interest - - 23,428 -
Issue of common shares and warrants
for cash, net of issue costs 21,488 104 21,570 187
Deferred income relating to royalties 2 - 2,745 -
Increase (decrease) in long-term
lease obligations 51 - 11 (37)
(Decrease) increase in short-term debt (983) 505 (1,121) 831
Increase in long-term debt - 3,022 - 3,022
----------------------------------------------------------------------------
Net cash provided by financing
activities 20,558 3,631 46,633 4,003
----------------------------------------------------------------------------
Net increase (decrease) in cash
during the period 5,355 29,040 (980) (18,846)
Cash and cash equivalents,
beginning of period 13,993 15,048 20,328 62,934
----------------------------------------------------------------------------
Cash and cash equivalents, end
of period 19,348 44,088 19,348 44,088
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Supplemental Information
Cash interest paid 359 26 506 61
Cash income and mining taxes paid 242 10 850 10
Cash interest received 381 57 580 371
----------------------------------------------------------------------------
----------------------------------------------------------------------------



Segment Information
For the Three Months Ended June 30, 2009 (Unaudited)
----------------------------------------------------------------------------
($000's) Myra
Operating Segment Mochito Toqui Falls Langlois
----------------------------------------------------------------------------

Gross sales revenue 16,108 17,601 8,467 -
Treatment and marketing costs 5,672 4,225 2,572 1
----------------------------------------------------------------------------
Net revenue 10,436 13,376 5,895 (1)
----------------------------------------------------------------------------
Direct operating costs 7,665 5,798 5,852 17
Depreciation and depletion 3,026 1,892 13 23
Reclamation and closure costs 330 58 2,031 21
----------------------------------------------------------------------------
11,021 7,748 7,896 61
----------------------------------------------------------------------------
(Loss) contribution from mining
activities (585) 5,628 (2,001) (62)
----------------------------------------------------------------------------
General and administrative - - - -
Interest and financing - - - -
Investment and other income - - - -
Foreign exchange and other - - - -
Exploration 84 312 - 179
Other non-producing property costs - - - 1,327
----------------------------------------------------------------------------
84 312 - 1,506
----------------------------------------------------------------------------
(Loss) earnings before income and
mining tax provision (recovery) (669) 5,316 (2,001) (1,568)
Income and mining tax provision
(recovery) 91 173 - -
----------------------------------------------------------------------------
Net (loss) earnings (760) 5,143 (2,001) (1,568)
----------------------------------------------------------------------------

Capital expenditures 4,075 2,283 441 -
Mineral properties and fixed assets 53,930 64,047 22,200 121,395
Identifiable assets 83,107 83,704 180,518 127,158
----------------------------------------------------------------------------
----------------------------------------------------------------------------


----------------------------------------------------------------------------
Non-
($000's) operating Corporate Consoli-
Operating Segment Total mines and Other dated
----------------------------------------------------------------------------

Gross sales revenue 42,176 - (1,234) 40,942
Treatment and marketing costs 12,470 - - 12,470
----------------------------------------------------------------------------
Net revenue 29,706 - (1,234) 28,472
----------------------------------------------------------------------------
Direct operating costs 19,332 - - 19,332
Depreciation and depletion 4,954 - 23 4,977
Reclamation and closure costs 2,440 332 - 2,772
----------------------------------------------------------------------------
26,726 332 23 27,081
----------------------------------------------------------------------------
(Loss) contribution from mining
activities 2,980 (332) (1,257) 1,391
----------------------------------------------------------------------------
General and administrative - - 3,248 3,248
Interest and financing - - 115 115
Investment and other income - - (2,505) (2,505)
Foreign exchange and other - - 2,588 2,588
Exploration 575 - - 575
Other non-producing property
costs 1,327 251 20 1,598
----------------------------------------------------------------------------
1,902 251 3,466 5,619
----------------------------------------------------------------------------
(Loss) earnings before income and
mining tax provision (recovery) 1,078 (583) (4,723) (4,228)
Income and mining tax provision
(recovery) 264 - (9) 255
----------------------------------------------------------------------------
Net (loss) earnings 814 (583) (4,714) (4,483)
----------------------------------------------------------------------------

Capital expenditures 6,799 - 41 6,840
Mineral properties and fixed assets 261,572 1,054 8,406 271,032
Identifiable assets 474,487 1,389 35,134 511,010
----------------------------------------------------------------------------
----------------------------------------------------------------------------



Information about major customers - Summary of net revenue from major
customers for the three months ended June 30, 2009.

----------------
Revenue Source
----------------------------------------------------------------------------
($000's) Mochito Toqui Myra Falls Total
----------------------------------------------------------------------------
Customer 1 - 1,429 5,548 6,977
Customer 2 4,783 - - 4,783
Customer 3 - 3,957 - 3,957
Customer 4 3,783 - - 3,783
Customer 5 - 3,723 - 3,723
----------------------------------------------------------------------------



For the Three Months Ended June 30, 2008 (Unaudited)
----------------------------------------------------------------------------
($000's) Myra
Operating Segment Mochito Toqui Falls Langlois
----------------------------------------------------------------------------

Gross sales revenue 34,311 32,193 28,622 20,023
Treatment and marketing costs 11,748 13,742 8,188 7,489
----------------------------------------------------------------------------
Net revenue 22,563 18,451 20,434 12,534
----------------------------------------------------------------------------
Direct operating costs 10,585 9,521 18,674 11,817
Depreciation and depletion 2,440 2,326 1,674 3,336
Reclamation and closure costs 244 44 427 20
----------------------------------------------------------------------------
13,269 11,891 20,775 15,173
----------------------------------------------------------------------------
Contribution (loss) from mining
activities 9,294 6,560 (341) (2,639)
----------------------------------------------------------------------------
General and administrative - - - -
Interest and financing - - - -
Investment and other income - - - -
Foreign exchange and other income - - - -
Exploration 531 225 614 568
Other non-producing property costs - - - -
----------------------------------------------------------------------------
531 225 614 568
----------------------------------------------------------------------------
Earnings (loss) before income and
mining tax provision (recovery) 8,763 6,335 (955) (3,207)
Income and mining tax provision
(recovery) 2,498 (405) 1,921 (1,709)
----------------------------------------------------------------------------
Net earnings (loss) 6,265 6,740 (2,876) (1,498)
----------------------------------------------------------------------------
Capital expenditures (recovery) 9,492 6,128 887 6,240
Mineral properties and fixed assets 46,111 53,851 59,964 132,922
Identifiable assets 73,650 75,377 214,376 162,997
----------------------------------------------------------------------------
----------------------------------------------------------------------------


----------------------------------------------------------------------------
Non-
($000's) operating Corporate Consoli-
Operating Segment Total mines and Other dated
----------------------------------------------------------------------------

Gross sales revenue 115,149 - - 115,149
Treatment and marketing costs 41,167 - - 41,167
----------------------------------------------------------------------------
Net revenue 73,982 - - 73,982
----------------------------------------------------------------------------
Direct operating costs 50,597 - - 50,597
Depreciation and depletion 9,776 - 41 9,817
Reclamation and closure costs 735 96 - 831
----------------------------------------------------------------------------
61,108 96 41 61,245
----------------------------------------------------------------------------
Contribution (loss) from mining
activities 12,874 (96) (41) 12,737
----------------------------------------------------------------------------
General and administrative - - 4,132 4,132
Interest and financing - - 962 962
Investment and other income - - (6,402) (6,402)
Foreign exchange and other income - - (807) (807)
Exploration 1,938 345 2,142 4,425
Other non-producing property costs - 282 13 295
----------------------------------------------------------------------------
1,938 627 40 2,605
----------------------------------------------------------------------------
Earnings (loss) before income and
mining tax provision (recovery) 10,936 (723) (81) 10,132
Income and mining tax provision
(recovery) 2,305 - (255) 2,050
----------------------------------------------------------------------------
Net earnings (loss) 8,631 (723) 174 8,082
----------------------------------------------------------------------------

Capital expenditures (recovery) 22,747 - (273) 22,474
Mineral properties and fixed assets 292,848 5,206 9,575 307,629
Identifiable assets 526,400 6,989 86,542 619,931
----------------------------------------------------------------------------
----------------------------------------------------------------------------



Information about major customers - Summary of net revenue from major
customers for the three months ended June 30, 2008.

----------------
Revenue Source
----------------------------------------------------------------------------
($000's) Mochito Toqui Myra Falls Langlois Total
----------------------------------------------------------------------------
Customer 1 6,054 9,316 9,327 - 24,697
Customer 2 8,376 3,260 - - 11,636
Customer 3 9,668 - - 64 9,732
Customer 4 - - - 8,341 8,341
----------------------------------------------------------------------------



For the Six Months Ended June 30, 2009 (Unaudited)
----------------------------------------------------------------------------
($000's) Myra
Operating Segment Mochito Toqui Falls Langlois
----------------------------------------------------------------------------

Gross sales revenue 35,690 32,698 34,926 2,992
Treatment and marketing costs 13,438 11,783 9,811 1,184
----------------------------------------------------------------------------
Net revenue 22,252 20,915 25,115 1,808
----------------------------------------------------------------------------
Direct operating costs 17,522 9,017 25,087 1,162
Depreciation and depletion 6,599 3,089 822 46
Reclamation and closure costs 698 120 2,304 43
----------------------------------------------------------------------------
24,819 12,226 28,213 1,251
----------------------------------------------------------------------------
(Loss) contribution from mining
activities (2,567) 8,689 (3,098) 557
----------------------------------------------------------------------------
General and administrative - - - -
Interest and financing - - - -
Investment and other income - - - -
Foreign exchange and other - - - -
Exploration 207 364 - 268
Other non-producing property costs - - - 3,281
----------------------------------------------------------------------------
207 364 - 3,549
----------------------------------------------------------------------------
(Loss) earnings before income and
mining tax provision (2,774) 8,325 (3,098) (2,992)
Income and mining tax provision 195 419 - 2,004
----------------------------------------------------------------------------
Net (loss) earnings (2,969) 7,906 (3,098) (4,996)
----------------------------------------------------------------------------
Capital expenditures 6,308 4,060 715 91
----------------------------------------------------------------------------
----------------------------------------------------------------------------


----------------------------------------------------------------------------
Non-
($000's) operating Corporate Consoli-
Operating Segment Total mines and Other dated
----------------------------------------------------------------------------

Gross sales revenue 106,306 - (1,234) 105,072
Treatment and marketing costs 36,216 - - 36,216
----------------------------------------------------------------------------
Net revenue 70,090 - (1,234) 68,856
----------------------------------------------------------------------------
Direct operating costs 52,788 - - 52,788
Depreciation and depletion 10,556 - 45 10,601
Reclamation and closure costs 3,165 440 - 3,605
----------------------------------------------------------------------------
66,509 440 45 66,994
----------------------------------------------------------------------------
(Loss) contribution from mining
activities 3,581 (440) (1,279) 1,862
----------------------------------------------------------------------------
General and administrative - - 5,677 5,677
Interest and financing - - 1,558 1,558
Investment and other income - - (4,678) (4,678)
Foreign exchange and other - - 2,506 2,506
Exploration 839 - - 839
Other non-producing property costs 3,281 457 25 3,763
----------------------------------------------------------------------------
4,120 457 5,088 9,665
----------------------------------------------------------------------------
(Loss) earnings before income and
mining tax provision (539) (897) (6,367) (7,803)
Income and mining tax provision 2,618 - 611 3,229
----------------------------------------------------------------------------
Net (loss) earnings (3,157) (897) (6,978) (11,032)
----------------------------------------------------------------------------

Capital expenditures 11,174 - 687 11,861
----------------------------------------------------------------------------
----------------------------------------------------------------------------



Information about major customers - Summary of net revenue from major
customers for the six months ended June 30, 2009.

----------------
Revenue Source
----------------------------------------------------------------------------
($000's) Mochito Toqui Myra Falls Langlois Total
----------------------------------------------------------------------------
Customer 1 6,720 - 7,580 - 14,300
Customer 2 - 4,849 7,483 - 12,332
Customer 3 3,783 594 6,893 455 11,725
Customer 4 - 7,840 1,890 - 9,730
----------------------------------------------------------------------------



For the Six Months Ended June 30, 2008 (Unaudited)
----------------------------------------------------------------------------
($000's) Myra
Operating Segment Mochito Toqui Falls Langlois
----------------------------------------------------------------------------
Gross sales revenue 51,177 59,102 47,136 39,590
Treatment and marketing costs 13,499 23,239 13,143 12,302
----------------------------------------------------------------------------
Net revenue 37,678 35,863 33,993 27,288
----------------------------------------------------------------------------
Direct operating costs 16,651 17,683 37,064 27,165
Depreciation and depletion 3,778 3,974 2,794 6,414
Reclamation and closure costs
(income) 532 (994) 861 40
----------------------------------------------------------------------------
20,961 20,663 40,719 33,619
----------------------------------------------------------------------------
Contribution (loss) from mining
activities 16,717 15,200 (6,726) (6,331)
----------------------------------------------------------------------------
General and administrative - - - -
Interest and financing - - - -
Investment and other income - - - -
Foreign exchange and other income - - - -
Exploration 967 686 978 2,703
Other non-producing property costs - - - -
----------------------------------------------------------------------------
967 686 978 2,703
----------------------------------------------------------------------------
Earnings (loss) before income and
mining tax provision 15,750 14,514 (7,704) (9,034)
Income and mining tax provision
(recovery) 3,992 2,407 2,867 (4,716)
----------------------------------------------------------------------------
Net earnings (loss) 11,758 12,107 (10,571) (4,318)
----------------------------------------------------------------------------

Capital expenditures 13,956 14,074 2,967 16,825
----------------------------------------------------------------------------
----------------------------------------------------------------------------


----------------------------------------------------------------------------
Non-
($000's) operating Corporate Consoli-
Operating Segment Total mines and Other dated
----------------------------------------------------------------------------

Gross sales revenue 197,005 - - 197,005
Treatment and marketing costs 62,183 - - 62,183
----------------------------------------------------------------------------
Net revenue 134,822 - - 134,822
----------------------------------------------------------------------------
Direct operating costs 98,563 - - 98,563
Depreciation and depletion 16,960 - 87 17,047
Reclamation and closure costs
(income) 439 194 - 633
----------------------------------------------------------------------------
115,962 194 87 116,243
----------------------------------------------------------------------------
Contribution (loss) from mining
activities 18,860 (194) (87) 18,579
----------------------------------------------------------------------------
General and administrative - - 7,727 7,727
Interest and financing - - 1,947 1,947
Investment and other income - - (5,039) (5,039)
Foreign exchange and other income - - (846) (846)
Exploration 5,334 391 3,182 8,907
Other non-producing property costs - 670 137 807
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5,334 1,061 7,108 13,503
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Earnings (loss) before income and
mining tax provision 13,526 (1,255) (7,195) 5,076
Income and mining tax provision
(recovery) 4,550 - (692) 3,858
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Net earnings (loss) 8,976 (1,255) (6,503) 1,218
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Capital expenditures 47,822 - 825 48,647
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Information about major customers - Summary of net revenue from major
customers for the six months ended June 30, 2008.

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Revenue Source
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($000's) Mochito Toqui Myra Falls Langlois Total
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Customer 1 22,243 4,288 - - 26,531
Customer 2 6,054 10,843 9,327 - 26,224
Customer 3 9,668 - - 7,452 17,120
Customer 4 - 6,875 7,768 - 14,643
Customer 5 - - - 14,316 14,316
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