TVI Pacific Inc.
TSX : TVI

TVI Pacific Inc.

August 09, 2006 09:00 ET

TVI Pacific Announces Record Second Quarter Financial Results

CALGARY, ALBERTA--(CCNMatthews - Aug. 9, 2006) - TVI Pacific Inc. (TSX:TVI) or (the "Company") is pleased to announce record financial and operating results for the second quarter and first half of 2006. (All dollar amounts set out in this news release are expressed in Canadian currency unless otherwise noted.)

The financial information set out in this release should be read in conjunction with the consolidated, unaudited interim financial statements of the Company as at and for the periods ended June 30, 2006 and related Management Discussion and Analysis which have been filed with certain securities regulatory authorities in Canada and are available on the SEDAR web site at www.sedar.com and at the Company's website at www.tvipacific.com.

Certain information set out in this News Release constitutes forward-looking information, including information respecting expected improvements in financial and operating results throughout the balance of 2006, expected increases in processing capacity at Canatuan for the balance of 2006, expectations relating to the construction of additional infrastructure at Canatuan, expectations relating to an increase in the reported gossan resource at Canatuan, exploration plans involving properties located in the Philippines and China, expectations relating to the timing of receipt of approvals for proposed exploration activities in China and expectations respecting operations at the Rapu Rapu property and timing of royalty payments to the Company in respect of production at Rapu Rapu. Readers should review the cautionary statement respecting forward-looking information that appears at the end of this News Release. Whenever used in this News Release, gold equivalent values are calculated applying a 57 to 1 Ag to Au ratio.

Financial and Operations Review

Highlights for the three-month period ended June 30, 2006 include:

- Cash flow from operations of $4,472,813 compared to cash flow from operations of $381,777 for the same period in 2005

- Net income of $1,600,268, compared to a net loss of $(1,540,910) in the same period last year. Net income per share was $0.004 on a diluted basis, compared to $(0.004) in the same period last year

- Total operating revenue of $13,495,175 compared to $3,123,284 for the three-month period ended June 30, 2005

- Canatuan mine cash flow from operations of $5,942,931 on revenues of $11,472,996 in the second quarter, compared to mine cash flow from operations of $513,514 on revenues of $2,307,826 for the same period last year

- Canatuan mine net income of $3,341,953 for the second quarter, compared to a net loss for the mine of $(234,040) in the same period last year

- The Canatuan mine produced 12,613 oz of Au and 154,838 oz of Ag for the second quarter, compared to 2,938 oz of Au and 82,984 oz of Ag during the same period last year

- On a gold equivalent basis, the Canatuan mine produced 15,636 AuEqOz in the second quarter, an increase of 262% compared to 4,321 AuEqOz for the same period last year

Highlights for the six-month period ended June 30, 2006 include:

- Cash flow from operations of $7,137,638 compared to cash flow from operations of $266,233 for the same period in 2005

- Net income of $2,176,024, compared to a net loss of $(2,211,667) in the same period last year. Net income per share was $0.006 on a diluted basis, compared to $(0.006) in the same period last year

- Total operating revenue of $22,269,465 compared to $6,359,263 for the six-month period ended June 30, 2005

- Canatuan mine cash flow from operations of $9,168,010 on revenues of $18,764,022 in the first half of 2006, compared to mine cash flow from operations of $1,537,414 on revenues of $5,116,158 for the first half of 2005

- Canatuan mine net income of $4,784,737 for the first six months in 2006, compared to net income for the mine of $232,764 in the same period last year

- The Canatuan mine produced 21,760 oz of Au and 295,565 oz of Ag for the six-month period, compared to 7,593 oz of Au and 125,193 oz of Ag during the same period last year

- On a gold equivalent basis, the Canatuan mine produced 27,278 AuEqOz in the first half of 2006, an increase of 182% compared to 9,668 AuEqOz for the same period last year

Significant additional operating / financial information includes:

- The Company's Drilling Division produced cash flow, net income and revenues of $392,676, $345,966 and $1,958,774, respectively, for the quarter ended June 30, 2006, compared to $(112,087), $(136,835) and $815,458 for the corresponding period last year. For the six-month period, cash flow, net income and revenues were $916,100, $762,649 and $3,374,327, respectively, compared to $(135,281), $(217,267) and $1,243,105 for the same six months in 2005

- Cash balance of $1,842,797 as at the end of June, 2006, compared to a cash balance of $476,097 as at December 31, 2005

- Working capital was $742,046 at June 30, 2006 compared to a working capital deficiency of $(2,580,471) at December 31, 2005

- Total assets increased to $20,836,809 at June 30, 2006 compared to $18,698,253 at December 31, 2005

- Exploration expenses of $1,607,597 were incurred for the six-month period ended June 30, 2006, compared to $638,084 for the same period in 2005

- Administrative and general expenses increased by 6.5% in the first half of 2006 to $1,679,977, from $1,578,184 for the six months ended June 30, 2005.

"We are very pleased with the second quarter and first half financial and operating results," said Cliff James, President and CEO. "These results are the result of focused, hard work by a number of individuals on our operating team and they are all to be congratulated. We expect that our financial and operating results will continue to improve throughout the remainder of the year. In the near term we anticipate being able to release a new gossan resource update, which is expected to show that we can extend the life of the current Gossan Mining Operation. On the exploration front, we continue to be very encouraged with the Balabag drilling results, and expect to be in a position to release a new update to the market shortly. We are also currently evaluating a number of advanced-stage development projects and may be able to acquire interests in one or more of those projects in 2006."

Review of Operations

Canatuan Mine

The substantial increases in revenue and cash flow are attributable to the improvements in milling operations made at the Canatuan processing plant starting in 2005 and improved commodity prices. The operational enhancements have significantly increased daily throughput capacity at the mine, as well as improved metal recoveries. Average daily throughput increased to 1,426 dry metric tonnes (DMT) in the second quarter of 2006, from approximately 360 DMT per day for Q2 2005, a 296% increase.

Certain Canatuan operating highlights are set out in the following table.



------------------------------------------------------------------------
Three months Three months Six months Six months
ended June ended June ended June ended June
30, 2006 30, 2005 30, 2006 30, 2005
------------------------------------------------------------------------
Dry metric tonnes
(DMT) processed 129,758 32,741 243,957 71,112
------------------------------------------------------------------------
Average mill
throughput (DMT per
day) 1,426 360 1,348 395
------------------------------------------------------------------------
Feed grade (grams
per tonne)
------------------------------------------------------------------------
Gold 3.39 3.38 3.25 3.85
------------------------------------------------------------------------
Silver 60.96 212.94 66.24 160.23
------------------------------------------------------------------------
Gold (Au) ozs
produced 12,613 2,938 21,760 7,593
------------------------------------------------------------------------
Silver (Ag) ozs
produced 154,838 82,984 295,565 125,193
------------------------------------------------------------------------
Gold (Au) Equivalent
oz produced 15,636 4,321 27,278 9,668
------------------------------------------------------------------------
Recoveries
------------------------------------------------------------------------
Gold 89.17% 82.54% 85.34% 86.06%
------------------------------------------------------------------------
Silver 60.89% 37.02% 56.89% 34.15%
------------------------------------------------------------------------
Average price
received per oz
------------------------------------------------------------------------
Gold $ 696.65 $ 529.40 $ 672.20 $ 527.48
($630.74 ($426.70 ($599.42 ($427.80
US) US) US) US)
------------------------------------------------------------------------
Silver $ 13.61 $ 8.84 $ 12.50 $ 8.73
($12.31 ($7.12 ($11.12 ($7.08
US) US) US) US)
------------------------------------------------------------------------
Cash cost per
equivalent gold
oz $ 326.53 $ 404.46 $ 334.86 $ 358.71
($295.44 ($326.18 ($297.93 ($290.92
US) US) US) US)
------------------------------------------------------------------------
Total cost per
equivalent gold
oz $ 482.40 $ 521.73 $ 505.44 $ 470.43
($436.43 ($420.75 ($449.84 ($381.53
US) US) US) US)
------------------------------------------------------------------------
Cash flow from
operations $ 5,942,931 $ 513,514 $ 9,168,010 $ 1,537,414
------------------------------------------------------------------------
Net income
(loss) $ 3,341,953 $ (234,040) $ 4,784,737 $ 232,764
------------------------------------------------------------------------

Dollar amounts in CAD. Gold equivalent values were calculated applying
a 57 to 1 Ag to Au ratio


Further improvements in operating results are expected over the remainder of the year as the Company continues to test and implement strategies to enhance mine throughput and metal recovery levels. TVI is currently operating at throughput levels of 1,700+ DMT per day, with a current target to reach a 1,800 DMT per day steady state. Gold recoveries were approximately 89% in the second quarter with a near term target of 92% and silver recoveries were approximately 61% in the second quarter with a near term target of 75%. This compares to recoveries of approximately 83% and 37% for gold and silver, respectively, in the same period last year.

TVI has initiated a review (through an independent consulting firm) of the reported gossan resource at Canatuan, with a view to determining an appropriate cut-off grade. In combination with the significant increases in the prices for gold and silver as well as the increased throughput capacity at the mine, management expects that a decrease in cut-off grade can be achieved for the ore that can be processed at Canatuan, which would increase ore reserves, mine life of the gossan phase and total oz of gold and silver that may ultimately be produced. Near mine exploration and definition of "Rubbly Gossan" is also expected to lengthen mine life. This material is gossan that has eroded from the Canatuan hilltop and surrounds the open pit. The update on the gossan resource is expected to be available in the third quarter of 2006.

As noted in the Company's July 13, 2006 News Release, TVI has filed a National Instrument 43-101 ("NI 43-101") report, prepared by Norwest Corporation ("Norwest"), relating to the Canatuan Sulphide Project. The report details the commercial potential of the copper-zinc bearing massive sulphide zone of the deposit. This report has been filed with certain securities regulatory authorities in Canada and is available on the SEDAR web site at www.sedar.com.

Based on the Norwest study and the Company's own analysis, management of TVI considers the Sulphide Project to be very robust and a positive plant production decision is anticipated in the near future, subject to the completion of additional project optimization work. The Norwest feasibility study was conducted on a stand alone basis without taking into account the overlying gossan deposit that is currently producing gold and silver. TVI has initiated an optimization study combining the sulphide and gossan operations. Management of TVI Pacific expects that the optimization study will suggest enhanced project economics. The Company also anticipates that both the capital and operating costs of the Sulphide Project (as presented in the Norwest feasibility study) will decrease when an appropriate allocation is made between the existing gossan operation and the potential sulphide operation. Initial analysis suggests that production of copper and zinc concentrates from the Sulphide Project may commence in the second quarter of 2007.

Exploration

Philippines - Canatuan Near Mine

As noted in the Company's July 13, 2006 News Release, an exploration program is ongoing to define the mineralization surrounding the current Canatuan open pit with the aim of ultimately increasing Canatuan's reserves/resources and extending the long-term life of mine plan. Several promising near mine targets that were previously identified are scheduled for further testing to determine whether commercial quantities of minerals are present.

TVI's current exploration and optimization programs involve the following:

- Infill drilling program consisting of 79 reverse circulation ("RC") drill holes ("DHs") (41 completed) and 41 diamond drill holes ("DDHs") (incl. 17 DDHs completed for metallurgical test work) -- to further optimize mineable reserves (sulphides)

- 20 additional RC DHs -- to test the extension of gossan (and sulphides) along the west fringe of the deposits

- 35 additional testpits -- to test the extension of gossan to the northeast between zones of rubbly gossan

- On-going selective mining, stockpiling and batch processing of rubbly gossan material -- to assess mineability and potential to blend with current massive gossan mill feed

- Two soil geochem surveys underway (about 3km x 1km) -- to test old drainage anomalies immediately north and southwest along strike of the known gossan deposit outline.

As previously described (including in the Company's 2005 Annual Report), TVI's Canatuan deposit is classified as a Volcanogenic Massive Sulphide (VMS) - a deposit type that is mined to a high degree of operational and financial success in many parts of the world. VMS deposits are typically sources of copper and zinc, and frequently contain gold and silver, which is consistent with the make up of the Canatuan deposit. One of the common characteristics of VMS deposits that occur in a greenstone belt is that the individual deposits occur in clusters and together form a "mining camp". The deposits are found within a favourable "host rock horizon" which is readily identified. Exploration activities at the Canatuan minesite are ongoing in an effort to determine whether additional deposits are present in the area.

Philippines - Balabag

In light of the continued encouraging drill results from the ongoing exploration program at Balabag, the Company has expanded the second phase exploration drilling program as described in the Company's June 6, 2006 news release. Drilling has been expanded on the Tinago Vein to 4,270 meters (from 3,600 meters), with a total of 28 additional holes planned for the balance of 2006. Another 16 holes (2,600 meters) are expected to be drilled on the Miswi / Lalab vein system, starting in the third quarter of 2006. The current drill program is approximately 50% complete with new results expected in the near term.

Data collected at Balabag suggests that some if not all of the vein structures remain largely open on strike and at depth. Should the veins have a minimum continuity (as TVI believes to be the case) systematic drilling at 50 meter spacing could result in substantiating and extending the vein systems. The second phase drilling campaign is designed to assist in the delineation of the local vein system for a project scoping study. Systematic drilling could potentially prove up sufficient tonnage with a grade which could potentially support an open-pit, stand-alone mining operation.

Approximately 35 km to the northeast of the Balabag property, the Tamarok copper/gold porphyry prospect and the Tapisa massive sulphide prospect are both showing positive results in a preliminary exploration program.

China

In China, Hunan Pacific Geological Exploration Inc. ("HPGEI"), TVI's wholly owned Chinese subsidiary, has recently filed 6 new exploration licenses covering an additional 713 sq kms in the Tibet Autonomous Region. This brings to 26 the total number of exploration license applications submitted by HPGEI to the Ministry of Land and Resources (MLR) for lands within the Golden Triangle area and the Tibet Autonomous Region, totaling 2,394 sq kms. The MLR has also confirmed that all 26 of HPGEI's applications are now awaiting military approval, the timing and control of which are outside of the MLR's authority.

Work in China is nearing completion on copper properties which TVI is negotiating to explore in conjunction with Phelps Dodge Exploration Corporation (PDEC). Earlier in the year, TVI and PDEC entered into a letter agreement under which TVI agreed to acquire, collate and interpret geologic and geophysical data from Yunnan Province, China. As this work pursuant to the letter agreement is now near conclusion, plans are being made internally for a potential second stage of the exploration alliance.

TVI also continues to have discussions with select operators regarding advanced and existing projects within China. The Company hopes to screen and evaluate advanced stage properties to evaluate whether TVI could enter into joint ventures, acquire management control and further develop assets. Those discussions currently involve14 gold projects in the Golden Triangle and 5 copper projects in Yunnan province.

Drilling Division

Revenues from the Company's Drilling Division increased substantially in both the quarter and first six months of 2006 compared to prior periods. During the six months the Drilling Division drilled 25,506 meters, compared to 5,971 meters in the same period of 2005. The complete review and management reorganization of the Drilling Division, which was initiated in early 2005, has resulted in a highly capable and experienced team overseeing the operations of the division. The new management team has effectively improved fleet maintenance, the restocking of parts inventory, initiated programs to rebuild existing rigs, improved operational and financial controls and reporting, and improved client relations. In the first six months of 2006, the Drilling Division completed 3,406 meters of drilling for TVI's own projects, the revenues of which have been eliminated for consolidation purposes.

Rapu Rapu

The Company owns a 2.5% net smelter return (NSR) royalty in the Rapu Rapu polymetallic mine located in Albay Province, Philippines. The mine is operated by Lafayette Mining Limited, an Australian publicly traded company. Lafayette completed construction and commissioning of the Mine and Mill on the Ungay Malobago property in 2005, and began initial shipments of gold and silver, resulting in royalty payments to TVI. The mine then experienced two unauthorized discharges of wastewater. The discharges resulted in an order by the Government to shut down the plant while repairs were made. In July 2006, operations at Rapu Rapu recommenced for a 30 day trial to verify the remedial environment measures required by all government bodies of the Philippines. Once Rapu Rapu has met all of the conditions the mine should return to normal operations and TVI can expect to receive royalty payments.

Summary Outlook

The Company's financial position has improved significantly from the beginning of 2006. Record cash flows, net income and revenues for the last two quarters have resulted in the elimination of the Company's working capital deficiency. The Canatuan mine continues to obtain increased throughput and improved recoveries, which, when combined with enhanced metal prices, has resulted in higher cash flows. Record metal and mineral prices have continued with some expectation of higher prices. The feasibility study for the Sulphide Project has been released, with a National Instrument 43-101 report filed on SEDAR, demonstrating robust economics. Planning for construction of the Sulphide Project at Canatuan is nearly complete and a positive plant production decision is anticipated in the near future after further project optimization work has been completed. Exploration on existing properties has been expanded and a second phase drill program for Balabag is approximately 50% complete. New exploration license applications have been filed in China on properties in the Tibet A.R. The financial results and operations of the Drilling Division improved dramatically following the complete reorganization starting in early 2005. Based on the positive results of the first two quarters, as well as continued progress in operations and exploration, 2006 is looking to be a very good year.

About TVI Pacific Inc. (TSX: TVI)

TVI Pacific Inc. is a publicly-listed Canadian mining company focused on exploring for and producing precious and base metals within district scale systems in Asia.

In the Philippines, TVI's most advanced project, the Canatuan Mine, began mining and milling operations in mid-2004, producing gold and silver dore. Mill throughput is currently 1,700+ dmtpd ( greater than 180 AuEqOz per day avg.) from a gossan/oxide zone. Further expansion of the mill's processing capacity is underway. TVI has received a completed feasibility study on the Canatuan Sulphide project prepared by Norwest Corporation. The Norwest study, now filed on SEDAR, addresses the copper-zinc bearing massive sulphide zone, or lower portion of the Canatuan Deposit. A separate plant will be constructed to process the sulphide ore if a determination is made to bring the Sulphide Project into production. In addition, TVI holds a 2.5% net smelter return (NSR) royalty on the Philippine-based Rapu Rapu project (the second foreign-invested, new, mining project in the Philippines operated by Lafayette Mining Ltd.). Exploration in the Philippines is being conducted at Canatuan (both to expand TVI's resource base and to find new deposits), and at Balabag, Tamarok and Tapisa, which the management of TVI views as compelling exploration properties.

In China, TVI's wholly-owned Chinese subsidiary, Hunan Pacific Geological Exploration Inc. (HPGEI) is the first and only foreign mining company to be granted both WOFE status and a Qualified Explorer License. The exploration program in China is focused primarily within the Golden Triangle area, a highly prospective metallogenic region in China's south-western provinces of Yunnan, Guizhou and Guangxi Autonomous Region and prospective areas in the Tibet Autonomous Region. HPGEI has 2,394 sq kms of land under application in China in the Golden Triangle and in the Tibet A.R.

TVI also has a Drilling Division consisting of Exploration Drilling Corporation (EDCO), a wholly-owned subsidiary of TVI Pacific Inc. based in the Philippines, and Hunan Pacific Drilling (HPD), a division of HPGEI based in China, which generates revenue from contract drilling.

The statements set out in this News Release that are not historical facts are forward-looking statements. Forward-looking statements (often, but not always, identified by the use of words such as "expect", "may", "anticipate" or "will" and similar expressions) may include plans, expectations, opinions, or guidance that are not statements of fact. Forward-looking statements are based upon the opinions, expectations and estimates of management as at the date the statements are made and, in certain cases, information received from or disseminated by third parties, and are subject to a variety of risks and uncertainties and other factors that could cause actual events or outcomes to differ materially from those anticipated or implied by such forward-looking statements. These factors include such things as the volatility of prices for precious metals and base metals, commodity supply and demand, fluctuations in currency and interest rates, inherent risks associated with the exploration and development of mining properties, ultimate recoverability of reserves, timing, results and costs of exploration and development activities, availability of financial resources or third-party financing, new laws (domestic or foreign) and changes in exploration plans or budgets. Forward-looking information respecting expansion plans at the Canatuan mine, exploration throughout the Philippines, including the Balabag and Tamarok projects, and exploration in China are based upon the current budget, development plans and overall strategy of TVI, all of which are subject to change. Forward-looking information concerning the Rapu Rapu property and timing of royalty payments to the Company in respect of production at Rapu Rapu are based upon public statements made by the operator of the Rapu Rapu property.

Forward-looking information relating to anticipated growth in gold and silver production at Canatuan for the remaining half of 2006, increases in mining throughput at Canatuan for the balance of 2006 and continued improvement in financial and operating results for the balance of 2006 are based upon results of operations in 2005 and to date in 2006, expectations with respect to commodity prices and the current budget, development plans and overall strategy of TVI, all of which are subject to change. Forward-looking information relating to the anticipated construction of a sulphide processing plant and related infrastructure at Canatuan is based upon current development plans, which are, in turn, premised on such things as the prices for precious metals and base metals, commodity supply and demand, currency and interest rates, recoverability of reserves, timing, results and costs of development activities, availability of financial resources or third-party financing, applicable laws (domestic or foreign) and development budgets. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Forward-looking information respecting timing of receipt of certain approvals required to undertake exploration activities in China are based upon advice received from departmental officials and TVI's advisers in China. Readers are cautioned that the letter agreement entered into between TVI Pacific and Phelps Dodge Exploration Corporation (PDEC) for copper exploration in China, does not obligate TVI or PDEC to enter into further definitive agreements respecting joint exploration of mineral properties in Yunnan Province, China and no assurance can be given that such definitive agreements will be successfully negotiated, executed and delivered by the parties. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. The forward-looking statements of TVI Pacific Inc. contained in this News Release are expressly qualified, in their entirety, by this cautionary statement. Various risks associated with the Company's exploration activities are described in detail in TVI's Annual Information Form, filed by TVI on SEDAR on March 30, 2006, which is available at www.SEDAR.com.

The Toronto Stock Exchange has neither approved nor disapproved of the information contained herein.

Contact Information

  • TVI Pacific Inc.
    Clifford M. James
    President and CEO
    (403) 265-4356
    or
    TVI Pacific Inc.
    E. John W. Adkins
    Vice-President Finance
    (403) 265-4356
    or
    TVI Pacific Inc.
    Paul Moon
    Director, Corporate Communications
    (403) 265-4356
    Website: www.tvipacific.com