Western Goldfields loses $5.29-million (U.S.) in Q1

2009-04-30 17:31 ET - News Release

Mr. Raymond Threlkeld reports

WESTERN GOLDFIELDS ANNOUNCES FIRST QUARTER FINANCIAL RESULTS WITH A SIGNIFICANT IMPROVEMENT IN OPERATING CASH FLOW FROM 2008

Western Goldfields Inc. is providing its financial results for the three-month period ended March 31, 2009. The company continued to focus on further enhancing its operational efficiency, and met its production guidance at lower cost of sales per ounce in the first quarter. All amounts are expressed in U.S. dollars, unless otherwise indicated.

Highlights:

• Cash flow from operations of $8.9-million during the quarter;
• Cash at March 31, 2009, of $26.6-million, including $7.5-million of restricted cash, an increase of $7.8-million during the quarter;
• Gold production for the first quarter of 33,660 ounces;
• Gold sales of 32,715 at an average realized price of $867 per ounce;
• Cost of sales per ounce for the quarter of $573;
• Net loss of $5.3-million, or four cents per share, for the first quarter of 2009, compared with a net loss of $19.6-million, or 14 cents per share, in 2008. The net loss in 2009 includes after-tax mark-to-market losses on gold forward sales contracts of $7.5-million, or six cents per share, as compared with $14.7-million, or 11 cents per share, in the same prior-year period.

As disclosed in the company's April 20, 2009, news release, in Stockwatch, Western Goldfields' production was within the guidance range for the first quarter, with cost of sales per ounce below the guidance range. Cost of sales per ounce was positively impacted by lower costs across many of the key inputs, including diesel and explosives. The operations at Mesquite are also benefiting from more experienced equipment operators, better-performing radial tires and increased efficiencies from resequencing of the mining operations commencing with the Rainbow pit. The combination of these factors led the company to a solid first quarter, as Western Goldfields generated $8.9-million in cash flow from operations during the quarter.

"The operating trend being realized by the company is very encouraging," said Raymond Threlkeld, president and chief executive officer. "Both our mining rate and the timing of our leach pad recovery continue to improve in-line with expectations, resulting in excellent cash flow generation from Mesquite."

Financial results

During the first quarter of 2009, the net loss was $5.3-million, or four cents per share, compared with $19.6-million, or 14 cents per share, in the same prior-year period. The net loss in 2009 includes after-tax mark-to-market losses on gold forward sales contracts of $7.5-million, or six cents per share, as compared with after-tax mark-to-market losses of $14.7-million, or 11 cents per share, in the same prior-year period. Per the terms of the term loan facility, in the first quarter of 2009 the company settled three of its 5,500-ounce monthly contracts, delivering a total of 16,500 ounces of gold at $801 per ounce. As at March 31, 2009, the company holds 69 of these contracts, representing a total commitment of 379,500 ounces. The increase in the spot gold price between Dec. 31, 2008 ($870 per ounce), and March 31, 2009 ($917 per ounce), was a principal driver of the unrealized portion of the loss on gold forward sales contracts during the quarter. As at March 31, 2009, the cumulative mark-to-market loss on gold forward sales contracts was $57.5-million. The company also financially settled 630,000 gallons into its fuel hedge contracts and realized losses of $300,000.

Gold sales in the first quarter of 2009 were 32,715 ounces, compared with 9,960 ounces in the same prior-year period; this increase is a result of the company escalating production in the first quarter of 2008 until Mesquite attained steady-state production from the new leach pad during the second quarter of 2008. The average selling price declined to $867 per ounce in the first quarter of 2009, compared with $929 per ounce of gold in the same prior-year period.

Liquidity and capital resources

Western Goldfields had $26.6-million of cash, including $7.5-million of restricted cash, at March 31, 2009. This increase in cash was a result of the company generating $8.9-million in cash flow from operations, which was partially offset by $1.5-million in capital expenditures. The capital expenditures during the quarter primarily related to the purchase of a training simulator, which is intended to increase driver efficiency, and decrease repair and maintenance costs going forward. Western Goldfields continues to project minimal capital expenditures going forward. The company's debt remains at $68.6-million, and the next scheduled debt repayment of $4.7-million will occur on June 30, 2009.

Business combination with New Gold

Below is a summary schedule of the proposed business combination with New Gold:

• May 13, 2009, New Gold's annual and special meeting of shareholders;
• May 14, 2009, Western Goldfields' annual and special meeting of shareholders;
• June 1, 2009, expected closing.

   CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/LOSS   
                     (in thousands of U.S. dollars)                  

                                                       Three months ended
                                                                 March 31,
                                                        2009         2008
Revenues
Revenues from gold sales                             $28,369       $9,256
Cost of goods sold
Mine operating costs                                  17,806        9,087
Royalties                                                644          265
Cost of sales (excludes amortization and accretion)   18,450        9,352
Amortization and accretion                             2,776        2,094
                                                    --------     --------
                                                      21,226       11,446
                                                    --------     --------
Gross profit (loss)                                    7,143       (2,190)
Expenses
General and administrative                             1,370        1,481
Exploration and business development                   1,478          224
                                                    --------     --------
                                                       2,848        1,705
                                                    --------     --------
Operating income (loss)                                4,295       (3,895)
Other income (expense)
Interest income                                           44          384
Interest (expense) and commitment fees                  (486)        (699)
Amortization of deferred debt issuance costs            (173)        (115)
Realized and unrealized (loss) on mark-to-market
of gold forward sales contracts                      (12,291)     (24,111)
Realized and unrealized (loss) on
mark-to-market of fuel forward contracts                (591)           -
(Loss) on foreign currency exchange                      (99)      (1,020)
                                                    --------     --------
                                                     (13,596)     (25,561)
                                                    --------     --------
(Loss) before income taxes                            (9,301)     (29,456)
Income tax recovery                                    4,009        9,832
                                                    --------     --------
Net (loss)                                           $(5,292)    $(19,624)
                                                    --------     --------
Basic and diluted net (loss) per share                $(0.04)      $(0.14)