- 2008 gold sales of 110,880 ounces at $861 per ounce, cost of
sales(1) of $508 per ounce - Net income of $14.6 million or $0.11
per share, including an after- tax mark-to-market gain on our gold
forward sales contracts of $8.0 million or $0.06 per share - The
Company completed the planned capital expansion of the Mesquite
mine during the year, within budget; going forward, sustaining
capital is minimal - The Company reduced its debt by $17.7 million
to $68.6 million at December 31, 2008 TORONTO, March 6
/PRNewswire-FirstCall/ -- Western Goldfields Inc. ("Western
Goldfields" or the "Company") (TSX:WGI, NYSE Alternext:WGW) today
announced financial results for the year ended December 31, 2008.
In 2008 the Company brought the Mesquite mine back into production
and strategically adjusted its mine plan to focus on sequential
mining of Mesquite's three open pits, thus increasing production
and cash flow in the next four years. Results are based on U.S.
GAAP and expressed in U.S. dollars unless otherwise indicated.
"During the early part of 2008, the Company met the challenges of
our start-up, and made appropriate changes to Mesquite to ensure it
remains a long-lived asset that will generate significant cash flow
year over year with very little additional capital requirement,"
stated Mr. Randall Oliphant, Chairman. Gold sales during the year
totaled 110,880 ounces, at an average cost of sales(1) of $508 per
ounce. Gold revenues in 2008 were $861 per ounce(1). Gold
production was 108,325 ounces. In 2008, Western Goldfields'
production and sales were below expectations due to a combination
of factors including: equipment and parts availability,
optimization of process solution flow, a delay in placing the
second ore lift and the focus on stripping in the latter part of
the year under the revised mine plan. These production challenges,
combined with an industry wide rise in input costs, such as fuel,
tires, explosives and process chemicals, made 2008 a challenging
start-up year for the Company. Western Goldfields proved to be both
flexible and decisive in its reaction to these challenges. A
revised mine plan, announced in October, moved to sequential mining
of the pits, reducing costs and increasing efficiency, while
simultaneously improving the production profile. In addition, the
Company was proactive in controlling costs by hedging approximately
50% of its diesel fuel requirements in each of 2009 and 2010 and
also began procuring lower-cost, better-performing radial tires.
"In 2008, a number of factors resulted in the Company not meeting
its expectations. While some were beyond our control, others were
well within it and we are committed to learning from this,
continuously improving and meeting our operational targets going
forward," said Mr. Raymond Threlkeld, President and Chief Executive
Officer. "The combination of the gold inventory on the pad, lower
fuel costs, availability of radial tires, more experienced
operators and a solid gold price creates the potential for some
very exciting years for the Company going forward." Fourth Quarter
2008 Results --------------------------- For the fourth quarter
2008, gold sales totaled 30,625 ounces, at an average cost of
sales(1) of $522 per ounce. Gold revenues in the fourth quarter
2008 were $799 per ounce(1). The Company produced 28,378 ounces of
gold in the quarter. As a result of the new mine plan, during the
fourth quarter the Company did not produce as many ounces as
anticipated. The plan resulted in increased stripping activity at
the Rainbow pit in the fourth quarter of 2008. The combination of
issues encountered throughout the year led to a delay in placing
the second ore lift on the leach pad. The resulting lack of
secondary leaching led to lower than expected recoveries and
production particularly in late 2008 when the benefit of these
additional recoveries would have started to be realized. Operations
Update ----------------- During 2008, the Company showed continuous
progress in mining operations, most specifically, tons mined and
gold ounces delivered to the leach pad. From October forward, under
the revised mine plan, Western Goldfields met budgeted targets in
both of these critical areas. The impact of this was a large build
of recoverable gold ounces on the leach pad. As the ounces were
mined and placed late in 2008, they did not have the necessary time
to flow through the full leach cycle into production and will
instead add to production in 2009 and beyond. The following table
presents a summary of key operational metrics for the Mesquite mine
for 2008 and the 2009 forecast:
-------------------------------------------------------------------------
2008 2009 Forecast
-------------------------------------------------------------------------
Total Tons Mined (millions) 54.5 52.0 - 56.0
-------------------------------------------------------------------------
Ore Tons Mined (millions) 8.9 13.0 - 14.0
-------------------------------------------------------------------------
Gold Ounces Placed (000's ounces) 201.1 205.0 - 215.0
-------------------------------------------------------------------------
Gold Sales (000's ounces) 110.9 140,000 - 150,000
-------------------------------------------------------------------------
Ending Gold Inventory (000's ounces) 54.6 63.0 - 67.0
-------------------------------------------------------------------------
Consistent with the experience of many of Western Goldfields'
peers, 2008 represented a year of escalating input costs. The
following table presents a summary of the Company's cost metrics
for 2008 and the 2009 forecast:
-------------------------------------------------------------------------
2008 2009 Forecast
-------------------------------------------------------------------------
Mining cost per ton mined $1.03 $0.80 - $0.84
-------------------------------------------------------------------------
Processing cost per ton of ore $1.55 $1.10 - $1.15
-------------------------------------------------------------------------
G&A cost per ton of ore $0.47 $0.35 - $0.38
-------------------------------------------------------------------------
Royalty cost per ton of ore $0.23 $0.20 - $0.22
-------------------------------------------------------------------------
2008 Financial Results ---------------------- For the full year
2008, Western Goldfields reported net income of $14.6 million, or
$0.11 per share, compared to a net loss of $50.3 million, or $0.43
per share, for the full year 2007. Net income for 2008 and 2007
includes a non-cash after-tax gain of $8.0 million and loss of
$35.9 million, respectively, arising from the mark-to-market on our
gold forward sales contracts, which were taken out as a requirement
of our term loan facility. Results for 2008, as compared with 2007,
show an increase in gold sold to 110,880 ounces from 6,889 ounces;
the average sales price per ounce rose to $861 in 2008 from $677 in
2007. Fourth Quarter 2008 Financial Results
------------------------------------- For the fourth quarter 2008,
Western Goldfields reported net income of $7.8 million, or $0.06
per share, which included a non-cash after-tax gain of $9.2
million, or 0.07 per share, arising from the mark-to-market on our
gold forward sales contracts. The mark-to-market gain in the fourth
quarter 2008 reflects a decrease in the spot gold price from $885
per ounce at September 30, 2008 to $870 at December 31, 2008.
Liquidity and Capital Resources ------------------------------- At
December 31, 2008, the Company's cash balance was $18.8 million,
including restricted cash of $7.5 million. In the fourth quarter,
the Company repaid $17.7 million of debt under its credit facility,
leaving $68.6 million outstanding at the end of the year. Western
Goldfields intends to continue using Mesquite's cash flow to
de-lever the balance sheet and pursue disciplined growth
opportunities. Capital Expenditures -------------------- During
2008, the Company substantially completed its capital program. The
expansion capital program was completed at a cost of $111.3
million, within 1% of the budget. Total capital expenditures in
2008 were $22.1 million. Capital expenditures in 2009 are forecast
to be $1.5 million. Sustaining capital requirements are expected to
be nominal going forward. Reserves and Resources
---------------------- Proven and probable mineral reserves as at
December 31, 2008 are 151.61 million tons at 0.017 ounces per ton
containing 2.57 million ounces of gold. In addition, measured and
indicated mineral resources as at December 31, 2008 are 100.68
million tons grading 0.015 ounces per ton containing 1.53 million
ounces of gold. These changes from the previous year reflect
production depletion. For more complete disclosure on our reserves
and resources, please see our Annual Report on Form 10-K to be
filed on SEDAR and EDGAR on March 10, 2009. 2009 Outlook
------------ In 2009, the Company expects to produce and sell
140,000 to 150,000 ounces of gold at a cost of $68.0 to $72.0
million. Due to the timing of leach pad recoveries and the impact
of inventory adjustments, the Company forecasts cost of sales per
ounce(1) of $530 to $540. As higher cost leach pad gold inventory
at December 31, 2008 is planned to be replaced by lower cost
inventory at December 31, 2009, the planned cost of sales for 2009
includes approximately $11 million (approximately $75 per ounce)
from the expected reduction in the value of leach pad gold
inventory. These costs were included in work in process inventory
at December 31, 2008 and therefore do not affect 2009 operating
cash flow. Operating cash flow is expected to be $40 - $45 million
for 2009 assuming a gold price of $850 per ounce. While total
operating costs are expected to remain consistent on a quarterly
basis from $16.5 to $18.5 million, higher stripping ratios and
lower grades are expected to result in lower ounces placed on the
leach pad and lower production in the first three quarters of 2009.
Approximately 50% of the recoverable ounces placed in 2009 are
forecast to be placed in the fourth quarter. Production in each of
the first three quarters is expected to be 33,000 to 38,000 ounces
before increasing to 38,000 to 43,000 ounces in the fourth quarter.
The cost of sales per ounce(1) in the first three quarters of the
year is forecast to be $595 to $605 and includes approximately $4.0
million (approximately $110 per ounce) per quarter of costs from
the expected reduction in the value of leach pad gold inventory
quarter to quarter. The fourth quarter cost of sales per ounce(1)
is expected decline to $365 to $375 and includes approximately a
$1.0 million (approximately $25 per ounce) reduction to cost of
sales from the expected increase in the value of leach pad gold
inventory during the fourth quarter. The inventory related costs do
not impact the Company's cash flow in the respective quarters.
Assumptions: ------------ In providing the Company's 2009 forecast,
Western Goldfields assumes an average gold price for 2009 of $850
per ounce and fuel costs for the 50% of the Company's diesel that
is unhedged of $1.75 per gallon (including tax and delivery).
Western Goldfields utilizes an ultra low sulfur west coast red
diesel as specified by California and Imperial County. (1) Cost of
sales per ounce is defined as cost of sales as per the Company's
financial statements divided by the number of ounces sold. Revenues
per ounce are determined by the revenues from gold sales as per the
Company's financial statements divided by the number of ounces
sold. Business Combination with New Gold
---------------------------------- On March 4, 2009, the Company
announced a business combination with New Gold Inc. ("New Gold").
Under the terms, New Gold will acquire by way of a plan of
arrangement all of the outstanding common shares of Western
Goldfields on the basis of one New Gold common share and CDN$0.0001
in cash for each common share of Western Goldfields (the
"Transaction"). Upon completion of the Transaction, existing New
Gold and Western Goldfields shareholders will own approximately 58%
and 42% of the combined company, respectively. Based on the closing
price of New Gold's common shares on the TSX of CDN$2.30 on March
3, 2009, this offer represented a premium of 19.2% to the closing
price of Western Goldfields shares on the TSX on March 3, 2009 and
20.1% to the 20-day volume weighted average trading price of both
companies' shares on the TSX. Highlights of the Transaction: -
Diversified gold production base from three gold mines in mining-
friendly jurisdictions with forecasted gold production of
approximately 335,000 ounces in 2009, expected to grow to over
400,000 ounces in 2012 - Strong cash flow to fully fund the
development at the New Afton gold- copper project in British
Columbia - Delivers on industry consolidation in a rising gold
price environment - Combines experienced management teams and
boards of directors - Enhances market presence - Increases mineable
reserves totaling 7.6 million gold ounces within a measured and
indicated resource of 12.2 million gold ounces Western Goldfields
Inc. ----------------------- Western Goldfields Inc. is an
independent gold production and exploration company with a focus on
precious metal mining opportunities in North America. The Mesquite
Mine, currently the Company's sole asset, was brought into
production in January 2008, and the Company's focus is now on
achieving the anticipated rate of production and completing planned
improvements to the property. The Company has 2.6 million ounces in
Proven and Probable Reserves. Western Goldfields common shares
trade on the Toronto Stock Exchange under the symbol WGI, and on
the NYSE Alternext under the symbol WGW. Mr. Wes Hanson, P.Geo.,
Vice President of Mine Development, Western Goldfields Inc., is the
qualified person under National Instrument 43-101 who supervised
the preparation of the technical information contained in this news
release. Cautionary Note to U.S. Investors Concerning Estimates of
Measured, Indicated and Inferred Resources
-------------------------------------------------------------------------
This press release uses the terms "measured", "indicated" and/or
"inferred" mineral resources. United States investors are advised
that while such terms are recognized by Canadian regulations, the
United States Securities and Exchange Commission does not recognize
them. United States investors are cautioned not to assume that all
or any part of mineral resources will ever be converted into
mineral reserves. Inferred mineral resources have a great amount of
uncertainty as to their existence, and as to their economic and
legal feasibility. It cannot be assumed that all or any part of an
inferred mineral resource will ever be upgraded to a higher
category. Under Canadian rules, estimates of inferred mineral
resources may not form the basis of feasibility or other economic
studies. United States investors are cautioned not to assume that
all or any part of an inferred mineral resource exists, or is
economically or legally mineable. Forward-Looking Information
--------------------------- Certain statements contained in this
news release and subsequent oral statements made by and on behalf
of the Company may contain forward-looking information within the
meaning of the United States Private Securities Litigation Reform
Act of 1995 and similar Canadian securities law. Such
forward-looking statements are identified by words such as
"intends", "anticipates", "believes", "expects", "plans" and
include, without limitation, statements regarding the Company's
plan of business operations, production and cost estimates, receipt
of working capital, anticipated revenues, and capital and operating
expenditures. These forward-looking statements are based on the
best estimates of management at the time such statements are made.
Expected production results and cost of sales (including without
limitation, statements made with respect to future production and
costs contemplated by our new mine plan) are based in part on
current and historical production and cost data factoring certain
assumptions with respect to future metal prices, costs and
availability of supplies and labour and other parameters. There can
be no assurance that such statements will prove to be accurate;
actual results and future events could differ materially from such
statements. Factors that could cause actual results to differ
materially include, among others, variations in metal prices and/or
cost of supplies, possible variations in ore grade or recovery
rates, failure of plant, equipment or processes to operate as
anticipated, accidents, labour disputes, as well as those set forth
in the Company's Annual Report on Form 10-KSB for the year ended
December 31, 2007 filed with the U.S. Securities and Exchange
Commission and with SEDAR, under the caption "Risk Factors" as well
as other filings made by the Company with securities regulatory
authorities. Most of these factors are outside the control of the
Company. Investors are cautioned not to put undue reliance on
forward-looking statements. Except as otherwise required by
applicable securities statutes or regulations, the Company
disclaims any intent or obligation to update publicly these
forward-looking statements, whether as a result of new information,
future events or otherwise. WESTERN GOLDFIELDS INC. CONSOLIDATED
BALANCE SHEETS (In thousands U.S. dollars) (Unaudited) December 31,
December 31, 2008 2007 ------------- ------------- ASSETS CURRENT
ASSETS Cash and cash equivalents $ 11,275 $ 43,870 Restricted cash
7,500 7,500 Receivables 2,550 298 Inventories 35,098 11,201 Prepaid
expenses 1,747 887 Current portion of deferred income tax asset
2,045 755 ------------- ------------- TOTAL CURRENT ASSETS 60,215
64,511 ------------- ------------- Plant and equipment, net of
accumulated amortization 111,334 77,951 Construction in process -
21,864 Investments - reclamation and remediation 8,934 8,661
Long-term deposits 367 348 Long-term prepaid expenses 1,384 1,555
Deferred debt issuance costs, net of accumulated amortization 2,766
3,227 Deferred income tax asset 22,368 36,378 -------------
------------- TOTAL OTHER ASSETS 147,153 149,984 -------------
------------- TOTAL ASSETS $ 207,368 $ 214,495 -------------
------------- ------------- ------------- LIABILITIES &
STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and
accrued liabilities $ 7,484 $ 8,781 Current portion of
mark-to-market loss on gold hedging contracts 5,606 1,935 Current
portion of mark-to-market loss on fuel hedging contracts 540 -
Current portion of loan payable 11,656 6,882 Current portion of
reclamation and remediation liabilities 339 129 -------------
------------- TOTAL CURRENT LIABILITIES 25,625 17,727 -------------
------------- LONG-TERM LIABILITIES Mark-to-market loss on gold
hedging contracts 39,580 56,966 Mark-to-market loss on fuel hedging
contracts 391 - Loan payable 56,984 69,581 Reclamation and
remediation liabilities 4,737 4,932 ------------- -------------
TOTAL LIABILITIES 127,317 149,206 ------------- -------------
COMMITMENTS AND CONTINGENCIES - - STOCKHOLDERS' EQUITY Common
stock, of no par value, unlimited shares authorized; 134,801,286
and 135,049,685 shares issued and outstanding, respectively 133,383
133,725 Stock options and warrants 8,291 7,551 Accumulated deficit
(61,623) (75,987) ------------- ------------- TOTAL STOCKHOLDERS'
EQUITY 80,051 65,289 ------------- ------------- TOTAL LIABILITIES
AND STOCKHOLDERS' EQUITY $ 207,368 $ 214,495 -------------
------------- ------------- ------------- WESTERN GOLDFIELDS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(LOSS) (In thousands U.S. dollars) (Unaudited) Three Months Ended
December 31, Year Ended December 31, ---------------------------
--------------------------- 2008 2007 2008 2007 -------------
------------- ------------- ------------- REVENUES Revenues from
gold sales $ 24,472 $ 606 $ 95,427 $ 4,666 -------------
------------- ------------- ------------- COST OF GOODS SOLD Mine
operating costs 15,431 7,359 54,231 19,100 Royalties 540 38 2,073
192 ------------- ------------- ------------- ------------- Cost of
sales (excludes amortization and accretion) 15,971 7,397 56,304
19,292 Amortization and accretion 2,384 1,880 9,332 4,242
Reclamation costs recovery (209) (22) (209) (22) -------------
------------- ------------- ------------- 18,146 9,255 65,427
23,512 ------------- ------------- ------------- -------------
GROSS PROFIT (LOSS) 6,326 (8,649) 30,000 (18,846) -------------
------------- ------------- ------------- EXPENSES General and
administrative 1,570 3,239 6,061 8,370 Exploration and business
development 170 36 1,106 795 ------------- -------------
------------- ------------- 1,740 3,275 7,167 9,165 -------------
------------- ------------- ------------- OPERATING INCOME (LOSS)
4,586 (11,924) 22,833 (28,011) ------------- -------------
------------- ------------- OTHER INCOME (EXPENSE) Interest income
151 593 1,093 1,976 Interest expense and commitment fees (1,101)
(1,015) (4,127) (1,863) Amortization of deferred debt issuance
costs (115) (115) (461) (342) Realized and unrealized gain (loss)
on mark-to-market of gold forward sales contracts 15,121 (31,328)
13,078 (58,901) Unrealized loss on mark-to-market of fuel forward
contracts (931) - (931) - Gain on sale of assets - - - 42 Loss on
foreign currency exchange (2,224) (637) (3,820) (343) -------------
------------- ------------- ------------- 10,901 (32,502) 4,832
(59,431) ------------- ------------- ------------- -------------
INCOME (LOSS) BEFORE INCOME TAXES 15,487 (44,426) 27,665 (87,442)
INCOME TAX RECOVERY (EXPENSE) (7,704) 37,133 (13,049) 37,133
------------- ------------- ------------- ------------- NET INCOME
(LOSS) $ 7,783 $ (7,293) $ 14,616 $ (50,309) -------------
------------- ------------- ------------- -------------
------------- ------------- ------------- NET INCOME (LOSS) PER
SHARE - BASIC $ 0.06 $ (0.06) $ 0.11 $ (0.43) -------------
------------- ------------- ------------- -------------
------------- ------------- ------------- - DILUTED $ 0.05 $ (0.06)
$ 0.10 $ (0.43) ------------- ------------- -------------
------------- ------------- ------------- -------------
------------- WEIGHTED AVERAGE NUMBER OF COMMON STOCK OUSTANDING -
BASIC 135,864,664 132,554,570 136,169,809 116,903,752 -------------
------------- ------------- ------------- -------------
------------- ------------- ------------- - DILUTED 143,770,106
132,554,570 148,171,716 116,903,752 ------------- -------------
------------- ------------- ------------- -------------
------------- ------------- WESTERN GOLDFIELDS INC. CONSOLIDATED
STATEMENTS OF CASH FLOWS (In thousands U.S. dollars) (Unaudited)
Three Months Ended December 31, Year Ended December 31,
--------------------------- --------------------------- 2008 2007
2008 2007 ------------- ------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 7,783 $
(7,293) $ 14,616 $ (50,309) Adjustments to reconcile net income
(loss) to net cash provided (used) by operating activities: Items
not affecting cash: Amortization of plant and equipment 2,456 1,802
9,196 3,925 Amortization of deferred debt issuance costs 115 115
461 342 Accretion expense (38) 84 224 337 Deferred income taxes
7,941 (37,133) 12,720 (37,133) Reclamation cost recovery (209) (22)
(209) (22) Reclamation costs incurred - (148) - (148) Gain on sale
of assets - - - (42) Interest net of reimbursed costs - reclamation
and remediation (50) 42 (273) (234) Stock based compensation 260
611 1,335 2,561 Mark-to-market (gain) loss on gold hedging
contracts (15,120) 31,329 (13,715) 58,901 Mark-to-market loss on
fuel hedging contracts 931 - 931 - Changes in assets and
liabilities: Decrease (increase) in: Accounts receivable (1,959)
(169) (2,025) (74) Inventories (4,793) (8,822) (23,897) (10,689)
Prepaid expenses and deposits (544) 970 (708) (610) Increase
(decrease) in: Accounts payable (506) 1,819 (1,759) 2,156 Payroll
and related taxes payable - - (1,561) - Accrued expenses (726)
1,772 3,447 2,101 Accrued interest expense (60) 68 (316) 360
------------- ------------- ------------- ------------- Net cash
used by operating activities (4,519) (14,975) (1,533) (28,578)
------------- ------------- ------------- ------------- CASH FLOWS
FROM INVESTING ACTIVITIES Restricted cash - - - (7,500) Purchase of
plant and equipment, including construction in process (2,206)
(19,930) (22,050) (94,611) Proceeds from sale of assets - 98 - 98
Increase in reclamation and remediation investment - - - (2,090)
------------- ------------- ------------- ------------- Net cash
used by investing activities (2,206) (19,832) (22,050) (104,103)
------------- ------------- ------------- ------------- CASH FLOWS
FROM FINANCING ACTIVITIES Shares acquired under normal course
issuer bid (2,507) - (2,507) - Advances under loan facilities -
25,354 9,877 76,462 Repayments under loan facilities (17,700) -
(17,700) - Deferred debt issuance costs - (250) - (3,570) Common
stock issued for cash - 33,417 - 92,608 Exercise of options to
purchase common stock 293 131 980 1,040 Exercise of warrants to
purchase common stock - 1,987 338 4,508 ------------- -------------
------------- ------------- Net cash provided (used) by financing
activities (19,914) 60,639 (9,012) 171,048 -------------
------------- ------------- ------------- Change in cash and cash
equivalents (26,639) 25,832 (32,595) 38,367 Cash and cash
equivalents, beginning of period 37,914 18,038 43,870 5,503
------------- ------------- ------------- ------------- Cash and
cash equivalents, end of period $ 11,275 $ 43,870 $ 11,275 $ 43,870
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
SUPPLEMENTAL CASH FLOW DISCLOSURES: Interest paid $ (1,161) $ (663)
$ (4,358) $ (2,374) Interest received $ 215 $ 246 $ 887 $ 1,500
Taxes paid $ 570 $ - $ 570 $ - NON-CASH FINANCING AND INVESTING
ACTIVITIES: Stock, options and warrants issued for services $ 260 $
625 $ 1,335 $ 2,575 Equipment purchases included in accounts
payable $ 235 $ 852 $ 551 $ 1,886 Non-cash component of inventories
$ (67) $ - $ 1,556 $ - DATASOURCE: Western Goldfields Inc. CONTACT:
please visit http://www.westerngoldfields.com/, or contact: Raymond
Threlkeld, Chief Executive Officer, (416) 324-6005, ; Brian Penny,
Chief Financial Officer, (416) 324-6002, ; Hannes Portmann,
Director, Corporate Development and Investor Relations, (416)
324-6014,
Copyright