TORONTO, ONTARIO (AMEX: MRB) is pleased to report its third
quarter 2007 financial results and corporate developments. Complete
quarterly results will be available on SEDAR, EDGAR and on the
Company's website at www.metal-res.com. All dollar values are in
U.S. currency unless otherwise stated.
Highlights:
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Quarter Ended Year to Date October
September 2007 September 2007 2007
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Actual Budget % Budget Actual Budget % Budget Actual
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Ore Tonnes to Pad
(000's) 2,109.0 1,990.5 106 4,245.2 4,682.2 91 879.2
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Gold Grade
(gm/tonne) 0.43 0.43 100 0.49 0.52 94 0.53
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Silver Grade
(gm/tonne) 20.95 28.40 74 25.81 30.47 85 16.69
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Poured Gold
Ounces 9,056 13,153 69 12,676 23,590 54 5,015
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Poured Silver
Ounces 144,402 361,667 40 212,161 547,913 39 70,285
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Cash Cost per Ore
Tonne $4.72 $4.45 106 $5.32 $5.11 104 $ 4.57
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- The Cerro San Pedro mine continues to steadily progress
towards full production. The Company produced 9,056 ounces of gold
and 144,402 ounces of silver in the third quarter. Production
targets during 2007 have been impacted by a delay in the completion
of the haul road early in the year and by heavy rainfall throughout
the entire gulf coast region which has impacted both mining and pad
construction. In addition, the majority of the ore placed on the
pad has been the overlying limestone, which has poor metallurgical
recovery when compared to the more dominant intrusive rock type.
The start-up year production target for 2007 has been reforecast at
30,000 ounces of gold and 400,000 ounces of silver, as compared to
guidance given in February 2007 of 40,000 ounces of gold and
900,000 ounces of silver.
- The Cerro San Pedro processing plant operated at 53% of
capacity in the third quarter with full plant production levels
expected in the fourth quarter of 2007. The plant is currently
producing approximately 200 ounces of gold per day, with
approximately 150,000 tonnes of ore being placed under leach each
week.
- Gold and silver sales in the third quarter totaled $5.5
million and $1.6 million, respectively. The Company sold 8,202
ounces of gold and 130,348 ounces of silver at an average realized
price per ounce of $672.74 and $12.60, respectively.
- Cerro San Pedro produced 2.1 million tonnes of ore during the
third quarter, exceeding forecasts by 100,000 tonnes.
- The leach pad at Cerro San Pedro held approximately 5.2
million tonnes of ore at October 31, 2007 containing an estimated
82,700 ounces of gold and 4.1 million ounces of silver. Of these
ounces, 32,200 and 643,700 ounces of gold and silver, respectively,
are estimated to be recoverable. The ore tonnes placed on the leach
pad to date are predominately limestones, which are found at the
top of the deposit and have the lowest recovery rates of all the
Cerro San Pedro ore types. Recovery rates appear to be in line with
estimates for the type of ore on the leach pad and the leach
duration. A prediction of overall rates of recovery is premature
due to the fact that 52% of the recoverable ounces were placed on
the leach pad in the third quarter and have been under leach for
less than 35 days. The recovery period is estimated to be five
months for gold and six months for silver.
- Cell two of the leach pad at Cerro San Pedro was completed in
August. Cell three is expected to be complete by year end.
- Xstrata Copper, the Company's joint venture partner at its
30%-owned El Morro project in Chile, has been granted a four-month
extension for delivery of the Feasibility Study. Adverse winter
weather and slow progress in the development tunnel contributed to
the delay. Xstrata has committed to a January 2008 delivery
date.
- Third quarter activities at Metallica's 100%-owned Rio
Figueroa project in Chile included surface trenching and sampling
to explore for extensions of the Cerro Matta copper-gold porphyry
system.
- An exploration option agreement was signed in July to acquire
the Liberty Bell gold project located in the Tintina Gold Belt in
central Alaska. The agreement requires the Company to invest $2.0
million in exploration expenditures and deliver a feasibility study
by the end of 2011, or incur additional exploration expenditures
totaling $5.5 million and deliver a feasibility study by the end of
2015.
MD&A and Financial Results:
Management's discussion and analysis ("MD&A") of the
consolidated operating results and financial condition of Metallica
Resources Inc. (the "Company") for the three and nine months ended
September 30, 2007 and 2006 has been prepared based on information
available to the Company as of October 31, 2007. MD&A should be
read in conjunction with the consolidated interim financial
statements and the related notes for the three and nine months
ended September 30, 2007 and 2006, and in conjunction with MD&A
for the year ended December 31, 2006. The consolidated financial
statements and the related notes have been prepared in accordance
with Canadian generally accepted accounting policies. The
accounting policies have been consistently followed in preparation
of the consolidated financial statements except that the Company
has adopted the guidelines governed by the Canadian Institute of
Chartered Accountants ("CICA") Handbook Sections 1530 -
"Comprehensive Income" and 3855 - "Financial Instruments -
Recognition and Measurement", which became effective for the
Company on January 1, 2007 and requires the Company to disclose
comprehensive income and its components. All dollar amounts
referred to in this discussion and analysis are expressed in United
States dollars unless otherwise noted.
Overview
Construction of the Company's Cerro San Pedro gold and silver
mine in Mexico was substantially completed in April 2007.
Construction activities that are ongoing include cells two and
three of the phase one leach pad, installation of additional pumps
to increase processing plant throughput capacity and other
miscellaneous projects. The processing plant facilities were
tested, which included three dore pours totaling 365 ounces of gold
and 9,221 ounces of silver, and determined to be operational at the
end of April 2007. The Company declared commencement of commercial
production on May 1, 2007. The Company's results from operations
for the current quarter differ from preceding periods as the
Company is now realizing revenue from operations.
As of October 31, 2007, approximately 5.2 million tonnes of ore
had been placed on the leach pad containing an estimated 82,700 and
4,068,800 ounces of gold and silver, respectively. Of these ounces,
32,200 and 643,700 ounces of gold and silver, respectively, are
estimated to be recoverable. The ore tonnes placed on the leach pad
to date are predominately limestones, which are found at the top of
the deposit and have the lowest recovery rates of all the Cerro San
Pedro ore types. The recovery period is estimated to be five months
for gold and six months for silver.
Gold and silver production to date has totaled 17,691 ounces of
gold and 282,446 ounces of silver. October production was 5,015
ounces of gold and 70,285 ounces of silver. The Company is on track
to achieve planned full monthly production levels for the first
eight years of the mine life of 6,500 and 141,000 ounces of gold
and silver, respectively, in the second quarter of 2008.
To view a chart displaying the Cerro San Pedro Project - 2007
Gold and Silver ounces poured per month, please visit the following
link: http://www.ccnmatthews.com/docs/MR-CSP2007.pdf
The Company is also advancing a copper-gold exploration project
in Chile and is pursuing various other exploration projects in the
Americas.
Financial Results of Operations
Third Quarter 2007 Compared to Third Quarter 2006
The Company reported a loss of $2.5 million ($0.03 per share)
for the three months ended September 30, 2007. The loss in 2007
principally resulted from the Company not yet reaching planned
production levels due to commencement of operations on May 1, 2007.
There were no operations in 2006.
Gold and silver sales in the current period totaled $5.5 million
and $1.6 million, respectively. The Company sold 8,202 ounces of
gold and 130,348 ounces of silver at an average realized price per
ounce of $672.74 and $12.60, respectively. Production costs totaled
$8.6 million in the current period and exceeded metal sales due to
the start-up nature of operations. There were no metal sales during
2006.
Depreciation and amortization in the current period of $0.4
million was due to amortization of Cerro San Pedro mine development
costs beginning May 1, 2007.
General and administrative expense increased by $0.5 million in
the current period to $1.2 million, and was principally due to
higher compensation costs resulting from additional employees and
increases in compensation to existing staff and management.
Foreign exchange gain in the current period was $0.7 million as
compared to a gain of $0.2 million for the three months ended
September 30, 2006. The increase in foreign exchange gain in the
current period resulted from holding Canadian dollar cash balances
and a greater strengthening of the Canadian dollar relative to the
U.S. dollar in 2007 as compared to 2006. The Company held Canadian
dollar cash balances totaling Cdn$11.8 million at September 30,
2007 and Cdn$14.6 million at September 30, 2006.
Year to Date 2007 Compared to Year to Date 2006
The Company reported a loss of $3.8 million ($0.04 per share)
for the nine months ended September 30, 2007. The loss in 2007
principally results from the Company not yet reaching planned
production levels due to commencement of operations on May 1, 2007.
There were no operations in 2006.
Gold and silver sales during the nine months ended September 30,
2007 totaled $7.3 million and $2.4 million, respectively. Sales
consisted of 10,967 ounces of gold and 184,229 ounces of silver at
an average realized price per ounce of $668.48 and $12.81,
respectively. Production costs totaled $11.4 million in the current
period and exceeded metal sales due to the start-up nature of
operations. There were no metal sales in the preceding period.
Depreciation and amortization in the current period of $0.5
million was due to amortization of Cerro San Pedro mine development
costs beginning May 1, 2007.
General and administrative expenses increased by $1.3 million in
the current period to $3.9 million, and was principally due to
higher compensation costs resulting from additional employees and
increases in compensation to existing staff and management.
Exploration and business development expense increased by $0.2
million in the current period to $0.6 million. The increase
generally resulted from second quarter expenditures totaling $0.1
million to acquire an option to purchase the Liberty Bell gold
project in Alaska, and performance bonuses for exploration
employees totaling $0.1 million.
Restricted stock unit ("RSU") expense increased from $0.2
million in the preceding period to $0.5 million in the current
period. The $0.3 million increase in the current period primarily
resulted from an increase in the RSU liability due to a greater
strengthening of the Canadian dollar relative to the U.S. dollar at
September 30, 2007 as compared to December 31, 2006, versus the
comparable preceding period. In addition, 183,700 RSUs were granted
in May 2007 for a total of 553,700 RSUs outstanding at September
30, 2007. Settlement of RSUs will be made in Canadian dollars. RSU
expense is recorded over the vesting period.
Foreign exchange gain in the current period was $2.6 million as
compared to a gain of $1.3 million for the nine months ended
September 30, 2006. The $1.3 million increase in foreign exchange
gain for the nine months ended September 30, 2007 resulted from
holding Canadian dollar cash balances and a greater strengthening
of the Canadian dollar relative to the U.S. dollar in 2007 as
compared to 2006. The Company held Canadian dollar cash balances
totaling Cdn$11.8 million at September 30, 2007 and Cdn$14.6
million at September 30, 2006.
Summary of Quarterly Results (000's, except per share data)
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2007 2006
-------------------------------------
Third Second First Fourth
Quarter Quarter Quarter Quarter
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Total revenues $ 7,160 $ 2,531 $ - $ -
Net income (loss) $ (2,519) $ (501) $ (757) $ (2,168)
Basic net income (loss) per share $ (0.03) $ (0.01) $ (0.01) $ (0.03)
Diluted net income (loss) per share $ (0.03) $ (0.01) $ (0.01) $ (0.03)
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2006 2005
-------------------------------------
Third Second First Fourth
Quarter Quarter Quarter Quarter
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Total revenues $ - $ - $ - $ -
Net income (loss) $ (605) $ 9 $ (367) $ 15
Basic net income (loss) per share $ (0.01) $ 0.00 $ 0.00" $ 0.00
Diluted net income (loss) per share $ (0.01) $ 0.00 $ 0.00" $ 0.00
The quarterly net income (loss) volatility for 2007 was
primarily attributable to holding large cash balances in Canadian
dollars and high fluctuations in the Canadian dollar/U.S. dollar
exchange rate. Net foreign exchange gains totaled $0.2 million,
$1.7 million and $0.7 million for the first, second and third
quarters of 2007, respectively. In addition, the Company had losses
from operations totaling $0.4 million and $1.9 million in the
second and third quarters of 2007, respectively, due to the
start-up nature of operations.
The quarterly net income (loss) volatility for 2006 was also
primarily attributable to holding large cash balances in Canadian
dollars and high fluctuations in the Canadian dollar/U.S. dollar
exchange rate. Net foreign exchange gains (losses) totaled ($0.1
million), $1.2 million, $0.2 million and ($0.7 million) for the
first, second, third and fourth quarters of 2006, respectively. In
addition, the fourth quarter of 2006 reflected a write-down of
mineral properties, plant and equipment totaling $0.4 million, and
$0.2 million for restricted stock unit expense due principally to
an increase in the Company's share price from Cdn$3.40 at September
30, 2006 to Cdn$4.60 at December 31, 2006.
Liquidity and Capital Resources
The Company had $16.8 million of cash and cash equivalents at
September 30, 2007. The Company believes that it has sufficient
cash to fund its needs until it begins to generate cash flow from
operations in the fourth quarter of 2007.
The Company's cash balances decreased from $44.8 million at
December 31, 2006 to $16.8 million at September 30, 2007. Cash
flows spent on operating activities in 2007 totaled $12.3 million,
of which $7.8 million was due to the build-up of leach pad
inventory. Cash flows spent on investing activities in 2007 totaled
$16.6 million and principally related to costs incurred on mine
development activities at the Cerro San Pedro project during the
pre-commercial production period from January 1, 2007 to April 30,
2007, and costs incurred subsequent to April 30, 2007 for
construction of the leach pads and other miscellaneous construction
activities. Cash flows received from financing activities totaled
$1.0 million and primarily resulted from the exercise of 487,134
stock options during 2007.
Outstanding Share Data
As of October 31, 2007, the Company had issued one class of
common shares and a total of 92,552,615 shares outstanding. In
addition, the Company had the following warrants and stock options
outstanding at October 31, 2007:
- 19,247,850 warrants, each of which is exercisable for one
common share at an exercise price of Cdn$3.10 through December 11,
2008.
- 3,835,250 warrants, each of which is exercisable for one
common share at an exercise price of Cdn$5.50 through December 20,
2009.
- 3,105,085 stock options, each of which is exercisable for one
common share at prices ranging from Cdn$1.20 to Cdn$5.10 per
share.
Use of Estimates
Inventory
The amount of gold and silver in the ore on leach pad is
measured by estimating the number of tonnes delivered to the leach
pad, the number of contained ounces based on assay data and the
estimated recoverable ounces based on metallurgical data. Although
the quantities of recoverable gold and silver placed on the leach
pad are reconciled by comparing the grades of ore placed on the
leach pad to the quantities actually recovered, the nature of the
leaching process inherently limits the ability to precisely monitor
inventory levels. The ultimate recovery of gold and silver from the
leach pad will not be known until the leaching process has
concluded at the end of the mine life.
New Accounting Standards
Effective January 1, 2007, the Company adopted the two new
accounting standards and related amendments to other standards on
financial instruments issued by the Canadian Institute of Chartered
Accountants ("CICA").
a) Financial Instruments - Recognition and Measurement, CICA
Handbook Section 3855
This standard prescribes when a financial asset, financial
liability or non-financial derivative is to be recognized on the
balance sheet and whether fair value or cost-based methods are used
to measure the recorded amounts. It also specifies how financial
instrument gains and losses are to be presented.
Effective January 1, 2007, the Company's cash equivalents have
been classified as available-for-sale securities and are recorded
on the balance sheet at fair value, which is based on quoted market
prices. Changes in the fair value of these securities are reflected
in other comprehensive income and included in accumulated other
comprehensive income on the balance sheet. These unrealized gains
and losses are not reflected in net income until realized.
b) Comprehensive Income - CICA Handbook Section 1530
This standard requires the presentation of a statement of
comprehensive income and its components. Comprehensive income
includes both net earnings and other comprehensive income. Other
comprehensive income includes unrealized gains and losses on
available-for-sale investments, gains and losses on certain
derivative instruments, and foreign currency gains and losses
related to self-sustaining operations, none of which are included
in the calculation of net earnings until realized.
The effect on the Company's balance sheet as of January 1, 2007
on adoption of these financial instrument standards resulted in a
$10,000 increase to accumulated other comprehensive income. The
adjustment resulted from unrealized gains, which were more than
offset by related foreign exchange losses, on cash equivalents
accounted for as available-for-sale securities. As prescribed by
these standards, prior periods have not been restated.
Internal Controls over Financial Reporting
Management is responsible for establishing and maintaining
adequate internal controls over financial reporting. Any system of
internal controls over financial reporting, no matter how well
designed, has inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and presentation.
There have been no changes in our internal control over financial
reporting during the quarter ended September 30, 2007 that have
materially affected, or are reasonably likely to materially affect,
internal control over financial reporting.
Disclosure Controls
Management is responsible for the design and effectiveness of
disclosure controls and procedures to provide reasonable assurance
that material information related to the Company is communicated to
the Company's certifying officers. The Company's Chief Executive
Officer and Chief Financial Officer have each evaluated the
effectiveness of the Company's disclosure controls and procedures
as of September 30, 2007 and have concluded that these controls and
procedures are effective in providing reasonable assurance that
material information relating to the Company is made available to
them.
Corporate Outlook
The Cerro San Pedro mine is currently mining at full mine plan
production rates of 63,000 tonnes per day. The processing plant is
expected to achieve its designed throughput levels of 1,000 cubic
meters per hour in the fourth quarter of 2007. With October
production reaching 5,015 ounces of gold and 70,285 ounces of
silver, the Company is on track to achieve full monthly production
levels for the first eight years of the mine life of 6,500 and
141,000 ounces of gold and silver, respectively, in the second
quarter of 2008. Over the ten year mine life, average annual
production levels are expected to be 89,400 ounces of gold and
2,126,500 ounces of silver. Production for 2007 is expected to be
30,000 ounces of gold and 400,000 ounces of silver. Given current
high gold and silver prices, the Company is analyzing the potential
for crushing ore at the project in order to increase gold and
silver recoveries.
In October 2007, Mexico enacted a new tax law that will go into
effect on January 1, 2008 and includes the introduction of a flat
tax (known as IETU for its acronym in Spanish). Flat tax is
calculated at 17.5% of cash basis net income, as defined, with
transitional rates of 16.5% in 2008 and 17.0% in 2009. In any given
year, companies will effectively pay the greater of flat tax or
income tax. At gold prices of $600 and silver prices of $10, the
flat tax is estimated to result in a maximum incremental tax
liability to the Company of approximately 8%, or $7.2 million, over
the ten year mine life.
Xstrata Plc. ("Xstrata"), the Company's joint venture partner on
the El Morro project, was initially required to provide the Company
with a feasibility study on the project by September 2007. Due to
adverse weather conditions this winter in Chile and slow progress
in the development tunnel, Xstrata and the Company agreed to extend
the delivery date for the feasibility study until January 2008.
Xstrata has agreed to fund all ongoing feasibility study costs as
well as any additional costs during the extension period, which are
estimated at US$7.0 to US$9.0 million. The Company is evaluating
financing options for its share of project development costs in the
event of a decision to proceed with construction by Xstrata.
Risk Factors
The discovery, development and acquisition of mineral properties
are in many instances unpredictable events and involve numerous
risks, including those described under the heading "Item 3. Key
Information -- D) Risk Factors" in the Company's latest Annual
Report on Form 20-F. In addition, as a result of the Company's
transition from an exploration company to a gold and silver
producer, the Company is subject to additional risks including,
among others, risks associated with the operation of a mine, such
as uncertainty concerning the Company's ability to hire and retain
qualified personnel, risks of labor disruptions, power outages,
landslides, flooding, encountering unexpected geologic formations
or unanticipated variations in grade, uncertainty concerning the
Company's ability to obtain suitable machinery, equipment and
parts, metallurgical and other processing problems, mechanical
equipment performance problems, occurrence of accidents, force
majeure factors, unanticipated transportation costs, and weather
conditions, any of which can materially and adversely affect, among
other things, the development of properties, production quantities
and rates, costs and expenditures and production commencement
dates. The Company has prepared estimates, and relies on the
estimates of consultants and management, of future production,
schedules and cash and total costs in respect of its Cerro San
Pedro mine. There is no assurance that such estimates will be
achieved. Actual production from the Cerro San Pedro mine may vary
from such estimates for a variety of reasons such as the actual ore
mined varying from estimates of grade, tonnage, dilution and
metallurgical and other characteristics, as well as the foregoing
risks associated with the operation of a mine.
The Company's primary operations are located in Mexico where
most of its obligations and disbursements are denominated in
Mexican pesos. The Company has not entered into any hedging
activity for foreign currency risk with respect to the Mexican
peso.
Contingencies
On June 19, 2007, the Company terminated its mining contract
with Washington Group Latin America, Inc. ("WGLA") under which WGLA
had served as the mining contractor for the Company's Cerro San
Pedro project. The Company received notice from WGLA in July 2007
for $14.9 million of claims that WGLA alleges the Company owes it
for termination and demobilization fees, and other charges under
the mining contract. Approximately $10.2 million of these claims
have been submitted to arbitration for resolution. Approximately
$1.5 million of the remaining $4.7 million of claims were paid in
July 2007. The remaining $3.2 million of claims will also likely be
submitted to arbitration for resolution. The arbitration date has
not yet been established and the outcome of the arbitration
proceedings, which will take place in Denver, Colorado, cannot be
assessed at the present time.
The Company has been notified of various lawsuits and legal
actions that have been filed against governmental agencies by a
group of project opponents seeking nullification of various permits
and licenses that have been granted to the Company with respect to
its Cerro San Pedro project. Various lawsuits and legal actions
have been filed by members of this group ("Project Opponents") over
the past four years. Those lawsuits that have had final rulings
have all been resolved in favor of the various governmental
agencies. In the event of an adverse ruling from any of the
unresolved lawsuits, the Company may be forced to suspend or cease
project construction or operating activities.
As required by an earlier court order, the Mexican governmental
agency that issued the Environmental Authorization for the
Company's Cerro San Pedro project was required to revise that
Environmental Authorization in order for it to conform with current
environmental and other laws. The Environmental Authorization is
the Mexican equivalent of an Environmental Impact Statement or
mining permit in the United States. The Company received a new
Environmental Authorization in April 2006. Project Opponents had
filed a lawsuit against the Mexican governmental agency alleging
that the new Environmental Authorization did not conform with the
requirements of the 2005 court order. The Company was notified in
September 2007 that the courts had ruled in favor of the Mexican
governmental agency and that the April 2006 Environmental
Authorization did comply with the requirements of the 2005 court
order.
Forward-Looking Statements
This document contains statements, which, to the extent that
they are not recitations of historical fact, constitute
"forward-looking statements" within the meaning of Section 27A of
the United States Securities Act of 1933 and Section 21E of the
United States Securities Exchange Act of 1934 and applicable
Canadian securities legislation, and are intended to be subject to
the safe harbor protection of those provisions. All statements,
other than statements of historical facts, included in this
document and in press releases and public statements by our
officers or representatives, that address activities, events or
developments that management of the Company expects or anticipates
will or may occur in the future, are forward-looking statements,
including, but are not limited to, those relating to the Company's
transition from an exploration company to a gold and silver
producer, projections of production and scheduling, cash and total
costs, start-up of any new project, results of exploration efforts,
status of required permits from governmental and regulatory
authorities, status of lawsuits filed against governmental agencies
including lawsuits filed by Project Opponents with respect to the
Company's Cerro San Pedro project, and any other information about
the future business and prospects of the Company. In certain cases,
forward-looking statements can be identified by the use of words
such as "could", "expect", "believe", "estimate", "anticipate",
"project" and similar expressions and statements relating to
matters that are not historical facts.
All forward-looking statements in this document involve risks,
uncertainties and other factors, including those described above as
well as those set forth under the heading "Item 3. Key Information
- D) Risk Factors" in the Company's latest Annual Report on Form
20-F. These may cause the actual results or performance of the
Company to be materially different from any future results or
performance expressed or implied by such forward-looking
statements. These factors include, among others, risks related to
the Company's recent transition from an exploration company to a
gold and silver producer including, among others, risks associated
with the operation of a mine and risks that could affect the
Company's ability to achieve estimated production, schedules and
cash and total costs with respect to its Cerro San Pedro mine, such
as those described under "Risk Factors" above; risks related to the
Company's properties being at the exploration or development stage;
uncertainty of obtaining additional funding; uncertainty of mineral
reserve and resource estimates; effects on the Company's operations
of current and prospective regulations governing, among others,
prospecting, development, environmental protection and labor
matters; permitting requirements; risks of liability for
environmental damage; risks relating to legal proceedings; and
risks associated with international business operations. Although
the Company has attempted to identify important factors that could
cause actual actions, events or results to differ materially from
those described in forward-looking statements, there may be other
factors that cause actions, results or events not to be as
anticipated, estimated or intended. There can be no assurance that
forward-looking statements will prove to be accurate, as actual
results and future events could differ materially from those
anticipated in such statements. Accordingly, readers should not
place undue reliance on forward-looking statements. The Company
undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise except as may be required under
applicable securities laws.
Metallica Resources Inc.
Consolidated Balance Sheets
(unaudited)
U.S. dollars (000's, except share data)
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September 30, December 31,
2007 2006
Assets
Current assets:
Cash and cash equivalents $ 16,824 $ 44,762
Value-added tax and other receivables 4,745 2,787
Inventory (Note 4) 9,185 133
Deposits and prepaid expenses 3,165 204
--------------------------------
33,919 47,886
Mineral properties, plant and equipment
(Note 5) 99,996 84,827
Other assets 315 240
--------------------------------
Total assets $ 134,230 $ 132,953
--------------------------------
--------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued
liabilities $ 7,407 $ 5,790
Restricted stock units (Note 9(d)) 677 557
Asset retirement obligation (Note 7) 846 611
Other liabilities (Note 8) 763 -
--------------------------------
--------------------------------
9,693 6,958
Shareholders' equity:
Share capital - 92,501,058 common
shares (2006: 92,001,263) (Note 9(a)) 135,115 133,572
Contributed surplus 1,485 1,485
Warrants (Note 9(b)) 10,361 10,364
Stock options (Note 9(c)) 3,283 2,474
Accumulated other comprehensive loss (30) -
Deficit (25,677) (21,900)
--------------------------------
--------------------------------
124,537 125,995
--------------------------------
--------------------------------
Total liabilities and shareholders'
equity $ 134,230 $ 132,953
--------------------------------
--------------------------------
The accompanying notes are an integral part of these consolidated interim
financial statements.
Metallica Resources Inc.
Consolidated Statements of Operations and Deficit
(unaudited)
U.S. dollars (000's, except share data)
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Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
Revenues:
Gold $ 5,518 $ - $ 7,331 $ -
Silver 1,642 - 2,360 -
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7,160 - 9,691 -
Operating expenses:
Production costs(i) 8,613 - 11,452 -
Depreciation and
amortization 415 - 543 -
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9,028 - 11,995 -
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Operating loss (1,868) - (2,304) -
Other expense
(income):
General and
administrative 1,244 793 3,916 2,617
Exploration and
business development 155 186 590 389
Restricted stock units 190 69 472 216
Foreign exchange gain (743) (175) (2,592) (1,343)
Interest income (214) (278) (966) (964)
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632 595 1,420 915
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Loss before income taxes (2,500) (595) (3,724) (915)
Income tax provision
(Note 10) (19) (10) (53) (48)
---------------------------------------------------------------------------
Net loss (2,519) (605) (3,777) (963)
Deficit at beginning
of period (23,158) (19,127) (21,900) (18,769)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Deficit at end of
period $ (25,677) $ (19,732) $ (25,677) $ (19,732)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Basic and diluted
loss per share $ (0.03) $ (0.01) $ (0.04) $ (0.01)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Weighted average
number of common
shares outstanding 92,472,674 84,073,508 92,343,565 83,769,150
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(i) Production costs include ore and waste mining, ore processing, mine
administration, transportation and refining, and royalties.
The accompanying notes are an integral part of these interim consolidated
financial statements.
Consolidated Statement of Other Comprehensive Loss
(unaudited)
U.S. dollars (000's)
---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
2007 2007
Net loss $ (2,519) $ (3,777)
Net unrealized gain (loss) on
available-for-sale securities 31 (40)
------------------------------------------
Comprehensive loss $ (2,488) $ (3,817)
------------------------------------------
------------------------------------------
Consolidated Statement of Accumulated Other Comprehensive Loss
(unaudited)
U.S. dollars (000's)
---------------------------------------------------------------------------
Nine Months Ended
September 30,
2007
Balance at December 31, 2006 $ -
Net unrealized gain on
available-for-sale securities 10
--------------------
Balance at January 1, 2007 on adoption of new
accounting standard 10
Net unrealized loss on available-for-sale
securities (40)
--------------------
Accumulated other comprehensive loss $ (30)
--------------------
--------------------
The accompanying notes are an integral part of these consolidated interim
financial statements.
Metallica Resources Inc.
Consolidated Statements of Cash Flows
(unaudited)
U.S. dollars (000's)
---------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
Cash flows used for
operating activities
Net loss $ (2,519) $ (605) $ (3,777) $ (963)
Non-cash items:
Depreciation and
amortization 431 16 592 23
Stock-based compensation
expense 412 343 1,099 774
Restricted stock unit
expense 229 69 511 216
Unrealized gain on
available-for-sale
securities and other
non-cash items 21 6 9 16
Changes in non-cash working
capital and other
assets (Note 11) (4,269) (1,082) (10,762) (1,577)
----------------------------------------------
(5,695) (1,253) (12,328) (1,511)
Cash flows used for
investing activities
Mineral properties, plant
and equipment (5,127) (9,036) (16,623) (18,900)
----------------------------------------------
(5,127) (9,036) (16,623) (18,900)
Cash flows provided from
financing activities
Proceeds from exercise of
warrants 3 - 28 54
Proceeds from exercise of
stock options 69 95 975 863
----------------------------------------------
72 95 1,003 917
----------------------------------------------
Decrease in cash and cash
equivalents (10,750) (10,194) (27,948) (19,494)
Cash and cash equivalents,
beginning of period 27,574 33,370 44,772 42,670
----------------------------------------------
Cash and cash equivalents,
end of period $ 16,824 $ 23,176 $ 16,824 $ 23,176
----------------------------------------------
----------------------------------------------
Cash and cash equivalents
consist of:
Cash on hand $ 1,614 $ 1,649 $ 1,614 $ 1,649
Short-term investments 15,210 21,527 15,210 21,527
----------------------------------------------
$ 16,824 $ 23,176 $ 16,824 $ 23,176
------------ ---------------------------------
------------ ---------------------------------
Non-cash investing
activities:
Increase (decrease) in
accounts payable and
other liabilities related
to mineral properties,
plant and equipment $ (823) $ (1,471) $ (1,744) $ 1,370
Income tax payments $ 24 $ 25 $ 57 $ 33
The accompanying notes are an integral part of these interim consolidated
financial statements.
Metallica Resources Inc.
Notes to Consolidated Financial Statements
(unaudited)
U.S. dollars
---------------------------------------------------------------------------
1. Nature of Operations
Metallica Resources Inc. (the "Company") operates a gold and
silver mine in Mexico and is engaged in the exploration,
acquisition and development of precious and base metal mineral
deposits throughout the Americas.
The Company has completed construction of its Cerro San Pedro
gold and silver project in Mexico, except for construction of cell
three of the phase one leach pad, installation of additional pumps
to increase processing plant capacity and other miscellaneous
projects. Most of these construction activities are expected to be
completed during the next six months. The project processing
facilities were tested and determined to be operational on April
30, 2007. Effective May 1, 2007, commercial production commenced at
the Cerro San Pedro project. All project revenues and operating
costs recorded after May 1, 2007 are reflected in the Company's
statement of operations.
The Company is also advancing a copper-gold exploration project
in Chile and is pursuing various other exploration projects in the
Americas.
2. Basis of Presentation and New Accounting Policies
These interim consolidated financial statements of Metallica
Resources Inc. have been prepared in accordance with accounting
principles generally accepted in Canada and follow the same
accounting policies and methods of their application as the most
recent annual financial statements.
The interim consolidated financial statements do not conform in
all respects with the requirements of annual financial statements
and should be read in conjunction with the Company's consolidated
financial statements for the year ended December 31, 2006. In the
opinion of management, all of the adjustments necessary to fairly
present the interim financial statements set forth herein have been
made.
Certain of the prior period figures have been reclassified to
conform with the current period presentation.
Inventory
The Cerro San Pedro mine is a run-of-mine heap leaching
operation whereby gold and silver ore is mined and placed on leach
pads without screening or crushing. Inventories consist of ore on
leach pad and dore. Ore on leach pad represents mined ore that has
been stacked on an impermeable pad and is being leached with
chemical solutions to dissolve precious metals, which will be
recovered in the processing plant in the form of partially refined
gold and silver, called dore, which is sent to a third party
refinery for processing into saleable precious metals.
The amount of gold and silver in the ore on leach pad is
measured by estimating the number of tonnes delivered to the leach
pad, the number of contained ounces based on assay data and the
estimated recoverable ounces based on metallurgical data. Although
the quantities of recoverable gold and silver placed on the leach
pad are reconciled by comparing the grades of ore placed on the
leach pad to the quantities actually recovered, the nature of the
leaching process inherently limits the ability to precisely monitor
inventory levels. The ultimate recovery of gold and silver from the
leach pad will not be known until the leaching process has
concluded at the end of the mine life.
Ore on leach pad is valued at the lower of average production
cost or net realizable value. Costs are added to ore on leach pad
based on actual mining costs and amortization and depreciation
incurred during the period, and are removed from the leach pad
based on the average cost per recoverable ounce.
Dore inventory is valued at the lower of average production cost
or net realizable value. Average production cost includes the
average cost of the ore on leach pad incurred prior to the dore
refining process, plus dore processing costs including applicable
depreciation on the process plant facilities. Royalties, outside
refinery charges and related transportation charges are allocated
directly to cost of sales.
Supplies and reagents inventory are valued at the lower of
average cost or replacement cost.
Revenue
Revenue is recorded when delivery of dore and transfer of
ownership has occurred. Sales are recorded based on the estimated
gold and silver values contained in the partially refined dore, and
are subsequently adjusted once the refined metal quantities are
known.
Mineral Properties, Plant and Equipment
Mineral properties, plant and equipment are amortized on a
unit-of-production basis over estimated recoverable reserves or on
a straight-line basis over the estimated useful life of the asset,
whichever is appropriate.
3. Adoption of New Accounting Standards
Effective January 1, 2007, the Company adopted the two new
accounting standards and related amendments to other standards on
financial instruments issued by the Canadian Institute of Chartered
Accountants ("CICA").
a) Financial Instruments - Recognition and Measurement, CICA
Handbook Section 3855 This standard prescribes when a financial
asset, financial liability or non-financial derivative is to be
recognized on the balance sheet and whether fair value or
cost-based methods are used to measure the recorded amounts. It
also specifies how financial instrument gains and losses are to be
presented.
Effective January 1, 2007, the Company's cash equivalents have
been classified as available-for-sale securities and are recorded
on the balance sheet at fair value, which is based on quoted market
prices. Changes in the fair value of these securities are reflected
in other comprehensive income and included in accumulated other
comprehensive income on the balance sheet. These unrealized gains
and losses are not reflected in net income until realized.
b) Comprehensive Income - CICA Handbook Section 1530
This standard requires the presentation of a statement of
comprehensive income and its components. Comprehensive income
includes both net earnings and other comprehensive income. Other
comprehensive income includes unrealized gains and losses on
available-for-sale investments, gains and losses on certain
derivative instruments, and foreign currency gains and losses
related to self-sustaining operations, none of which are included
in the calculation of net earnings until realized.
The effect on the Company's balance sheet as of January 1, 2007
on adoption of these financial instrument standards resulted in a
$10,000 increase to accumulated other comprehensive income. The
adjustment resulted from unrealized gains, which were more than
offset by related foreign exchange losses, on cash equivalents
accounted for as available-for-sale securities. As prescribed by
these standards, prior periods have not been restated.
4. Inventory
Inventory consists of the following:
September 30, December 31,
2007 2006
(000's) (000's)
---------------------------------------------------------------------
Ore on leach pad $ 7,907 $ 133
Gold and silver dore 1,219 -
Reagents and supplies 59 -
-------------------------
$ 9,185 $ 133
-------------------------
-------------------------
5. Mineral Properties, Plant and Equipment
Additions to mineral properties, plant and equipment for the nine month
period ended September 30, 2007 are summarized as follows:
Balance at Constr- Plant Accum-
December Deferred uction and ulated
31, 2006 Mineral Expend- in Equip- Deprec-
(000's) Properties itures Progress ment Subtotal iation Total
---------------------------------------------------------------------------
Cerro San Pedro,
Mexico $23,924 $20,840 $35,213 $1,128 $81,105 $383 $80,722
El Morro, Chile - 114 - - 114 - 114
Rio Figueroa,
Chile 562 2,115 - - 2,677 - 2,677
Other Projects,
Chile 41 13 - - 54 - 54
Alaska Peninsula,
USA 225 885 - - 1,110 - 1,110
Office Furniture
and Equipment - - - 274 274 124 150
-----------------------------------------------------------
Balance at
December 31,
2006 24,752 23,967 35,213 1,402 85,334 507 84,827
----------------------------------------------------------
---------------------------------------------------------------------------
2007 Additions
---------------------------------------------------------------------------
Cerro San Pedro,
Mexico 573 876 12,246 553 14,248 1,008 13,240
Reclassification
of Cerro San
Pedro balances - (21,716) (45,684) 67,400 - - -
El Morro, Chile - 98 - - 98 - 98
Rio Figueroa,
Chile 427 956 - - 1,383 - 1,383
Other Projects,
Chile 14 2 - - 16 - 16
Alaska Peninsula,
USA - 178 - - 178 - 178
Liberty Bell, USA 18 265 - - 283 - 283
Office Furniture
and Equipment - - - 21 21 50 (29)
---------------------------------------------------------
2007 Additions 1,032 (19,341) (33,438) 67,974 16,227 1,058 15,169
---------------------------------------------------------
Balance at
September 30,
2007
---------------------------------------------------------------------------
Cerro San Pedro,
Mexico 24,497 - 1,775 69,081 95,353 1,391 93,962
El Morro, Chile - 212 - - 212 - 212
Rio Figueroa,
Chile 989 3,071 - - 4,060 - 4,060
Other Projects,
Chile 55 15 - - 70 - 70
Alaska Peninsula,
USA 225 1,063 - - 1,288 - 1,288
Liberty Bell, USA 18 265 - - 283 - 283
Office Furniture
and Equipment - - - 295 295 174 121
---------------------------------------------------------
Balance at
September 30,
2007 $25,784 $4,626 $1,775 $69,376 $101,561 $1,565 $99,996
---------------------------------------------------------
---------------------------------------------------------
The Company reclassified its capitalized costs relating to the
Cerro San Pedro project to plant and equipment as a result of
commencement of commercial production on May 1, 2007. Construction
in progress at September 30, 2007 relates to ongoing construction
activities at the Cerro San Pedro project, principally leach pad
construction.
On July 9, 2007 the Company entered into an exploration
agreement with the right to acquire the Liberty Bell gold project
in central Alaska. The agreement provides for the Company to make
aggregate advance royalty payments totaling $0.3 million, incur
exploration expenditures totaling $2.0 million, and deliver a
feasibility study by December 31, 2011. If a feasibility study is
not delivered by that time, the agreement may be extended up to
four more years by incurring additional advance royalty payments
totaling $0.9 million and exploration expenditures totaling $5.5
million from 2012 through 2015. Aggregate holding fees of up to
$2.5 million, which will be indexed for inflation, are required to
be paid from 2021 through 2026 until commencement of commercial
production. The owner will retain a sliding scale net smelter
return royalty of 0.5% to 4.0% from future production, based on the
market price of gold.
6. Related Party Transactions
The Company entered into a consulting agreement with a director
of the Company to provide technical advisory services with respect
to the Cerro San Pedro project at a rate of $1,000 per day plus
out-of-pocket expenses. Effective April 1, 2007, the director's
consulting rate was increased to $1,250 per day. The Company has
incurred technical advisory fees pursuant to this agreement
totaling $0.1 million during the nine months ended September 30,
2007.
The Company entered into a consulting agreement with a company
controlled by an individual, who is a director of the Company, to
provide management services with respect to the Cerro San Pedro
project. The agreement provided for consulting fees of $6,000 per
month. Effective April 1, 2007, the director's consulting rate was
increased to $7,000 per month. The Company has incurred consulting
fees pursuant to this agreement totaling $0.1 million during the
nine months ended September 30, 2007.
7. Asset Retirement Obligation
The Company's environmental permit for its Cerro San Pedro
project requires that it reclaim any land that it disturbs during
mine construction and mine operations. The Company has recorded an
asset retirement obligation for its Cerro San Pedro project as
follows:
(000's)
-------------
Balance at December 31, 2006 $ 611
Accretion 45
Additional reclamation provision 190
-------------
Balance at September 30, 2007 $ 846
-------------
-------------
The asset retirement obligation is calculated as the net present
value of the estimated future cash outflows as of September 30,
2007 of $1.3 million. Reclamation activities are expected to begin
in 2016. The present value of the estimated future cash outflow
layer for 2007 assumes an inflation rate of 2.5% and has been
discounted using a risk-adjusted rate of 7%. The total reclamation
obligation for the project is estimated to be $4.3 million.
8. Other Liabilities
Other liabilities include amounts owed under long-term
non-interest bearing payment obligations to property owners at the
Cerro San Pedro project. The Company has recorded a discount, using
a 7% discount rate, on these liabilities totaling $0.3 million
which will be amortized as interest expense over the period the
liabilities are outstanding.
9. Share Capital
a) Common shares issued and outstanding
Shares Amount
(000's) (000's)
-------------------
Balance at December 31, 2006 92,001 $133,572
Exercise of stock options for cash 487 975
Fair value of stock options exercised - 522
Exercise of warrants for cash 10 28
Fair value of warrants exercised - 3
Shares issued for retirement plan 3 15
-------------------
Balance at September 30, 2007 92,501 $135,115
-------------------
-------------------
b) Warrants
On December 20, 2006, the Company issued 3.8 million common
share purchase warrants in conjunction with a private placement
equity financing. Each warrant entitles the holder to purchase one
common share at an exercise price of Cdn$5.50 for a period of three
years to December 20, 2009. As of September 30, 2007, none of the
warrants had been exercised.
On December 11, 2003, the Company issued 19.4 million common
share purchase warrants in conjunction with a public equity
offering, of which 19.2 million were outstanding at September 30,
2007. Each warrant entitles the holder to purchase one common share
at an exercise price of Cdn$3.10 through December 11, 2008.
Warrants to purchase ten thousand shares were exercised during the
nine months ended September 30, 2007.
c) Stock options
The following table summarizes stock options outstanding and
changes in fair value of stock options as of September 30,
2007:
Weighted Stock
Average Options Amount
Exercise Outstanding (US$)
Price (Cdn$) (000's) (000's)
------------------------------------
Balance at December 31, 2006 $2.41 3,067 $2,474
Stock options granted 5.05 662 -
Compensation cost recognized - - 1,372
Exercise of stock options for cash 2.32 (487) -
Fair value of stock options exercised - - (522)
Forfeited stock options 3.89 (87) -
Fair value of stock options forfeited - - (41)
------------------------------------
Balance at September 30, 2007 $2.94 3,155 $3,283
------------------------------------
------------------------------------
Exercisable at September 30, 2007 $2.44 2,225
------------------------
------------------------
The total fair value of options granted during the nine months
ended September 30, 2007 was $1.6 million. These options vest over
a two-year period.
The fair value of options granted in 2007 has been calculated
using the Black-Scholes Option Pricing Model with the following
assumptions:
2007 Grants
----------------
Risk-free interest rate (Canada) 3.95% to 4.65%
Expected dividend yield 0.0%
Expected price volatility 56% to 67%
Expected life of option 3.4 to 3.7 years
Option pricing models require the input of highly subjective
assumptions. Changes in the subjective input assumptions can
materially affect the fair value estimate, and therefore, the
existing models do not necessarily provide a reliable measure of
the fair value of the Company's stock options.
d) Restricted stock units
The Company's restricted stock unit ("RSU") plan provides for
the Company's directors to grant RSUs subject to vesting and other
conditions as determined by the directors. The settlement of RSUs
will be made in cash and is calculated at the average closing price
of the Company's common shares on the Toronto Stock Exchange for
the five trading days preceding the date of settlement. RSU expense
is recorded over the three-year vesting period. The following table
summarizes RSUs outstanding as of September 30, 2007:
Number of
Date of Date of RSUs Fair Value
Grant Settlement (000's) (000's)
----------------------------------------------------------------------
March 10, 2005 March 10, 2008 120 $ 456
March 9, 2006 March 9, 2009 250 580
May 24, 2007 May 24, 2010 184 97
-------------
Balance at September 30, 2007 1,133
Less current maturities, included in current liabilities (456)
-------------
Non-current portion $ 677
-------------
-------------
10. Income Taxes
The current period income tax provision represents the Company's
estimated tax obligation associated with a profitable Mexican
subsidiary.
11. Changes in Non-cash Working Capital and Other Assets
Cash flows from changes in non-cash working capital and other assets are
ummarized as follows:
Three Months Ended Nine Months Ended
September 30 (000's) September 30 (000's)
2007 2006 2007 2006
Value added tax and
other receivables $ 527 $ 362 $ 1,994 $ 1,378
Inventory 2,878 - 8,615 -
Deposits and prepaid expenses 612 521 2,926 543
Accounts payable and
accrued liabilities 252 193 (2,847) (381)
Other assets - 6 74 37
------------------------------------------
Decrease in non-cash working
capital and other assets $ 4,269 $1,082 $ 10,762 $ 1,577
------------------------------------------
------------------------------------------
12. Contingencies
a) On June 19, 2007, the Company terminated its mining contract
with Washington Group Latin America, Inc. ("WGLA") under which WGLA
had served as the mining contractor for the Company's Cerro San
Pedro project. The Company received notice from WGLA in July 2007
for $14.9 million of claims that WGLA alleges the Company owes it
for termination and demobilization fees, and other charges under
the mining contract. Approximately $10.2 million of these claims
have been submitted to arbitration for resolution. Approximately
$1.5 million of the remaining $4.7 million of claims were paid in
July 2007. The remaining $3.2 million of claims will also likely be
submitted to arbitration for resolution. The arbitration date has
not yet been established and the outcome of the arbitration
proceedings, which will take place in Denver, Colorado, cannot be
assessed at the present time.
b) The Company has been notified of various lawsuits and legal
actions that have been filed by a group of project opponents
("Project Opponents") against governmental agencies. The Project
Opponents seek to nullify various permits and licenses that have
been granted to the Company with respect to its Cerro San Pedro
project. Various lawsuits and legal actions have been filed by
members of this group over the past four years. Those lawsuits that
have had final rulings have all been resolved in favor of the
various governmental agencies. In the event of an adverse ruling
from any of the unresolved lawsuits, the Company's operations may
be negatively impacted.
ON BEHALF OF THE BOARD OF DIRECTORS
Richard J. Hall, President and CEO
INFORMATION IN THIS NEWS RELEASE THAT IS NOT CURRENT OR
HISTORICAL FACTUAL INFORMATION MAY CONSTITUTE FORWARD-LOOKING
INFORMATION OR STATEMENTS WITHIN THE MEANING OF THE UNITED STATES
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND APPLICABLE
CANADIAN SECURITIES LEGISLATION. IMPLICIT IN THIS INFORMATION,
PARTICULARLY IN RESPECT OF STATEMENTS AS TO FUTURE OPERATING
RESULTS AND ECONOMIC PERFORMANCE OF THE COMPANY, AND RESOURCES AND
RESERVES AT THE COMPANY'S MINERAL PROJECTS, ARE ASSUMPTIONS
REGARDING PROJECTED REVENUE AND EXPENSE, GOLD, SILVER AND COPPER
PRICES, AND MINING COSTS. THESE ASSUMPTIONS, ALTHOUGH CONSIDERED
REASONABLE BY THE COMPANY AT THE TIME OF PREPARATION, MAY PROVE TO
BE INCORRECT. READERS ARE CAUTIONED THAT ACTUAL RESULTS ARE SUBJECT
TO A NUMBER OF RISKS AND UNCERTAINTIES, INCLUDING RISKS RELATING TO
GENERAL ECONOMIC CONDITIONS AND MINING OPERATIONS, AND COULD DIFFER
MATERIALLY FROM WHAT IS CURRENTLY EXPECTED. THE COMPANY DISCLAIMS
ANY INTENTION OR OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING
STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE EVENTS
OR OTHERWISE.
Contacts: Metallica Resources Inc. Richard J. Hall President and
CEO (303) 796-0229, Ext. 304 Website: www.metal-res.com