TORONTO, July 25, 2007 /CNW/ - Breakwater, a mining, exploration and development company which produces and sells zinc, copper, lead and gold concentrates to customers around the world, announces its financial and operating results for the three and six month periods ended June 30, 2007. The Company's concentrate production is derived from mines located in Canada, Chile and Honduras. All dollar amounts in this news release are in Canadian dollars unless otherwise stated.

HIGHLIGHTS

• The Company realized net earnings of $38.7 million or $0.09 per share in the second quarter of 2007 after recording a net income tax recovery of $4.7 million ($0.01 per share) compared with $28.6 million or $0.07 per share in the second quarter of 2006 after recording an income tax provision of $2.8 million ($0.01 per share)
• Gross sales revenue increased by 2% to $103.4 million in the second quarter of 2007 from $101.2 million in the second quarter of 2006 due to higher realized prices for metals sold partially offset by lower concentrate sales
• Sales of concentrate in the second quarter of 2007 decreased to 51,553 tonnes from 59,779 in the second quarter of 2006. The decrease was primarily due to 9,343 more tonnes of concentrate in inventory at the end of the second quarter of 2007 compared with the second quarter of 2006
• Concentrate inventories at June 30, 2007 were 89,471 tonnes compared with 62,090 and 80,517 tonnes at December 31, 2006 and March 31, 2007 respectively
• Production in the second quarter of 2007 was 75,596 tonnes of concentrate (60,675 tonnes excluding Langlois which commenced commercial production July 1, 2007) compared with 59,906 tonnes in the second quarter of 2006
• The contribution from mining activities was $43.1 million in the second quarter of 2007 compared with $37.6 million in the second quarter of 2006
• Net cash provided by operating activities was comparable with the second quarter 2006 at $42.3 million in the second quarter of 2007 and was primarily used for $33.4 million of capital expenditures
• At June 30, 2007, cash and cash equivalents were $102.9 million and total debt was $2.4 million
• Total cash costs per pound of payable zinc increased to US$0.45 per pound in the second quarter of 2007 from US$0.32 per pound in the second quarter of 2006. See the non-GAAP reconciliation section in this news release

OUTLOOK

• The Company announced that Langlois had achieved commercial production effective July 1, 2007 and expects production to continue to ramp-up over time
• In the second quarter of 2007, the Company announced that proven and probable mineral reserves and measured and indicated mineral resources at Toqui had increased by 50% and 37% respectively and that it had commenced a pre-feasibility study for a new 1.0 million tonne per annum mill, an increase from the current 540,000 tonnes per annum facility

STATEMENT OF OPERATIONS REVIEW – THREE AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006

Gross Sales Revenue

Langlois entered commercial production on July 1, 2007 and therefore the sales of concentrate produced at Langlois prior to that date are not reflected in the income statement.

Gross sales revenue from the sale of zinc, copper, lead, and gold concentrates for the three month period ended June 30, 2007 (the “second quarter of 2007”) increased by $2.2 million (2%) compared with the three month period ended June 30, 2006 (the “second quarter of 2006”). Higher metal prices accounted for this increase, which was partially offset by decreased concentrate sales – 51,553 tonnes in 2007 compared with 59,779 tonnes in 2006 – and a stronger Canadian dollar. The decreased tonnage of concentrate sold in 2007 was primarily due to concentrate shipping schedules which caused an increase of 9,343 tonnes in ending concentrate inventories at June 30, 2007 compared with June 30, 2006. Tonnes of concentrate produced, excluding Langlois which was in preproduction, increased slightly in the second quarter of 2007 compared with the prior year period.

Gross sales revenue for the six month period ended June 30, 2007 (the “first six months of 2007”) were comparable with gross sales revenue in the six month period ended June 30, 2006 (the “first six months of 2006”). Higher metal prices and a hedging loss of $4.4 million in 2006 were partially offset by decreased concentrate sales – 90,887 tonnes in 2007 compared with 127,133 tonnes in 2006 – to keep gross revenues flat in the first six months of 2007 compared with the prior year period. The decreased tonnage of concentrate sold in the first six months of 2007 was primarily due to significantly higher inventory levels at the beginning of 2006 (19,381 more tonnes at December 31, 2005 than at December 31, 2006) and shipping schedules which resulted in higher end of period concentrate inventories and lower concentrate sales at Myra Falls and Mochito partially offset by higher concentrate sales at Toqui.

The Company periodically hedges against fluctuations in metal prices and foreign exchange rates with the use of forward sales or options.

The Company has a conservative revenue recognition policy which, among other things, requires final pricing of concentrate inventories prior to recognition of revenue. Using commodity prices and exchange rates prevailing at June 30, 2007, the following schedule provides details regarding inventories shipped but not recognized for revenue purposes and the related provisional payments. Estimated net smelter return, earnings before taxes and weightedaverage months to settlement are non-GAAP measures and are furnished to provide additional information.

At June 30, 2006, the Company estimated that inventories shipped but not recognized for revenue purposes had
earnings before tax of $33.0 million consisting of $57.9 million of net smelter return less $24.9 million of inventory
value on 47,495 tonnes of concentrate.

Net Revenue
Net revenue, the value of concentrates sold after deducting treatment charges and freight and marketing costs, increased by 3% to $78.1 million in the second quarter of 2007 from $75.7 million in the second quarter of 2006. Treatment and marketing costs were 1% lower at $25.3 million in the second quarter of 2007 compared with $25.5 million in the second quarter of 2006 primarily due to lower tonnes of concentrate sold offset by higher metal prices triggering price escalators in treatment charges. On a per tonne of concentrate sold basis, total treatment and marketing costs increased to $491 per tonne in the second quarter of 2007 compared with $427 per tonne in the second quarter of 2006 primarily due to the reasons noted above partially offset by certain spot sales which did not have any escalators.

For the first six months of 2007, net revenue increased by 4% to $136.1 million compared with the first six months of 2006. Treatment and marketing costs decreased to $45.2 million in the first six months of 2007 compared with $50.4 million for the first six months of 2006 primarily due to lower tonnes of concentrate sold offset by higher metal prices triggering price escalators in the treatment charges partially offset by certain spot sales which did not have any escalators. On a per tonne of concentrate sold basis, total treatment and marketing costs increased to $498 per tonne in the first six months of 2007 compared with $396 per tonne in the first six months of 2006 primarily due to the reasons noted above.

Direct Operating Costs
Direct operating costs were 12% lower in the second quarter of 2007 at $30.2 million compared with $34.2 million in the second quarter of 2006 as 14% fewer tonnes of concentrate were sold. The average cost per tonne of concentrate sold increased to $586 in the second quarter of 2007 from $572 in the second quarter of 2006. Higher direct operating costs and tonnes of concentrate sold at Mochito partially offset by lower direct operating costs and tonnes of concentrate sold at Myra Falls and Toqui in the second quarter of 2007 compared with the second quarter of 2006 resulted in higher direct operating costs per tonne sold in the second quarter of 2007.

For the first six months of 2007, direct operating costs were $53.8 million compared with $63.0 million for the first six months of 2006 and the average direct operating cost per tonne of concentrate sold increased to $592 in 2007 from $495 in 2006. Significantly lower concentrate sales at Myra Falls and Mochito partially offset by Toqui’s aggregate direct operating costs increasing greater than Toqui’s increase in tonnes of concentrate sold resulted in higher direct operating costs per tonne sold in the first six months of 2007 compared with the first six months of 2006.