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.

Total Cash Cost per Pound of Payable Zinc Sold
The total cash cost per pound of payable zinc sold, which includes all mine site cash costs, treatment charges, ocean freight and other marketing costs, net of by-product credits, was US$0.45 in the second quarter of 2007 compared with US$0.32 in the second quarter of 2006 (see non-GAAP reconciliation). The increase was primarily due to lower by-product credits and lower pounds of zinc sold partially offset by reduced direct operating costs.

The total cash cost per pound of payable zinc sold was US$0.47 in the first six months of 2007 compared with US$0.51 in first six months of 2006 (see non-GAAP reconciliation). The decrease was primarily due to higher byproduct credits, reduced direct operating costs and reduced treatment costs partially offset by significantly lower pounds of zinc sold.

Depreciation and Depletion
Despite fewer tonnes of concentrate sold in the second quarter and the first six months of 2007 compared with the corresponding periods in 2006, depreciation and depletion increased by $1.1 million and $0.2 million respectively. The higher depreciation and depletion expense is primarily due to the change in the mix of concentrates sold as well as productivity levels at each of the operations with Myra Falls having a significant impact.

Other Expenses (Income)
Other expenses (income) in the second quarter of 2007 increased by $3.0 million compared with the corresponding 2006 period primarily due to other expenses which included an increase of $6.5 million of foreign exchange losses associated with the impact of the 6% appreciation in the Canadian dollar in the second quarter of 2007 on US$ cash balances held, partially offset by a $3.2 million increase in investment and other income due to unrealized gains on investments held for trading and the associated imbedded derivatives and greater interest income on larger cash balances.

For the first six months of 2007, other expense (income) increased by $2.1 million primarily due to the items noted above for the second quarter of 2007 and $0.8 million of reduced interest and financing expenses related to losses and interest expenses incurred on debts which were outstanding during the first six months of 2006.

Exploration Expenses
Exploration expenses of $2.9 million in the second quarter of 2007 increased by $0.1 million from the corresponding period in 2006. The increase was primarily due to expanded exploration programmes at Myra Falls, Mochito and Toqui partially offset by $1.4 million of decreased exploration expenses at Bouchard-Hébert.

Exploration expenses of $5.6 million in the first six months of 2007 increased by $1.1 million from the corresponding period in 2006. The increase was primarily due to expanded exploration programmes at Myra Falls, Toqui and Mochito partially offset by $2.2 million of decreased expenses at Bouchard-Hébert and Bougrine.

Other Non-Producing Property Costs
Other non-producing property costs include care and maintenance costs, holding costs, settlement costs and other costs associated with non-producing properties net of proceeds received from those properties related to property options and assets sold. Other non-producing property costs in the second quarter of 2007 decreased by $0.1 million compared with the corresponding 2006 period primarily due to $0.5 million of costs incurred at the Caribou mine prior to its sale in August 2006 partially offset by gains on sale of assets of $0.3 million at Nanisivik in 2006 which did not recur in 2007.

Other non-producing property costs in the first six months of 2007 decreased by $1.8 million compared with the corresponding 2006 period primarily due to $1.0 million of costs incurred at the Caribou mine prior to its sale in August 2006 and a charge of $1.3 million to settle a claim against the Company partially offset by gains on sale of assets at Nanisivik in 2006 which did not recur in 2007.

Income and Mining Tax Provision (Recovery)
Income and mining tax recovery in the second quarter of 2007 was $4.7 million compared with a provision of $2.8 million in the second quarter of 2006. The $7.5 million change was primarily due to the recognition of a $14.2 million income tax recovery at Langlois partially offset by increased income tax provisions of $6.1 million and $1.7 million at Mochito and Toqui. During the second quarter of 2007, the Company determined that Langlois would generate future taxable income which would be offset by available loss carry forwards and other tax shelters. As a result, the Company set up a future income tax asset and recorded a corresponding income tax recovery. This determination was based on the Company’s future operating and capital plans and metal price expectations. This income tax asset will be drawn down and charged to income as taxable income is earned at Langlois.

The income and mining tax provision in the first six months of 2007 was $2.5 million compared with a recovery of $22.9 million in the first six months of 2006. The $25.4 million change was primarily due to a net change of $28.1 million at Myra Falls related to a future tax asset recognized in 2006 and income tax provision increases in 2007 of $5.5 million and $3.8 million at Mochito and Toqui respectively partially offset by the recognition of the $14.2 million future tax asset at Langlois noted above.

LIQUIDITY AND FINANCIAL POSITION REVIEW

Working Capital
Working capital at June 30, 2007 was $120.3 million compared with $109.9 million at December 31, 2006, an increase of $10.4 million.

Current Assets
Total current assets increased by $41.0 million to $238.5 million at June 30, 2007 compared with December 31, 2006. The main components of current asset changes were as follows:
• Cash and cash equivalents increased by $21.5 million reflecting improved cash flow generated by stronger metal prices
• Accounts receivable – concentrate decreased by $10.4 million primarily due to a reduction in concentrates shipped late in the second quarter of 2007 compared with concentrates shipped late in the fourth quarter of 2006
• Concentrate inventory increased by $16.3 million due to the tonnes of concentrate in inventory increasing by
27,380 tonnes to 89,471 tonnes at June 30, 2007

• The current portion of future income tax assets increased by $4.2 million primarily due to a $5.7 million increase related to the recognition of the current portion of the Langlois future tax asset recognized in the second quarter of 2007

Current Liabilities
Current liabilities increased by $30.6 million to $118.2 million at June 30, 2007 compared with December 31, 2006. The $30.6 million increase was primarily due to an increase in provisional payments for concentrate inventory shipped and not priced which represent payments received for concentrate shipments that were not recognized as revenue. The balance at June 30, 2007 was $54.5 million compared with $24.2 million at December 31, 2006. Please refer to the table in Gross Sales Revenue section of this news release for additional details

Long-term Investments
At June 30, 2007, long-term investments were $36.7 million, an increased of $22.0 million from $14.7 million at December 31, 2006. The increase was primarily due to new accounting requirements for financial instruments and comprehensive income required by the Canadian Institute of Chartered Accountants (“CICA”) and adopted by the Company on January 1, 2007.

Restricted Promissory Note
The Company held two restricted promissory notes at June 30, 2007 and December 31, 2006 of $62.3 million related to the Red Mile transactions1 in 2004 and 2005. The interest earned and a portion of the principal of these restricted promissory notes will be used to meet the Company’s royalty obligations.

Royalty Obligations
The royalty obligations of $62.5 million relates to the royalty amounts received from the 2004 and 2005 Red Mile transactions. See restricted promissory note above.

Reclamation and Closure Cost Accrual
Reclamation and closure costs represent the Company’s obligation for reclamation and severance costs accrued for its mine sites. As there is no law, regulation or contract currently in Honduras related to reclamation and closure costs, GAAP does not permit the Company to set up a liability for reclamation at Mochito.

At June 30, 2007, total accrued reclamation and closure costs were $39.3 million compared with $40.6 million at December 31, 2006. Of the $39.3 million, $7.3 million is classified as current and is expected to be spent over the next 12 months at Myra Falls, Bouchard-Hébert, Nanisivik and Bougrine.

Reclamation and Closure Cost Accrual at June 30, 2007

The Company incurred expenditures of $1.1 million in reclamation and closure costs in the second quarter of 2007 compared with $2.0 million in the second quarter of 2006. For the first six months of 2007, the Company incurred expenditures of $2.4 million in reclamation and closure costs compared with $3.7 million in the first six months of 2006. The decreased reclamation and closure cost expenditures in both the second quarter and first six months of 2007 compared with the corresponding periods in 2006 were primarily due to significantly reduced expenditures at Bouchard-Hébert partially offset by increased expenditures for the Myra Falls tailings facility modifications.

Shareholders’ Equity
Shareholders’ equity at June 30, 2007 was $384.4 million compared with $308.6 million at December 31, 2006. The increase of $75.8 million was primarily due to net earnings of $54.0 million, the exercise of $6.2 million of warrants and the impact of adopting new accounting policies as required by the CICA of $17.7 million.

The Company incurred expenditures of $1.1 million in reclamation and closure costs in the second quarter of 2007 compared with $2.0 million in the second quarter of 2006. For the first six months of 2007, the Company incurred expenditures of $2.4 million in reclamation and closure costs compared with $3.7 million in the first six months of 2006. The decreased reclamation and closure cost expenditures in both the second quarter and first six months of 2007 compared with the corresponding periods in 2006 were primarily due to significantly reduced expenditures at Bouchard-Hébert partially offset by increased expenditures for the Myra Falls tailings facility modifications.

Shareholders’ Equity
Shareholders’ equity at June 30, 2007 was $384.4 million compared with $308.6 million at December 31, 2006. The increase of $75.8 million was primarily due to net earnings of $54.0 million, the exercise of $6.2 million of warrants and the impact of adopting new accounting policies as required by the CICA of $17.7 million.

In the first six months of 2007, the Company issued the following Common Shares: 1,823,456 following the exercise of employee share options; 90,215 pursuant to the Company’s employee share purchase plan; and, 30,801,410 pursuant to warrants exercised. On March 2, 2007 and March 14, 2007, Dundee Corporation (“Dundee”) exercised 15,400,705 and 15,400,705 warrants respectively to purchase 30,801,410 Common Shares at $0.20 per Common Share.

Capital Expenditures
The Company invested $57.0 million in mineral properties and fixed assets in the first six months of 2007.

Of the $57.0 million noted above, $22.8 million related to capital expenditures at Langlois and consisted primarily of $11.9 million of underground development for Langlois, $9.5 million of underground development, preproduction and equipment for Grevet B and $4.1 million of equipment, buildings and infrastructure at Langlois partially offset by $3.6 million of preproduction contribution from mining operations.

Myra Falls’ capital expenditures of $11.8 million in the first six months of 2007 consisted primarily of $2.7 million of mobile equipment purchases, $3.4 million for development at Lynx 5/6, $2.9 million of deferred development, $0.9 million for a new tailings disposal area and $1.3 million for ramp development.

In the first six months of 2007, $9.8 million of capital expenditures at Mochito consisted primarily of $3.3 million repairs to the new tailings facility and upgrading and closure costs of the old tailings facility, $3.9 million for equipment and buildings and $2.6 million of mine development.

Toqui capital expenditures of $10.1 million in the first six months of 2007 consisted primarily of $7.0 million of development, $1.2 million of equipment purchases and mill modifications and $0.8 million for the intense leach reactor construction and commissioning.

Financial Capability
With the existing working capital, the current metal prices and current C$/US$ exchange rate, the Company is well positioned to carry out its operating, capital, exploration and environmental programs in 2007. The Company’s financial capability is sensitive to metal prices, smelter treatment charges and the C$/US$ exchange rate. Please refer to pages seven and eight of the Company’s 2006 Annual Report.

OPERATING REVIEW – QUARTERS ENDED JUNE 30, 2007 AND 2006

PRODUCTION RESULTS
Consolidated production is set forth in the following table. The production results section includes the production of Langlois since November 2006. For accounting purposes, Langlois production is not recognized on the income statement until after the commencement of commercial production – July 1, 2007.

Aggregate production of zinc in concentrate in the second quarter of 2007 was 67.5 million pounds compared with 55.7 million pounds in 2006, a 21% increase. The increase was primarily due to improved zinc grades and tonnes milled at Myra Falls together with production from Langlois, which was not in commercial production during the second quarter of 2006.

Production of copper in concentrate increased 83% in the second quarter of 2007 from the same period in 2006 due to greater tonnes milled and improved copper grades at Myra Falls together with production from Langlois, which was not in commercial production during the second quarter of 2006.

Silver in concentrate increased 5%, quarter over quarter, despite lower silver grades from Myra Falls, due to higher silver production at Mochito and Toqui together with production from Langlois, which was not in commercial production during the second quarter of 2006.

Gold in concentrate decreased 18% in the second quarter of 2007 from the same period in 2006 due to lower gold head grades at Myra Falls and less gold production from Toqui due to the scheduling of production from the Aserradero deposit.

Production of zinc in concentrate was 2% greater in the second quarter of 2007 compared with the same period in 2006 and 28% greater than the first quarter of 2007 due to more tonnes milled at higher zinc grades.

The construction of the new tailings facility is on schedule.

Myra Falls Outlook
Development of the surface ramp to the west is continuing with the objective of connecting with the ventilation system in the western extent of the currently known mine. Once connected, it will provide good ventilation for mining the Gopher, Main and Upper zones as well as for future long term development. Development of the high grade zones in the Battle Gap continues with mining of the first high grade area expected early in the third quarter of 2007. Mining in the open pit has entered the second phase with a pushback to the west which is expected to access additional high grade copper mineralization. Milling of this material is anticipated to commence near the end of the third quarter and continue through the fourth quarter of 2007. The development to access the Lynx 5 deposit has reached mineralization. A detailed interpretation of the zones is being finalized and mining is expected to continue through the remainder of 2007 and into 2008. Development, to intersect an internal orepass, is continuing. This will allow material to be transferred to Lynx 10 level. Work on installing and upgrading the systems and infrastructure necessary to develop the Price deposit continues in a number of areas. Production mining is expected to commence in late 2007 or early 2008.

The directional drilling program to upgrade the resources in the Marshall is underway. The 24 level drilling proved to be difficult due to ground conditions. The program is now being drilled from the 18 level.

Mochito Production The following table sets forth Mochito’s production for the periods presented.