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Breakwater Resources Ltd.'s 2008 Second Quarter Financial and Operating Results

Posted on: Thursday, 31 July 2008, 18:00 CDT

TORONTO, ONTARIO--(Marketwire - July 31, 2008) - Breakwater Resources Ltd. (TSX:BWR) reports the financial and operating results for the three and six month periods ended June 30, 2008. The reporting currency is Canadian dollars ("C$" or "$") and all amounts disclosed are in Canadian dollars unless otherwise indicated.

The Company is a mining, exploration and development company which produces zinc, copper, lead and gold concentrates. The Company's concentrate production is derived from mines located in Canada, Chile and Honduras. The Langlois mine, located in Canada, began production in November 2006 and commenced commercial production for accounting purposes on July 1, 2007. The start-up of the Langlois mine affects all aspects of the Company's financial results which makes comparisons between periods difficult.

HIGHLIGHTS

The Company realized net earnings of $8.1 million or $0.02 per share in the second quarter of 2008 compared with $38.7 million or $0.09 per share in the second quarter of 2007. The main items affecting the decrease in net earnings quarter over quarter were:

- $11.7 million higher gross sales revenue primarily due to the impact of Langlois sales, higher concentrate sales at Mochito and Toqui and higher prices for copper, gold and silver partially offset by a 41% reduction in the realized zinc price and a 7% appreciation in the C$ in 2008. In US$ terms, gross sales revenue was US$19.3 million higher

- Sales of concentrate in the second quarter of 2008 increased 87% to 96,536 tonnes primarily due to 17,435 tonnes from Langlois and 8,375 and 19,526 tonnes of greater sales at Mochito and Toqui respectively

- $20.4 million higher direct operating costs primarily due to increased concentrate sales, the addition of sales from Langlois and higher costs for fuel, labour and supplies at Mochito and Toqui

- An increase of $1.5 million in investment and other income primarily due to a realized gain on sale of investments of $7.0 million offset by a lower valuation of conversion rights in certain convertible debentures held by the Company and lower interest income

- $1.5 million increased exploration expenses primarily due to $2.2 million greater exploration expenses at the corporate level related to joint ventures

- An increase of $7.3 million income tax provision due primarily to a $13.1 million reduction in a tax recovery at Langlois offset by a decrease in the tax provisions for Mochito and Toqui

Concentrate produced in the second quarter of 2008 increased by 15% to 86,856 tonnes due to increased production at Langlois, Mochito and Toqui offset by lower production at Myra Falls.

The Company estimated that inventories shipped but not recognized for revenue purposes, at June 30, 2008, had earnings before tax of $5.2 million on 42,493 tonnes of concentrate compared with earnings before tax of $8.4 million on 51,100 tonnes of concentrate at December 31, 2007.

On April 10, 2008, the Company purchased a 3% net smelter return royalty, established in December 2007 at the Myra Falls mine in conjunction with the creation of a qualifying environmental trust, for 13,518,739 Common Shares.

On April 15, 2008, the Company issued 7.0 million Common Shares to acquire Metco Resources Inc. ("Metco") to consolidate its land position in Lebel-sur-Quevillion and to acquire a large under explored land package in the prolific Matagami camp.

Successfully negotiated a new eighteen month contract at Myra Falls in July 2008.

OUTLOOK

Mochito

The mine rehabilitation program, commenced to address ground control problems experienced late in 2007 and in the first few months of 2008, continued with the installation of improved ground support media throughout the mine. This initiative is expected to be complete in the third quarter and is not expected to impact on previous production guidance.

Construction work to increase the capacity of the Pozo Azul tailings facility is largely complete and is expected to provide ample capacity while repairs are made to the Soledad facility. Repairs to Soledad are ongoing with completion anticipated late in 2009.

Toqui

The mill capital cost portion of the prefeasibility study was received in late June and the estimated capital cost was significantly higher than originally expected. The study examined the economics related to a new concentrator installation to process 3,000 tonnes per day (essentially double the current mill capacity). Several lower cost alternatives will be evaluated including installing the grinding mills from Bougrine in Tunisia which was closed in September 2005. These mills would increase the milling capacity by approximately 50% and would provide more operational flexibility.

A project to increase hydro generation is being investigated and includes engineering for a third turbine and application for additional water rights. The Company expects Toqui to meet its production targets as previously disclosed.

Myra Falls

During the first quarter of 2008, the Company announced a non- permanent layoff of 132 people. The layoffs took effect late in the second quarter and in the first week of July and resulted in a total mine site workforce of 287. This will bring, at least in the short- term, manpower levels more in line with operating requirements. Collective bargaining continued throughout the quarter and an agreement was reached in early July which was subsequently ratified by the union membership. The agreement lasts for a term of eighteen months, ending in September 2009, and includes a wage increase of 4.5%.

The new senior management team, installed early in the second quarter of 2008, has revised the mine plan for the remainder of the year in order to reduce costs and increase efficiencies. Accordingly, the Company hereby revises its 2008 projected metals production for Myra Falls as follows:

Metal in Concentrate________________Contained__________________ Payable -------------------------------------------------------------------- --- Zinc (tonnes)__________________________34,200____________________29,000 Copper (tonnes)________________________ 4,900____________________ 4,700 Gold (ounces)__________________________15,600____________________11,600 Silver (ounces)______________________ 698,000__________________ 416,000

The capacity of the new tailings facility has been re-evaluated and there is sufficient capacity to use the facilities through 2008 without an additional dam raise.

Langlois

Ramp-up of production continued during the second quarter of 2008. Zinc head grades are forecast to reach targeted values with the commencement, late in the second quarter, of mining in the higher grade Zone 97. Based on results to-date, it is anticipated that Langlois will meet the 2008 guidance numbers.

The establishment of the paste backfill system for Zones 4 and 97 is on target and filling of the first stopes in Zone 97 will commence in August.

STATEMENT OF OPERATIONS REVIEW - THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007

Gross Sales Revenue

Sales of concentrate fluctuate period to period due to production levels, shipping volumes, ship schedules, price determination terms, and risk and title transfer terms with the Company's various customers. The Company has a relatively conservative revenue recognition policy (see below) and the recognition of sales can be as much as six months after the date of concentrate production. The Company's sales are primarily denominated in United States dollars ("US$").

Concentrate______________ Second Quarter________________ First Six Months Sold (tonnes)__________ 2008________ 2007____________ 2008____________2007 -------------------------------------------------------------------- ------- Zinc Mochito______________ 23,137______ 11,830__________ 23,137__________21,154 Toqui________________ 25,684________9,192__________ 46,686__________27,815 Myra Falls____________17,882______ 18,020__________ 27,590__________20,129 Langlois(1)__________ 14,888____________-__________ 30,342______________ - -------------------------------------------------------------------- ------- ______________________ 81,591______ 39,042__________127,755__________69,098 -------------------------------------------------------------------- ------- Copper Myra Falls____________ 4,692________4,907____________9,326__________10,558 Langlois(1)____________2,547____________- ____________4,205______________ - -------------------------------------------------------------------- ------- ________________________7,239________4,907__________ 13,531__________10,558 -------------------------------------------------------------------- ------- Lead

Mochito________________3,736________6,668____________9,339__________ 9,468 Toqui__________________1,418____________- ____________1,418______________ - -------------------------------------------------------------------- ------- ________________________5,154________6,668__________ 10,757__________ 9,468 -------------------------------------------------------------------- ------- Gold

Toqui__________________2,552__________936____________3,704__________ 1,760 Myra Falls________________ -____________-________________- ______________ 3 -------------------------------------------------------------------- -------

_______________________2,552__________936____________3,704__________ 1,763 -------------------------------------------------------------------- ------- All Metals____________ 96,536______ 51,553__________155,747__________90,887 -------------------------------------------------------------------- ------- (1) Langlois entered commercial production on July 1, 2007.__Net cash flow ____from concentrate produced at Langlois prior to July 1, 2007 reduced ____preproduction capital expenditures. ______Second Quarter 2008__________________________Second Quarter 2007 -------------------------------------------------------------------- -------- ________Concen-____________________ Gross__ Concen-____________Real- __ Gross ________ trate__________Realized____sales____trate____________ ized____sales __________sold__Payable__price(1) revenue____ sold__Payable price(1) revenue ______ (tonnes) metal(1)____(US$)__($000s) (tonnes) metal(1)__ (US$) ($000s) -------------------------------------------------------------------- -------- Zinc____81,591__ 35,075____2,205__ 77,339__ 39,042__ 16,522__ 3,710__ 61,305 Copper__ 7,239____1,465____7,837__ 11,482____4,907____1,024__ 7,460____7,640 Lead____ 5,154____3,031____2,007____6,082____6,668____4,325__ 2,058____8,901 Gold(3)__2,552____9,544______902____8,609______936__ 10,413____ 668____6,952 Silver____n.a.__603,022____17.09__ 10,305____ n.a.__718,370__ 13.37____9,601 Other(2)__n.a.________________________191____ n.a.______________________ 343 ________------____________________---------------- __________________ ------- ________96,536______________________________51,553 ________------____________________________ ------- ________------____________________________ -------

_________________________________114,008____________________________ 94,742 __________________________________ 1.0100____________________________ 1.0914 ________________________________ -------- ____________________________-------

__________________________115,149____________________________103,401 ________________________________ -------- ____________________________------- ________________________________ -------- ____________________________------- (1) Payable metal and realized prices for zinc, copper and lead are per ____tonne and for gold and silver are per ounce. (2) Other gross sales revenue represents revaluations of prior period ____concentrate receivables. (3) Tonnes of gold concentrate sold are from Toqui, while payable metal is ____from all operations.

Concentrate sold increased 87% in the three month period ended June 30, 2008 (the "second quarter of 2008") compared with the three month period ended June 30, 2007 (the "second quarter of 2007"). The 44,983 tonne increase in 2008 was due to sales of 17,435 tonnes of concentrate at Langlois mine and increased sales of 45% at Mochito and 192% at Toqui which were partially offset by 2% fewer tonnes sold at Myra Falls.

In payable metal terms, zinc and copper increased by 112% and 43% respectively in the second quarter of 2008 while lead, gold and silver sold decreased by 30%, 8% and 16% respectively compared with the second quarter of 2007. Realized zinc and lead prices, denominated in US$, decreased by 41% and 2% respectively while copper, gold and silver prices realized increased by 5%, 35% and 28% respectively in the second quarter of 2008.

Gross sales revenue increased by US$19.3 million or 20% in the second quarter of 2008. A stronger C$ resulted in a decrease in the average C$/US$ exchange rate of 7%. In C$ terms, gross sales revenue increased $11.8 million or 11% in the second quarter of 2008 compared with the second quarter of 2007.

The Company's revenue recognition policy requires that, among other things, final pricing of concentrate inventories be known prior to the recognition of revenue. Using commodity prices and exchanges rates prevailing at June 30, 2008, the following schedule provides details regarding inventories shipped but not recognized for revenue purposes and the related provisional payments.

______________________ Net____________ Earnings__________________Weighted- __________________ smelter__Inventory____before Provisional________average ______ Concentrate__return______value____ taxes____payments______months to ______________(DMT)($000's)__ ($000's)__($000's)____($000's)____settlement -------------------------------------------------------------------- ------ Zinc________31,390__16,392____ 15,281____ 1,111______20,742____________1.4 Copper______ 7,606__16,468____ 14,878____ 1,590______15,128____________3.7 Lead________ 1,880__ 4,135______2,688____ 1,447______ 4,269____________1.0 Gold________ 1,617__ 3,160______2,158____ 1,002______ 2,286____________1.3 -------------------------------------------------------------------- ------ ____________42,493__40,155____ 35,005____ 5,150______42,425 -------------------------------------------------------------------- ------

As at June 30, 2007, the Company estimated that inventories shipped but not recognized for revenue purposes had earnings before tax of $20.7 million consisting of $51.3 million of net smelter return less $30.6 million of inventory value on 43,245 tonnes of concentrate.

The following table provides the average base and precious metal prices and exchange rates for the periods indicated.

Average Metal Prices & Foreign Exchange Rate________________________Second Quarter________First Six Months ____________________________________ 2008______2007________ 2008______ 2007 -------------------------------------------------------------------- ------- Zinc (US$/tonne)____________________2,113____ 3,664________2,272______3,560 Copper (US$/tonne)__________________8,444____ 7,639________8,119______6,785 Lead (US$/tonne)____________________2,305____ 2,174________2,603______1,979 Gold (US$/ounce)______________________896______ 668__________912________659 Silver (US$/ounce)__________________17.17____ 13.34________17.43______13.33 C$/US$ exchange rate______________ 1.0099____1.0981______ 1.0073____ 1.1347 -------------------------------------------------------------------- -------

Treatment and Marketing Costs

Despite 87% more tonnes of concentrate sold, treatment and marketing costs only increased by 63% to $41.2 million in the second quarter of 2008 from $25.3 million in the second quarter of 2007. Treatment and marketing costs for the second quarters of 2008 and 2007 were 36% and 24% of gross sales revenue respectively. The increase in aggregate treatment charges in the second quarter of 2008 was primarily due to the impact of new concentrate sales at Langlois, increased sales at Mochito and Toqui, higher base zinc treatment charges and higher shipping costs partially offset by lower zinc prices and the weakness of the US$. Also refer to each mine's financial results section in this news release.

Direct Operating Costs

Direct operating costs were 68% higher in the second quarter of 2008 at $50.6 million up from $30.2 million in the second quarter of 2007. The increased costs were primarily due to the impact of new production at Langlois and greater concentrate sales at Mochito and Toqui. Also see details of direct operating costs under each mine's financial results section in this news release.

Depreciation and Depletion

Depreciation and depletion increased $5.8 million in the second quarter of 2008 compared with the corresponding period in 2007. Langlois, which commenced commercial production effective July 1, 2007, was primarily responsible for the increase with depreciation and depletion of $3.3 million in the second quarter of 2008 along with the impact of a higher quantity of concentrate sales at Mochito and Toqui.

General and Administrative

General and administrative expenses increased by $0.7 million to $4.1 million in the second quarter of 2008 compared with 2007. The increase was primarily due to severance costs associated with the acquisition of Metco, a deposit refund in 2007 related to the acquisition of Jascan Resources Inc. in 2000 and higher salaries partially offset by lower corporate development expenses, reduced stock-based compensation and reduced travel.

Investment and Other Income

Investment and other income increased by $1.5 million to $6.4 million in the second quarter of 2008 compared with 2007. The change was primarily due to: a realized gain on sale of investments of $7.0 million plus $0.9 million of royalty income offset by a $5.5 million increase in an unrealized loss on the valuation of conversion rights in a convertible debenture held by the Company and mark-to-market losses on certain equities in public companies, primarily due to lower share prices and $1.0 million lower interest income on lower cash balances.

Foreign Exchange and Other

Foreign exchange and other was a gain of $0.8 million in the second quarter of 2008 compared with a loss of $6.3 million in 2007. The $7.1 million change was primarily due to the impact of an appreciation in the Canadian dollar on high US$ cash balances in 2007, which did not recur in 2008, and fluctuations of the Chilean peso exchange rate versus the US$ in 2008 and 2007.

Exploration

Exploration expenses increased by $1.5 million in the second quarter of 2008. Increased expenses were primarily due to expenses incurred on the Company's joint ventures and at Langlois. These expenditures were partially offset by reduced expenses at Toqui and Myra Falls.

Refer to the exploration section of each mine and the projects section for details of the exploration activities in 2008 and to Note 1 of the Company's 2007 audited consolidated financial statements for the accounting treatment of exploration expenditures.

Exploration Expenses______________Second Quarter__________ First Six Months -------------------------------------------------------------------- ------- ($ millions)____________________2008________2007__________2008________ 2007 -------------------------------------------------------------------- -------

__________________________0.5________0.8____________1.0__________1.2

__________________________0.2________0.9____________0.7__________2.1 Myra Falls______________________ 0.6________1.0____________1.0__________1.8 Langlois________________________ 0.6________0.0____________2.7__________0.0 Non-

rating____________________0.3________0.2____________0.4__________0.5

te________________________2.2________0.0____________3.1__________0.0 -------------------------------------------------------------------- -------

__________________________4.4________2.9____________8.9__________5.6 -------------------------------------------------------------------- -------

Income and Mining Tax Provision (Recovery)

In the second quarter of 2008 the Company recorded an income and mining tax provision of $2.1 million compared with a recovery of $4.7 million in the second quarter of 2007. The $6.8 million increase was primarily due to a $13.1 million reduction in an income and mining tax recovery at Langlois in 2007 offset by reduced tax provisions at Mochito of $4.8 million and at Toqui of $2.0 million in 2008.

LIQUIDITY AND FINANCIAL POSITION REVIEW

Working Capital

Working capital at June 30, 2008 was $74.0 million compared with $82.6 million at December 31, 2007, a decrease of $8.6 million.

Current Assets

Total current assets increased by $0.9 million to $194.5 million as at June 30, 2008 compared with $193.6 million at December 31, 2007. The main components of current asset change were:

- Cash and cash equivalents decreased by $18.8 million reflecting lower cash flow from operating activities, expenditures on mineral properties and fixed assets and changes in working capital as described in this section and in the current liabilities section below partially offset by the sale of certain long-term investments

- Concentrate inventory increased by $11.0 million due to 5,535 more tonnes of concentrate in inventory, primarily copper concentrate, which has a higher cost per tonne than other concentrates produced

- Prepaid expenses and other current assets increased by $2.5 million due to an increase of $3.0 million in prepaid exploration for Coulon, $1.3 million of prepaid insurance and $1.1 million of prepaid freight partially offset by decreased stripping costs of $3.4 million

Current Liabilities

Current liabilities increased by $9.5 million to $120.5 million at June 30, 2008 compared with $111.0 million at December 31, 2007. The main components of the current liabilities changes were:

- Provisional payments for concentrate inventory shipped and not priced increased by $10.2 million primarily due to $6.2 million received on a swap contract and a greater quantity of copper concentrate shipped

- Income and mining taxes payable decreased by $5.0 million primarily due to decreased payables of $3.1 million and $2.0 million at Mochito and Toqui respectively

Long-term Investments

At June 30, 2008, long-term investments were $11.1 million, $21.8 million lower than the $32.9 million at December 31, 2007. The decrease was due to sales of certain equities and the marking to market of the conversion rights in a convertible debenture.

On April 2, 2008, the Company gave notice to convert the $17.0 million unsecured convertible debenture from Taseko Mines Limited ("Taseko") for 3,307,393 common shares at a conversion price of $5.14 per share. Taseko issued 2,612,971 freely tradable common shares valued at $13.4 million and withheld 694,422 common shares with a value of $3.6 million as a set off, as set out in a statement of claim, described in note 21(c) of the annual consolidated financial statements for the period ended December 31, 2007. On April 18, 2008, the Company filed an action with the Supreme Court of British Columbia seeking an order that Taseko pay to the Company $3,569,000, being the cash equivalent of the 694,422 shares withheld at a conversion price of $5.14 per share. In May 2008, the Company sold the 2,612,971 shares for $13.4 million net of commission and realized a gain on sale of $8.9 million which comprises $7.7 million which is recognized in the current year and $1.2 million which was recorded in income in prior periods as unrealized gains. The realized gain for the current year includes an amount of $6.5 million of unrealized gains that was included in OCI. The 694,422 shares are included in short-term investments available for sale and are carried at fair value.

Restricted Reclamation Investments

At June 30, 2008 and December 31, 2007, the Company had restricted reclamation investments of $33.5 million. Restricted reclamation investments of $13.5 million and $20.0 million are held under a safe keeping agreement and a trust indenture respectively to fund future reclamation requirements at Myra Falls.

Restricted Promissory Note

The Company held two restricted promissory notes at June 30, 2008 and December 31, 2007 of $62.3 million related to the Red Mile transactions(1) 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 at June 30, 2008 relate to the royalty amounts received from the 2004 and 2005 Red Mile transactions. In the second quarter of 2008, the $20.0 million reduction in royalty obligations was due to shares issued to acquire a 3% net smelter return interest at Myra Falls. See restricted promissory note and restricted reclamation investments 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. At June 30, 2008, total accrued reclamation and closure costs were $38.5 million compared with $39.7 million at December 31, 2007.

Of the $38.5 million, $5.9 million is classified as current and is expected to be spent over the next 12 months at Nanisivik, Bouchard-Hebert, Bougrine and Myra Falls. The Company incurred expenditures of $1.0 million in reclamation and closure costs in the second quarter of 2008 compared with $1.1 million in the second quarter of 2007. As there is currently no law, regulation or contract in Honduras related to reclamation and closure costs, GAAP does not permit the Company to set up a liability for reclamation at the El Mochito mine.

(1) For further information on the Red Mile transactions please see the Company's most recent Financial Report filed on SEDAR or available at the Company's website at www.breakwater.ca. Reclamation and Closure Cost Accrual at June 30, 2008 ($ millions)______________________Current________ Long- term__________ Total -------------------------------------------------------------------- ------- Myra Falls__________________________ 1.8______________ 27.2____________29.0 Mochito(1)__________________________ 0.0________________1.2____________ 1.2

ui________________________________0.0________________2.5____________ 2.5 Langlois____________________________ 0.0________________1.0____________ 1.0 Bouchard- Hebert______________________1.2________________0.1____________ 1.3

isivik____________________________2.3________________0.4____________ 2.7 Bougrine____________________________ 0.6________________0.2____________ 0.8 -------------------------------------------------------------------- ------- Total________________________________5.9______________ 32.6____________38.5 -------------------------------------------------------------------- ------- (1) Reclamation and closure cost accruals for Mochito relate to accrued ____severances.

Shareholders' Equity

Shareholders' equity at June 30, 2008 was $387.2 million compared with $364.4 million at December 31, 2007. The increase of $22.8 million was primarily due to net earnings of $1.2 million, the issuance of 7.0 million shares on the acquisition of Metco and the issuance of approximately 13.5 million Common Shares on the acquisition of a 3% royalty at Myra Falls partially offset by the renunciation of $2.2 million of flow-through share value and $4.4 million other comprehensive loss.

____________________________________________________Other______Total ______________________________________Contri-__________ compre-____ share- Shareholders' Equity Capital____________buted Retained__hensive__ holders' ($000's)______________ stock Warrants surplus earnings__ income____ equity -------------------------------------------------------------------- ------- As at December 31, 2007____________188,726____8,540__ 2,029__168,908__ (3,817)__ 364,386 Shares issued on acquisition of Metco, net of expenses______________7,264________-______ -________-________- ______7,264 Share issued on acquisition of the Myra Falls royalty, net of expenses____________ 18,146________-__ 1,820________-________-____ 19,966 Value ascribed to options exercised under stock-based compensation____________ 15________-____ (15)______ -________- __________- Adjustment to flow through share costs____________ (27)______ -______ -________-________- ________(27) Renunciation of flow through share value__________(2,160)______ -______ -________-________-____ (2,160) Exercise of warrants__________________8______ (2)______-________-________- __________6 Employee share option plan - proceeds of options exercised________26________-______ -________-________- ________ 26 Employee share purchase plan__________ 182________-______ -________-________- ________182 Stock-based compensation______________-________-____ 710________-________- ________710 Other comprehensive Income____________________-________-______ -________-__ (4,383)____(4,383) Net earnings______________ -________-______ -____1,218________- ______1,218 -------------------------------------------------------------------- ------- As at June 30, 2008__212,180____8,538__ 4,544__170,126__ (8,200)__ 387,188 -------------------------------------------------------------------- -------

In the first six months of 2008, the Company issued the following Common Shares: 7,000,000 on the acquisition of Metco; 13,518,739 on the acquisition of the Myra Falls royalty; 6,480 on exercise of warrants; 46,667 following the exercise of employee share options and 111,969 pursuant to the Company's employee share purchase plan.

Capital Expenditures

The Company invested $48.7 million in mineral properties and fixed assets in the first six months of 2008. At mining operations, $14.0 million, $14.1 million, $3.0 million and $16.8 million were spent at Mochito, Toqui, Myra Falls and Langlois respectively. For details of these expenditures, please refer to the financial results discussion for each mine. Corporate capital expenditures of $0.8 million related to $2.0 million of earn-in payments made on joint venture properties in Quebec including Coulon, Trieste, Gayote, Gatineau, Weedon and Kaminak were offset by a tax credit of $1.2 million received related to Coulon.

Financial Capability

With the existing working capital, the current metal prices and current US$/C$ exchange rate, the Company expects to be able to carry out its operating, capital, exploration and environmental programs in 2008. The Company's financial capability is sensitive to operating performance, metal prices, smelter treatment charges and the US$/C$ exchange rate.

PRODUCTION RESULTS

The table below contains the Company's production for periods presented. Production results include the production from Langlois since January 2007. For accounting purposes, production from Langlois was not recognized on the income statement until the commencement of commercial production - July 1, 2007.

________________________________________ Second Quarter____First Six Months __________________________________________ 2008____2007______2008______2007 -------------------------------------------------------------------- ------- Ore Milled (tonnes)____________________ 622,834 592,301 1,189,300 1,139,716 Zinc (%)__________________________________ 6.5____ 5.8______ 6.3______ 5.8 Concentrate Production (tonnes) Zinc: Mochito________________________________ 14,488__13,927____27,368____30,275 Toqui__________________________________ 16,990__14,806____33,280____30,798 Myra

alls______________________________16,912__16,799____34,351____30,498 Langlois(1)____________________________ 20,210__13,616____34,132____22,375 -------------------------------------------------------------------- ------- ________________________________________ 68,600__59,148__ 129,131__ 113,946 -------------------------------------------------------------------- ------- Copper: Myra Falls______________________________ 7,652__ 9,532____13,035____14,934 Langlois(1)______________________________3,219__ 1,305____ 5,246____ 2,117 -------------------------------------------------------------------- ------- ________________________________________ 10,871__10,837____18,281____17,051 -------------------------------------------------------------------- ------- Lead: Mochito__________________________________4,931__ 4,130____ 9,010____ 8,684 Toqui____________________________________1,379______ -____ 2,840________ - -------------------------------------------------------------------- ------- __________________________________________6,310__ 4,130____11,850____ 8,684 -------------------------------------------------------------------- ------- Gold: Toqui____________________________________1,075__ 1,481____ 1,075____ 2,810 -------------------------------------------------------------------- ------- -------------------------------------------------------------------- ------- Total____________________________________86,856__75,596__ 160,337__ 142,491 -------------------------------------------------------------------- ------- C$ operating costs, production basis ($000s)________________52,454__35,713__ 110,286____68,957 C$ operating cost per tonne milled (production basis)________ 84______74________93________72 (1) First concentrate shipped November 2006 and considered to be at ____commercial production levels effective July 1, 2007.

The table below contains the Company's metal contained in concentrate produced, before smelting deductions, for periods presented.

Metal in Concentrate________________ Second Quarter__________ First Six Months __________________________ 2008______ 2007____%________2008______2007____% Zinc (tonnes)

chito__________________7,634______7,165____7______14,398____15,543__ (7) Toqui____________________8,247______7,323__ 13______16,410____15,191____8 Myra Falls______________ 9,392______8,915____5______18,488____15,868__ 17 Langlois(1)____________ 10,835______7,196__ 51______18,208____11,531__ 58 ________________________------------------______ ------------------- - ________________________ 36,108____ 30,599__ 18______67,504____58,133__ 16 ________________________------------------______ ------------------- - Copper (tonnes) Myra Falls______________ 1,793______2,196__(18)______3,072____ 3,389__ (9) Langlois(1)________________580________288__101________ 971______ 447__117 ________________________------------------______ ------------------- - __________________________2,373______2,484__ (4)______4,043____ 3,836____5 ________________________------------------______ ------------------- - Lead (tonnes) Mochito__________________3,231______2,662__ 21______ 5,925____ 5,796____2 Toqui______________________648__________-____-______ 1,363________ - ____- ________________________------------------______ ------------------- - __________________________3,879______2,662__ 46______ 7,288____ 5,796__ 26 ________________________------------------______ ------------------- - Gold (ounces) Toqui____________________8,217______6,542__ 26______ 9,610____20,423__(53) Myra Falls______________ 4,128______5,175__(20)______8,128____11,491__(29) Langlois__________________ 445________165__170________ 733______ 299__145 ________________________------------------______ ------------------- - ________________________ 12,790____ 11,882____8______18,471____32,213__(43) ________________________------------------______ ------------------- - Silver (ounces) Mochito________________516,686____459,829__ 12____ 983,369__ 908,215____8 Toqui__________________ 85,775____ 27,226__215____ 164,510____49,472__233 Myra Falls____________ 183,762____185,433__ (1)____366,571__ 515,583__(29) Langlois(1)____________100,341____ 39,963__151____ 166,534____59,048__182 ________________________------------------______ ------------------- - ________________________886,564____712,451__ 24__ 1,680,984 1,532,318__ 10 ________________________------------------______ ------------------- - (1) First concentrate shipped November 2006 and considered to be at ____commercial production levels effective July 1, 2007.

Aggregate production of zinc in concentrate in the second quarter of 2008 was 18% higher at 36,108 tonnes. The increase was primarily due to more tonnes milled at Mochito, Toqui and Langlois partially offset by fewer tonnes milled at Myra Falls. Copper in concentrate produced decreased 4% due to fewer tonnes from Myra Falls partially offset by higher tonnes at Langlois. Production of lead in concentrate rose 46% due to the resumption of lead production at Toqui as well as more tonnes milled at Mochito. Gold in concentrate increased 8% in the second quarter of 2008 from the same period in 2007 due to the processing of the gold-rich Aserradero material at Toqui partially offset by fewer tonnes milled at Myra Falls. Silver in concentrate increased 24% quarter over quarter due to more tonnes milled and higher grades at Mochito, Toqui and Langlois partially offset by lower production at higher silver grades at Myra Falls.

Mochito (i) Mochito Financial Results ________________________________________ Second Quarter__First Six Months ______________________________________ ----------------------------- ------ __________________________________________ 2008____2007____ 2008____ 2007 ______________________________________ ----------------------------- ------ Gross sales revenue______________________34,311__38,590__ 51,177__ 61,532 Treatment and marketing costs__________ (11,748) (5,745) (13,499)__(7,764) ______________________________________ ----------------------------- ------ Net revenue______________________________22,563__32,845__ 37,678__ 53,768 Direct operating costs__________________(10,585) (7,584) (16,651) (12,412) Depreciation and depletion______________ (2,440) (1,207)__(3,778)__(1,918) Reclamation and closure costs______________(244)____(99)____(532)____(421) ______________________________________ ----------------------------- ------ Contribution from mining activities______ 9,294__23,955__ 16,717__ 39,017 Exploration________________________________(531)__ (765)____(967)__(1,203) ______________________________________ ----------------------------- ------ __________________________________________8,763__23,190__ 15,750__ 37,814 Income and mining tax provision__________(2,498) (7,292)__(3,992) (10,708) ______________________________________ ----------------------------- ------ Net earnings______________________________6,265__15,898__ 11,758__ 27,106 ______________________________________ ----------------------------- ------ ______________________________________ ----------------------------- ------ Capital expenditures______________________9,492__ 6,575__ 13,956____9,848 ______________________________________ ----------------------------- ------ ______________________________________ ----------------------------- ------ Revenue: The following tables and discussion provide details of Mochito's gross sales revenue for the periods indicated: __________________________________________Second Quarter 2008 ____________________________---------------------------------------- ------ ____________________________________________________________________ Gross ______________________________Concentrate______________ Realized____ sales ____________________________________ sold____Payable____ price(1)__revenue __________________________________(tonnes)__ metal(1)______ (US$)__ ($000s) ____________________________---------------------------------------- ------ Zinc______________________________ 23,137____ 10,234______ 2,147____21,974 Lead________________________________3,736______2,330______ 2,050____ 4,777 Silver______________________________ n.a.____409,557______ 17.06____ 6,988 Other(2)____________________________ n.a.______________________________277 ______________________________ ----------__________________________- ------ __________________________________ 26,873 ______________________________ ---------- ______________________________ ---------- Gross sales revenue in US$__________________________________________34,016 Exchange rate______________________________________________________ 1.0087 __________________________________________________________________ - ------ Gross sales revenue in C$__________________________________________ 34,311 __________________________________________________________________ - ------ __________________________________________________________________ - ------ __________________________________________Second Quarter 2007 ____________________________---------------------------------------- ------ ____________________________________________________________________ Gross ______________________________Concentrate______________ Realized____ sales ____________________________________ sold____Payable____ price(1)__revenue __________________________________(tonnes)__ metal(1)______ (US$)__ ($000s) ____________________________---------------------------------------- ------ Zinc______________________________ 11,830______5,107______ 3,832____19,571 Lead________________________________6,668______4,325______ 2,058____ 8,901 Silver______________________________ n.a.____490,403______ 13.37____ 6,557 Other(2)____________________________ n.a.____________________________ (404) ______________________________ ----------__________________________- ------ __________________________________ 18,498 ______________________________ ---------- ______________________________ ---------- Gross sales revenue in US$__________________________________________34,625 Exchange rate______________________________________________________ 1.1145 __________________________________________________________________-- ------ Gross sales revenue in C$__________________________________________ 38,590 __________________________________________________________________-- ------ __________________________________________________________________-- ------ (1) Payable metal and realized prices for zinc and lead are per ____tonne and for silver is per ounce. (2) Other gross sales revenue represents revaluations of prior ____period concentrate receivables.

Zinc sales virtually doubled over the second quarter of 2007 due to certain first quarter 2008 shipments of zinc concentrate being recognized in the second quarter of 2008 as pricing became known pursuant to our revenue recognition policy. This resulted in an increase in total concentrate sold of 45%. The dramatic increase in zinc sales was partially offset by lower lead sales. Notwithstanding the significant increase in zinc sales, total gross sales revenues in US$ terms declined by 2% due to a 44% decline in zinc prices realized and the lower lead sales noted above. In C$ terms gross sales revenue declined 11% due to the weakening US$.

Expenses:

Treatment and marketing costs were higher in the second quarter of 2008 in aggregate terms due to greater zinc concentrate sales, the weakening US$, higher base zinc treatment charges and higher freight costs due to fuel surcharges levied in response to the soaring price of crude oil. Treatment and marketing costs per tonne of concentrate sold in the second quarter of 2008 increased primarily due to higher base zinc treatment charges and certain concentrate sales in the second quarter of 2007 which had flat treatment charges.

Aggregate direct operating costs increased 40% due to the significant increase in tonnes of concentrate sold combined with increased fuel costs, the use of contract miners, the cost of improved ground support and additional safety initiatives. Refer to the discussion of US$ operating costs on a production basis discussed in the production section below.

Exploration expenses in the second quarter of 2008 decreased by $0.2 million to $0.5 million. Refer to the exploration section below for additional details.

Capital Expenditures:

For the first six months of 2008, $14.0 million was spent on capital at Mochito primarily as follows: $3.7 million for mobile equipment; $2.3 million for tailings facilities; $1.1 million for electrical upgrades; $3.1 million for mine development; $0.3 million for definition drilling; and, $3.5 million for various infrastructure projects.

(ii) Mochito Production Mochito's production is set out in the following table. ____________________________________________Second Quarter First Six Months ________________________________________ --------------------------- -------

____________________________________________2008____2007____2008____ 2007 -------------------------------------------------------------------- ------- Ore Milled (tonnes)________________________171,808 151,219 324,335__306,403 Zinc (%)______________________________________5.0____ 5.3____ 5.0______5.7 Lead (%)______________________________________2.3____ 2.3____ 2.2______2.4 Silver (g/t)__________________________________107____ 110____ 107______107 Concentrate Production Zinc (tonnes)______________________________14,488__13,927__27,368__ 30,275 __Recovery (%)________________________________88.5____88.7____88.8____ 89.1 __Grade (%)__________________________________ 52.7____51.5____52.6____ 51.4 Lead (tonnes)______________________________ 4,931__ 4,130__ 9,010____8,684 __Recovery (%)________________________________82.1____78.4____82.0____ 78.8 __Grade (%)__________________________________ 65.6____64.5____65.8____ 66.8 Metal in Concentrates Zinc (tonnes)______________________________ 7,634__ 7,165__14,398__ 15,543 Lead (tonnes)______________________________ 3,231__ 2,662__ 5,925____5,796 Silver (ounces)__________________________ 516,686 459,829 983,369__908,215 C$ operating costs, production basis ($000s)____________________________________ 9,036__ 7,845__17,651__ 15,992 US$ operating costs, production basis ($000s)____________________________________ 8,949__ 7,140__17,523__ 14,093 C$ operating cost per tonne milled (production basis)____________________________ 53______52______54______ 52 US$ operating cost per tonne milled (production basis)____________________________ 52______47______54______ 46

Zinc and lead in concentrate produced increased by 7% and 21% respectively in the second quarter of 2008 compared with the same period in 2007 primarily due to milling more tonnes at slightly lower grades. The increase in the tonnes milled for each of the first two quarter of 2008 is due to the focus on production mining as opposed to the necessary focus on development mining in 2007. The lower grades were due to a number of ground control issues experienced during the first and second quarters which required rehabilitation of the affected areas and delayed mining of some higher grade stopes. The ground rehabilitation program put in place during the first quarter continues on high priority areas with dedicated crews to complete this work.

Silver in concentrate increased by 12% due to more tonnes milled at slightly lower grades.

Operating costs on a production basis increased 25% to US$8.9 million in the second quarter of 2008. The US$1.8 million increase was primarily due to: more ore milled; greater power consumption at higher rates; an improved, more expensive method of ground control; higher diesel and lubricant costs; major equipment and mill component overhauls and repairs; new reagents required to extend the capacity of Pozo Azul; and, increased safety training, supervisor training and employee benefits.

During the second quarter, programs initiated earlier in the year to increase pumping capacity, improve underground electrical power distribution and improve the ventilation system, continued.

(iii) Mochito Exploration

The Company continued drilling to identify new mineral resources in several areas of the mine as well as to validate the prospectivity of other areas with older drill information.

Drilling continued during the second quarter in the Santo Nino manto area with the objective of upgrading resources and validating older drill information related to both reserves and resources. Drilling in the second quarter of 2008 in the area of the Santo Nino Chimney continued with a number of drill holes encountering several bands of economic chimney-style mineralization. Likewise, in the eastern area of the Mochito mine, drilling of the Deep North and Deep East areas encountered two areas of chimney-style mineralization as well as an area of manto-style mineralization. This campaign is expected to continue throughout 2008. Drilling at Yojoa Manto continued and economic skarn mineralization was encountered. A number of exploration drill holes at Raton West encountered several bands of economic skarn mineralization. Drilling also commenced on the 2450 level of Salva Vida with a number of drill holes encountering several bands of economic skarn mineralization.

Surface exploration of the Big Fuzzy target has been deferred while the Company continues to refine the exploration model for the Big Fuzzy target. During the first quarter of 2008, strong evidence of skarn alteration as well as mineralization was intercepted within Hole BF-06, which is a step-out hole towards the west. BF-06 represents the first intercept of economic grades and thickness within the Mochito district outside of the area of the mine.

Progress continued on the collection and compilation of basic surface geologic data for the entire Mochito district. First-pass geologic mapping over much of the district has been completed and a detailed soil geochemistry grid across the district - currently in progress -should be completed by the end of the third quarter. At the end of the second quarter, the soil grid was 87% complete with 1,578 samples left to collect. Additional soil geochemical sampling is planned to the east of the current sampling area in light of the recent discovery of old geological information. This extended area could provide important information combined with the BF-06 intercept. An aerial photogrammetric survey of the entire district has been postponed until later in the year due to delays in acquiring Government permission to conduct the flights. The resulting orthorectified aerial photography and detailed topography will assist completion of the geologic mapping and assist in developing a new structural interpretation for the district.

(iv) Mochito Outlook

The mine rehabilitation program, commenced to address ground control problems experienced late in 2007 and in the first few months of 2008, continued with the installation of improved ground support media throughout the mine. This initiative is expected to be complete in the third quarter and is not expected to impact on previous production guidance.

Construction work to increase the capacity of the Pozo Azul tailings facility is largely complete and is expected to provide ample capacity while repairs are made to the Soledad facility. Repairs to Soledad are ongoing with completion anticipated late in 2009.

Toqui (i) Toqui Financial Results __________________________________________Second Quarter__First Six Months ______________________________________ ----------------------------- ------- ____________________________________________2008____2007____ 2008____ 2007 ______________________________________ ----------------------------- ------- Gross sales revenue______________________ 32,193__19,194__ 59,102__ 56,420 Treatment and marketing costs____________(13,742) (7,057) (23,239) (21,457) ______________________________________ ----------------------------- ------- Net revenue______________________________ 18,451__12,137__ 35,863__ 34,963 Direct operating costs____________________(9,521) (2,945) (17,683) (11,176) Depreciation and depletion________________(2,326)__ (589)__(3,974)__(2,590) Reclamation and closure costs________________(44)____(71)____ 994____ (146) ______________________________________ ----------------------------- ------- Contribution from mining activities________6,560__ 8,532__ 15,200__ 21,051 Exploration________________________________ (225)__ (916)____(686)__(2,100) ______________________________________ ----------------------------- ------- __________________________________________ 6,335__ 7,616__ 14,514__ 18,951 Income and mining tax (provision)

ry____________________________________405__(1,600)__(2,407)__(3,159) ______________________________________ ----------------------------- ------- Net earnings______________________________ 6,740__ 6,016__ 12,107__ 15,792 ______________________________________ ----------------------------- ------- ______________________________________ ----------------------------- ------- Capital expenditures______________________ 6,128__ 6,080__ 14,074__ 10,057 ______________________________________ ----------------------------- ------- ______________________________________ ----------------------------- ------- Revenue: The following tables and discussion provide details of Toqui's gross sales revenue for the periods indicated: __________________________ Second Quarter 2008 ____________ ---------------------------------------------- ____________________________________________________ Gross ______________ Concentrate______________Realized____ sales ______________________sold__ Payable____ price(1)__revenue __________________ (tonnes)__metal(1)______ (US$)__ ($000s) ____________ ---------------------------------------------- Zinc________________25,684____10,544______ 2,251____23,732 Lead________________ 1,418______ 701______ 1,863____ 1,305 Gold________________ 2,552____ 6,888________ 899____ 6,196 Silver________________n.a.____42,794______ 16.98______ 727 Other(2)______________n.a.____________________________ (66) ____________ -------------________________________ -------- ____________________29,654 ____________ ------------- ____________ ------------- Gross sales revenue in US$__________________________31,894 Exchange rate______________________________________ 1.0094 __________________________________________________ ------- Gross sales revenue in C$__________________________ 32,193 __________________________________________________ ------- __________________________________________________ ------- ______________________________Second Quarter 2007 ____________ ---------------------------------------------- ______________________________________________________Gross ______________ Concentrate______________ Realized____ sales ______________________sold____Payable____ price(1)__revenue __________________ (tonnes)__ metal(1)______ (US$)__ ($000s) ____________ ---------------------------------------------- Zinc________________ 9,192______3,772______ 3,564____13,444 Lead__________________n.a.______ n.a.________n.a.______n.a. Gold__________________ 936______5,422________ 663____ 3,597 Silver________________n.a.______1,858______ 13.15________25 Other(2)______________n.a.______________________________746 ____________ -------------________________________ -------- ____________________10,128 ____________ ------------- ____________ ------------- Gross sales revenue in US$__________________________ 17,812 Exchange rate________________________________________1.0776 ____________________________________________________------- Gross sales revenue in C$____________________________19,194 ____________________________________________________------- ____________________________________________________------- (1) Payable metal and realized prices for zinc is per tonne and ____for gold and silver are per ounce. (2) Other gross sales revenue represents revaluations of prior ____period concentrate receivables.

Total concentrate sold in the second quarter of 2008 was 193% higher than in the second quarter of 2007. The dramatic increase in sales of all metals more than offset the significant reduction in zinc prices resulting in a 77% increase in gross sales revenue in US$ terms. The weakening US$ resulted in the increase in gross sales revenue in C$ terms being slightly less at 68%.

Expenses:

Treatment and marketing costs were higher on an aggregate basis due to the significant increase in the quantity of concentrate sold and higher freight costs offset by lower zinc prices, a higher base zinc price at which to calculate the treatment charges and the weakening US$. Treatment and marketing costs declined on a per tonne of concentrate sold basis due to lower zinc prices realized and higher zinc base prices. As a percentage of gross sales revenue, treatment and marketing costs increased to 43% of revenue from 37% in the same period in 2007 primarily due to the lower zinc prices realized.

Direct operating costs in the second quarter of 2008 were higher than in the same period in 2007 primarily due to higher concentrate sales. Direct operating costs as a percentage of gross sales revenue increased to 30% in the second quarter of 2008 from 15% in 2007 due to a lower zinc price partially offset by higher gold and silver prices. On a cost per tonne sold basis, second quarter 2008 costs increased to $321 from $291 in 2007 primarily due to higher costs for fuel and labour. Refer to the discussion of US$ operating costs on a production basis in the production section below.

Depreciation and depletion costs increased in the second quarter of 2008 due to the sale of more tonnes of concentrate.

Exploration expenses decreased in the second quarter of 2008 compared with the same period in 2007 due to reduced expenses related to Concordia and Porvenir. Please refer to the exploration section below for additional details.

The second quarter 2008 income and mining tax was a recovery of $0.4 million compared with an expense of $1.6 million in the second quarter 2007.

Capital Expenditures:

Toqui capital expenditures of $14.1 million in the first six months of 2008 consisted primarily of: $2.7 million for development of Porvenir, Concordia, Estatuas and Aserradero; $3.8 million for mine equipment and buildings; $2.5 million for capitalized exploration at Porvenir, Aserradero North and Concordia East, $1.9 million for a lead flotation circuit, a ball mill overhaul and a thickened tailings plant study; $1.0 million for definition drilling; $0.4 million for the mill pre-feasibility study, and; $0.3 million for housing and a new dry.

(ii) Toqui Production Toqui's production is set out in the following table. ____________________________Second Quarter__ First Six Months __________________________----------------------------------- ____________________________ 2008____ 2007____ 2008______2007 ------------------------------------------------------------- Ore Milled (tonnes)______ 132,720__128,837__259,813__ 258,470 Zinc (%)____________________ 7.0______6.3______7.1______ 6.5 Lead (%)____________________ 0.8________-______0.9________ - Gold (g/t)__________________ 2.4______2.0______1.5______ 3.0 Silver (g/t)__________________27________9______ 27________ 9 Concentrate Production Zinc (tonnes)____________ 16,990__ 14,806__ 33,280____30,798 __Recovery (%)______________ 88.7____ 88.8____ 89.1______90.0 __Grade (%)__________________48.5____ 49.5____ 49.3______49.3 Lead (tonnes)______________1,379________-____2,840________ - __Recovery (%)______________ 47.0________-____ 48.0________ - __Grade (%)__________________64.1________-____ 59.7________ - Gold (tonnes)______________1,075____1,481____1,075____ 2,810 __Recovery (%)______________ 55.8____ 61.8____ 55.8______59.4 __Grade (g/t)______________ 144.0____ 89.6____144.0____ 145.6 Metal in Concentrates __Zinc (tonnes)____________ 8,247____7,323__ 16,410____15,191 __Lead (tonnes)______________ 648________-____1,363________ - __Gold (ounces)____________ 8,217____6,542____9,610____20,423 __Silver (ounces)__________85,775__ 27,226__164,510____49,472 C$ operating costs, production basis ($000s)__ 6,212____5,830__ 12,826____11,531 US$ operating costs, production basis ($000s)__ 6,150____5,296__ 12,733____10,162 C$ operating cost per tonne milled (production basis)____________47______ 45______ 49________45 US$ operating cost per tonne milled (production basis)____________46______ 41______ 49________39

Production of zinc in concentrate increased 13% during the second quarter of 2008 compared with the same period in 2007 as more tonnes were milled at higher grades. Zinc grades increased quarter over quarter as higher zinc grade Estatuas material is being blended with higher lead grade Concordia material. Silver head grades also increased due to the addition of Concordia material. The new lead flotation circuit expansion was operational in the second quarter of 2008 and, as expected, improved lead concentrate production.

Production continues in Concordia North and commenced at Concordia South during the second quarter. The Concordia deposits will be an integral part of production in 2008. Development of the accesses for the Porvenir deposit continued.

In the second quarter of 2008, a new change house was commissioned.

Operating costs on a US$ production basis increased 16% to US$6.2 million in the second quarter of 2008. On a cost per tonne milled basis, costs increased by 12% in the second quarter of 2008. The US$0.9 million increase in production costs are primarily due to a 13% increase in the Chilean peso against the US$; a 12% in increase in labour costs associated with the new collective agreement including an 11% inflation indexing adjustment; and, higher power costs due to a 27% increase in diesel costs; and, more diesel generated power due to dryer weather conditions reducing hydro power capacity.

(iii) Toqui Exploration

During the second quarter of 2008, the diamond drill program at Toqui continued with a total of 7,694 metres drilled in 47 holes at the Mina Profunda (or "deeper mine") project and the area west and south of the Estatuas mine. Exploration drilling is a major component of a $4.0 million program for 2008. In total during 2008, 18,950 metres of drilling in more than 109 drill holes have been completed which has resulted in the discovery of new mineralized zones aligned along the known north-west - south-east trend that crosses through the Toqui district as well as confirming the shape of the new Porvenir and Concordia deposits.

At Mina Profunda, two surface diamond drills carried out extensional drilling while one underground drill continued with in- fill drilling in 38 holes totaling 7,064 metres. The drilling to- date continues to confirm the existence of an underlying, 500 metre long by 100 metre wide, north-west/south-east trending gold-cobalt- zinc skarn system hosted within a favourable calcareous sandstone horizon. Mina Profunda is located approximately 60 metres beneath and adjacent to the known deposits of Dona Rosa and Aserradero.

The latest round of drill results from the Mina Profunda project has outlined that the deposit is located between horizons of fluid tuffs - underneath an intrusive rhyolitic sill - containing higher gold grades and lower zinc grades (similar to Aserradero) continuous along a north-west - south-east trend confined between two major north-west striking fault structures. It appears that gold mineralization follows a chemical control. Several studies are currently being carried out to determine relationships with the pre- existing base metal skarn system and to provide guidance for future exploration for these types of deposits within the Toqui district.

Exploration and in-fill drilling has also reported encouraging results in several areas towards the west and south of the Estatuas mine. A total of 630 metres were drilled at the Estatuas mine from underground in nine holes.

(iv) Toqui Outlook

The mill capital cost portion of the prefeasibility study was received in late June and the estimated capital cost was significantly higher than originally expected. The study examined the economics related to a new concentrator installation to process 3,000 tonnes per day (essentially double the current mill capacity). Several lower cost alternatives will be evaluated including installing the grinding mills from Bougrine in Tunisia which was closed in September 2005. These mills would increase the milling capacity by approximately 50% and would provide more operational flexibility.

A project to increase hydro generation is being considered with engineering for a third turbine and application for additional water rights being investigating. The Company expects Toqui to meet its production targets as previously disclosed.

A new warehouse is expected to be commissioned during the third quarter.

Myra Falls (i) Myra Falls Financial Results ______________________________________ Second Quarter____First Six Months ____________________________________-------------------------------- ------ ______________________________________ 2008______2007______2008______2007 ____________________________________-------------------------------- ------ Gross sales revenue__________________28,622____45,617____47,136____63,396 Treatment and marketing costs________(8,188)__(12,509)__(13,143)__(16,010) ____________________________________-------------------------------- ------ Net

evenue____

Source: Marketwire

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