Philex Gold Inc. Reports Fourth Quarter and Year-end Financial Results.

TORONTO--(BUSINESS WIRE)--Feb. 17, 1998--Philex Gold Inc. (TSE:PGI.) (TSE:PHXGF) (OTCBE) recorded a net loss for the 12 months ending December 31, 1997 of $11.82 million or $0.29 per share, compared to a net profit of $10.32 million or $0.27 per share for the prior year.

Included in the net loss is a non-recurring provision of $15.00 million representing a write-down of the carrying value of the Sibutad project assets. As previously announced in the company's January 21, 1998 press release, the write-down reflects the current value of the assets in line with market conditions and ore reserves.

Annual operating revenues amounted to $39.70 million while cash flow from operations was $10.58 million or $0.26 per share. The comparable figures for last year are revenues of $35.23 million and cash flow of $12.87 million or $0.34 per share. The realized price of gold for the year averaged $350 per ounce compared to $390 per ounce in the prior year.

For the fourth quarter of 1997, revenues totalled $7.55 million and a net loss of $16.35 million, or $0.40 per share was incurred, including the aforementioned provision. For the comparable period last year, revenues amounted to $10.70 million and net income was $3.44 million, or $0.08 per share.

Total production from the Bulawan mine amounted to 115,687 ounces of gold compared to 90,863 ounces for the prior year. Cash operating costs for the year averaged $184 per ounce against the prior year's average of $180 per ounce. Production is expected to increase in 1998 to a projected output of 132,000 ounces of gold at a cash operating cost of $180 per ounce. The Sibutad open pit-heap leach mine, which started operations in April, produced 10,013 ounces of gold. As the operation remained in the pre-commissioning phase throughout the year, revenues were credited against project cost.

As previously announced, mining has been temporarily suspended pending a restructuring of the project, although leaching of ore continues in the interim. The company expects to resume mining in May and projects 1998 production at 24,000 ounces at a cash operating cost of $190 to $200 per ounce. Combined production for the two mines for 1998 amounts to 156,000 ounces at an average cash operating cost of about $182 per ounce.

In line with other East Asian currencies, the Philippine peso started depreciating against the US dollar in the second half of the year and is currently over 50% lower compared to the exchange rate prevailing at the beginning of 1997. This is beneficial to the company since revenues are incurred in US dollars while the bulk of cash costs are local currency expenditures.

To protect gains resulting from the devaluation, the company has sold forward approximately 30% of its expected 1998 dollar receipts from gold sales to pesos at an average exchange rate of P42.59 per US dollar (the realized average exchange rate in 1997 was P29.45 per US dollar). The company has also in place 46,667 ounces of gold forward sales in 1998 at an average price of $355 per ounce, of which 31,667 ounces at an average price of $350 per ounce represent forward sales for the first half of the year. An additional 6,000 ounces of second half production was recently hedged in the form of put options purchased at a strike price of $290 per ounce, with corresponding call options sold at a strike price of $322.50 per ounce.

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(All financial results are unaudited and stated in U.S. dollars, gold production and costs per ounce are stated in equivalent ounces where appropriate)

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                           Philex Gold Inc.
                          Financial Summary
   (unaudited in thousands of U.S. dollars, except per share data)

                             Quarter Ended   Year Ended   Year Ended
                           Dec. 31, 1997  Dec. 31, 1997  Dec. 31, 1996

Income Statement
- Bullion revenue                  7,554        39,697         35,230
- Net income (loss) (a)          (16,345)      (11,049)        10,318
- Net income (loss) per share (a)  (0.40)        (0.27)          0.27

Balance Sheet
- Cash and short term investments    988           988         16,838
- Total assets                   139,614       139,614        127,600
- Working capital (deficiency)      (563)         (563)        23,523

Statement of Changes In Cash
- Operating cash flow                713        10,579         12,874
- Proceeds from IPO                   -              -         23,294
- Operating cash flow per share     0.01          0.26           0.34

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(a) The 1997 figures include a non-recurring provision for the write down of Sibutad project assets in the amount of $15.00 million or $0.37 per share.

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                           Philex Gold Inc.
                          Bulawan Operations

                                       Actual 1997        Actual 1996
Underground
 Tonnes mined: development                 171,650            156,572
 Ore grade - g/t                              2.37               5.39
 Tonnes mined: stopes                      507,374            182,184
 Ore grade - g/t                              4.34               4.53
 Total tonnes mined                        679,024            338,756
 Ave. ore grade g/t                           3.84               4.93
Open Pit
 Tonnes mined: CIL plant                   376,843            551,719
 Ore grade - g/t                              3.88               2.80
 Tonnes mined: heap leach                  286,565            466,267
 Ore grade - g/t                              1.05               0.81
CIL Production
 Tonnes milled                           1,055,147            865,108
 Ore grade - g/t                              3.43               3.54
 Recovery - %                                90.72              91.52
 Gold production - ozs.                    105,536             90,083
 Silver production - ozs.                  114,784             54,520
Heap Leach Production
 Tonnes leached                            501,856                  -
 Ore grade - g/t                              1.03                  -
 Cumulative recovery - %                     51.23                  -
 Gold production - ozs.                      8,541                  -
Total Production
 Gold - ozs.                               114,077             90,083
 Silver - ozs                              114,784             54,521
 Equivalent Gold - ozs                     115,687             90,863

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Bulawan Operation

During the year, the Bulawan carbon-in-leach (CIL) plant treated a total of 1,055,147 tonnes of ore with an average grade of 3.43 grams per tonne. This compares with 865,108 tonnes with an average grade 3.54 grams per tonne for the prior year. An overall recovery of 90.7% was achieved compared to the prior year's 91.5%. The resulting production amounted to 107,147 ounces of gold. The CIL plant expansion to a rated capacity of 4,000 tonnes per day was completed by the end of the third quarter. During the last quarter of the year, the plant processed 331,921 tonnes of ore although the average grade dropped to 2.0 grams per tonne due to a decline in ore grades mined from the Central Block. Metal recovery consequently decreased to 87.5%, resulting in gold output of 19,137 ounces for the quarter.

Heap leach operations treated 501,856 tonnes of ore with an average grade of 1.03 grams per tonne of ore. A cumulative recovery of 51.2% was achieved by year-end and resulted in gold production of 8,541 ounces, of which 2,019 ounces was produced in the last quarter. The prolonged rainfall in the third quarter affected mining at the Korokan pit as well as crushing and agglomerating due to the high clay content of the near-surface ore. This is not expected to recur in 1998 as the clay does not continue at depth. Actual leaching operations continued in a satisfactory manner as a plastic liner used to cover the bulk of the leach pad not being stacked proved adequate to protect against dilution of the gold bearing solution from rainfall.

The Central Block, mined by front caving, retreated to an area of low grade in the latter part of the year and experienced problems related to ground pressure and early dilution. Although not unexpected as these problems are characteristic of a small, temporary block prior to a shift to full block cave mining, planned production was consequently not achieved. Mining from this source is now nearing completion and will gradually shift to the adjacent South Block which will be mined by block caving. Undercutting of ore commenced in December and initial production started in January. Lower ore grades are expected in the first quarter, gradually increasing as mining progresses. The remaining tonnage at the Central Block of higher ore grades will be mined by adding production lines northwards to the South Block. Development is underway and mining from this source is expected to commence by the second quarter, augmenting ore deliveries from the South Block.

Sibutad Operation

The restructuring of the Sibutad operation, detailed in the January 21, 1998 press release, is currently underway. The overseas mining contractor's equipment was demobilized at the end of January. Negotiations with local contractors are on-going and will be concluded shortly at a substantially lower cost. The amendment of the Environmental Compliance Certificate to allow for mining above 2,000 tonnes per day is in the final processing stage and should be received early in the second quarter. Mining is expected to resume in May, initially at 3,500 tonnes per day and increasing to 5,000 tonnes per day in 1999. This scaled down plan is in response to the current ore reserves and market conditions which require that resources be conserved to every extent possible. Under this scenario, capital expenditures will significantly be reduced as the recently completed Pad 1A can accommodate ore for 1-1/2 years of production. A second pad will not be required until the third quarter of 1999. This will be located at the Larayan open pit, once mined out, and will be built in stages with minimal earthworks required.

Exploration

At the Bulawan deposit, a recent diamond drill hole intercepted a 135 meter mineralized zone with a 58 meter portion averaging 2.9 grams per tonne on the basis of check assays, indicating the continuity of the deposit to the north and at depth. A later hole 50 meters further north confirmed the continuity of mineralization. The assays are being awaited. This will be the focus of exploration in 1998 as well as a possible north-westerly extension which currently remains open. The adjacent Korokan deposit has been largely defined except for the north-central portion which remains open at depth. Three targets between the Bulawan and the Nagtalay deposits, Libertad, Laka Quartz and Skid 9, were drill tested during the year with poor results. While these targets have been reduced in priority, further geological studies will be conducted in the future to identify additional targets. In the fourth quarter, drilling resumed in Nagtalay, 4 kilometers from the Bulawan deposit, with encouraging results. To the north of the deposit, a 24 meter intercept assayed 3.9 grams per tonne. Two distinct outcrops a kilometer apart were identified in the Manlucahoc target area, 5 kilometers north of the Bulawan deposit. The outcrops show anomalous copper and gold values and will be subject to further exploration in 1998. The Sumpit target has been reduced in priority on the basis of surface work conducted in 1997, while exploration will start this year in the Mariculum and Tiyabanan targets.

At Sibutad, a possible extension to the east of the Larayan deposit proved uneconomic. The Lalab West zone at the Lalab deposit has been largely defined during the year except for possible extensions at depth, while in-fill drilling continues at the Lalab Main zone. The North-South vein zone remained undrilled in 1997 due to a dispute with the landowner. While this was resolved towards year-end, the remaining artisanal miners at that area remain a problem which continues to be tackled. This zone represents the highest potential for increasing mineable reserves of higher ore grades and every effort is being made to arrive at a resolution. In 1998, geological work will continue to test for southerly and easterly extensions of Lalab. An airborne magnetic and radiometric survey accomplished during the year confirmed the known Larayan and Lalab deposits and identified numerous anomalies on a south-east trend covering the altered area which overlies the claims. Two specific targets, Lalab II and Minlasag, will be drill tested this year. Four other targets, Calube, Sebaca, Damasing and Rizalina, extending 12 kilometers along trend will be the subject of surface work in 1998.

The Bananghilig deposit at Sanfran now appears to include the nearby targets of Malinao, 300 meters to the north, and the "Contact" zone, about 200 meters south-east. Based on an airborne magnetic and radiometric survey concluded in 1997, the deposit lies on the southern end of a large radiometric anomaly, coincident with a hydrothermally altered area which extends 3 kilometers on a north-east trend. The Lansang/Canugas gold rush area lies on the northern portion of the anomaly. While gold resources have doubled by year-end, substantial drilling still needs to be accomplished to fully define the deposit, which is open to the east and north as well as at depth. In the interim, mineable ore reserves will be defined, following which a pre-feasibility study will be undertaken. Stream sediment sampling at the northern half of the claims conducted during the year shows a widespread distribution of gold in the drainage system. This will be followed up by further exploration work this year.

At the North claims, initial drill testing of two target areas, Naporoy and Nabago, was undertaken in 1997. Drilling has been temporarily suspended during this period of low gold prices although geological work will continue in both areas as well as in other targets identified within the claims.

Two properties were acquired during 1997, the Exciban and Balce group of claims in the historic Bicol gold district, southern Luzon Island. Initial drill testing commenced in Exciban late in the year although this has also been discontinued temporarily. Geological work will, however, continue in both group of claims in 1998.

Given the current low gold price, every effort is being made to reduce operating costs and capital expenditures. The exploration budget for 1998 consequently has been reduced to $2 million and will focus on increasing gold resources and reserves at Bulawan, Sibutad and Sanfran. Also in response to the current environment, the parent company, Philex Mining Corporation, has waived the monthly management fee entirely from November 1997 to year-end 1998. This will improve profitability and cashflow. Every effort will also be made to meet production and cost targets for 1998. With respect to the latter, the devaluation of the peso will materially assist in bringing cash costs down in dollar terms and to a large extent negates the drop in the gold price. Despite the recent setbacks, management believes that the targets are attainable and that substantial progress will be made in 1998.

CONTACT: Philex Gold Inc., Toronto

Paula Kember, 416/861-1221

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