Western Goldfields Inc. - Mesquite Mine Ramps Up Gold Production; Second Quarter Production at High End of Target; Record Output in July



    
    -   Gold production of 28,524 ounces of gold is at high end of the target
        range for the second quarter

    -   Gold sales of 22,760 ounces of gold averaged $894 per ounce for the
        quarter, at a cost of sales of $548 per ounce

    -   Record gold production and gold sales achieved in July of
        20,112 ounces and 20,950 ounces of gold, respectively

    -   On track for strong third quarter and 2008

    -   Impact on cost of sales of industry-wide increase in fuel and
        material prices mitigated by operational improvements

    -   Cash on hand is $34.0 million as of June 30, 2008, including
        $7.5 million restricted cash
    

    TORONTO, Aug. 7 /CNW/ - Western Goldfields Inc. (TSX:WGI, AMEX:  WGW) The
Company today announced financial results for the three-month and six-month
periods ended June 30, 2008. During the first half of 2008, the Company made
operational improvements to increase production, mitigate cost pressures
facing the industry and benefit from the strong gold price environment.
Results are based on U.S. GAAP and expressed in U.S. dollars unless otherwise
indicated.
    "We're firing on all cylinders, with production setting a strong upward
trend as we add more ore to the leach pad at our Mesquite operation," stated
Mr. Raymond Threlkeld, President and Chief Executive Officer. "Furthermore, we
are very pleased with our strong start to the third quarter in which we
produced a record 20,112 ounces of gold during the month of July - an
excellent beginning to our third quarter."
    "The second quarter and July production results are clear indicators that
our efforts have paid off and the Mesquite Mine has overcome its initial slow
start," continued Mr. Threlkeld. "Heap leach gold recovery rates are now at
the levels we originally anticipated."
    Gold production in the second quarter was 28,524 ounces, which is at the
high end of the forecasted range of 20,000 - 30,000 ounces of gold. Gold sales
during the quarter totaled 22,760 ounces, at an average cost of sales(1) of
$548. Gold revenues during the quarter were $894 per ounce.
    Gold production for the first six months was 37,590 ounces. Gold sales
were 32,720 ounces, at an average cost of sales(1) of $667 per ounce. Gold
revenues for the first six months were $905 per ounce.
    July production was 20,112 ounces of gold, and gold sales for July were
20,950 ounces. Gold production has increased to an average of 600 ounces per
day, and we expect to meet the year-end target of 135,000 to 145,000 ounces of
gold at a cost of sales(1) of $470 - $490 per ounce.
    The Company is currently focused on maximizing Mesquite's potential
through exploration and further production and cost improvements, including
the potential of a new mine plan to produce more ounces of gold over the next
five years to take advantage of the rising gold price. The Company has also
made an application to increase its mining rate by 25 percent to 75 million
tons per year. "We are focused on achieving higher margins and increased gold
production in a strong gold price environment," added Mr. Threlkeld.

    Second Quarter and Year-to-Date Highlights
    ------------------------------------------
    For the second quarter 2008, the Company produced 28,524 ounces of gold -
 at the high end of the forecasted range of 20,000 - 30,000 ounces of gold.
Gold sales during the quarter totaled 22,760 ounces, at an average cost of
sales(1) of $548.
    Production for the second quarter tripled as compared with the previous
quarter. While Mesquite made operational improvements to increase production
and hold down costs, cost of sales(1) were impacted by increased costs for
fuel, tires and explosives, which together comprise 52.5 percent of total
costs.
    Total year-to-date gold production was 37,590 ounces. Year-to-date gold
sales totaled 32,720 ounces, at an average cost of sales(1) of $667.
    During the second quarter, 2.0 million tons of ore at an average grade of
0.036 ounces gold per ton, and containing 71,958 ounces of gold, were mined
and placed on the leach pad. In addition, waste mining production for the
second quarter was 11.8 million tons.
    Year-to-date, 3.3 million tons of ore at an average grade of 0.029 ounces
gold per ton, and containing 92,839 ounces of gold, have been delivered to the
leach pad.

    
                             Second Quarter 2008         Six Months 2008
                          ---------------------------------------------------
                           Tons Mined      Grade     Tons Mined      Grade
                          ------------ ------------ ------------ ------------
    Ore Mined               1,985,177        0.036    3,253,913        0.029
    Waste Mined            11,830,409            -   22,872,459            -
                          ------------              ------------
    TOTAL                  13,815,586                26,126,372
                          ------------              ------------
                          ------------              ------------

    No mine production was recorded in the first six months of 2007.

    Exploration Results
    -------------------
    Exploration drilling targeted additions to Mesquite's reserve potential,
with 46 holes drilled in total. No significant results were returned. The
exploration drilling results are summarized as follows:

    -   The Brownie deposit has been closed off;
    -   Non-oxide mineralization southeast of the Brownie deposit was
        confirmed through drilling but results from the latest exploration do
        not indicate that this mineralization can be profitably mined; and
    -   Additional targets to the southwest of the Brownie deposit remain
        untested.
    

    Financial Results
    -----------------
    For the second quarter, Western Goldfields recorded a gross profit of
$5.6 million compared to a gross loss of $2.4 million for the second quarter
of 2007. For the three- and six-month periods ended June 30, 2008, the Company
incurred a net loss to common shareholders of $4.1 million and $23.7 million,
or $0.03 and $0.17 per share, respectively. This compares to a loss of
$4.0 million and $6.6 million, or $0.04 and $0.06 per share for the three and
six-month periods ended June 30, 2007, respectively. The net loss for the
three and six-months includes a non-cash pre-tax loss of $8.7 million and
$32.8 million, respectively, arising from the mark-to-market of contracts for
the forward sale of gold, which were taken out as a requirement of our term
loan facility. The mark-to-market loss reflects the fact that the spot gold
price increased from $836 per ounce at December 31, 2007 to $930 at June 30,
2008. In addition, during the second quarter, long-term interest rates
increased, which increased the discount rate applied in the mark-to-market
valuation of these contracts. Year-to-date results for 2008, as compared with
2007, show an increase in gold sold to 32,720 ounces from 4,225 ounces; the
average selling price per ounce rose to $905 in 2008 from $658 in 2007.

    Liquidity and Capital Resources
    -------------------------------
    At June 30, 2008, the Company's cash balance was $26.5 million, our
restricted cash was $7.5 million, and our working capital was $34.7 million.
In addition, the Company had unutilized credit facilities of $18.7 million.
The Mesquite Mine became operating cash flow positive in June 2008.

    Mesquite Capital Expenditures
    -----------------------------
    Western Goldfields' latest forecast for the mine expansion capital
program is $109.9 million, of which $107.0 million was incurred to June 30,
2008, with the balance of $2.9 million to be spent during the third quarter of
2008.
    In addition to the expansion capital, $1.1 million was spent on other
projects during the first half of 2008. Planned spending for the balance of
the year is $3.4 million, primarily for a front-end loader scheduled to be
delivered in August and operational in September. This additional loading unit
will provide the ability to improve production levels now that the additional
fourth crew has been mobilized.

    2008 Outlook
    ------------
    The Mesquite Mine is expected to produce between 55,000 to 60,000 ounces
of gold during the third quarter of 2008 as higher-grade ore from the Rainbow
Pit is placed on the leach pad. Cost of sales(1) is forecast at approximately
$400 per ounce of gold. Gold production for 2008 is projected to be 135,000
-145,000 ounces of gold at an average cost of sales(1) of between $470 -
$490 per ounce of gold.
    Now that Mesquite is performing on plan, the Company continues to focus
on adding value by pursuing the following opportunities:

    
    1)  Sulfide resources: a sulfide gravity scoping study has been initiated
        to improve recovery rates for the property's significant sulfide
        resources.
    2)  Continuous Improvement: a continuous improvement program is underway
        for the mining fleet to further increase productivity. In addition,
        we are completing a conveyor haulage study.
    3)  Increase Mining Rate: Mesquite has applied for a permit to increase
        its mining rate from 60 million tons per year to 75 million tons per
        year, with the outcome expected by the end of the year.
    4)  Increase annual gold production over the next four to five year
        period through a revised mining plan that will allow the Company to
        optimize its cash flow.

    The Company is well-positioned to utilize Mesquite's cash flow as a
strategic platform for disciplined growth, through the acquisition of
undervalued and overlooked assets in politically stable North America.

    (1) Cost of sales per ounce is defined as cost of sales as per the
        Company's financial statements divided by the number of ounces sold.
    

    Western Goldfields Inc.
    -----------------------
    Western Goldfields Inc. is an independent gold production and exploration
company with a focus on precious metal mining opportunities in North America.
The Mesquite Mine, currently the Company's sole asset, was brought into
production in January 2008, and the Company's focus is now on achieving the
anticipated rate of production and completing planned improvements to the
property. With 4.3 million ounces in Measured and Indicated Mineral Resources
(inclusive of reserves), Mesquite is the only multi-million ounce U.S. reserve
in North America not controlled by a major gold company. Western Goldfields
common shares trade on the Toronto Stock Exchange under the symbol WGI, and on
the American Stock Exchange under the symbol WGW.

    Forward-Looking Information
    ---------------------------
    Certain statements contained in this news release and subsequent oral
statements made by and on behalf of the Company may contain forward-looking
information within the meaning of the United States Private Securities
Litigation Reform Act of 1995 and similar Canadian legislation. Such
forward-looking statements are identified by words such as "intends",
"anticipates", "believes", "expects", "plans" and include, without limitation,
statements regarding the Company's plan of business operations, production and
cost estimates, receipt of working capital, anticipated revenues, and capital
and operating expenditures. These forward-looking statements are based on the
best estimates of management at the time such statements are made. Expected
production results and cost of sales are based in part on current and
historical production and cost data factoring certain assumptions with respect
to future metal prices, costs of supplies and labour and other parameters.
There can be no assurance that such statements will prove to be accurate;
actual results and future events could differ materially from such statements.
Factors that could cause actual results to differ materially include, among
others, variations in metal prices and/or cost of supplies, possible
variations in ore grade or recovery rates, failure of plant, equipment or
processes to operate as anticipated, accidents, labour disputes, as well as
those set forth in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2007 filed with the U.S. Securities and Exchange
Commission, under the caption "Risk Factors". Most of these factors are
outside the control of the Company. Investors are cautioned not to put undue
reliance on forward-looking statements. Except as otherwise required by
applicable securities statutes or regulations, the Company disclaims any
intent or obligation to update publicly these forward-looking statements,
whether as a result of new information, future events or otherwise.

    
                           WESTERN GOLDFIELDS INC.
                         CONSOLIDATED BALANCE SHEETS
                         (In thousands U.S. dollars)

                                                    June 30,    December 31,
                                                      2008          2007
                                                  ------------- -------------
    ASSETS
      CURRENT ASSETS
        Cash and cash equivalents                 $     26,549  $     43,870
        Restricted cash                                  7,500         7,500
        Receivables                                        940           298
        Inventories                                     25,134        11,201
        Prepaid expenses                                   800           887
        Current portion of deferred income
         tax asset                                       3,498           755
                                                  ------------- -------------
          TOTAL CURRENT ASSETS                          64,421        64,511
                                                  ------------- -------------

      Plant, and equipment, net of accumulated
       amortization                                     98,454        77,951
      Construction in progress                          10,246        21,864
      Investments - reclamation and remediation          8,803         8,661
      Long-term deposits                                   357           348
      Long-term prepaid expenses                         1,469         1,555
      Deferred debt issuance costs, net of
       accumulated amortization                          2,997         3,227
      Deferred income tax asset                         45,497        36,379
                                                  ------------- -------------
        TOTAL OTHER ASSETS                             167,823       149,984
                                                  ------------- -------------

    TOTAL ASSETS                                  $    232,244  $    214,495
                                                  ------------- -------------
                                                  ------------- -------------

    LIABILITIES & STOCKHOLDERS' EQUITY
      CURRENT LIABILITIES
        Accounts payable and accrued liabilities  $      5,673  $      8,781
        Current portion of mark-to-market loss
         on gold hedging contracts                       8,969         1,935
        Current portion of loan payable                 15,109         6,882
                                                  ------------- -------------
          TOTAL CURRENT LIABILITIES                     29,751        17,598
                                                  ------------- -------------

      LONG-TERM LIABILITIES
        Mark-to-market loss on gold hedging
         contracts                                      82,753        56,966
        Loan payable                                    71,230        69,581
        Reclamation and remediation liabilities          5,235         5,061
                                                  ------------- -------------

          TOTAL LIABILITIES                            188,969       149,206
                                                  ------------- -------------


      COMMITMENTS AND CONTINGENCIES                          -             -

      STOCKHOLDERS' EQUITY
        Common stock, of no par value, unlimited
         shares authorized; 136,731,919 and
         135,049,685 shares issued and
         outstanding, respectively                     135,250       133,725
        Stock options and warrants                       7,695         7,551
        Accumulated deficit                            (99,670)      (75,987)
                                                  ------------- -------------
          TOTAL STOCKHOLDERS' EQUITY                    43,275        65,289
                                                  ------------- -------------

    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY    $    232,244  $    214,495
                                                  ------------- -------------
                                                  ------------- -------------



                           WESTERN GOLDFIELDS INC.
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                           AND COMPREHENSIVE LOSS
                         (In thousands U.S. dollars)

                      Three Months Ended June 30,  Six Months Ended June 30,
                      --------------------------- ---------------------------
                          2008          2007          2008          2007
                      ------------- ------------- ------------- -------------
    REVENUES
      Revenues from
       gold sales     $     20,347  $      1,546  $     29,602  $      2,779
                      ------------- ------------- ------------- -------------

    EXPENSES
      Mine operating
       costs                12,122         3,466        21,209         5,674
      Royalties                340            59           605           105
                      ------------- ------------- ------------- -------------
      Cost of sales         12,462         3,525        21,814         5,779
      Amortization
       and accretion         2,291           377         4,384           752
                      ------------- ------------- ------------- -------------
      Cost of goods
       sold                 14,753         3,902        26,198         6,531
                      ------------- ------------- ------------- -------------

    GROSS PROFIT
     (LOSS)                  5,594        (2,356)        3,404        (3,752)
                      ------------- ------------- ------------- -------------

    EXPENSES
      General and
       administrative        1,197         1,138         2,308         2,222
      Stock based
       compensation            289           820           658         1,289
      Exploration              591           749           814         1,032
                      ------------- ------------- ------------- -------------
                             2,077         2,707         3,781         4,543
                      ------------- ------------- ------------- -------------

    OPERATING INCOME
     (LOSS)                  3,517        (5,062)         (377)       (8,295)
                      ------------- ------------- ------------- -------------

    OTHER INCOME (EXPENSE)

      Interest income          289           525           673         1,042
      Interest expense
       and commitment
       fees                 (1,320)         (242)       (2,019)         (242)
      Amortization of
       deferred debt
       issuance costs         (115)         (110)         (231)         (110)
      Unrealized gain
       (loss) on
        mark-to-market
        of gold forward
        sales contracts     (8,708)          759       (32,820)          759
      Gain (loss) on
       foreign currency
       exchange                250           124          (770)          205
                      ------------- ------------- ------------- -------------
                            (9,605)        1,056       (35,167)        1,655
                      ------------- ------------- ------------- -------------

    LOSS BEFORE INCOME
     TAXES                  (6,088)       (4,007)      (35,544)       (6,640)

    INCOME TAX
     RECOVERY               (2,029)            -       (11,861)            -
                      ------------- ------------- ------------- -------------

    NET LOSS                (4,059)       (4,007)      (23,683)       (6,640)

    OTHER COMPREHENSIVE
     LOSS
      Foreign currency
       translation
       adjustment                -            (3)            -            (8)
                      ------------- ------------- ------------- -------------

    NET COMPREHENSIVE
     LOSS             $     (4,059) $     (4,010) $    (23,683) $     (6,648)
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    BASIC AND DILUTED
     NET LOSS PER
     SHARE            $      (0.03) $      (0.04) $      (0.17) $      (0.06)
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    WEIGHTED AVG. NO.
     OF COMMON SHARES
     OUTSTANDING       136,406,008   113,641,025   136,035,903   108,240,372
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------



                           WESTERN GOLDFIELDS INC.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                         (In thousands U.S. dollars)
                                 (Unaudited)


                      Three Months Ended June 30,  Six Months Ended June 30,
                      --------------------------- ---------------------------
                          2008          2007          2008          2007
                      ------------- ------------- ------------- -------------
    CASH FLOWS FROM
     OPERATING
     ACTIVITIES
      Net loss        $     (4,059) $     (4,007) $    (23,683) $     (6,641)
      Adjustments to
       reconcile net
       loss to net
       cash provided
       (used) by
       operating
       activities:
      Items not
       affecting
       cash:
        Amortization
         of plant
         and equipment       2,219           298         3,030           592
        Amortization
         of deferred
         debt issuance
         costs                 115           110           231           110
        Accretion
         expense                87            84           174           169
        Deferred
         income taxes       (2,029)            -       (11,861)            -
        Interest net
         of reimbursed
         costs -
         reclamation
         and remediation       (80)          (87)         (142)         (170)
        Stock based
         compensation          289           820           658         1,289
        Mark-to-market
         loss on gold
         hedging
         contracts           8,708          (759)       32,820          (759)
        Changes in
         assets and
         liabilities:
        Decrease
         (increase) in:
          Restricted
           cash                  -        (7,500)            -        (7,500)
          Accounts
           receivable         (720)          174          (642)           76
          Inventories       (7,894)           31       (12,732)          (40)
          Prepaid
           expenses
           and deposits         87          (369)          173          (547)
          Long term
           deposits             (6)           (6)           (9)           (9)
        Increase
         (decrease)
         in:
          Accounts
           payable             810          (154)         (529)         (955)
          Payroll and
           related
           taxes payable         -             -        (1,562)            -
          Accrued
           expenses           (287)         (795)          764           201
          Accrued
           interest
           expense             (59)          241          (230)          241

                      ------------- ------------- ------------- -------------
    Net cash
     provided (used)
     by operating
     activities             (2,817)      (11,917)      (13,539)      (13,943)
                      ------------- ------------- ------------- -------------

    CASH FLOWS FROM
     INVESTING ACTIVITIES
      Purchase of
       property &
       equipment,
       including
       construction in
       progress             (5,920)      (25,662)      (14,669)      (31,377)
      Increase in
       reclamation and
       remediation
       investment                -        (2,090)            -        (2,090)
                      ------------- ------------- ------------- -------------
    Net cash provided
     (used) by
     investing
     activities             (5,920)      (27,752)      (14,669)      (33,467)
                      ------------- ------------- ------------- -------------

    CASH FLOWS FROM
     FINANCING
     ACTIVITIES
      Loan payable           2,017             -         9,877             -
      Deferred debt
       issuance costs            -          (521)            -          (850)
      Common stock
       issued for cash           -             1             -        59,191
      Exercise of
       options to
       purchase common
       stock                   440           356           672           501
      Exercise of
       warrants to
       purchase common
       stock                     -         1,436           337         1,816
                      ------------- ------------- ------------- -------------
    Net cash provided
     by financing
     activities              2,457         1,272        10,887        60,658
                      ------------- ------------- ------------- -------------

    Change in cash          (6,280)      (38,396)      (17,321)       13,248

    Cash and cash
     equivalents,
     beginning of
     period                 32,829        57,147        43,870         5,503
                      ------------- ------------- ------------- -------------

    Cash and cash
     equivalents, end
     of period        $     26,549  $     18,750  $     26,549  $     18,750
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    SUPPLEMENTAL CASH
     FLOW DISCLOSURES:
      Interest paid
       (received),
        net           $        933  $          1  $      1,346  $          1
                      ------------- ------------- ------------- -------------
                      ------------- ------------- ------------- -------------

    NON-CASH FINANCING
     AND INVESTING
     ACTIVITIES:
        Stock, options
        and warrants
        issued for
        services      $        289  $        820  $        658  $      1,289
        Equipment
         purchases
         included in
         accounts
         payable      $       (180) $     11,832  $        334  $     11,832
        Deferred debt
         issuance
         costs
         included in
         accrued
         expenses     $          -  $      2,328  $          -  $      2,328
        Non-cash
         component of
         inventories  $         (2) $      2,328  $      1,201  $      2,328
    

    %CIK: 0001394186




For further information:

For further information: please visit www.westerngoldfields.com, or
contact: Raymond Threlkeld, President and Chief Executive Officer, (416)
324-6005, rthrelkeld@westerngoldfields.com; Brian Penny, Chief Financial
Officer, (416) 324-6002, bpenny@westerngoldfields.com; Julie Taylor Pantziris,
Director, Regulatory Affairs and Investor Relations, (416) 324-6015,
jtaylor@westerngoldfields.com

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