The company has 3 operating underground mines. Combined, these three mines produced over 150 million lbs zinc in 2009, and are on track to produce about 175 million lbs zinc in 2010, along with about 40 million lbs lead, 10 million lbs copper, 2.5 million oz silver, and 50,000 ounces gold. The company is producing cash flow of about $30 million per quarter and boasts a P/E of about 3. However, beware that all three mines are relatively high cash cost, at over $0.50/lb of zinc-equivalent production after taking into account all smelter and transportation charges.

The Langlois project is is expected to be brought back into production in the next year or so. This project is a significant component of our valuation model so it is important the it be brought back online with an intelligent hedging strategy so as to avoid a repeat of 2008 when it was put on care and maintenance due to the low zinc price environment. In our opinion it is also important that Breakwater make more of an effort to periodically update its mine plans to assure the market that it will remain a cash flow king for the foreseeable future as long as metal prices cooperate. A continual effort to upgrade measured and indicated resources into reserves will go a long way in assuring investors.

We are currently considering adding Breakwater to our speculative portfolio, but are concerned now is not the right time with base metal prices looking somewhat vulnerable to a correction.