First Nickel Reports 2012 Financial and Operating Results
TORONTO, ONTARIO -- (Marketwired) -- 04/02/13 -- First Nickel Inc. ("FNI" or the "Company") (TSX: FNI) announces its results for the year ended December 31, 2012. The Company's audited consolidated financial statements and management's discussion and analysis for the period have been filed on SEDAR and will be available at www.sedar.com and on the Company's website at www.firstnickel.com. This news release should be read in conjunction with the Company's financial statements and management's discussion and analysis for the period ended December 31, 2012. This news release contains forward-looking information that is subject to the risks and assumptions set out in our Cautionary Statement on Forward-Looking Information located at the end of this news release. (All dollar amounts herein are in Canadian funds unless otherwise indicated.)
HIGHLIGHTS FOR FISCAL 2012
-- Commercial production: The Company declared commercial production at the
Lockerby Mine on July 1, 2012. Prior to commercial production, all
revenue and cash production costs were capitalized.
-- Revenue: Revenue for the year ended December 31, 2012 was $36.1 million.
-- Total cash production costs: Cash production costs were $37.0 million
for the year, or $7.971 cash production cost per pound of nickel
produced.
-- Production: Production at Lockerby yielded 5.8 million pounds of payable
nickel and 4.5 million pounds of payable copper in 2012. The Company
shipped approximately 199,000 tonnes of ore from the Lockerby Mine in
2012.
-- Development: Ramp development totaled 486 metres for the year, and
lateral development totaled 1,748 metres during the year.
-- Net loss: The Company incurred a net loss of $36.3 million for the year.
-- Impairment: The Company recognized a $16.8 million impairment charge on
the Lockerby mining property and a $5.0 million impairment charge on
exploration properties.
CEO Commentary
Mr. Thomas M. Boehlert, President and CEO of FNI, commented, "FNI achieved a number of important milestones in 2012. The Lockerby Mine successfully achieved commercial production and demonstrated the ability to increase the production rate towards our goal of 10 million pounds of payable nickel and 7 million pounds of payable copper per year. While we did not achieve our target of full production by the end of 2012, we are confident full production will be reached in the first quarter of 2013. These results were achieved through the dedication of our operating and management teams. Since the end of the year, the Company has improved its financial liquidity through arranging $15 million in additional financing and agreeing to extend its debt maturity dates from December 2013 to March 2015. This financing underpins our plans to fully develop the Lockerby mine and grow the company to increase shareholder value."
Summary of Financial and Operating Results
Effective July 1, 2012, the Company determined that commercial production had been reached at the Lockerby mine.
The Company reported revenue of $36.1 million, cash production costs of $37.0 million, and a net operating loss of $36.3 million for the year.
The following table presents a summary of the results of operations for the years ended December 31:
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Canadian $, except for share amounts 2012 2011
For the years ended December 31,
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Revenue $ 36,078,313 $ -
Cost of goods sold 36,997,008 -
Depreciation 7,543,440 -
Impairment of tangible assets 16,761,895 -
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Operating Loss (25,224,030) -
Expenses
General and administrative 4,154,842 3,734,873
Stock-based compensation 878,455 855,168
Depreciation and amortization 12,227 12,240
Foreign exchange loss 369,644 (53,625)
Loss on mobile equipment - 500,000
Impairment of exploration assets 5,033,409 7,010,192
Interest on convertible loan 942,080 942,080
Change in fair value of equity conversion
option (3,295,528) (5,634,737)
Accretion on convertible loan 2,207,630 1,151,301
Accretion of reclamation liability 99,203 97,941
Net gain on settlements of derivatives
contracts - (33,019,915)
Financing costs 170,225 -
Interest expense 251,503 -
Other expenses 362,310 -
Other income (80,893) (280,588)
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11,105,108 (24,685,070)
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Operating (loss) income before taxes (36,329,138) 24,685,070
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Income & mining taxes (recovery) - (472,017)
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Net (loss) earnings and comprehensive (loss)
earnings $ (36,329,138) $ 25,157,087
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Earnings (loss) per share - basic and diluted $ (0.07) $ 0.05
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Lockerby Mine Operating Results
Safety, Health & Environment
The Company's directors, management, employees and contractors continue to place the highest priority on safety, health and the environment. During the year ended December 31, 2012 there were three lost time injuries.
Production
Production is estimated on a provisional basis using the amount of ore hoisted to the surface, an estimated head grade, an estimated average nickel recovery rate and an estimated average copper recovery rate.
For the year ended December 31, 2012, 204,841 tonnes of ore were mined at Lockerby, producing 5.8 million pounds of payable nickel (first half of 2012 - 2.7 million pounds, second half of 2012 - 3.1 million pounds) at an average estimated head grade of 1.94% and an estimated average nickel recovery of 82.2%, and 4.5 million pounds of payable copper (first half of 2012 - 2.0 million pounds, second half of 2012 - 2.5 million pounds) at an estimated head grade of 1.22% and an estimated average copper recovery of 92.1%.
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For the years ended December 31, 2012 2011
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Tonnes of ore produced 204,841 24,424
Production (estimated)
Payable nickel (pounds) 5,817,653 901,657
Payable copper (pounds) 4,513,730 537,831
Nickel head grade 1.94% 1.71%
Copper head grade 1.22% 1.02%
Tonnes of ore shipped 198,694 23,924
Tonnes of ore milled 179,818 -
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Revenue
Revenue is provisionally recorded when the Company delivers mineral ores to Xstrata Canada Corporation ("Xstrata") for processing. Provisional revenue is determined by estimating grade, recoveries and future market prices.
Estimated grade is determined by the Company's geology department by utilizing standard stope reconciliation procedures and may change after actual milling results are subsequently received. In the event that the milling results return a different grade from the Company's estimated grade, a quantity adjustment is made to revenue in the statement of comprehensive (loss) income in the period the new information becomes available.
The estimated recoverable amounts may change after actual milling results are subsequently received. In the event that the estimated recoverable amount differs from the actual milling results, as provided by Xstrata, a quantity adjustment is made to revenue in the statement of comprehensive (loss) income in the period when the new information becomes available.
The provisional pricing recorded for the metals estimate may differ from the actual market price on the settlement date due to changes in commodity prices and foreign exchange rates. Final pricing of payable metal is not determined until the refined metal is produced, which is four months and three months after ore is milled for nickel and copper, respectively. Changes to commodity prices and foreign exchange rates on the sale to Xstrata are recorded in revenue in the statement of comprehensive (loss) income at each reporting date and on final settlement, based on future metal prices.
The Company sometimes enters into forward sales agreements to mitigate provisional pricing exposure to changing nickel and copper prices.
Canadian $, for the years ended December 31, 2012 2011
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Provisional nickel revenue $ 25,960,432 $ -
Nickel quantity adjustment (1,703,044) -
Nickel price adjustment (1,055,973) -
Provisional by-product revenue 10,321,469 -
By-product price and quantity adjustment 1,747,561 -
Forward sales agreements 807,868 -
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Total revenue $ 36,078,313 $ -
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Cash production costs
Cash production costs net of by-product revenue and capitalized pre-production amounts were $24.6 million for the year ended December 31, 2012. Cash production costs were primarily comprised of labour, underground costs, surface ore handling costs, principle lease payments, trucking and treatment costs, and were offset by by-product revenue.
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Canadian $, except production amounts and USD amounts as
specified
For the years ended December 31, 2012 2011
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Cost of goods sold $ 36,997,008 $ -
Provisional by-product revenue (10,321,469) -
By-product revenue - quantity and price adjustments (1,747,561) -
Forward sales agreements related to by-products (284,412) -
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Cash production costs (net of by-product revenue) 24,643,566 -
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Payable nickel production (pounds) 3,092,000 -
Cash production cost per pound of nickel(2) $ 7.97 $ -
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(2)Cash production cost per pound based on cash production cost for the commercial production period in 2012 divided by payable nickel
Pre-Commercial Production
Ore production during the first half of 2012 was 90,541 tonnes (500 tonnes per day), with an estimated 2.7 million pounds of payable nickel and 2.0 million pounds of payable copper produced. The Company recognized $30.4 million of capitalized revenue and incurred $34.9 million of capitalized operating costs. The Company was in the pre-commercial production stage for accounting purposes during the first half of 2012. During the pre-commercial production stage, costs were capitalized and revenues were recorded as a reduction in capital costs rather than being classified as revenues on the statement of comprehensive (loss) income.
Effective July 1, 2012, the Company determined that commercial production had been reached because the mine had maintained a level of production exceeding 65% of planned capacity of 800 tonnes per day during the three months ended June 30, 2012.
Capital
The Company added $17.2 million of capital assets during the year, including $14.2 million in development costs.
The development rate for the year averaged 6.1 metres per day. As a result of the experience to date, the life-of-mine plan was updated to incorporate an average development rate of 7.5 metres per day. A comparison of previous and updated plans confirms that a similar production profile can be achieved with a lower development rate by adding an additional sublevel, which the Company plans to do.
During the year ended December 31, 2012, an impairment charge of $16.8 million was recognized in the statement of comprehensive (loss) income, with respect to the Lockerby Mine. The trigger for the impairment test was the reduction in assumed nickel prices and changes to the mine plan, resulting from a slower than planned rate of development at the Mine. The lower rate of development resulted in higher than anticipated development costs over life-of-mine. These higher costs combined with lower metal price forecasts led to a lower estimate of fair value less estimated costs to sell.
Exploration
The Company's exploration strategy is focused on base metals and guided by the objectives of increasing resources and reserves in conjunction with the development and/or acquisition of quality projects, resulting in multiple mining operations.
For the year ended December 31, 2012, exploration expenditures totaled $2.3 million.
As of December 31, 2012, the Company had completed the diamond drill program on the Link Zone and the Raglan Hills trenching and mapping programs, and all equipment has been demobilized from the properties. The Company's progress in exploration during the year ended December 31, 2012 is summarized below:
Belmont
The Company has determined that there is no reasonable possibility of establishing an economical ore body on the Belmont property. As a result, the Belmont exploration asset has been written down to its current replacement value of $15,000, and the Company has recognized an impairment charge of $3.0 million in its financial statements. This value represents the costs if the claims were to be restaked on the property.
Raglan Hills
The Company has determined that there is no reasonable possibility of establishing an economical ore body on the Raglan Hills property. As a result, the Raglan Hills exploration asset has been written down to its current replacement value of $9,000, and the Company has recognized an impairment charge of $2.0 million in its financial statements. This value represents the costs if the claims were to be restaked on the property.
Link Zone
A total of 2,700 metres of diamond drilling were completed in three holes on the mineralized trend that lies between the Lockerby East and Conwest deposits. The surface drill program was completed on the Company's wholly owned patented mining claims in Graham Township. Analytical results from the drill program were announced in a press release dated August 8, 2012 and filed electronically on SEDAR.com.
OUTLOOK FOR 2013
-- Full production by the end of Q1 2013
-- Production of between 9.0 million to 10.0 million pounds of payable
nickel
-- Total cash production costs(1) estimated to be between $61.0 million and
$67.0 million
-- Total cash production cost(1) between $6.10 and $6.40 per pound of
nickel produced
Production and Cost Outlook
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Canadian $ millions, except payable metal 2013
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Payable nickel (millions of pounds) 9.0M - 10.0M
Payable copper (millions of pounds) 6.1M - 6.7M
Total cash production costs(1) $61.0M - $67.0M
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Assumptions: Cu per lb - US$3.50, CAD/USD $1.00
FNI anticipates being in full production by the end of the first quarter of 2013, while continuing to maintain a safe and environmentally compliant operation. FNI expects to be at or near the full production rate of 10 million pounds of nickel per annum after the first quarter of 2013 and continues to review operations to identify optimization opportunities to reduce costs and increase productivity.
Slower than planned development progress in 2012 has resulted in the need for higher than originally planned capital expenditures for development in 2013. The combination of higher than planned capital expenditures, the current metal price environment and the Company's shortfall in revenue in the fourth quarter of 2012 is expected to impact the Company's liquidity in 2013.
In January 2013, the Company entered into a debt facility in the amount of $5 million with Resource Capital Fund V L.P. ("RCF V"), maturing on December 31, 2013. The debt facility with RCF V was followed in March 2013 by entering into an additional debt facility in the amount of $5 million with a fund managed by West Face Capital Inc. ("West Face"), also maturing on December 31, 2013. The funds provided by these facilities provided additional working capital for the Company.
Additionally, on April 1, 2013, the Company signed amendments to restructure its outstanding indebtedness with BNS, RCF IV, RCF V and West Face, subject to TSX approval. The aggregate indebtedness of US$20 million will be extended to March 31, 2015. The credit facility with BNS will be converted to a revolving credit facility and the principle amount will be increased from US$10 million to US$15 million. The funds provided by these loan facilities will provide additional working capital for the Company in its 2013 operations. The 2013 plan assumes that development will continue to the 68 level by the third quarter. Trade-off studies are being completed on development and mining plans to determine the optimal mining sequence beyond the 68 level to maximise the return on capital.
Capital expenditures
Capital expenditures for 2013 are anticipated to be approximately $16.4 million, of which, $11.2 million relates to development programs on the Lockerby Mine.
General and administrative
General and administrative expenses for 2013, excluding stock-based compensation, are estimated to be approximately $4.3 million. Financing costs and exploration costs are estimated to be approximately $1.8 million and $2.7 million, respectively.
Qualified Person
The foregoing scientific and technical information has been prepared or reviewed by Paul C. Davis, P.Geo., Vice-President Exploration of the Company. Mr. Davis is a "qualified person" within the meaning of National Instrument 43-101.
The Company follows rigorous quality control practices and procedures in full compliance of NI 43-101, and these are described on the Company's website and in all technical news releases.
About FNI
FNI is a Canadian mining and exploration Company. The Company's mission is to be the most dynamic North American emerging base metal mining Company in which to work and invest and to be respected in the communities in which we operate. FNI is in the process of ramping up to full production at its Lockerby Mine in the Sudbury Basin in northern Ontario. Once the Lockerby Mine reaches full production, it is expected to produce at a rate of approximately 10 million pounds of payable nickel and approximately 7 million pounds of payable copper annually, providing a strong base of cash flow from which to grow the Company. In addition to the Lockerby Mine, the Company owns exploration properties in the Sudbury Basin, the Timmins region of northern Ontario and the Belmont region of Eastern Ontario. FNI's shares are traded on the TSX under the symbol FNI.
Cautionary Statement Regarding Forward-Looking Information
Certain statements contained in this news release may contain forward-looking information about FNI. Forward-looking information can often be identified by the use of forward-looking terminology such as "anticipate", "believe", "continue", "budget", "forecast", "estimate", "schedule", "expect", "goal", "intend", "target", "potential", "objective", "may", "plan" or "will" or the negative thereof or variations thereon or similar terminology. Forward-looking information may include, but is not limited to: the continued operation of the Lockerby Mine; expectations of obtaining financing in the near term; future financial or operating performance of the Company and its projects; the future price of metals; the long term supply and demand for nickel; continuation of exploration activities; mineral reserve and mineral resource estimates; the realization of mineral resource estimates; costs of production and key supplies; capital, operating and exploration expenditures; forecasts of sales and production; costs and timing of the development of new and existing deposits; costs and timing of future exploration; the requirements for additional capital; government regulation of mining operations; environmental risks, reclamation expenses and/or title disputes or claims.
By its nature, forward-looking information is based on certain factors and assumptions which involve known and unknown risks, uncertainties and other factors which may cause the actual results, realization of mineral resources, performance or achievements of the Company, financial position or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Accordingly, actual events may differ materially from those implied by any forward-looking information. Readers are cautioned not to place undue reliance on forward-looking information, which speak only as of the date the statements were made and readers are also advised to consider such forward-looking information while considering the risk factors set forth in the management's discussion and analysis for the year ended December 31, 2012 under the heading "Risks and Uncertainties" and under the heading "Risk Factors" in the Company's Annual Information Form for the year ended December 31, 2012. The Company disclaims any intention or obligation to publicly update or otherwise revise any forward-looking information whether as a result of new information, future events or other such factors which affect this information or to explain any material difference between subsequent actual events and such forward-looking information, except as required by applicable law.
(1) Non-GAAP Financial Measures The cash cost per pound of nickel produced, and total production costs are non-GAAP financial measures that do not have a standardized meaning under International Financial Reporting Standards ("GAAP"), and as a result may not be comparable to similar measures presented by other companies. Management uses these statistics to monitor operating costs and profitability, and believes that certain investors use this information to evaluate the Company's performance and ability to generate cash flow in addition to conventional GAAP measures. Accordingly, it is intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Total cash production costs include mining costs, treatment costs, equipment operating lease costs, mine site general and administration costs, environmental costs, Vale royalty, transportation costs, and refining costs of concentrate, less by-product revenue from sales of copper, cobalt and PGE's. The cash cost per pound for the year ended December 31, 2012 was determined by dividing cash production cost for the commercial production period by payable nickel production in the same period.
Contacts:
First Nickel Inc.
Thomas Boehlert
President & CEO
416 362-7050
tboehlert@firstnickel.com
www.firstnickel.com
CHF Investor Relations
Robin Cook
Senior Account Manager
416 868 1079 x 228
robin@chfir.com