First Nickel Reports Third Quarter 2012 Financial and Operating Results
14.11.2012 | Marketwire
Lockerby Mine Reaches 80% of Full Production With Cash Costs of $6.21 Per PoundTORONTO, ONTARIO -- (Marketwire) -- 11/13/12 -- First Nickel Inc. ("FNI" or the "Company") (TSX: FNI) announces its results for the third quarter ended September 30, 2012. The Company's condensed unaudited financial statements and management's discussion and analysis for the period have been filed with 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 September 30, 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.
-- Production: Payable nickel production was 2.0 million pounds during the
third quarter of 2012, an increase of 25% over the previous quarter, and
4.9 million pounds year-to-date, both of which are at the upper end of
previously stated guidance. Payable copper production was 1.4 million
pounds during the quarter, an increase of 17% over the previous quarter,
and 3.4 million pounds year-to-date, both of which are at the upper end
of guidance. Production levels reached 80% of full production during the
third quarter of 2012.
-- Revenue: Revenue during the third quarter of 2012 totaled $23.9 million.
-- Total Cash Production Costs: Operating costs net of by-product revenue
were $12.6 million during the quarter, or $6.21(1) cost per pound of
nickel produced, which is below the lower end of previously stated
guidance.
-- Cash Flow: Operating cash flow before working capital adjustment was
$2.8 million for the quarter.
-- Liquidity: Unrestricted cash was $5.1 million at the end of the quarter.
-- New Mine Plan: A new Lockerby Mine plan was issued in July 2012,
indicating an $87 million NPV and a reduction of more than 100,000 waste
tonnes.
-- Development: Ramp development totaled 179 metres in the third quarter
compared to 147 metres in the second quarter, and lateral development
totaled 422 metres during the third quarter of 2012 compared to 345
metres in the second quarter.
(1) For additional information, see Non-GAAP Financial Measures section.
CEO Commentary
Mr. Thomas M. Boehlert, President and CEO of FNI, commented, "FNI continues to increase the production rates at the Lockerby Mine, consistent with our guidance, on the way to achieving the objectives of full production with total cash production costs of approximately $6.00 per pound of nickel by the end of this year. The hard work and contributions of our employees at the Lockerby Mine have been the keys to our success. We will continue to focus on maintaining the momentum we have built up at Lockerby in conjunction with our corporate strategy to grow the Company."
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 $23.9 million and cost of goods sold of $19.7 million for the third quarter, with a net operating loss of $1.4 million for the quarter ($3.8 million year-to-date).
The following table presents a summary of the results of operations for the three and nine months ended September 30th:
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For the three months ended For the nine months ended
September 30, September 30,
Unaudited, Canadian $ 2012 2011 2012 2011
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Revenue $ 23,860,876 $ - $ 23,043,241 $ -
Cost of goods sold 19,684,443 - 19,684,443 -
Depreciation 4,179,587 - 4,179,587 -
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Income (loss) from
mine operations (3,154) - (820,789) -
Expenses
General and
administrative 1,204,156 815,702 2,944,941 2,106,977
Stock-based
compensation 242,295 366,595 822,112 482,029
Depreciation and
amortization 3,060 3,060 9,180 9,180
Foreign exchange loss 141,715 314,788 55,068 65,458
Financing costs on
convertible loan 235,520 235,520 706,560 722,786
Change in fair value
of equity conversion
option (890,852) (4,059,983) (3,155,067) (3,675,564)
Accretion on
convertible loan 550,846 84,525 1,566,130 749,820
Accretion of
reclamation
liability 24,840 41,892 74,283 124,958
Gain on forward sales
agreements - (33,117,041) - (33,117,041)
Other income (1,507) (35,661) (80,895) (190,087)
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1,510,073 (35,350,603) 2,942,312 (32,721,484)
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Operating (loss)
income before taxes (1,513,227) 35,350,603 (3,763,101) 32,721,484
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Income & mining taxes (79,684) (46,771) 41,909 (46,771)
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Net (loss) earnings
and comprehensive
(loss) earnings $ (1,433,543) $ 35,397,374 $ (3,805,010) $ 32,768,255
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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 third quarter of 2012 there was one lost time injury.
Production
For the three months ended September 30, 2012, 60,060 tonnes of ore was mined at Lockerby, producing an estimated 2.0 million pounds of payable nickel at an average estimated head grade of 2.28% and an estimated 1.4 million pounds of payable copper at an estimated head grade of 1.48%.
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For the three months For the nine months
ended September 30, ended September 30,
2012 2011 2012 2011
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Tonnes of ore produced 60,060 - 150,601 -
Production
Payable nickel (pounds) 2,027,000 - 4,927,000 -
Payable copper (pounds) 1,396,000 - 3,396,000 -
Nickel head grade 2.28% - 1.99% -
Copper head grade 1.48% - 1.27% -
Tonnes of ore shipped 58,674 - 149,840 -
Tonnes of ore milled 34,373 - 99,448 -
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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 of 82.2%, and an estimated average copper recovery rate of 92.1%.
Revenue
Revenue is affected by tonnes of ore, grade, recoveries, commodity prices and currency exchange rates. Metal sales are recognized at provisional prices when ore is delivered to Xstrata. Final settlement pricing 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. Adjustments to the estimates are recognized once Xstrata processes the ore at the Strathcona mill and ascertains the actual volumes, grades and recoveries. Sales are adjusted to market values at each reporting date based on future metal prices. All market adjustments for processed metals are recorded in sales revenue. The final pricing adjustments can result in an increase in revenue in a rising commodity price environment or a reduction in revenue in a declining commodity price environment. Similarly, a weakening in the Canadian dollar relative to the US dollar will result in additional revenues and a strengthening dollar will result in reduced revenues. The Company sometimes enters into forward sales agreements, to mitigate provisional pricing exposure to rising or declining nickel and copper prices.
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For the three months For the nine months
ended September 30, ended September 30,
Canadian $ 2012 2011 2012 2011
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Provisional nickel revenue(1) $ 15,291,289 $ - $ 37,154,535 $ -
Nickel volume adjustment (338,885) - (338,885) -
Nickel price adjustment 1,864,487 - (1,004,904) -
Provisional by-product
revenue 5,614,000 13,978,000
By-product price and volume
adjustment 1,374,037 1,297,375
Forward sales agreements 55,948 - 94,719 -
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Total revenue 23,860,876 51,180,840
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Less: pre-production revenue - - (28,137,599) -
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Revenue after adjustments $ 23,860,876 $ - $ 23,043,241 $ -
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(1) Year to date revenue includes pre-production capitalized revenue.
Operating Expenses
Operating costs net of by-product revenue and capitalized pre-production amounts were $12.6 million and $12.8 million for the three and nine months ended September 30, 2012, respectively. Operating expenses 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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For the three months For the nine months
ended September 30, ended September 30,
Canadian $, except production
amounts 2012 2011 2012 2011
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Cost of goods sold(1) $ 19,684,443 $ - $ 54,560,443 $ -
Provisional by-product
revenue (5,534,717) - (13,898,717) -
By-product revenue - volume
and price adjustments (1,374,037) - (1,297,375) -
Forward sales agreements (177,928) - (216,699) -
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Operating costs (net of by-
product revenue) 12,597,761 - 39,147,652 -
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Less: pre-production costs
and by-product revenue - - (26,308,246) -
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Operating costs (net of by-
product revenue and pre-
production costs) $ 12,597,761 $ - $ 12,839,406 $ -
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Payable nickel production
(pounds) 2,027,000 - 4,927,000 -
Cash cost per pound of
nickel(1) produced $ 6.21 $ - $ 7.95 $ -
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(1) Year to date cost of goods sold includes pre-production capitalized
expenses.
Pre-Commercial Production and Revenue
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 Operations and Comprehensive Income. Ore production during the first half of 2012 was 90,541 tonnes (500 tonnes per day) with an estimated 2.9 million pounds of payable nickel and 2.0 million pounds of payable copper produced. The Company recognized $30.4 in capitalized revenue and incurred $34.9 million of capitalized operating costs.
Capital
The Company acquired $4.6 million of capital assets during the third quarter ($20.9 million year-to-date), including $2.7 million in development costs ($6.8 million year-to-date).
The development rate for the third quarter averaged 6.8 metres per day, compared to 5.4 metres per day in the second quarter, and 6.0 metres per day year to date. While the rate has been improving, the rate remains below the originally planned 10.5 metres per day.
As a result of the experience to date, the life-of-mine plan has been updated, which contemplates an average development rate of 8.8 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.
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.
In the third quarter of 2012, exploration expenditures totaled $0.4 million ($0.3 million at Belmont and $0.1 million at the Link Zone).
As of September 30, 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 third quarter of 2012 is summarized below:
Belmont - Exploration programs completed in the third quarter included surface mapping and sampling over target areas defined by the airborne geophysical survey. Results of the summer mapping and sampling program will be evaluated and further exploration programs will be proposed if warranted.
Raglan Hills - A surface trenching and mapping program was completed on the ML North PGE Zone and the Henderson graphite zone in the third quarter. Results of the summer trenching program will be evaluated and further exploration programs will be proposed if warranted.
Link Zone - A total of 2,700 metres of diamond drilling were completed in 3 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.
2012 Outlook
Third quarter results are within previously disclosed guidance ranges outlined below, and the Company expects to continue to perform within those guidance ranges for the balance of the year.
- Full production during Q4 2012.
- Production of between 6.3 million to 7.4 million pounds of payable nickel for the year.
- Total cash production costs estimated to be $56.2 million to $61.4 million.(1)
- Total cash production costs of $6.00 per lb(1) of nickel by year end.
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Canadian $ millions,
except metals H1 H2 Q4
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Payable nickel (millions
of pounds) 2.5 - 2.9 3.8 - 4.5 2.1 - 2.5
Payable copper (millions
of pounds) 1.8 - 2.0 2.7 - 3.0 1.4 - 1.6
Total Cash Production
Costs(1) $27.8 - $30.2 $28.4 - $31.2 $15.1 - $16.6
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Assumptions: Ni per lb - US$8.50, Cu per lb - US$3.25, CAD/USD $1.00
The Company expects to be at or near the full production rate of 10 million pounds of payable nickel per annum in the fourth quarter of 2012.
The Company has reviewed the exploration programs for 2012 and has adjusted total expenditures to approximately $2.4 million for the year, down from its previously planned $3.4 million. As of September 30, 2012, the Company had completed the first phase of the Link Zone and the Raglan Hills drill programs, and all drills have been demobilized from the properties.
The Company continues to believe in the long-term supply/demand fundamentals for nickel and copper. The Company is also committed to a prudent and disciplined approach to managing our business and allocating capital. We are continuing to monitor nickel prices and will take the actions necessary to best protect and generate shareholder value and returns through the commodity price cycle.
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 (expected by end of 2012), 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, 2011 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, 2011. 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 three months ended September 30, 2012 was determined by dividing cost of goods sold by payable nickel production; cash cost per pound for the nine months ended September 30, 2012 was determined by dividing total costs by payable nickel production.
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