First Nickel Inc.
TSX : FNI

First Nickel Inc.

November 10, 2010 17:30 ET

First Nickel Reports Financial and Operating Results for the Three and Nine Month Period Ended September 30, 2010

TORONTO, ONTARIO--(Marketwire - Nov. 10, 2010) - First Nickel Inc. ("First Nickel" or the "Company") (TSX:FNI) announces that it has filed with the Canadian securities regulatory authorities its unaudited financial statements, and management's discussion and analysis for the three and nine month period ended September 30, 2010.

Complete results will also be available on SEDAR and on the Company's website at www.firstnickel.com. All dollar amounts are expressed in Canadian currency unless otherwise stated. 

Highlights / Summary

  • Significant progress made toward becoming fully funded for its capital and corporate needs
  • On August 25, 2010, the Company entered into an engagement letter with two international banks to arrange for a $30 million project loan facility
  • On September 1, 2010, the Company received a bridge loan of US$5 million from Resource Capital Fund IV L.P.
  • Subsequent to September 30, 2010, the Company announced a $25 million public equity offering and filed a final short form prospectus on November 5, 2010
  • The net loss for the three month period ended September 30, 2010 was $1,532,483, or $0.01 per share, compared to a net loss of $1,554,114, or $0.01 per share in the same quarter of 2009
  • Care and maintenance expenditures at Lockerby Mine in the third quarter were $1,078,515, bringing the year-to-date amount to $3,641,117
  • At September 30, 2010 the Company had net working capital of $4,956,385
  • Refurbishment activities have been initiated at Lockerby Mine

LOCKERBY DEPTH ZONE DEVELOPMENT FINANCING

The Company made great progress in the last several months toward securing full financing of its Lockerby Depth Development Project. The series of transactions as described below will, if successful, position the Company for a full launch of the development program early in 2011.

Bridge Loan – US$5 million

On September 1, 2010, the Company received a US$5 million Bridge Loan from Resource Capital Fund IV L.P. ("RCF IV"). The Bridge Loan matures on December 31, 2013 and bears an interest rate of 15% per annum, paid quarterly in cash or, at RCF's option, in common shares of the Company valued at the market price which equals the 5-day weighted average trading price of the Company's shares. The full amount of the loan will be used to commence capital development activities at the Lockerby Mine, including detailed engineering and commencement of activities to address a number of bottleneck items to ensure a smooth start-up of the main development program once full financing is arranged. 

Proposed Senior Debt Facility - $30 million

On August 25, 2010, the Company entered into an engagement letter to appoint Société Générale (Canada Branch) ("SocGen") and Commonwealth Bank of Australia ("CBA") (together the "Lead Arrangers") to act as exclusive lead arrangers for a senior secured project loan facility up to $30 million (the "Facility"). Any commitment by either Lead Arranger will be subject to, among other things, internal credit approval, due diligence, receipt of any government and regulatory approvals and definitive legal documentation, including the provision of a separate commitment letter. 

An initial cash arrangement fee was paid to the Lead Arrangers upon signing of the engagement letter and further arrangement fees are payable to the Lead Arrangers upon the acceptance of a commitment letter and upon the execution of the credit agreement evidencing the Facility. The engagement is also subject to a termination fee being paid to the Lead Arrangers in certain circumstances.

The proceeds of the Facility will be used to partially fund the direct and indirect development and start-up costs at the Company's Lockerby Depth Zone Project

At the end of the quarter the banks had completed their technical due diligence, and were well-advanced in legal due diligence.

Public Equity Offering - $25 million

The Company announced on October 28, that it is proceeding with an offering (the "Public Offering") of up to approximately 208,333,333 units of the Company ("Units") at a price of $0.12 per Unit for gross proceeds to the Company of approximately $25 million. Each Unit will be comprised of one common share in the capital of the Company (a "Common Share") and one-half of one Common Share purchase warrant (each whole warrant, a "Warrant"). Each Warrant will entitle the holder thereof to acquire one Common Share at a price of $0.17 until the second anniversary of the closing of the Public Offering.

In addition, it is expected that RCF IV will exchange approximately US$3,171,059.20 of its US$5 million Bridge Loan for 28,132,580 Units based on an exchange rate of C$1.0646/US$1.00 and a price of $0.12 per Unit in connection with the Public Offering. The remaining US$1,828,940.80 of the Bridge Loan is to be exchanged (for 16,225,753 Units) upon the Company obtaining the requisite shareholder approval (either by written shareholder approval or at a special meeting to be held as soon as possible after the closing of the Public Offering).

LOCKERBY MINE OPERATIONS

The Lockerby Mine has been on care and maintenance since October 19, 2008. 

The mine staff and a skeleton crew have continued to work hard at maintaining the facility at minimal cost and within budget. Securing the bridge loan from RCF allowed some capital activities to be initiated in anticipation of a full go-ahead upon completing financings. The Company has awarded the contract for detailed engineering studies, begun work on refurbishment of some of the infrastructure and started modifications to the materials handling system. By engaging in these activities now it hopes to eliminate potential bottlenecks for the development work.

On April 27, 2010 the Company signed a new collective agreement with the United Steelworkers who represent OCT (Office, Clerical and Technical) employees, and on July 23, 2010 an agreement was reached with the CAW for the P&M (Production and Maintenance) workers. Both of these agreements have three year terms to 2013.

RESULTS OF OPERATIONS

The following table presents a summary of the results of operations for the three and nine month periods ended September 30, 2010 and 2009:

    Three months ended     Nine months ended   
     September 30,      September 30,  
      2010 2009       2010 2009  
          (Unaudited)             (Unaudited)    
                         
Sales Revenue   $ -   $ -     $ -   $ 4,483,662  
                             
Operating costs excluding amortization     -               4,173,121  
Care and maintenance costs     1,078,515     935,230       3,641,117     3,494,172  
Accretion on asset retirement obligations     49,800     48,300       149,400     144,900  
Amortization of mining properties and equipment     -     -       -     719,631  
      1,128,315     983,530       3,790,517     8,531,824  
Operating loss from mining operations     (1,128,315 )   (983,530 )     (3,790,517 )   (4,048,162 )
General and administrative     367,950     350,620       1,472,336     1,423,826  
Stock-based compensation     1,500     5,181       4,500     352,218  
Depreciation and amortization     4,260     4,359       12,780     13,077  
Foreign exchange loss (gain)     (404,081 )   (64,979 )     (292,392 )   (122,209 )
Interest on loan facilities     302,058     177,948       773,098     177,948  
Accretion on convertible loan     136,081     92,525       398,587     92,525  
Interest and other expenses     5,297     20,045       20,428     179,865  
Loss on sale of marketable securities     -     -       -     21,429  
Interest and other income     (8,897 )   (15,115 )     (26,875 )   (79,399 )
      404,168     570,584       2,362,462     2,059,280  
Net loss for the period   $ (1,532,483 ) $ (1,554,114 )   $ (6,152,979 ) $ (6,107,442 )
Net loss per share-Basic and diluted   $ (0.01 ) $ (0.01 )   $ (0.04 ) $ (0.04 )
                             
Weighted average number of common shares outstanding     164,945,644     157,698,098       162,132,502     155,834,765  

For the three month period ended September 30, 2010 the Company recorded a net loss of $1,532,483, or $0.01 per share, compared to a net loss of $1,554,114, or $0.01 per share, recorded for the three month period ended September 30, 2009. The Company has recorded a full valuation allowance against any income tax recovery.

No sales revenue was recorded in the three and nine month period ended September 30, 2010. The nine month period ended September 30, 2009 included only one month of sales revenue as the Company suspended mining operations at the Lockerby Mine in October 2008, and therefore only had one month of production available for settlement in 2009.

Care and maintenance costs of $1,078,516 recorded in the third quarter of 2010 are on budget, and are $140,186 (12%) and $265,384 (20%) lower than the costs recorded in the first and second quarter of 2010, respectively. These expenditures include ongoing costs of the staff retained at the mine site, energy, taxes, insurance, equipment rentals and materials required to maintain the mine. 

General and administrative expenses totaled $367,950 in the third quarter of 2010, slightly higher than the $350,620 recorded in the third quarter of 2009. The increase is mostly attributable to higher consulting fees.

Stock-based compensation costs of $1,500 recorded in the third quarter of 2010 relate to previously granted stock options with graded vesting schedule. No stock options were granted during the first nine months of 2010.

A foreign exchange gain of $404,081 was recorded in the third quarter of 2010, versus an exchange gain of $64,979 in 2009. Exchange gains or losses arise from the revaluation of the US dollar cash balances, and the US dollar Convertible Loan and Bridge Loan account.

The interest on the loan facilities amounted to $302,058 ($235,520 on the Convertible Loan and $66,538 on the Bridge Loan) in the third quarter of 2010. RCF notified the Company of its option to receive common shares of the Company in payment of this interest. A total of 3,069,392 common shares were issued to RCF in full satisfaction of this liability. 

Interest and other expenses of $5,297 recorded in the third quarter of 2010 include costs incurred on mineral properties that were previously written off. 

Interest and other income is mostly made up of interest earned on cash balances, and on short term deposits. The lower interest income in 2010, compared to 2009, mainly reflects lower interest rates.

2010 – 2011 Outlook

The Company is confident that its financing goals will be satisfied by year-end, and therefore it expects to fully launch the Lockerby Depth Zone Project in 2011, with first shipments of ore by mid-year 2011.

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 – Standards of Disclosure for Mineral Projects ('NI 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 press releases.

First Nickel is a Canadian mining and exploration Company, whose principal asset is the Lockerby Mine near Sudbury, Ontario. In addition to its Lockerby operation, the Company maintains an active exploration program on projects near the mine around Sudbury, and elsewhere in Ontario. First Nickel's shares are traded on the TSX under the symbol FNI.

Some of the statements contained in this news release are forward-looking statements, such as statements that describe First Nickel's future plans, intentions, objectives or goals, and specifically include but are not limited to the completion of the proposed Facility and additional financing initiatives, and the launch of the full development program on Lockerby Depth Zone Project in 2011. In certain cases, forward-looking statements can be identified by the use of words such as "expects", "will", "enable", "anticipates", "estimated" or words of similar effect. Since forward-looking statements are not statements of historical fact and address future events, conditions and expectations, forward-looking statements inherently involve unknown risks, uncertainties, assumptions and other factors well beyond the Company's ability to control or predict. Actual results and developments may differ materially from those contemplated by such forward-looking statements depending on, among others, such key factors as negotiating and entering into definitive agreements for the Facility, completion of the Facility, fluctuating metal prices, completion of additional financing initiatives, maintaining operating and exploration teams, continued care and maintenance of the Lockerby Mine, and other factors described in the Company's most recently filed Annual Information Form under the heading "Risk Factors" which has been filed electronically by means of the System for Electronic Document Analysis and Retrieval ("SEDAR") located at www.sedar.com. The forward-looking statements included in this document represent First Nickel's views as of the date of this document and subsequent events and developments may cause First Nickel's views to change. These forward-looking statements should not be relied upon as representing First Nickel's views as of any date subsequent to the date of this document. Although First Nickel has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. Accordingly, readers should not place undue reliance on any forward-looking statements.

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