First Nickel Inc.
TSX : FNI

First Nickel Inc.

March 27, 2009 19:24 ET

First Nickel Reports Financial and Operating Results for the Year Ended December 31, 2008

TORONTO, ONTARIO--(Marketwire - March 27, 2009) - First Nickel Inc. ("First Nickel" or the "Company") (TSX:FNI) announces that it has filed with the Canadian securities regulatory authorities its audited financial statements, and management's discussion and analysis for the year ended December 31, 2008.

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

- A net loss of $24.2 million was recorded in 2008. The loss includes the write off in the fourth quarter of $16.9 of deferred exploration costs incurred on the Premiere Ridge, Dundonald and Morgan-Lumsden properties.

- Operations at the Lockerby Mine were suspended on October 19, 2008 due to low nickel prices, and the mine was placed on care and maintenance.

- Despite an abbreviated operating year, the mine achieved the lower end of its full year production target range by producing 3,762,538 pounds of payable nickel in 2008, versus 3,231,766 in 2007.

- Cash cost per pound of nickel produced for the year was US$7.46, compared to US$10.03 in 2007, and for the last four months of operations in 2008 the cash cost averaged US$5.87.

- Mine operating cost per tonne averaged $213 in 2008 compared to $268 in 2007, and the final four months of operations averaged $165.

- At December 31, 2008 the Company was debt-free, and net working capital was $8,377,065, compared to $23,980,340 in 2007.

Financial Results

The following table presents a summary of the results of operations for the three and twelve month periods ended December 31, 2008 and 2007:




Three months ended Twelve months ended
December 31, December 31,
2008 2007 2008 2007
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Sales Revenue $12,100,505 $ 15,333,945 $48,185,519 $56,925,326
-------------------------- -------------------------

Operating costs
excluding
amortization 12,715,417 10,402,686 47,486,578 39,490,509
Termination, care
and maintenance
costs 2,505,750 - 2,505,750 -
Accretion of asset
retirement
obligations 46,780 47,310 187,780 182,310
Amort. of mining
properties &
equipment 2,153,481 1,018,896 5,955,330 3,645,688
-------------------------- -------------------------
17,421,428 11,468,892 56,135,438 43,318,507
-------------------------- -------------------------
Operating profit
(loss) from
mining operations (5,320,923) 3,865,053 (7,949,919) 13,606,819
-------------------------- -------------------------

General and
administrative 957,956 619,338 2,529,846 2,128,618
Stock-based
compensation 181,251 639,271 822,647 2,742,978
Foreign exchange
loss (gain) 440,818 (242,506) 739,094 (319,343)
Write off of
mineral resource
properties and
deferred exploration
costs 16,923,266 5,396,955 16,923,266 5,396,955
Amortization 6,051 7,485 24,204 29,940
Debenture interest
and accretion - - - 1,266,201
Other interest 55,110 409,379 345,505 864,087
Interest and other
income (114,759) (329,610) (671,708) (1,017,667)
-------------------------------------------------------
18,449,693 6,500,312 20,712,854 11,091,769
-------------------------------------------------------

Earnings (loss)
before taxes (23,770,616) (2,635,259) (28,662,773) 2,515,050

Provision for
(recovery of)
future income and
mining taxes (2,914,986) (926,032) (4,454,711) 1,700,696
-------------------------------------------------------

Net earnings (loss)
for the period $(20,855,630) $ (1,709,227) $(24,208,062) $ 814,354
-------------------------------------------------------


Net earnings (loss)
per share:
- basic and diluted $ (0.14) $ (0.02) $ (0.17) $ 0.01


A net loss of $20,855,630 was recorded in the fourth quarter of 2008, compared with a net loss of $1,709,227 in the fourth quarter of 2007. The fourth quarter loss is mostly due to the write off of $16,923,266 of deferred exploration costs incurred on the Premiere Ridge, Dundonald and Morgan-Lumsden properties, termination and care and maintenance costs of $2,505,750 on the suspension of operations at Lockerby Mine, and lower sales revenue due to a declining nickel price. The deferred exploration costs written off were mostly incurred prior to 2008 and did not have a material impact on the 2008 cash flow. For the year ended December 31, 2008, the Company recorded a net loss of $24,208,062, or $0.17 per share, compared to net earnings of $814,354, or $0.01 per share, in 2007.

Sales revenue from the sale of nickel, copper and cobalt for the three month period ended December 31, 2008 (the "fourth quarter of 2008") decreased by $3.2 million (21%), compared with the three month period ended December 31, 2007 (the "fourth quarter of 2007"). Higher nickel (26%) and copper (34%) metal sales were offset by a reduction in the realized nickel price of 55%, and in the copper price of 23%.

On a full year basis, the 2008 revenues decreased by $8.7 million (15%). An increase of $3.3 million (37%) in the copper, cobalt and other metal revenues (resulting from overall higher sales volume) was offset by a decrease of $12.0 (25%) in the nickel revenues. Although nickel sold during 2008 was 814,152 pounds higher (26%) in 2008 versus 2007, a drop in the average realized nickel price of US$5.88 (40%) from US$14.67 to US$8.79 more than offset the higher volume.

The following table sets out selected sales information for the periods indicated:



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4th Q 2008 4th Q 2007 2008 Total 2007 Total
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Sales by Payable Metal
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Nickel - pounds 1,300,240 1,032,334 3,896,633 3,082,481
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Copper - pounds 846,105 631,287 2,473,745 2,005,190
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Cobalt - pounds 24,346 18,373 73,005 54,557
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Average price received -
US$/lb
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Nickel $5.59 $12.40 $8.79 $14.67
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Copper $2.50 $3.25 $3.09 $3.09
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Cobalt $17.79 $32.36 $32.54 $28.43
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Average Exch. Rate Realized
---------------------------------------------------------------------------
US $1 equals Canadian $ $1.2098 $0.9794 $1.0608 $1.0650
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Operating costs, including treatment and refining charges, increased by 22% to $12.7 million in the fourth quarter of 2008 from $10.4 million in the fourth quarter of 2007. Higher tonnes treated (30%) mostly accounts for the increase in operating costs. On a year-to-date basis, operating costs, including treatment and refining charges, increased by 20% in 2008 compared to 2007. An overall increase in material and supplies, along with higher trucking, treatment and refining charges as a result of higher tonnes treated (36%), have accounted for the increase in operating costs.

General and administrative expenses in the fourth quarter of 2008 and for the year ended December 31, 2008, increased by 55% and 19%, respectively, compared to the same periods for 2007. The higher 2008 expenditures reflect an increase in compensation costs, directors fees and business development costs.

The stock-based compensation costs in the fourth quarter and for the 2008 year reflect the fair value of options granted that have vested in the current period. The lower cost in 2008 is due to the lower volume of stock options granted in the year. The Company uses the Black-Scholes pricing model in its valuation of the options.

Other interest is mostly comprised of interest paid on advances received from Xstrata on the ore delivered to their facilities. As a result of lower nickel prices realized in 2008, the advances from Xstrata were lower in 2008 compared to 2007, resulting in lower interest paid. Other interest in 2007 included interest paid (Part XII.6) to Canada Revenue Agency regarding flow through expenditures incurred in prior years.

Interest and other income is mostly made up of interest earned on cash balances, and on term deposits. The lower interest income in 2008 reflects lower interest rates, and lower cash balances.

Lockerby Mine Operations

During 2008, 136,453 tonnes of ore were delivered to the Xstrata treatment facilities, an increase of 11,793 tonnes, or 9%, over the 124,660 tonnes of ore delivered in 2007. Production for the year 2008 consisted of only 10 months due to placing the Lockerby Mine on care and maintenance in October. The payable metals content in the ore for 2008 was 3,762,538 pounds of nickel (an increase of 16% over 2007) and 2,280,933 pounds of copper (an increase of 4% over 2007). Both ore production and payable metal content were the highest in the Company's history. The cash cost per pound of nickel dropped to US$7.46 in 2008. This is US$2.57 (26%) lower than the US$10.03 incurred in 2007.

Selected operating statistics for the year ended December 31, 2008, compared to the total 2007 year, are as follows:



----------------------------------------------------------------------------
Item Q1 Q2 Q3 Q4(ii) TOTAL TOTAL
2008 2007
----------------------------------------------------------------------------
Ore Delivered to
Mill (tonnes) 39,655 31,930 47,309 17,558 136,453 124,660
----------------------------------------------------------------------------
Nickel Mill Head
Grade (%) 1.46 1.90 1.65 1.67 1.66 1.57
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Copper Mill Head
Grade (%) 0.82 0.89 0.93 0.86 0.88 0.92
----------------------------------------------------------------------------
Payable Nickel
(pounds) 944,182 1,031,267 1,300,240 486,849 3,762,538 3,231,766
----------------------------------------------------------------------------
Payable Copper
(pounds) 602,052 544,949 846,105 287,827 2,280,933 2,186,068
----------------------------------------------------------------------------
Payable Cobalt
(pounds) 17,545 18,543 24,346 9,096 69,530 59,291
----------------------------------------------------------------------------
Mine operating
cost per tonne $238 $277 $173 $142 $213 $268
----------------------------------------------------------------------------
Cash cost per
pound of
nickel(i) $9.73 $8.19 $5.96 $5.64 $7.46 $10.03
----------------------------------------------------------------------------

(i) Cash cost per pound of nickel are in US dollars, and is a non GAAP
measure and is net of other metal credits, and does not include
amortization of mining properties and equipment.
(ii) Reflects only one month.


Over the course of the year, the mine made great strides in improving productivity and overall performance, and these changes are reflected in the unit costs. Development productivity also improved, but in August capital spending was cut drastically to conserve cash in the face of the declining market conditions. At the end of the year, development in the ramp was within 120 metres of the 65-2 sublevel.

Suspension of Operations at Lockerby

The decision to place the Lockerby Mine on care and maintenance program as of October 19, 2008 followed the rapid decline in the price of nickel from around US$10 per pound at the beginning of the third quarter, to under US$6 per pound at the beginning of October, 2008. By this time, cash costs per pound of nickel had been driven down to below US$6, but given the three month lag in settlement of the metal purchase the prudent action was to suspend operations. About 150 employees at the Lockerby Mine were affected.

Exploration Activity

Exploration programs continued to focus mainly on the Company's Sudbury properties in 2008. A majority of the Company's exploration costs were expended on the Lockerby Mine Property.

A total of 128 drill holes representing 39,596 metres of core were completed on 3 properties in 2008 (refer to the table below) and selected holes were surveyed using the latest in borehole geophysical techniques.



-----------------------------------------------------------------
SURFACE UNDERGROUND TOTALS
-----------------------------------------------------------------
# Holes Metres # Holes Metres # Holes Metres
-----------------------------------------------------------------
Lockerby 7 6,390 103 22,119 110 28,509
-----------------------------------------------------------------
Premiere
Ridge 0 0 0 0 0 0
-----------------------------------------------------------------
West Graham 13 5,473 0 0 13 5,473
-----------------------------------------------------------------
Dundonald 0 0 0 0 0 0
-----------------------------------------------------------------
Morgan-
Lumsden(i) 5 5,659 0 0 5 5,659
-----------------------------------------------------------------
TOTALS 25 17,522 103 22,119 128 39,641
-----------------------------------------------------------------


A total of 25 exploration diamond drill holes, totaling 14,337 metres of diamond drill core, were completed at the Lockerby Mine in 2008. Exploration drilling consisted of 18 underground holes totaling 7,947 metres on the Lockerby footwall program and 7 surface holes totaling 6,390 metres on the Lockerby East Zone were completed in 2008. A further 85 diamond drill holes, totaling 14,172 metres of drilling, were completed as part of a resource definition program on the Lockerby Upper West and Lockerby East zones by the Company to December 31, 2008. Borehole geophysical surveys were completed on selected surface and underground drill holes.

No significant mineralization was observed within the footwall during the 2008 footwall drill program. However, a hole designed to pierce an untested portion of the Sudbury Igneous Complex (SIC) basal contact to the east of the Lockerby Main Zone intersected 0.7 metres of breccia sulphides at the contact, grading 4.34% Ni and 0.12% Cu, and represents an area of previously unknown contact style mineralization. The 2008 footwall program was not completed due to the suspension of underground activities at the mine.

The surface drill program on the Lockerby East Mining Claim tested the up-plunge potential of the contact style mineralization associated with the Lockerby East Zone and the down-plunge potential of the hanging wall hosted Conwest Deposit located to the south on the adjoining West Graham property. Drilling intersected mainly hanging wall hosted disseminated sulphide mineralization with similar characteristics to the Conwest Deposit. Two additional holes tested previously unexplored portions of the SIC basal contact to the east of the Lockerby East trend. No significant sulphide mineralization was observed in either of these holes. Borehole geophysics will be completed on selected drill holes in 2009.

On the West Graham property, the drilling results of the past several years were used as the basis for a 43-101 resource estimate announced February 10, 2009.

The Company completed reconnaissance geological work in late 2008 on its Raglan Hills and Belmont projects. Diamond drilling is planned for early 2009.

2009 Outlook

In June 2008, the Company announced the completion of a 43-101 pre-feasibility report on the Depth Zone prepared by GENIVAR Limited Partnership. The financial analysis showed the project had promise but total capital requirement was $85 million, and metal prices, notably nickel, needed to average better than US$9 per pound. The capital development program was also assumed to run concurrently with production at then current levels.

It was concluded that many elements of the mine plan were sound, but the project needed to be more robust, required higher margins in anticipation of more modest future metal prices, and the capital needs had to be reduced. Therefore, during the latter half of 2008, the resources estimates were estimated using a higher cut-off grade in the model to generate a higher grade and a more tightly constrained orebody, and from this GENIVAR constructed a new reserve, and advanced the engineering and economic studies to full feasibility.

Subsequent to the end of the fourth quarter, new mineral resource models were completed for the Lockerby Mine and the results were announced in a press release on February 23, 2009.

The Indicated resources in the Depth Zone were then incorporated into a full feasibility study by GENIVAR. The Company received the final results of the Feasibility Study on the development and mining of the Lockerby Depth from Genivar on February 27, 2009.

The Feasibility Study derived the reserves from an estimated Indicated mineral resource of 1.42 million tonnes grading 2.58% nickel, 1.60% copper and 0.098% cobalt at a 1.5% nickel equivalent cut-off grade. Conversion of the resources to reserves, above the 70 Level, yielded a Probable mineral reserve of 1.44 million tonnes grading 2.23% nickel, 1.36% copper and 0.083% cobalt. Reserves were estimated using 20% dilution, 90% overall mining recovery, and a 1.5% nickel equivalent cut-off grade.

The Lockerby Depth Project Mine Plan schedule extracting the Probable mineral reserves would last approximately 6.5 years, consisting of 1.0 year of preproduction and 5.5 years of development and production, at a full production rate of 800 tonnes per day, or 280,000 tonnes per year. The mining method proposed is longhole stoping between the 65-3 and 70 levels utilizing a transverse accessed blasthole stope design.

In comparison to recent production, the critical elements of the capital plan that will increase output and reduce unit costs are ensuring that development is well in advance of production, optimized mine sequencing in the production schedule, replacing the haulage fleet and improving ore handling, the ventilation system, cooling strategy and backfill handling.

Metal production would total 51.7 million pounds payable nickel, 34.4 million pounds payable copper, and 1.0 million pounds payable cobalt. Unit cash operating costs net of by-product credits are estimated at US$4.50 per pound of nickel over the 6.5 year mine plan. Mine operating costs are estimated to average $155/tonne.

The Study indicates that the project has an internal rate of return of 40.5% and would generate an undiscounted pre-tax, pre-finance cumulative cash flow of $65.4 million after capital recovery, assuming average metal prices of US$7.00/lb Ni, US$ 2.00/lb Cu, and US$ 17.00/lb Co. An exchange rate of $US0.82/ $C was used for the study. Based on a 10% discount rate, the project has a $34.1 million NPV as calculated by GENIVAR.

Capital expenditures and ongoing investments, including a 10% contingency, are estimated to total $69.8 million, of which $37.6 million is required during the preproduction phase.

With the completion of the full feasibility, management is of the view that the Company has a solid and conservative well-engineered mine plan that is low risk and requires modest capital, and will generate good returns at metal prices anticipated when the development and capital plan are forecast to be completed. Moreover, the plan has substantial upside in management's view due to:

- very high probability that mining will continue on deeper extensions of the Depth Zone, which are already identified but not in the present plan;

- very high probability that other resources on the property such as in the East Zone will be converted to reserves and incorporated into production plans; and

- the extension of existing exploration programs will identify additional resources.

The Company intends to use the positive mine plan, and the robust economics referred therein, to pursue financing alternatives in 2009

Non-GAAP Performance Measures

This press release contains non-GAAP measures like operating cost per tonne of ore, net cash cost per pound of nickel, etc. Please see the Company's MD&A on SEDAR for discussion on non-GAAP performance measures.

First Nickel is a Canadian mining and exploration Company. Its current activities are primarily focused on the Sudbury Basin in northern Ontario, the location of the company's producing property (the Lockerby Mine) and four of its exploration properties. First Nickel also has two exploration properties in the Timmins region of northern Ontario. First Nickel's shares are traded on the TSX under the symbol FNI.

This news release contains forward-looking statements, which are subject to certain risks, uncertainties and assumptions, including the cash flows, metal prices, decrease costs, increase output, expected production, and expected exploration expenditures. A number of factors could cause actual results to differ materially from the results discussed in such statements, and there is no assurance that actual results will be consistent with them. Such factors include fluctuating metal prices, lower unit costs and other factors described in the Company's most recent 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. Such forward-looking statements are made as at the date of this news release, and the company assumes no obligation to update or revise them, either publicly or otherwise, to reflect new events, information or circumstances, except as may be required under applicable securities law.

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