First Nickel Inc.
TSX : FNI

First Nickel Inc.

May 15, 2013 17:00 ET

First Nickel Reports First Quarter 2013 Financial and Operating Results

Lockerby Mine reaches full production with cash costs of $5.44 per pound

TORONTO, ONTARIO--(Marketwired - May 15, 2013) - First Nickel Inc. ("FNI" or the "Company") (TSX:FNI) announces its results for the three months ended March 31, 2013. 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 March 31, 2013. 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 FIRST QUARTER 2013

  • Full production: The Lockerby Mine produced 2.7 million pounds of payable nickel and 1.8 million pounds of payable copper, achieving its full annualized production rate of 10 million pounds of payable nickel during the quarter.
  • Revenue: Revenue for the three months ended March 31, 2013 was $26.8 million.
  • Total cash production costs1: Cash production costs were $21.7 million for the quarter, or $5.44 cash production cost per pound of nickel produced.
  • Development: Ramp development totaled 145 metres during the period, and lateral development totaled 553 metres during the period.
  • Net loss: The Company had a net loss of $0.9 million for the period.
  • Liquidity: Cash flow from operations before working capital adjustments was $3.2 million during the quarter and the unrestricted cash balance at March 31, 213 was $6.5 million. The Company closed $10 million of shareholder loan financing during the quarter.

CEO Commentary

Mr. Thomas M Boehlert, President and CEO of FNI said, "Attaining full production in the first quarter at the Lockerby Mine marks a significant achievement for the Company, and coupled with the completion of the refinancing, sets the stage to move the Company forward. The Lockerby operations team demonstrated their strong commitment by exceeding production expectations while at the same time, maintaining a safe environment. Recognizing the challenging metal price environment, the Company is actively identifying opportunities to reduce expenditures and ensure that Lockerby's full potential is realized."

Summary of Financial and Operating Results

The Company reported revenue of $26.8 million, cash production costs of $21.7 million, and net operating earnings of $0.3 million for the period.

The following table presents a summary of the results of operations for the three months ended March 31:

Canadian $, except for share amounts 2013 2012
For the three months ended March 31,
Revenue $ 26,772,605 $ -
Cost of goods sold 21,670,770 -
Depreciation 3,642,486 -
Operating Income 1,459,349 -
Expenses
General and administrative 1,047,761 894,293
Stock-based compensation 136,316 334,970
Depreciation and amortization 2,509 3,060
Interest on convertible loan 235,520 235,520
Change in fair value of equity conversion option (736,356 ) 663,765
Accretion on convertible loan 771,070 423,501
Accretion of reclamation liability 17,877 24,682
Financing costs 187,253 -
Interest expense 331,025 -
Foreign exchange loss 100,120 (86,647 )
Other income - -
Other expenses 261,669 (57,020 )
2,354,764 2,436,124
Operating loss before taxes (895,415 ) (2,436,124 )
Income & mining taxes (recovery) - 62,284
Net loss and comprehensive loss $ (895,415 ) $ (2,498,408 )
Earnings (loss) per share - basic and diluted $ - $ (0.01 )
Weighted average number of common shares outstanding - basic 530,839,250 510,230,857

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 three months ended March 31, 2013, there were no lost time injuries or reportable environmental incidents.

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 three months ended March 31, 2013, 59,877 tonnes of ore were mined at Lockerby, producing an estimated 2.7 million pounds of payable nickel at an average estimated head grade of 2.79% and an estimated average nickel recovery of 81.1%, and an estimated 1.8 million pounds of payable copper at an estimated head grade of 1.61% and an estimated average copper recovery of 92.1%.

For the three months ended March 31, 2013 2012
Tonnes of ore produced 59,877 43,792
Production (estimated)
Estimated payable nickel (pounds) 2,698,719 1,200,000
Estimated payable copper (pounds) 1,832,162 900,000
Nickel head grade 2.79 % 1.69 %
Copper head grade 1.61 % 1.03 %
Tonnes of ore shipped 61,062 41,202
Tonnes of ore milled 49,054 25,933

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 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 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 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 three months ended March 31, 2013 2012
Provisional nickel revenue $ 20,190,061 $ -
Nickel quantity adjustment 667,157 -
Nickel price adjustment (504,447 ) -
Provisional by-product revenue 7,074,899 -
By-product price and quantity adjustment - current period (56,981 )
By-product price and quantity adjustment - prior period (446,682 ) -
Forward sales agreements (151,402 ) -
Total revenue $ 26,772,605 $ -
Cash production costs

Cash production costs net of by-product revenue and capitalized pre-production amounts were $14.7 million for the three months ended March 31, 2013. 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.

Canadian $, except production amounts and USD amounts as specified
For the three months ended March 31, 2013 2012
Cost of goods sold $ 21,670,770 $ -
Provisional by-product revenue (7,074,899 ) -
By-product revenue - quantity and price adjustments 56,981 -
Forward sales agreements related to by-products 25,742 -
Cash production costs (net of by-product revenue) 14,678,594 -
Estimated payable nickel production (pounds) 2,698,719 -
Cash production cost per pound of nickel2 $ 5.44 $ -
2 Cash production cost per pound based on cash production cost for the period divided by payable nickel production for the same period.

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.

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 $3.5 million of capital assets during the quarter, including $3.4 million in development costs.

The development rate for the period averaged 7.8 metres a day, which is on track with the 2013 plan.

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 three months ended March 31, 2013, exploration expenditures totaled $29,492.

REAFFIRMATION OF 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 costs1 estimated to be between $61.0 million and $67.0 million
  • Total cash production cost1 between $6.10 and $6.40 per pound of nickel produced

Production and Cost Outlook

Canadian $ millions, except payable metal 2013
Payable nickel (millions of pounds) 9.0M - 10.0M
Payable copper (millions of pounds) 6.1M - 6.7M
Total cash production costs1 $61.0M - $67.0M
Assumptions: Cu per lb - US$3.50, CAD/USD $1.00

FNI reached full production in the first quarter of 2013, achieving its full targeted annualized production rate of 10.0 million pounds of payable nickel while continuing to maintain a safe and environmentally compliant operation. FNI continues to review operations to identify optimization opportunities to reduce costs and increase productivity.

In January 2013, the Company entered into a debt facility in the amount of US$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 US$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. The aggregate indebtedness to RCF and West Face of US$20 million was extended to March 2015. The credit facility with BNS was 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 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 operates its Lockerby Mine in the Sudbury Basin in northern Ontario. The Lockerby Mine 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 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-IFRS Financial Measures The cash cost per pound of nickel produced, and total production costs are non-IFRS financial measures that do not have a standardized meaning under International Financial Reporting Standards ("IFRS" or "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, forward sales gains and losses, and quantity and price adjustments from sales of copper, cobalt and PGE's. The cash cost per pound for the three months ended March 31, 2013 was determined by dividing cash production costs net of by-product revenue, by-product forward sales gains and losses, and quantity and price adjustments relating to by-products by payable nickel production in the period.

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