First Nickel Inc.

First Nickel Inc.

August 14, 2007 10:44 ET

First Nickel Reports Second Quarter 2007 Results

TORONTO, ONTARIO--(Marketwire - Aug. 14, 2007) - First Nickel Inc. ("First Nickel" or the "Company") (TSX:FNI) today reports financial and operating results for the quarter ended June 30, 2007. Complete quarterly results will also be available on SEDAR and on the Company's website at All dollar amounts are expressed in Canadian currency unless otherwise stated.


- Ore delivered to the mill of 35,250 tonnes in the second quarter highest in the Company's history. An increase of 63% over the first quarter.

- The mining rate at Lockerby Mine during Q2 2007 reached a steady rate of 400 tonnes per day, a 60% increase from the 250 tonnes per day in Q1 2007.

- Revenue of $17.0 million in Q2, 2007, up from $9.0 million in Q2 2006 and an increase of $6.5 million from the Q1 2007 revenues.

- Operating cash flow in Q2 2007 improved significantly to $6.5 million compared to $2.1 million in Q2 2006. For the six months ended June 30, 2007, operating cash flow was $10.3 million, compared to cash usage of $0.4 million in 2006

- Overall increase in cash balance of $9.2 million during Q2 2007.

- Completed private placement of 15,000,000 common shares of the Company at a price of $1.15 per common share, for net proceeds to the Company of $15.8 million.

- The 11% Series A Debentures totaling $14.5 million were redeemed on June 1st.

- The Company is debt free and has a working capital of $19.8 million.

- Feasibility Study on the Premiere Ridge Property was completed and submitted to Xstrata on July 1st.

- Discovery of massive and semi-massive sulphides intersected on the Morgan-Lumsden Property.

Financial Results

The following table presents a summary of the results of operations for the three and six month periods ended June 30, 2007 and 2006:

Three months ended Six months ended
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
---------Unaudited--------- ----------Unaudited---------

Sales Revenue $16,951,012 $ 8,981,666 $27,410,422 $ 8,981,666
--------------------------- ----------------------------
Operating costs
amortization 10,068,378 7,477,354 17,855,400 7,477,354
Accretion of
asset retirement
obligations 45,000 --- 90,000 ---
Amort. of mining
properties &
equipment 1,018,896 720,000 1,607,896 720,000
--------------------------- ----------------------------
11,132,274 8,197,354 19,553,296 8,197,354
--------------------------- ----------------------------

Operating profit 5,818,738 784,312 7,857,126 784,312
--------------------------- ----------------------------

General and
administrative 678,355 862,308 1,205,843 1,384,549
compensation 2,061,286 95,321 2,075,765 131,519
Amortization 7,485 10,149 14,970 20,298
Debenture and
other interest 655,955 812,366 1,536,884 1,596,660
Interest and
other income (261,854) (84,581) (390,618) (157,626)
3,141,227 1,695,563 4,442,844 2,975,400

Earnings (loss)
before the
following 2,677,511 (911,251) 3,414,282 (2,191,088)

Provision for
(recovery of)
future income
and mining taxes 1,953,607 (361,337) 2,160,109 (798,287)

Earnings (loss)
for the period $ 723,904 $ (549,914) $ 1,254,173 $(1,392,801)

Earnings (loss)
per share:
Basic $ 0.01 $ (0.01) $ 0.01 $ (0.02)
Fully diluted $ Nil $ (0.01) $ 0.01 $ (0.02)

For the three month period ended June 30, 2007, the Company recorded net earnings of $723,904, or $0.01 per share, compared to a net loss of $549,914, or $0.01 per share, for the three month period ended June 30, 2006. The change from a loss in 2006 to earnings in 2007 is mostly due to higher revenues as a result of realizing a higher nickel price in 2007, offset by an increase in operating costs and the recording of the non-cash stock based compensation expense.

For the six month period ended June 30, 2007, net earnings of $1,254,173, or $0.01 per share were recorded, compared to a net loss of $1,392,801, or $0.02 per share, for the comparable period of 2006. The 2006 results only reflect one quarter of revenues and operating costs as the Company commenced recording revenue in the second quarter of 2006 as per the revenue recognition policy.

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

2nd Q 2007 2nd Q 2006 YTD 2007 YTD 2006
Sales by Payable Metal
Nickel - pounds 699,622 788,027 1,171,281 788,027
Copper - pounds 433,409 469,574 733,170 469,574
Cobalt - pounds 11,821 15,577 19,658 15,577
Average price
received - US$/lb
Nickel $19.41 $8.30 $18.31 $8.30
Copper $2.86 $2.56 $2.79 $2.56
Cobalt $27.82 $14.08 $27.00 $14.08

Sales revenue in the second quarter of 2007 amounted to $16,951,012 from the sale of 699,622 pounds of nickel and 433,409 pounds of copper. These revenues were derived from the settlement of the first quarter 2007 production. Despite the lower metal sales in the second quarter of 2007 compared to 2006, the revenues in 2007 are substantially higher then 2006, primarily to the higher nickel prices realized in 2007 compared to 2006. The average price realized during the quarter was US$19.41. This is US$11.11 (134%) higher then the price realized in 2006. On a year-to-date basis, the 2007 revenues reflect six months of sales compared to only three months in 2006, as there were no revenues recorded in the first quarter of 2006 as per the Company's revenue recognition policy.

General and administrative expenses totalled $678,355 in the second quarter of 2007 and $1,205,843 for the first six months of 2007. This compares to $862,308 and $1,384,549 for the same comparable periods in 2006. The lower 2007 expenditures are due to the fact that the 2006 expenditures included severance and termination costs of approximately $213,000 as a result of the management changes in June, offset by an exchange loss due to the strengthening of the Canadian dollar during 2007.

The stock-based compensation costs in the second quarter and in the first six months of 2007 include the fair value of the options granted and vested in June 2007. The fair value of all options granted in June 2007 was estimated to be $2,948,125, of which $1,751,141 has been vested, with the remaining $1,196,984 to be vested over the next two years.

Debenture and other interest expense totalled $655,955 and $1,536,884, respectively, in the second quarter and for the first six months of 2007. This compares to $812,366 and $1,596,660, respectively, recorded in the comparable periods of 2006. The lower interest expense reflects the lower interest on the Series A Debentures as these were paid on June 1, 2007, offset by higher interest paid on advances received from Falconbridge on the ore delivered to their facilities, as the advances were much higher in 2007 compared to 2006 due to the higher nickel price. Going forward, the quarterly interest expense will be substantially lower due to the debentures being paid off.

Interest and other income is mostly made up of interest earned on term deposits. The higher interest income in 2007 compared to 2006 results from the Company having substantially higher cash balances in 2007 to invest.

Lockerby Mine Operations

Selected operating statistics for the six month period ended June 30, 2007 are as follows:

Item 1st Q 2007 2nd Q 2007 YTD 2007
Ore Delivered to Mill (tonnes) 21,564 35,250 56,814
Nickel Mill Head Grade (%) 1.90 1.45 1.62
Copper Mill Head Grade (%) 1.06 0.95 0.99
Payable Nickel (pounds) 699,622 857,546 1,557,168
Payable Copper (pounds) 433,409 637,402 1,070,811
Mine operating costs per tonne $354 $254 $294
Cash cost per pound of Nickel (i) US$10.04 US$9.43 US$9.70
(i) Cash cost per pound of Nickel is net of other metal credits, and does
not include amortization of mining properties and equipment.

"In the first part of the quarter, we took advantage of the strong metals prices to mine lower grade ore from a mining panel on the east end of the 64 Level," says William Anderson, President and CEO First Nickel Inc. "Nickel head grades in the second quarter ranged from 1.05% nickel in April to 2.11% nickel in June, and the mine rate has reached a steady rate of 400 tonnes per day resulting in lower unit operating costs. However, unit costs are still above plan due to the stronger Canadian dollar and lower nickel output. Further increases in production are planned for the second half of the year and as a result we anticipate meeting our production target of 152,000 tonnes for the full year."

Studies have begun to evaluate which shaft should be deepened to improve efficiencies and exploit the increased resource in the Depth Zone.

Exploration Activity

The majority of the exploration effort in the second quarter was devoted to continued development of the Lockerby Mine 3-D model, the Morgan-Lumsden Project and the completion of the Premiere Ridge Feasibility Study.

A diamond drill has been dedicated in the Depth Zone at Lockerby since the beginning of the year to convert the Inferred Resources into an Indicated Resource Category. This program will continue through the summer and will include several holes targeting the down-plunge potential between the 72 and 80 levels to confirm continuity below at depth.

A Feasibility Study (the "Study") on Premiere Ridge was prepared by Scott Wilson RPA, an international consulting engineering firm based in Toronto, Ontario and submitted to Xstrata Nickel on July 1 in fulfillment of one of the conditions of the Option Agreement.

The Study indicates that the Premiere Ridge project has an IRR of 37.1% and would generate an undiscounted pre-tax cash flow of $27.8 million after capital recovery assuming average metal prices of US$7.62 per pound nickel, US$2.19 per pound copper and US$9.00 per pound cobalt over a five year mine life. Based on a 10% discount rate the project has a $14.3 million NPV as calculated by Scott Wilson RPA. The pre-production and sustaining capital requirements have been estimated at $42.8 million and $4.2 million respectively. Unit cash operating costs net of by-product credits are estimated at US$5.49 per pound of nickel.

The capital and operating estimates are in line with and confirm figures worked up earlier by or for First Nickel. In order to minimize project risk the Company is now engaged in further investigations to constrain or reduce the capital costs and optimize the mining plans prior to making a production decision. The Company's agreement with Xstrata Nickel calls for production to commence by July 1, 2008 and make a one time payment of $2,000,000. Yearly output will average 230,000 tonnes of ore (approximately 4 million pounds of payable nickel), attaining a maximum of 291,000 tonnes of ore in 2009. If a production decision to go ahead is made, the Company is considering financing the capital requirement with existing cash resources along with structuring some type of debt instrument.

Exploration highlights on the Morgan-Lumsden Property in the second quarter of 2007 include the discovery of massive and semi-massive sulphides including one intersection of 5.20 metres grading 2.03% Ni and 0.26% Cu in hole M-066. Footwall potential has been identified on the Morgan-Lumsden Property with the presence of significant intercepts of Sudbury Breccia and localized disseminated, blebby and fracture controlled chalcopyrite below the Sudbury Igneous Contact in M-066.

The Next Six Months

In the second half of 2007, the Company expects to:

- Continue ramping up production at Lockerby Mine

- Refine and complete the capital and operating estimates on Premiere Ridge and make a production decision

- Advance the engineering studies on the expansion of Lockerby Mine

- Finish the definition drilling campaign on the Depth Zone

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 may contain forward-looking statements, which are subject to certain risks, uncertainties and assumptions. 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 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.

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