First Nickel Inc.
TSX : FNI

First Nickel Inc.

August 14, 2012 18:49 ET

First Nickel Reports Second Quarter 2012 Financial and Operating Results

Lockerby Increases Nickel Production by 39% and Declares Commercial Production

TORONTO, ONTARIO--(Marketwire - Aug. 14, 2012) - First Nickel Inc. ("First Nickel", "FNI" or the "Company") (TSX:FNI) announces its results for the second quarter ended June 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 for the period ended June 30, 2012 and management's discussion and analysis. 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

  • Strong Balance Sheet: Ended the quarter with $10.8 million in unrestricted cash.
  • Commercial Production: On July 1st the Company declared commercial production at the Lockerby Mine.
  • Production: Nickel production was 1.6 million pounds during the second quarter of 2012, an increase of 39% over the previous quarter, and 2.9 million pounds during the first half of the year, at the upper end of previously stated guidance. Copper production was 1.2 million pounds during the quarter, an increase of 46% over the previous quarter, and 2.0 million pounds during the first-half of the year, at the upper end of guidance.
  • Revenue: Capitalized nickel revenue during the second quarter of 2012 totalled $11.4 million.
  • Total Cash Production Costs1: were $13.6 million during the quarter and $26.5 million during the first half, slightly better than guidance.
  • Exploration: 2,700 metres of diamond drilling on the Link zone.
  • New Mine Plan: A new Lockerby mine plan was completed resulting in an $87 million NPV and a reduction of more than 100,000 waste tonnes.
  • Bank Facility: Closed a US$10 million loan facility with the Bank of Nova Scotia.
  • Development: Ramp development totalled 147 metres in the second quarter of 2012, compared to 73.8 meters in the first quarter. Lateral development totalled 345 metres during the second quarter of 2012, compared to 471 meters in the first quarter.

CEO Commentary

Mr. Thomas M. Boehlert, President and CEO of First Nickel commented, "The Lockerby mine had a very solid second quarter, consistent with our guidance, and we are well on our way to achieving the objectives of full production at cash production costs of approximately $6.00 per pound of nickel by the end of this year. The Company continues to believe in the long-term supply/demand fundamentals for nickel and copper. We are monitoring the recent weakness in nickel prices and will take the actions necessary to best protect shareholder value through the commodity price cycle, which may include changes to the mine plan and our commercial arrangements in order in reduce expenditures and maintain a prudent level of liquidity."

Summary of Financial and Operating Results

The Company reported operating income of $0.1 million for the three months ended June 30, 2012 and an operating loss of $2.4 million for the six month period ended June 30, 2012. On July 1st, 2012 the Company declared commercial production at the Lockerby mine. Prior to this date, The Company was in the pre-commercial production stage and as a result, sales under the existing Off-take Agreement were not classified as revenues, but as a reduction in capital costs, and operating costs were capitalized.

During the three month period ended June 30, 2012 the Company recorded $11.4 million (YTD $22.1 million) in nickel revenue and $13.6 million (YTD $26.5 million) of capitalized cash production costs1 (net of by-product credits) on the Lockerby Depth Project.

On May 17, 2012, the Company entered into a US$10 million revolving credit facility with The Bank of Nova Scotia with an initial 2 year term. Availability of funds from the BNS facility will be determined according to a borrowing base formula and used to finance working capital requirements for Lockerby and for general corporate purposes.

The Company negotiated a surety bond, on April 2, 2012, guaranteeing the full amount of the closure plan for Lockerby in the amount of $5.9 million. The Company posted cash security in the amount of $2.4 million in support of the bond. TD Canada Trust has released the restriction on our term deposit of $5.9 million, which was previously used as security for a letter of credit in support of the closure plan, making the funds available for the Company's use.

The following table presents a summary of the results of operations for the three and six-month periods ended June 30th.

For the three months ended June 30, For the six months ended June 30,
2012 2011 2012 2011
Expenses
General and administrative $ 849,490 $ 672,617 $ 1,743,785 $ 1,291,275
Stock-based compensation 244,847 57,717 579,817 115,434
Depreciation and amortization 3,060 3,060 6,120 6,120
Foreign exchange gain - (42,845 ) (86,647 ) (249,330 )
Financing costs on convertible loan 235,520 235,520 471,040 471,040
Change in fair value of equity conversion option (2,927,980 ) (1,169,184 ) (2,264,215 ) 827,007
Accretion on convertible loan 591,783 141,458 1,015,284 279,251
Accretion of reclamation liability 24,761 41,652 49,443 83,066
Financing costs on bridge loan - - - 16,226
Loss on provisional pricing 856,486 - 856,486 -
Gain on forward sales agreements (38,771 ) - (38,771 ) -
Interest & other income (22,448 ) 283 (79,468 ) 2,288
Financial income (net) - (52,824 ) - (156,714 )
(183,252 ) (112,546 ) 2,252,874 2,685,663
Operating (income) loss before taxes (183,252 ) (112,546 ) 2,252,874 2,685,663
Mining taxes 59,309 - 121,593 -
Net (earnings) loss and
comprehensive (earnings) loss for the period $ (123,943 ) $ (112,546 ) $ 2,374,467 $ 2,685,663

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 second quarter, the Ministry of Labour of Ontario identified safety concerns related to the No. 2 shaft manway. Normal operations were halted on April 23rd to correct the deficiencies and normal operations resumed on April 29th. During the second quarter 2012 there were two lost time injuries.

Pre-Commercial Production and Revenue

Ore production during the second quarter 2012 was 52,183 tonnes (573 tonnes per day on average) and nickel production was an estimated 1.6 million pounds of nickel (YTD 2.9 million) and 1.2 million pounds of copper (YTD 2.0 million). The Company recognized $11.4 million in capitalized nickel revenue (YTD $22.1 million) and incurred $13.6 million (YTD $26.5 million) of capitalized operating costs (net of by-product credits). Prior to the announcement of commercial operations on July 1, 2012, the Company was in the pre- commercial production stage for accounting purposes, during which time proceeds are not classified as revenues on the statement of operations and comprehensive income but as a reduction in capital costs, and costs are capitalized.

Effective July 1, 2012, the Company has determined that commercial production has been reached having maintained a level of production, during the past three months, exceeding 65% of planned capacity of 800 tonnes per day. Consequently, all revenue and operating costs that would have been previously capitalized will now be reported in the Statement of Operations and Comprehensive Income during the period.

Capital

The Company incurred $4.9 million of capital investments ($8.1 million YTD) during the period, including $2.3 million ($4.1 million YTD) in development costs.

Development rates for the first half of the year averaged 5.7 meters per day. In order to achieve the forecasted increase in production in the second half of 2012, the average development rate must increase to 9.5 meters per day. A plan has been implemented in order to achieve the increased rate during the second half of the year.

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 second quarter of 2012, exploration expenditures totaled $1.1 million ($0.1 million at Belmont, $0.4 million at the Link Zone and $0.6 million at Raglan Hills).

The Company has reviewed the exploration programs for 2012 and has adjusted total expenditures to approximately $2.4 million for the year, down from it's previously reported $3.4 million. As of June 31, 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's progress in exploration during the second quarter of 2012 is summarized below:

Belmont - Exploration programs completed in the second quarter included surface mapping and sampling over target areas defined by the airborne geophysical survey. A total of 101 samples were sent for analysis from claims located in Marmora, Limerick and Wollaston Townships. Analytical results to date have not identified any anomalous metal values from this sampling program. Results of the summer mapping and sampling program will be evaluated and further exploration programs will be proposed if warranted.

Raglan Hills - A total of 2,423 metres of diamond drilling were completed in 15 holes in Raglan and Lyndoch Townships. Drilling was focused on priority geophysical targets identified by airborne geophysical surveys completed by the company in 2011 and testing along strike and down plunge of the ML North PGE anomaly. Analytical results to date have not identified any anomalous metal values. However, anomalous concentrations of graphite (total carbon) were intersected in 2 holes completed in Lyndoch Township. The Company will evaluate the significance of the graphite mineralization observed in the 2012 drill program and determine if any follow-up exploration work is required on the area. A summer mapping and stripping program on the ML North PGE Zone is scheduled in the third quarter.

Link Zone - A total of 2,700 metres of diamond drilling were completed in 3 holes in 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.

The program successfully intersected, disseminated nickel-copper sulphide mineralization within the norite, perched several tens of metres from the basal contact. The following table summarizes the drill intercepts for the Link Zone as completed by the Company in 2009 and 2012. The Company will evaluate these results and determine the next phase of exploration on the Link Zone.

Hole ID From To Interval Nickel Copper Year
(m) (m) (m) (%) (%)
FNI4001 846.00 870.00 24.00 0.64 0.42 2009
FNI4002 840.60 852.70 12.10 0.89 0.58 2009
incl. 850.10 852.70 2.60 1.82 0.96 2009
FNI4003 816.00 826.40 10.40 1.33 0.64 2009
FNI4004 482.50 483.50 1.00 1.06 0.03 2009
FNI4005 853.50 862.50 9.00 0.57 0.57 2009
and 885.80 906.00 20.20 0.62 0.39 2009
FNI4009 823.00 845.70 22.70 0.79 0.58 2012
incl. 837.10 845.70 8.60 1.04 0.70 2012
FNI4010 828.40 862.75 34.35 0.57 0.52 2012

All assay intervals reported are core length and do not represent true widths (defined as being measured at right angles to the direction of extension of the sulphide body). All other assay samples are pending analysis.

2012 Outlook

  • Production of between 6.3 to 7.4 million of payable nickel
  • Total cash production costs estimated to be $56.2 to $61.4 million1
  • Total cash production costs of $6.00 per lb1 of nickel by year end
H1 H2 Q4
Nickel lbs 2.5-2.9 M 3.8-4.5 M 2.1-2.5 M
Copper lbs 1.8-2.0 M 2.7-3.0 M 1.4-1.6 M
Total Cash Production Costs1 $ 27.8-$30.2 M $ 28.4-$31.2 M $ 15.1-$16.6 M

Assumptions: Ni per lb. - $8.50, Cu per lb. - $3.25, CAD/USD $1.00

The Company expects to be at or near the full production rate of 10 million pounds of nickel per annum in the fourth quarter of 2012.

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 monitoring the recent weakness in nickel prices and will take the actions necessary to best protect shareholder value through the commodity price cycle. We are currently analyzing potential changes to the mine plan and to our commercial arrangements in order in reduce expenditures and maintain a prudent level of liquidity in the current metal price environment.

Developments Subsequent to June 30, 2012

Subsequent to the period, the Company has entered into additional forward sales agreements to sell approximately 403,000 pounds of copper at a weighted average price of $3.50 per pound and approximately 661,000 pounds of nickel at a weighted average price of $7.78 per pound. These agreements mature at various dates from July, 2012 to February 2013. No cash premiums were paid or received under the net zero cost structure.

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 First Nickel Inc.

First Nickel 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 production at its Lockerby nickel / copper 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 nickel and approximately 7 million pounds of copper annually, providing a strong base of cash flow from which to grow the Company. In addition to the Lockerby nickel mine, the Company owns exploration properties in the Sudbury Basin, the Timmins region of northern Ontario, and the Belmont region of Eastern Ontario. First Nickel'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 First Nickel. 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 resumption of operations at Lockerby mine and the continued operation thereof; 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.

1Non-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 IFRS 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 IFRS 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 IFRS. Total cash production costs include mining costs, treatment, equipment operating lease costs, mine site general and administration costs, environmental costs, transportation, and refining of concentrate, less by-product credits from sales of copper, cobalt and PGE's . The cash production cost per pound of nickel produced is the total production costs divided by pounds of nickel produced.

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