First Nickel Inc.
TSX : FNI

First Nickel Inc.

August 12, 2013 18:41 ET

First Nickel Reports Three and Six Months Financial and Operating Results for the Period Ended June 30, 2013

TORONTO, ONTARIO--(Marketwired - Aug. 12, 2013) - First Nickel Inc. ("FNI" or the "Company") (TSX:FNI) announces its results for the three and six months ended June 30, 2013. The Company's unaudited condensed interim 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 June 30, 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 SECOND QUARTER 2013

  • Production: The Lockerby Mine produced 1.8 million pounds of payable nickel and 1.5 million pounds of payable copper during the three months ended June 30, 2013 and 4.5 million pounds of payable nickel and 3.3 million pounds of payable copper for the first half of the year.
  • Revenue: Revenue for the three and six months ended June 30, 2013 was $15.0 million and $41.8 million, respectively. Revenue in the second quarter was reduced by $4.2 million relating to a reduction in the price of nickel produced and recorded as provisional revenue in prior periods.
  • Total cash production costs(1): Cash production costs were $12.8 million and $27.5 million for the three and six months ended June 30, 2013, or $7.08 (US$6.92) and $6.10 (US$6.00) cash cost per pound of nickel, respectively.
  • Development: Ramp development totaled 149 metres and 294 meters for the three and six months ended June 30, 2013 and lateral development totaled 334 metres and 887 meters for the three and six months ended June 30, 2013.
  • Debt restructuring costs: During the first half of 2013, the Company raised US$15.0 million of incremental shareholder loan financing and restructured all of its US$30.0 million of debt facilities. As a result, second quarter results include a charge of $5.1 million relating to all previous unamortized financing costs, all current restructuring costs and $2.4 million of prepaid interest relating to the RCF V, West Face, and BNS facilities.
  • Net loss: The Company had a net loss of $16.5 million and $17.4 for the three and six months ended June 30, 2013, respectively. The second quarter loss includes $4.2 million relating to the reduction in the price of nickel produced and recorded as provisional revenue in prior periods, and $5.1 million of debt restructuring costs.
  • Liquidity: The unrestricted cash balance at June 30, 2013 was $4.9 million. The Company closed US$15 million of incremental shareholder loan financing during the first half of the year and US$10.3 million was available to draw under the BNS credit facility at June 30, 2013.
  • Union Contacts: Ratified a 4 year contract with Mine Mill 598/CAW.

CEO Commentary

Mr. Thomas Boehlert, President and CEO of FNI said "Lockerby production was consistent with our expectations for the first half of the year, and improved operating costs have more than offset the impact of lower by-product credits resulting from low copper prices. However, low nickel prices have materially impacted our financial results. The Company implemented a number of cost cutting and liquidity enhancing measures during the first half of the year to combat the low price environment. We continue to evaluate options to modify our mine plan, reduce costs and continue as a viable mining operation in the current environment. As ever, the focus and dedication of our employees has been the key to our success."

Summary of Financial and Operating Results

The Company reported revenue of $41.8 million, cash production costs of $27.5 million, and a net operating loss of $5.5 million for the six months ended June 30, 2013.

The following table presents a summary of the results of operations for the three and six months ended June 30, 2013:

For the three months ended For the six months ended
June 30, June 30, June 30, June 30,
Canadian $, except for share amounts 2013 2012 2013 2012
Revenue $ 14,987,486 $ - $ 41,760,091 $ -
Cost of goods sold 18,764,361 - 40,435,131 -
Depreciation 3,149,435 - 6,791,921 -
Impairment of tangible assets - -
Operating Income (6,926,310) - (5,466,961) -
Expenses
General and administrative 1,087,039 687,062 2,134,800 1,581,357
Depreciation and amortization 2,511 3,060 5,020 6,120
Interest expense paid in equity 238,422 235,520 640,607 471,040
Change in fair value of equity conversion option 1,024,653 (2,927,980) 288,297 (2,264,215)
Accretion on convertible loan 326,373 591,783 1,097,443 1,015,284
Accretion of reclamation liability 17,930 24,761 35,807 49,443
Stock-based compensation 164,426 244,847 300,742 579,817
Financing costs 88,141 - 275,394 -
Interest expense 129,357 162,428 293,716 162,428
Foreign exchange loss 574,365 - 674,486 (86,647)
Other income - (22,448) - (79,468)
Other expenses 223,787 - 485,456 -
Loss on provisional pricing - 856,486 - 856,486
Gain on forward sales agreements - (38,771) - (38,771)
Loss on disposal of mobile equipment 685,319 - 685,319 -
Loss on extinguishment of debt 5,057,356 - 5,057,356 -
9,619,679 (183,252) 11,974,443 2,252,874
Operating loss before taxes (16,545,989) 183,252 (17,441,404) (2,252,874)
Income & mining taxes (recovery) - 59,309 - 121,593
Net loss and comprehensive loss $ (16,545,989) $ 123,943 $ (17,441,404) $ (2,374,467)
Earnings (loss) per share - basic and diluted $ (0.03) $ - $ (0.03) $ -
Weighted average number of common shares outstanding - basic 596,968,920 512,140,464 564,251,915 511,104,369

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 six months ended June 30, 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 June 30, 2013, 55,951 tonnes of ore were mined at Lockerby, producing an estimated 1.8 million pounds of payable nickel, at an average estimated head grade of 2.02% and an estimated average nickel recovery of 80.5%, and an estimated 1.5 million pounds of payable copper at an estimated head grade of 1.15% and an estimated average copper recovery of 91.1%. For the six months ended June 30, 2013, 115,828 tonnes of ore were mined at Lockerby, producing an estimated 4.5 million pounds of payable nickel, at an average estimated head grade of 2.38% and an estimated average nickel recovery of 81.1%, and an estimated 3.3 million pounds of payable copper at an estimated head grade of 1.31% and an estimated average copper recovery of 92.13%.

For the three months ended For the six months ended
June 30, June 30, June 30, June 30,
2013 2012 2013 2012
Tonnes of ore produced 55,951 50,788 115,828 90,542
Production (estimated)
Estimated payable nickel (pounds) 1,814,480 1,604,949 4,513,199 2,652,424
Estimated payable copper (pounds) 1,463,780 1,174,944 3,295,942 1,981,340
Nickel head grade 2.02 % 1.87 % 2.38 % 1.79 %
Copper head grade 1.16 % 1.21 % 1.31 % 1.12 %
Tonnes of ore shipped 53,908 51,824 114,970 93,026
Tonnes of ore milled 59,774 39,143 108,828 65,076

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.

For the three months ended For the six months ended
June 30, June 30, June 30, June 30,
Canadian $, 2013 2012 2013 2012
Provisional nickel revenue $ 12,890,286 $ - $ 33,080,347 $ -
Nickel quantity adjustment (30,516 ) - 636,641 -
Nickel price adjustment (3,782,633 ) - (4,287,080 ) -
Provisional by-product revenue 4,959,175 - 12,034,074 -
By-product price and quantity adjustment 914,209 - 857,228 -
By-product price and quantity adjustment - prior period - - (446,682 ) -
Forward sales agreements 36,965 - (114,437 ) -
Total revenue $ 14,987,486 $ - $ 41,760,091 $ -

Cash production costs

Cash production costs net of by-product revenue and capitalized pre-production amounts were $27.5 million for the six months ended June 30, 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.

For the three months ended For the six months ended
Canadian $, except production amounts and June 30, June 30, June 30, June 30,
USD amounts as specified 2013 2012 2013 2012
Cost of goods sold $ 18,764,361 $ - $ 40,435,131 $ -
Provisional by-product revenue (4,959,175 ) - (12,034,074 ) -
By-product revenue - quantity and price adjustments - current period (914,209 ) - (857,228 ) -
Forward sales agreements related to by-products (50,465 ) - (24,723 ) -
Cash production costs(1) (net of by-product revenue) 12,840,512 - 27,519,105 -
Estimated payable nickel production (pounds) 1,814,480 - 4,513,199 -
Cash production cost per pound of nickel(1),(2) $ 7.08 $ - $ 6.10 $ -

(1) For additional information, see Non-IFRS Financial Measures section.

(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 $7.1 million of capital assets during the half, including $6.9 million in development costs.

The development rate for the three and six months ended June 30, 2013 averaged 5.3 and 6.5 metres a day, respectively.

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 six months ended June 30, 2013, exploration expenditures totaled $43,525.

REAFFIRMATION OF OUTLOOK FOR 2013

  • Full production achieved by the end of Q1 2013

  • Production of between 9.0 million to 10.0 million pounds of payable nickel

  • Total cash production costs (1) estimated to be between $61.0 million and $67.0 million

  • Total cash production cost(1) 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 costs(1) $ 61.0M - $67.0M
Assumptions: Cu per lb - US$3.50, CAD/USD $1.00

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 IV, RCF V and West Face of US$20 million was extended to March 31, 2015. The credit facility with BNS was converted to a revolving credit facility and the principle amount was increased from US$10 million to US$15 million and the maturity was extended to March 12, 2015. 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.

The changes to the Company's BNS facility, RCF V loan and West Face loan were determined to be a substantial modification to the existing loan facilities and the RCF IV convertible loan was determined to be a non-substantial modification. In accordance with IFRS guidance on substantial modifications, the original BNS facility, RCF V loan and West Face loan have been treated as extinguished and exchanged for new facilities. As a result of these extinguishments, $1.5 million in cash financing costs and $3.5 million in non-cash financing and prepaid interest costs were included in the Company's $16.5 million loss for the quarter.

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 $5.1 million and $1.0 million, respectively. The $5.1 million in total financing costs will include the prepayment of $2.4 million of interest on the RCF V and West Face loans.

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 producing 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 six months ended June 30, 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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