Ivernia Inc.
TSX : IVW

Ivernia Inc.

November 08, 2010 22:33 ET

Ivernia Reports Third Quarter 2010 Financial Results-Magellan Production Ramp-Up Continues and Delivers a Return to Profitability

TORONTO, ONTARIO--(Marketwire - Nov. 8, 2010) -

All Dollar Amounts are in U.S. Dollars Unless Otherwise Indicated

Ivernia Inc. (TSX:IVW) today reported revenue of $37.3 million for the third quarter of 2010, compared to $0.2 million for the same period last year. Revenue for the first six months of 2010 totaled $62.8 million, compared to $8.3 million for the same period last year. The increase in revenue reflects the continued improvement in the ramp-up of production at the Magellan Mine in 2010.

The Company recorded Operating Income(1) of $8.2 million for the third quarter of 2010 compared to an Operating Loss of $0.3 million for the same period last year.

The Company returned to profitability with a net income after taxes of $2.9 million, or $0.02 per common share for the third quarter of 2010 compared with a net loss of $4.6 million, or $(0.03) per share for the same period last year.

(1) See the Financial and Operating Highlights for definition of Operating Income and Loss

THIRD QUARTER 2010 HIGHLIGHTS

Financial

  • Recorded revenue for the third quarter of 2010 of $37.3 million from the sale of 16,900 tonnes of contained lead in concentrate
  • Third quarter operating income(1) of $8.2 million
  • Third quarter 2010 net income before taxes of $4.0 million
  • Third quarter 2010 net income after taxes of $2.9 million
  • Third quarter 2010 cash provided by operations before changes in non-cash working capital of $2.0 million
  • Cash balances at September 30, 2010 of $7.5 million
  • Increase in working capital from $3.4 million on June 30, 2010 to $7.2 million on September 30, 2010

(1) See the Financial and Operating Highlights for definition of Operating Income and Loss

Operational

  • Progressed production ramp-up at the Magellan Mine producing 14,600 tonnes of contained lead in concentrate in the third quarter of 2010, an increase of 28% compared to the 11,400 tonnes of lead contained in concentrate produced in the second quarter of 2010
  • Processing plant lead recoveries in the third quarter of 2010 averaged 76% showing a marked improvement from recoveries of 69% in the second quarter of 2010
  • Guidance for the fourth quarter is for a further step up in production levels to a range of 15,000 – 18,000 tonnes of contained lead in concentrate
  • A new resource estimate is being finalized for the Magellan deposit with corresponding updates to reserve estimating, mine scheduling and optimizations scheduled for completion in first quarter 2011
  • In October, commenced first drilling campaign at Prairie Downs which is expected to be completed by year end (Ivernia has the right to acquire up to an 80% interest in the Prairie Downs Joint Venture)
Financial and Operating Highlights        
  Three months ended   Nine months ended  
  September 30   September 30  
  2010   2009   2010   2009  
(in thousands of United States dollars, except per share amounts) $   $   $   $  
Financial Highlights                
Revenue(1)   37,254     207     62,819     8,268  
Operating costs   (28,079 )   (289 )   (62,655 )   (7,031 )
Amortization   (971 )   (179 )   (1,815 )   (500 )
Operating income (loss) (2)   8,204     (261 )   (1,651 )   737  
General and administrative   (2,068 )   (1,597 )   (6,041 )   (5,093 )
Stock option costs   (40 )   (28 )   (121 )   (38 )
Foreign exchange (loss) gain   (1,407 )   120     25     (369 )
Net interest expense   (663 )   (791 )   (1,991 )   (1,924 )
Accretion   (1,075 )   (709 )   (2,922 )   (3,497 )
Esperance/Fremantle and related costs       (1,057 )       (1,278 )
Inventory recovery   1,094     40     2,258     4,188  
Debt settlement expense               (753 )
    (4,159 )   (4,022 )   (8,792 )   (8,764 )
Income (loss) before income taxes   4,045     (4,283 )   (10,443 )   (8,027 )
Income tax (expense) recovery   (1,139 )   (268 )   2,991     (1,190 )
Net income (loss)   2,906     (4,551 )   (7,452 )   (9,217 )
Basic earnings (loss) per share(3)   0.02     (0.03 )   (0.04 )   (0.05 )
Fully diluted earnings per share(3)   0.01     (0.03 )   (0.04 )   (0.05 )
Weighted average shares outstanding (000's)   189,243     180,153     189,010     180,153  
Unrealized gain (loss) on investment   118         87     (4 )
Comprehensive income (loss)   3,024     (4,551 )   (7,365 )   (9,221 )
Cash provided by (used in) operations before changes in non-cash working capital   1,992     (4,011 )   (9,537 )   (8,817 )
Cash flow used in operating activities   (157 )   (3,633 )   (990 )   (8,984 )
Operating Highlights                        
Ore milled – (000's dry tonnes)   259         559      
Average head grade – (% lead)   7.4         6.8      
Recovery – (%)   76         72      
Concentrate produced – (000's dry tonnes)   22.6         42.1      
Concentrate sold – (000's dry tonnes)   26.1     0.4     47.9     8.7  
Lead metal in concentrate produced – (000's tonnes)   14.6         27.2      
Lead metal in concentrate sold – (000's tonnes)   16.9     0.3     30.9     5.5  
Concentrate inventory – (000's of dry tonnes)   2.7     20.6     2.7     20.6  
Unpriced lead metal (000's of dry tonnes) (4)   7.1     0.3     7.1     0.3  
Average lead price – LME cash settlement– ($ per pound) $ 0.92   $ 0.87   $ 0.94   $ 0.70  
Ivernia's average lead sale price – ($ per pound) $ 1.05   $ 1.03   $ 0.97   $ 0.74  
   
(1) Shipments of lead carbonate concentrate from the Magellan Mine were curtailed by the suspension of lead shipments through the Port of Esperance on March 12, 2007. The suspension was lifted in December 2008, following which two shipments were made in March and May 2009 to remove the stockpile. Following the receipt of Ministerial approval on August 13, 2009 to commence shipments through the Port of Fremantle, the Company exported the entire mine site inventory stockpile and in first quarter 2010 recommenced production and shipment of lead carbonate concentrate.
(2) Operating income is a non-GAAP measure with no standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to other issuers. The Company has defined it as revenue, less operating costs and amortization. The Company uses it as an indication of the profitability of operations at the Magellan Mine, and as such believes it provides meaningful information to investors.
(3) Per share data was calculated on the basis of the weighted average shares outstanding (basic and diluted) for the relevant period.
(4) Unpriced lead metal represents net provisionally priced lead contained in concentrate that was revalued as at the balance sheet date at a weighted average price of $1.03 (2009 - $1.03) per pound.

OUTLOOK

Magellan Metals continues to ramp-up production of lead carbonate concentrate over the course of 2010. Production restart commenced late February 2010 and during the third quarter of 2010 the operations produced 14,600 tonnes of contained lead in concentrate. The staged ramp-up of production will continue during the fourth quarter of 2010 with planned full production levels forecast to be reached during the first quarter of 2011.

Production during the third quarter of 2010 of 14,600 tonnes of lead contained in concentrate was 1,400 tonnes or 9% below previous guidance as the site team addressed issues with the concentrate thickening and filtration and looked to improve recovery. Investigations of the concentrate thickening-filtration process interactions identified a number of operational changes and capital modifications that needed to be implemented to improve performance. A number of these modifications have already been implemented with demonstrable improvements in performance and an action plan is in place for further modifications to be implemented in the fourth quarter. Concentrate filtration rates in September averaged 300 dry metric tonnes per day, with a best single day performance of over 400 dry metric tonnes (concentrate filtration is the final stage of the production process to produce saleable product).

Plant recoveries improved markedly compared to the second quarter due to a combination of improved plant management and higher feed grades. New operating practices have been introduced that focus on lead input and concentrate thickener control resulting in steadier operations for the second half of the quarter. The steadier operations allowed improved process control and gave higher plant recoveries of 76% across the third quarter compared to 69% in the previous quarter.

A major planned maintenance shutdown was successfully completed in late September to allow a full mill reline and annual statutory high-voltage electrical testing, as well as the implementation of a number of maintenance and capital projects previously identified to improve plant performance. No major issues were identified during the shutdown period. This was the first major planned maintenance shutdown since the restart of operations in February.

The Company is reviewing its 2011 production plans and is focused on optimizing the Magellan operation in light of the prevailing metal prices, the A$/US$ exchange rate, treatment and transport charges and mine cost structure. The Company expects to achieve targeted full concentrate production rate during the first quarter of 2011. Magellan Metals is expected to produce on average approximately 85,000 tonnes per annum of contained lead in concentrate over the mine life.

While the production performance at Magellan Metals continues to improve, management continues to face and address challenges that are commonly encountered during a plant restart. These challenges introduce a degree of uncertainty in short term production forecasts and, as a result, the production guidance for the fourth quarter of 2010 has been revised to reflect a range of production outcomes dependent on the short term level of success of the initiatives currently underway.

Revised quarterly production guidance:  
 
  1Q 2010 2Q 2010 3Q 2010 4Q 2010 2010
(000's tonnes) Actual Actual Actual Forecast Forecast
Ore Mined 15 267 277 300 - 400 859 - 959
Ore Milled 32 268 259 300 - 400 859 - 959
Contained Lead in Produced Concentrate 1 12 15 15 - 18 43 - 46
Contained Lead Shipped 5 9 17 15 - 18 46 - 49

As at November 5, 2010 Ivernia held unrestricted cash balances of $8.3 million. At current lead price and production levels, management anticipates that cash flow from operations will continue to be positive and that current treasury and cash flow from operating activities will be sufficient to fund cash required for non-operating activities going forward. Ongoing cash flow from operating activities continues to be exposed to fluctuations in metal prices, production rates and the A$/US$ exchange rate.

During the latter part of 2010 and early 2011 the Company will be increasingly focused on operational optimization as Magellan moves into a steady state operating environment at targeted full production levels. Since the completion of the 2010 drilling program during the second quarter, Magellan has been focused on mine scheduling optimization and a new life of mine plan and plans to issue updated Resource and Reserve statements and a NI 43-101 technical report during the first quarter of 2011.

OPERATIONS REVIEW – MAGELLAN MINE

The table below summarizes quarterly mine production, process production and shipments and inventories in the first nine months and year-to-date ended September 30, 2010:

      Three months Nine months
  Three months Three months ended ended
  ended ended September 30, September 30,
  March 31, 2010 June 30, 2010 2010 2010
Mining        
Ore mined – 000's tonnes 182 233 415
Low-grade (<3%) ore mined – 000's tonnes 15 85 44 144
Total ore and waste mined – 000's bcm 118 729 952 1,799
 
Processing        
Ore milled – 000's tonnes 32 268 259 559
Average head grade – % lead 6.9 6.2 7.4 6.8
Average recovery – % 54.0 68.9 76.1 71.6
Concentrate produced – 000's dry tonnes 2.0 17.5 22.6 42.1
Lead metal in concentrate produced – 000's tonnes 1.2 11.4 14.6 27.2
 
Sales and inventories        
Concentrate sold – 000's dry tonnes 8.4 13.3 26.1 47.9
Lead metal in concentrate sold – 000's tonnes 5.4 8.6 16.9 30.9
Concentrate inventory – 000's dry tonnes 2.0 6.3 2.7 2.7

Magellan Production Ramp-up

Performance at the Magellan mine continues to improve as key debottlenecking capital projects are being implemented and the workforce gains more experience with this unique ore and processing plant. Contained metal in concentrate produced was up 28% compared to the second quarter of 2010 and lead in concentrate sales was up 97%. The primary focus of site management in the third quarter was to address issues with the plant lead recovery and the interaction between the concentrate thickeners and the filters, as this was the limiting factor on concentrate production.

During the third quarter of 2010, the mill treated 259,000 dry metric tonnes of ore with an average head grade of 7.4% lead. The plant recovered an average of 76% of the lead, to produce approximately 22,600 dry metric tonnes of concentrate with an average grade of 65% contained lead which represented a marked improvement from the results of the second quarter of 2010.

In June, mill throughput was increased to 250 tonnes per hour (equivalent to the target capacity 1.9 million tonnes per annum rate) and the plant experienced periods of lead input in excess of the current capacity for short periods of time. At these higher rates, the process plant became metallurgically unstable resulting in a number of plant stoppages and poor lead recoveries. This also highlighted processing issues with the capacity of the concentrate thickeners, filter feed pump and pressure filter. The primary cause of these issues was identified as the inability of the concentrate thickeners to deliver the specified density to feed the pressure filter at higher concentrate production rates. In July, the plumbing of the two thickeners was modified to allow them to be run in parallel rather than in series and a complementary simple flocculent addition system was installed. Mill throughput was adjusted with mine grade to smooth the lead input into the plant.

In August, a new ore stockpile management technique was introduced to reduce the variance in the mine head grade. One element of this was to reduce the addition of low-grade ore to the feed as this material was contributing to grade volatility. This in combination with the higher grade areas currently being mined in the Magellan and Cano pits resulted in an increase in head grade delivered to the plant. Through the second half of August and the first half of September the plant achieved steady state at a rate of 300-350 dry metric tonnes of concentrate production per day, compared to full production targets averaging 400 dry metric tonnes per day. This steady state period allowed the first stage of balancing of the float circuit and combined with the higher head grades, delivered plant recoveries of 75-80%. Overall for the third quarter the average plant recovery was 76% compared to an average of 69% in the second quarter of 2010.

A major planned maintenance shutdown was successfully completed in late September to allow a full mill reline and annual statutory high-voltage electrical testing, as well as the implementation of a number of projects identified to improve plant performance. No significant issues were identified during the shutdown.

The interaction between the concentrate thickeners and the filters is an ongoing area of focus and the subject of several projects planned for the fourth quarter. An increase in capacity to the filter feed pump is planned for November. A permanent thickener feed control and flocculent addition solution will also be installed in November. Additional plates will be added to the pressure filter in December, increasing the filter's capacity by 8% and removing it as a bottleneck to future concentrate production.

Magellan has now recruited its full complement of personnel supplemented by contract labour for the bagging operations. The booming resources sector in Western Australia is recreating the skills shortages experienced during 2006 to 2008. Magellan is developing an employee value proposition that balances salary with lifestyle, personal development and a positive workplace culture.

Operational Optimization

Work is continuing on mine scheduling optimization for the life-of-mine planning. The aim of this work is to improve the mining program to deliver lower mining and processing costs through a combination of: mineralization/rock type/lead grade blend optimization; reduced double handling; reduced non-productive equipment moves; and, identifying locations for in-pit waste dumping. Improved blasting practises are being implemented to reduce downstream crushing and grinding costs as well as minimizing costly crusher blockages.

Close spaced grade control drilling and XRF grade sampling of blast holes is expected to deliver improved mining grade control and reconciliation. This is expected to give greater ore grade predictability and therefore improve the mill feed blending. Blast hole XRF sampling is identifying low grade ore (1-5% lead) in blocks that have been earmarked as waste using the broader spaced grade control drilling.

Following the purchase of the onsite 4.2 megawatt power station, plans are being developed to convert the generator sets from diesel fuel to dual fuel diesel-natural gas. The gas pipeline has been installed to the power station and future gas supplies have been secured on long term contract at competitive prices. The conversion to dual fuel is expected to significantly reduce the site's power costs and reduce Magellan Metals' carbon emissions.

Magellan Metals has implemented a best practice concentrate handling system utilizing two tonne plastic bulk bags and shipping containers. The Company is now investigating ways to reduce the cost and improve the efficiency of the bagging process as well as exploit the opportunities offered by selling concentrate in this form.

Corporate Development and Exploration

Drilling Program

A new resource estimation model is being finalized for the Magellan Hill creating a single geological model for the Magellan, Cano, Pinzon and Gama deposits. The geostatistics including variography, top cuts, modelling parameters and estimation methods have been evaluated and a new model reported at various cut-offs. This resource estimation includes the grade control drilling and most recent drilling programs to provide an improved understanding of the deposits.

The recent drilling at the Pizarro deposit, some 10km south of Magellan has been incorporated into the previous data with new geostatistical evaluation of the mineralization and density with a new resource estimation completed that now includes the recently drilled Columbus prospect.

Life of Mine planning with optimizations and scheduling is underway to best utilise the known resources and provide the optimum development options for the identified mineralization.

An independent technical report to be prepared in accordance with National Instrument 43-101 has been commissioned from SRK Consulting (Australia) Pty Ltd. which is planned to be published during the first quarter of 2011.

The current Mineral Resource Estimate for the Magellan, Cano, Pinzon, Drake and Pizarro deposits as at December 31, 2009 is reported in the 2009 AIF and refers to the Company's NI 43-101 Technical Report dated September 30, 2004.

Prairie Downs

Ivernia has signed a formal joint venture agreement with Prairie Downs to acquire up to 80% of the Prairie Downs Joint Venture in Western Australia.

The highlights are:

  • Part of Ivernia's growth strategy to create a portfolio of base metal projects
  • Opportunity to explore and potentially develop a significant lead–zinc project
  • Synergies with Ivernia's nearby (within 250 kilometres) flagship Magellan lead mine in Western Australia
  • An A$2 million exploration program focused on a range of defined prospective targets
  • Option to acquire a 60% interest for A$10 million after completion of an exploration expenditure of A$3 million with a right to increase to 80% following further exploration expenditure

The exploration program has advanced significantly since the Prairie Downs Joint Venture was entered into in June 2010. A large geochemical survey utilizing a portable XRF has collected data for more than 8,000 sample points over the main prospects and defined a number of new base metal geochemical anomalies.

Geological mapping, interpretation of the geochemistry, and evaluation of previous drilling and geophysics has highlighted key target areas for drilling. A program of over 20 drill sites has been approved by the Department of Mines and Petroleum ("DMP") and the Pilbara Native Title Service.

The initial drill program will test two high priority shallow targets, the Wolf prospect and the footwall of the main Prairie resource as well as a number of regional anomalies.

The Wolf prospect, two kilometers north of the known resource of the Prairie Downs Fault Zone, shows a strong geochemical alteration and geophysical target on the southern side of the structure that is over one kilometer long. This shallow anomaly will be tested in three fences of holes down to 150m depth.

The footwall of the main Prairie deposit hosts a resource in the 'Gabbro Zone', a splay off the main structure. A number of other potential fault splays and sediments showing strong silicification on surface will be drilled in fences to 150m depth. Follow up of any intersections will be planned for later deeper drilling.

The geochemical survey has covered a number of regional anomalies and drill targets have been defined at the Hyena, West Hyena and Husky prospects. Drill testing of these prospects is planned in a second phase of drilling in 2011.

Regional assessment has included an Aster satellite image alteration interpretation that has highlighted areas of strong chlorite, epidote and kaolinite response. The portable XRF geochemical survey will continue to target these areas.

Previous drilling at the project has concentrated only on the known Prairie resource with limited work on other deposits in the belt or on associated mineralization.

Conference Call and Webcast

Ivernia invites you to join its third quarter 2010 conference call on Tuesday, November 9 at 10:00 am (ET). Participants may access the call by dialing: 1 866 804 6925 (Canada and USA) or + 1 857 350 1671 (International). The participant passcode is: 64219398.

The call will also be broadcast live on the internet at www.ivernia.com.

For those unable to participate in the conference call or webcast at the scheduled time, a telephone replay will be available until November 23, 2010 by dialing: 1 888 286 8010 (Canada and USA) or +1 617 801 6888 (International). The playback passcode is: 65128660.

A webcast replay will remain available on the investor relations section of the Company's website at www.ivernia.com.

Management's Discussion and Analysis and Consolidated Financial Statements

Ivernia's Financial Statements and Management's Discussion and Analysis for the quarter ended September 30, 2010 were filed today and are available on the Ivernia website at www.ivernia.com or SEDAR at www.sedar.com.

About Ivernia

Ivernia is an international base metals mining, exploration and development company. The Company is the sole owner and operator of the Magellan lead mine in Western Australia. At full production, Magellan is expected to be one of the top 10 lead producing mines in the world accounting for approximately 2% of the total world lead mine production.

Ivernia trades under the symbol "IVW" on the Toronto Stock Exchange.

Forward-Looking Statements

Certain statements contained in this release constitute forward-looking information within the meaning of securities laws. All statements included herein (other than statements of historical facts) which address activities, events or developments that management anticipates will or may occur in the future are forward-looking statements, including statements as to the following: future targets and estimates for production, capital expenditures, operating costs, cash costs, Mineral Resources and Ore Reserves, recovery rates, grades and prices; business strategies and measures to implement such strategies; competitive strengths; estimated goals and plans for Ivernia's future business operations; and other such matters. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "contemplate", "target", "believe", "plan", "estimate", "expect", and "intend" and statements that an event or result "may", "will", "can", "should", "could" or "might" occur or be achieved and other similar expressions. These statements are based upon certain reasonable factors, assumptions and analyses made by management in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors management believes are appropriate in the circumstances. However, whether actual results and developments will conform with management's expectations is subject to a number of risks and uncertainties, including factors underlying management's assumptions such as metal price volatility, lead carbonate concentrate treatment charges, exchange rates, regulatory proceeding and litigation, single mineral property, Mineral Resources and Ore Reserves, health and safety, environmental factors, mining risks, metallurgy, labour and employment regulations, government regulations, insurance, refinancing risk, dependence on key personnel, constraints on cash flow and nature of mineral exploration and development. Additional factors and considerations are described in the Company's 2009 AIF under "Description of the Business of the Company – Doing Business in Australia" and elsewhere in this release and in other documents filed from time to time by Ivernia with Canadian securities regulatory authorities. While Ivernia considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. These factors may cause the actual results of the Company to differ materially from those discussed in the forward-looking statements and there can be no assurance that the actual results or developments anticipated by management will be realized or, even if substantially realized, that they will have the expected results on the Company. Undue importance should not be placed on forward-looking information nor should reliance be placed upon this information as of any other date. Except as required by law, while it may elect to, Ivernia is under no obligation and does not undertake to update this information at any particular time.

Contact Information

  • Ivernia Inc.
    Brent Omland
    Vice President Finance and Chief Financial Officer
    (416) 867-9298
    brent@ivernia.ca