Timminco Limited
TSX : TIM

Timminco Limited

August 09, 2011 17:00 ET

Timminco Reports Financial Results for Second Quarter 2011

TORONTO, ONTARIO--(Marketwire - Aug. 9, 2011) - Timminco Limited ("Timminco" and, together with its consolidated subsidiaries, the "Company") (TSX:TIM) today reported its financial results for the second quarter ended June 30, 2011 ("Q2-11"). All figures are in Canadian dollars unless otherwise stated.

Beginning with the first quarter of 2011, the Company is reporting its financial results in accordance with International Financial Reporting Standards ("IFRS"), as required for public companies in Canada. Previously, the Company reported its financial results under Canadian Generally Accepted Accounting Principles ("GAAP"). Financial results for the comparable periods in 2010 ("Q2-10") have been restated to reflect the adoption of IFRS. Under IFRS, the Company's 51% ownership in Québec Silicon Limited Partnership ("Québec Silicon"), the silicon metal production partnership established with Dow Corning Corporation in October 2010, is accounted for using the equity method, under which the Company's financial results reflect its proportionate ownership in Québec Silicon. As a result, the Company's financial results have been reduced by reason of the change in accounting methods, even though the scale of operations and ownership interests in Québec Silicon remain unchanged. Previously under Canadian GAAP, Québec Silicon's financial statements were consolidated with the Company's.

Second Quarter 2011 Summary:

  • Consolidated sales were $21.0 million in Q2-11 compared with $34.3 million in Q2-10, with the decrease reflecting the deconsolidation of Québec Silicon's results of operations on January 1, 2011;
  • Sales from silicon metal product lines were $15.7 million, reflecting shipments of 5,460 mt in Q2-11, compared with $32.0 million, reflecting shipments of 13,228 mt, in Q2-10 when the Company owned 100% of the silicon metal production operations;
  • Sales of solar grade silicon were $3.1 million, reflecting shipments of 87 metric tons in Q2-11, compared to no sales in Q2-10;
  • Gross loss was $2.8 million (negative 13.3% of sales) in Q2-11 compared with $2.3 million (negative 6.8% of sales) in Q2-10, with positive gross margin of $1.0 million related to sales of silicon metal products;
  • EBITDA was negative $3.6 million in Q2-11 compared with negative $3.0 million for Q2-10; and
  • Net loss was $5.3 million, or $0.03 per share in Q2-11, compared with $9.7 million, or $0.05 per share for Q2-10.

"Our results for the second quarter reflect the continued operation of our silicon metal operations at capacity, excluding planned major maintenance shut downs, as well as sales of 87 metric tons solar grade silicon from inventories, bringing total solar grade silicon sales for the first half of 2011 to 159 metric tons," said Dr. Heinz Schimmelbusch, Chairman of the Board and Chief Executive Officer of Timminco. "Our solar grade silicon sales in the first half of 2011 reflect the ongoing interest in the product for the PV market. As we continue to test improvements to our purification process on a small scale, we plan for production-scale testing in the second half of 2011, in advance of restarting our solar grade silicon operations. Our short-term objective is to develop a customer base, with firm supply commitments, to support a decision to invest the capital required for the restart of our solar grade silicon operations."

Financial Results
($000s except per share amounts) Three Months Ended (unaudited) Six Months Ended (unaudited)
June 30, 2011 June 30, 2010 June 30, 2011 June 30, 2010
Sales 21,046 34,309 44,964 65,106
Gross Profit (Loss) (2,791 ) (2,325 ) (2,020 ) (8,439 )
Gross Profit (Loss) Percentage (13.3% ) (6.8% ) (4.5% ) (13.0% )
Net Income (Loss)
Silicon (3,206 ) (3,337 ) (2,757 ) (9,465 )
Corporate/other (2,100 ) (6,348 ) (10,630 ) (10,856 )
Total (5,306 ) (9,685 ) (13,387 ) (20,321 )
EBITDA(1)
Silicon (1,585 ) 552 350 (1,704 )
Corporate/other (1,967 ) (3,616 ) (4,450 ) (5,238 )
Total (3,552 ) (3,064 ) (4,100 ) (6,942 )
Adjusted Loss (1)
Silicon (3,087 ) (3,332 ) (2,658 ) (9,450 )
Corporate / Other (3,858 ) (6,349 ) (8,497 ) (11,328 )
Total (6,945 ) (9,671 ) (11,155 ) (20,778 )
Loss per common share, basic and diluted (0.03 ) (0.05 ) (0.07 ) (0.12 )
Working capital (excluding available cash items and interest bearing debt) (1,411 ) 20,916 (1,411 ) 20,916
Total assets 132,309 262,315 132,309 262,315
Cash, cash equivalents and restricted cash 430 1,952 430 1,952
Bank debt 700 31,213 700 31,213
Total long-term liabilities 64,470 43,295 64,470 43,295
Weighted average number of
Common shares outstanding, basic and diluted (000's)
193,615 184,215 194,669 172,408
(1) See "Non-GAAP Accounting Definitions".

Silicon Group

The Silicon Group segment is operated through the Company's wholly-owned subsidiary, Bécancour Silicon Inc. ("Bécancour Silicon"). Until September 30, 2010, the Silicon Group segment consisted of the production and sale of silicon metal and solar grade silicon products. As of October 1, 2010, the production of silicon metal was transferred to Québec Silicon, and Bécancour Silicon became a purchaser of silicon metal from Québec Silicon and continued to sell silicon metal to its own customers. For the three months ended December 31, 2010, Québec Silicon's results of operations were consolidated with the Company under Canadian GAAP. However, starting January 1, 2011, Québec Silicon's results are not consolidated with the Company under IFRS. The Silicon Group segment continues to include all of the production and sale of solar grade silicon.

For Q2-11, Silicon Group sales were $21.0 million, compared with $34.3 million in Q2-10.

Analysis of Silicon Group Sales
Three months ended Three months ended
June 30, 2011 June 30, 2010
Metric tons $000s Metric tons $000s
Silicon metal 5,460 15,731 13,228 32,046
By-products 6,844 2,221 9,558 2,263
Silicon metal product lines 12,304 17,952 22,786 34,309
Solar grade silicon 87 3,094 - -
Total Silicon Group sales 12,391 21,046 22,786 34,309

Sales of silicon metal in Q2-11 were $15.7 million, compared with $32.0 million for Q2-10. As a result of transferring the silicon metal production assets to Québec Silicon and establishing the production and supply agreements with Dow Corning in Q4-10, quantities of silicon metal available for sale by Bécancour Silicon to its customers were reduced by 49%. This is reflected in the lower volumes and revenues in Q2-11, compared with Q2-10. However, the Company has been able to realize higher unit selling prices for silicon metal in Q2-11, reflecting improved market demand and higher realized prices under the supply contract with a long-standing customer compared to Q2-10. The volume of silicon metal sold by Bécancour Silicon in the six months ended June 30, 2011 ("H1-11") includes shipments from its existing silicon metal inventories and silicon metal purchased from Québec Silicon and other suppliers. The volume of silicon metal allocated to Bécancour Silicon in H1-11 was greater than 51% of Québec Silicon's production during that period and, accordingly, Bécancour Silicon's allocation will be reduced in subsequent reporting periods.

As a result of the transfer of the silicon metal production assets to Québec Silicon in Q4-10, all by-products produced by Québec Silicon are sold by Bécancour Silicon as agent on behalf of Québec Silicon. Consequently, these by-product sales are no longer included in the Silicon Group's sales. However, Bécancour Silicon still owns a silica fumes disposal site and extracts silica fumes (a form of by-product) from that site. Silica fumes extraction operations are conducted mainly in the summer months. During Q2-11, $2.2 million of silica fumes were extracted and sold.

Sales of solar grade silicon for Q2-11 were $3.1 million, compared with $nil in Q2-10, and reflect sales of inventories produced in 2009, some of which was further processed at the ingoting facility in Bécancour, Québec. The sales reflect demand due to improved market conditions, as well as the progress of the Company's market development efforts. The Company continues to test its purification process and develop prospective customers to enable the restart of purification operations, as market conditions warrant.

Gross loss for Q2-11 was $2.8 million (negative 13.3% of sales) compared with $2.3 million (negative 6.8% of sales) in Q2-10. Gross margin related to silicon metal sales for Q2-11 was $1.0 million compared with $1.2 million for Q2-10. Although the Company realized higher average selling prices for silicon metal compared with Q2-10, these were offset by higher costs of production due to lower yields resulting from poor raw material quality and unabsorbed overheads during planned maintenance shut downs. Gross margin for H1-11 was unfavourably impacted by $0.9 million, compared with H1-10, as a result of lower realized Canadian dollar selling prices resulting from the depreciation of the Euro and US dollar relative to the Canadian dollar. Commencing October 2010, to mitigate the volatility of short term exchange rate movements, Bécancour Silicon entered into forward contracts to convert anticipated Euro inflows into Canadian dollars. Gross loss related to solar grade silicon sales for Q2-11 was $3.8 million compared with $3.5 million for Q2-10. The increase in gross loss for Q2-11 was the result of stand-down and other overhead costs related to the solar grade silicon facilities, depreciation and amortization and process improvement and development costs.

EBITDA for Q2-11 was negative $1.6 million compared with positive $0.6 million for Q2-10. The increase was the result of the aforementioned higher production costs for silicon metal and the operation of the solar grade silicon ingoting facility for inventory production and market development. Q2-11 was unfavourably impacted by the currency translation effect of the Canadian dollar against the Euro and the US dollar.

Net loss for Q2-11 was $3.2 million compared with $3.3 million for Q2-10. The decrease was the result of profitable shipments of solar grade silicon inventory, which was partially offset by higher silicon metal production costs and solar grade silicon market development costs.

Consolidated Results

EBITDA for Q2-11 was negative $3.6 million compared with negative $3.1 million for Q2-10. The decrease is primarily the result of higher production costs for silicon metal and the operation of the solar grade silicon ingoting facility for inventory production, as well as stand down and other overhead costs relating to the solar grade silicon production facilities, costs relating to continuous process improvement, and the unfavourable impact of the strengthening of the Canadian dollar against the U.S. dollar and the Euro.

Net loss for Q2-11 improved to $5.3 million, or $0.03 per share, compared with $9.7 million, or $0.05 per share, for Q2-10.

Cash, cash equivalents and restricted cash at June 30, 2011 were $0.4 million compared with $7.6 million at December 31, 2010. The decrease is primarily the result of cash consumed by ongoing operating activities. The Company had drawn $0.7 million against its $20 million senior credit facility with Bank of America at June 30, 2011.

Timminco will file its unaudited consolidated financial statements for the period ended June 30, 2011 and related management's discussion and analysis ("MD&A") prepared in accordance with IFRS with securities regulatory authorities within the applicable timelines. Such financial statements, MD&A and related documents will be available through SEDAR at www.sedar.com as well as through Timminco's website, www.timminco.com.

Conference Call

Timminco will host a conference call tomorrow, Wednesday, August 10, 2011, at 10:00 a.m. ET to discuss its financial results for the second quarter and year to date ended June 30, 2011. To access the conference call by telephone, dial 647-427-7450 or 1-888-231-8191. Please connect approximately 15 minutes prior to the beginning of the call to ensure participation. The conference call will be archived for replay until Wednesday, August 17, 2011 at midnight. To access the archived conference call, dial 416-849-0833 or 1-855-859-2056 and enter the reservation number 87476643#.

A live audio webcast of the conference call will also be available at www.timminco.com. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. The webcast will be available for replay at www.timminco.com following the live presentation.

About Timminco

Timminco produces silicon metal for the chemical (silicones), aluminum and electronics/solar industries, through its 51%-owned production partnership with Dow Corning, known as Québec Silicon. Timminco is also a producer of solar grade silicon, using its proprietary technology for purifying silicon metal, for the solar photovoltaic energy industry, through its wholly owned subsidiary Bécancour Silicon.

Cautionary Notes

This news release contains "forward-looking information," as such term is defined in applicable Canadian securities legislation, concerning Timminco's future financial or operating performance and other statements that express management's expectations or estimates of future developments, circumstances or results. Generally, forward-looking information can be identified by the use of forward-looking terminology such as "expects", "believes", "anticipates", "budget", "scheduled", "estimates", "forecasts", "intends", "plans" and variations of such words and phrases, or by statements that certain actions, events or results "may", "will", "could", "would" or "might" "be taken", "occur" or "be achieved". In this news release, such information includes statements regarding the Company's solar grade silicon operations and allocation, purchase and sale of silicon metal. Forward-looking information is based on a number of assumptions and estimates that, while considered reasonable by management based on the business and markets, in which Timminco operates, are inherently subject to significant operational, economic and competitive uncertainties and contingencies. Timminco cautions that forward-looking information involves known and unknown risks, uncertainties and other factors that may cause Timminco's actual results, performance or achievements to be materially different from those expressed or implied by such information, including, but not limited to: liquidity risk; global economic uncertainty; credit risk; pricing and availability of raw materials; silicon metal selling prices; customer concentration; power supply and electricity prices; production interruptions; transportation disruptions; limited history with solar grade silicon; solar grade silicon selling prices; customer commitments for solar grade silicon; solar grade silicon production costs; quality of solar grade silicon; producing ingots with Timminco's solar grade silicon; protection of intellectual property rights; expansion of solar grade silicon production capacity; class action lawsuits; closure of former magnesium facilities; foreign exchange; investment in Applied Magnesium; interest rate risk; financing for capital expenditures; environmental liabilities; relationships with AMG; dependence upon key executives and employees; completion and integration of potential acquisitions, partnerships or joint ventures; risks with foreign operations and suppliers; environmental, health and safety laws and liabilities; intellectual property infringement claims; new regulatory requirements; labour disputes; and changes in tax laws. These factors are discussed in greater detail in Timminco's Annual Information Form for the year ended December 31, 2010, and in Timminco's most recent Management's Discussion and Analysis, each of which is available via the SEDAR website at www.sedar.com.
Although Timminco has attempted to identify important factors that could cause actual results, performance or achievements to differ materially from those contained in forward-looking information, there can be other factors that cause results, performance or achievements not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate or that management's expectations or estimates of future developments, circumstances or results will materialize. Accordingly, readers should not place undue reliance on forward-looking information. The forward-looking information in this news release is made as of the date of this news release and Timminco disclaims any intention or obligation to update or revise such information, except as required by applicable law.

Non-GAAP Accounting Definitions

(1) EBITDA is not a recognized measure under Canadian generally accepted accounting principles ("GAAP"). Management believes that, in addition to net income (loss), EBITDA is a useful supplemental measure as it provides investors with an indication of cash available for distribution prior to debt service, past pension service obligations, capital expenditures, income taxes and restructuring cash payments. The Company defines EBITDA as net income (loss) excluding impairment of Applied Magnesium, interest, amortization of intangible assets, amortization of property, plant and equipment, reorganization costs, environmental remediation costs, stock-based compensation, fair value loss (gain) on financial instruments at fair value and share of net (income) loss of a jointly controlled entity. Investors should be cautioned, however, that EBITDA should not be construed as an alternative to net income determined in accordance with GAAP as an indicator of the Company's profitability. Also, EBITDA should not be construed as an alternative to cash flows from operating, investing and financing activities as a measure of liquidity and cash flows. The Company's method of calculating EBITDA may differ from other companies and, accordingly, EBITDA may not be comparable to measures used by other companies. EBITDA is calculated as follows:
($000s) Three months ended Six months ended
June 30, 2011 June 30, 2010 June 30, 2011 June 30, 2010
Net loss (5,306 ) (9,685 ) (13,387 ) (20,321 )
Add back (subtract):
Impairment of Applied Magnesium - - 222 -
Loss (gain) on the sale of property, plant and equipment - 14 - 14
Interest 1,211 1,844 2,620 4,192
Amortization of intangible assets 568 707 1,149 1,414
Amortization of property, plant and equipment 945 3,172 1,875 6,343
Reorganization costs 413 - 1,754 -
Environmental remediation costs 74 - 60 -
Stock-based compensation 669 884 1,411 1,887
Fair value loss (gain) on financial instruments at fair value (2,208 ) - 84 (471 )
Share of net loss of a jointly controlled entity 82 - 112 -
EBITDA (3,552 ) (3,064 ) (4,100 ) (6,942 )
(2) Adjusted income (loss) is not a recognized measure under GAAP. However, management believes that, in addition to net income (loss), adjusted income (loss) is a useful supplemental measure as it provides investors with an indication of ongoing income excluding non-operational costs originating from closed facilities and fair value adjustments of other financial liabilities. Investors should be cautioned, however, that adjusted net income (loss) should not be construed as an alternative to net income determined in accordance with GAAP as an indicator of the Company's profitability. The Company's method of calculating adjusted net income (loss) may not be comparable to measures used by other companies. Adjusted income (loss) is calculated as follows:
($000s) Three months ended Six months ended
June 30, 2011 June 30, 2010 June 30, 2011 June 30, 2010
Net loss (5,306 ) (9,685 ) (13,387 ) (20,321 )
Add back (subtract):
Impairment of Applied Magnesium - - 222 -
Loss (gain) on the sale of property, plant and equipment - 14 - 14
Reorganization costs 413 - 1,754 -
Environmental remediation costs 74 - 60 -
Fair value loss (gain) on financial instruments at fair value (2,208 ) - 84 (471 )
Share of net loss of a jointly controlled entity 82 - 112 -
Adjusted Income (Loss) (6,945 ) (9,671 ) (11,155 ) (20,778 )
Timminco Limited
Consolidated Balance Sheets
As at June 30 December 31
(unaudited) 2011 2010
(in thousands of Canadian dollars)
ASSETS
Current Assets
Cash and cash equivalents $ 412 $ 7,483
Restricted cash 18 105
Accounts receivable 6,810 12,365
Due from related companies 1,809 2,172
Inventories 10,831 14,473
Finished goods consigned to related company 4,126 4,530
Prepaid expenses and deposits 1,178 1,365
25,184 42,493
Due from related companies - 1,275
Long term receivables 1,269 1,275
Long term inventories 2,363 2,874
Property, plant and equipment 58,002 59,826
Investments 43,409 43,171
Intangible assets 2,082 3,231
$ 132,309 $ 154,145
LIABILITIES
Current Liabilities
Bank indebtedness $ 700 $ -
Accounts payable and accrued liabilities 7,273 9,064
Deferred revenue 5,542 6,319
Due to related companies 11,250 19,252
Current portion of long term liabilities 1,545 3,273
Current portion of long term provisions 2,100 2,555
28,410 40,463
Due to related companies 6,554 6,418
Other financial liabilities 1,427 1,343
Long term liabilities 28,915 28,619
Employee future benefits 20,814 20,610
Long term provisions 6,760 6,855
92,880 104,308
SHAREHOLDERS' EQUITY
Capital stock 311,873 310,777
Contributed surplus 15,091 13,320
Deficit (287,535 ) (273,650 )
Equity attributable to owners of parent 39,429 50,447
Non-controlling interest - (610 )
Total Equity 39,429 49,837
$ 132,309 $ 154,145
Timminco Limited
Consolidated Statements of Operations and Comprehensive Loss
(unaudited)
Three months ended June 30 Six months ended June 30
2011 2010 2011 2010
(in thousands of Canadian dollars, except for loss per share information)
Sales $ 21,046 $ 34,309 $ 44,964 $ 65,106
Cost of goods sold 23,837 36,634 46,984 73,545
Gross margin (2,791 ) (2,325 ) (2,020 ) (8,439 )
Administrative expenses 2,820 3,813 6,468 8,166
Other operating expenses (income) 610 1,652 1,861 (5 )
Operating profit (loss) (6,221 ) (7,790 ) (10,349 ) (16,600 )
Finance costs (income) (997 ) 1,895 2,704 3,721
Impairment loss on investment in Applied Magnesium - - 222 -
Share of net loss of a jointly controlled entity 82 - 112 -
Loss and total comprehensive loss for the period (5,306 ) (9,685 ) (13,387 ) (20,321 )
Attributable to:
Owners of the parent (5,317 ) (9,604 ) (13,342 ) (20,031 )
Non-controlling interests 11 (81 ) (45 ) (290 )
Loss and total comprehensive loss for the period (5,306 ) (9,685 ) (13,387 ) (20,321 )
Loss per common share - basic and diluted $ (0.03 ) $ (0.05 ) $ (0.07 ) $ (0.12 )
Weighted average number of common shares outstanding - basic and diluted 193,614,722 184,215,471 194,668,889 172,408,346
Timminco Limited
Consolidated Statements of Cash Flows
(unaudited)
Six months ended June 30
2011 2010
(in thousands of Canadian dollars)
Cash flows from (used in) operating activities
Net loss $ (13,387 ) $ (20,321 )
Adjustments for items not requiring cash
Amortization of property, plant and equipment 1,875 6,343
Amortization of intangible assets 1,149 1,413
Interest expense - 1,636
Accretion of convertible debt 508 283
Stock-based compensation 1,411 1,887
Termination benefits 1,754 -
Loss on disposal of property, plant and equipment - 14
Environmental remediation 62 -
Fair value loss (gain) on financial instruments at fair value 84 (471 )
Impairment of investment in Applied Magnesium 222 -
Accretion of provisions 90 82
Benefits plan expense 640 1,702
Share of net income of a jointly controlled entity 112 -
Unrealized foreign exchange gain (128 ) (1,015 )
Accrued employee future benefits paid (2,190 ) (2,220 )
Expenditures charged against provisions (702 ) (255 )
Change in non-cash working capital items
Decrease (increase) in restricted cash 87 (471 )
Decrease (increase) in accounts receivable 5,555 (1,932 )
Decrease in inventories 4,557 11,620
Decrease in prepaid expenses and deposits 187 102
Decrease in accounts payable and accrued liabilities (1,793 ) (3,594 )
Decrease in related company balances (6,831 ) (173 )
Increase (decrease) in deferred revenue (777 ) 2,241
(7,515 ) (3,129 )
Cash used in investing activities
Capital expenditures (50 ) (906 )
(50 ) (906 )
Cash flows from (used in) financing activities
Issuance of common shares - 12,434
Issuance of convertible bond - 1,043
Increase (decrease) in bank indebtedness 700 (9,102 )
Funding from non-controlling interest 112 -
Decrease in long term receivable 6 2
Decrease in long term liabilities (324 ) (31 )
494 4,346
Decrease (increase) in cash during the period (7,071 ) 311
Cash, beginning of period 7,483 1,170
Cash, end of period $ 412 $ 1,481
Supplemental cash flow information
Cash paid (received) during the period:
Interest $ 1,927 $ 1,572
Income taxes $ - $ (10 )
Timminco Limited
Consolidated Statement of Changes in Equity
As at June 30, 2011 and June 30, 2010
(unaudited)
(in thousands of Canadian dollars)
Issued Capital Contributed surplus Deficit Total attributable to the equity holders of the parent Non-controlling interest Total
As at January 1, 2011 $ 310,777 $ 13,320 $ (273,650 ) $ 50,447 $ (610 ) $ 49,837
Total comprehensive loss - - (13,342 ) (13,342 ) (45 ) (13,387 )
Non-controlling interest investment - - - - 112 112
Common shares issued in settlement of convertible notes 1,096 - - 1,096 - 1,096
Share-based payment transactions - 1,771 - 1,771 - 1,771
Acquisition of non-controlling interest - - (543 ) (543 ) 543 -
As at June 30, 2011 $ 311,873 $ 15,091 $ (287,535 ) $ 39,429 $ - $ 39,429
Issued Capital Contributed surplus Deficit Total attributable to the equity holders of the parent Non-controlling interest Total
As at January 1, 2010 $ 285,205 $ 9,438 $ (178,586 ) $ 116,057 $ - $ 116,057
Total comprehensive loss - - (20,031 ) (20,031 ) (290 ) (20,321 )
Common shares issued in settlement of repayment liability 12,726 - - 12,726 - 12,726
Common shares issued in settlement of trade payable 412 - - 412 - 412
Common shares issued for cash 12,434 - - 12,434 - 12,434
Share-based payment transactions - 1,886 - 1,886 - 1,886
As at June 30, 2010 $ 310,777 $ 11,324 $ (198,617 ) $ 123,484 $ (290 ) $ 123,194

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