First Nickel Inc. ("FNI" or the "Company") (TSX:FNI) announces its results for
the year ended December 31, 2013. The Company's audited 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.fnimining.com which will also include a link to a webcast presentation by
Mr. Thomas M. Boehlert, FNI's President and CEO. This news release should be
read in conjunction with the Company's audited financial statements and
management's discussion and analysis for the year ended December 31, 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, which is located at the end of this news release. (All dollar
amounts herein are in Canadian funds unless otherwise indicated.)
HIGHLIGHTS FOR FISCAL 2013
-- Production: The Lockerby Mine produced 12.9 million pounds of contained
nickel and 7.6 million pounds of contained copper during the year ended
December 31, 2013, in line with the 2013 guidance for both metals, and
representing a 47% increase in nickel production over the prior year.
-- Revenue: Revenue for the year ended December 31, 2013 was $71.6 million,
including ore sales during the second half under an amended ore-
processing agreement with Glencore Canada Corporation ("Glencore").
-- Total cash production costs(1): Total cash production costs were $27.5
million for the first half and $18.0 million for the second half of
2013, totaling $45.6 million for the year ended December 31, 2013. Cash
production costs were $5.97 per payable pound of nickel in the first
half, and $5.15 per pound of GMV-net nickel in the second half of 2013.
Second-half cash production costs per GMV-net pound were less than the
lower end of the guidance range released in the Company's Q3 2013 MD&A.
See the "Outlook for 2014" section for details about the change in
production metrics in 2013.
-- Operating cash flow: Excluding changes in working capital, cash provided
from operating activities was a use of $2.3 million for the year ended
December 31, 2013 compared to a use of $5.8 million for the year ended
December 31, 2012.
-- Net loss: The Company had a net loss of $55.6 million for the year ended
December 31, 2013. The loss includes the $27.8 million impact of non-
cash impairment charges and a $5.1 million loss on extinguishment of
debt.
-- Liquidity: The unrestricted cash balance at December 31, 2013 was $3.6
million. The Company had US$5.0 million available to draw under the BNS
credit facility at December 31, 2013.
-- Debt restructuring and costs: During 2013, the Company raised US$10.0
million of incremental shareholder loan financing, US$8 million in
additional credit facility, and restructured all of its US$30.0 million
of debt facilities. As a result, the statement of comprehensive loss for
the year ended December 31, 2013 includes a charge of $5.1 million
representing all previous unamortized financing costs and all current
restructuring costs, and a $2.4 million expense reflecting prepaid
interest relating to the RCF V and West Face facilities.
-- Development: Ramp development totaled 500 metres and lateral development
totaled 1,492 metres for the year ended December 31, 2013, supporting
the Company's 2014 production plan.
CEO Commentary:
Mr. Thomas Boehlert, President and CEO of FNI, commented "2013 was a difficult
year for nickel mining companies and for the entire junior mining sector. FNI
responded to this challenging environment by meeting production targets and
beating cost targets at the Lockerby mine, reducing expenditures across the
board and raising additional shareholder financing. I would like to thank each
of our employees and key stakeholders who responded positively during this
period, playing an important role in our success in 2013 and firmly positioning
the Company going into 2014.".
(1) For additional information, see Non-IFRS Financial Measures section.
Summary of Financial and Operating Results
Under the revised ore-processing agreement with Glencore (the "GMV Agreement"),
the Company is paid for accountable gross metal value ("GMV"), which is based on
the contained metal, multiplied by a specified percentage that is determined
based on the average nickel grade of the ore delivered. There are no
specifically-identified processing costs under the GMV agreement given that the
specified GMV percentage results in revenues that are paid and recorded net of
processing costs. As such, the change from the Original Agreement to the GMV
agreement has resulted in a change in the classification of various revenue and
expense items.
Under the GMV Agreement, ore-treatment costs are not included in the cost of
goods sold, but are netted against nickel and by-product revenues. All things
being equal, the accounting under the GMV Agreement would result in lower
revenue, lower cost of goods sold and lower by-product revenue than under the
Original Agreement.
The Company reported revenue of $71.6 million, total cash production costs of
$45.6 million, and a net loss of $55.6 million for the year ended December 31,
2013.
The following table presents the audited statement of comprehensive loss for the
year ended December 31, 2013:
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For the year ended
Canadian $, except for share and per-share December 31, December 31,
amounts, 2013 2012
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Revenue
Revenue $ 71,644,035 $ 36,078,313
Cost of sales
Cost of sales 67,056,342 36,742,279
Depreciation 15,682,615 7,543,440
Impairment charges 23,352,776 16,761,895
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Total cost of sales 106,091,733 61,047,614
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Gross loss (34,447,698) (24,969,301)
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General and administrative 4,754,632 5,162,860
Exploration and evaluation 717,092 128,850
Impairment of mineral properties 4,451,529 5,033,409
Loss on disposal of mobile equipment 685,318 -
Loss on extinguishment of debt 5,085,990 -
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Operating loss (50,142,259) (35,294,420)
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Financing income - (1,168,796)
Financing expense 5,476,363 2,203,514
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Net finance expense 5,476,363 1,034,718
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Loss before taxes (55,618,622) (36,329,138)
Income & mining taxes - -
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Net loss and comprehensive loss $ (55,618,622) $ (36,329,138)
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Loss per share - basic and diluted $ (0.09) $ (0.07)
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Weighted average number of common shares
outstanding - basic 594,728,059 514,758,287
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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 year
ended December 31, 2013, there were no lost time injuries or reportable
environmental incidents.
Production
Production from the Lockerby Mine in the year ended December 31, 2013 was
delivered to Glencore under two successive ore-processing agreements, the
Original Agreement through June 30, 2013, and the GMV Agreement after July 1,
2013.
Under the GMV Agreement, monthly production is based on the quantity of crushed
ore delivered to Glencore and the average grade of nickel and other contained
metals, which is established by an agreed -upon third-party laboratory. For ore
processed under the Original Agreement, production was 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 based on the associated off-take agreement.
In the year ended December 31, 2013, 12.9 million pounds of contained nickel and
7.6 million pounds of contained copper were produced at the Lockerby Mine. See
the "Outlook for 2014" section for additional information about production
metrics.
In the six months ended December 31, 2013, operating under the GMV Agreement,
130,075 tonnes of ore were mined at Lockerby, producing approximately 6.8
million pounds of contained nickel and 3.5 million pounds of GMV-net payable
nickel, at an average head grade of 2.36% and an estimated 2.0 million pounds of
GMV-net payable copper at an average head grade of 1.34%.
During the first six months of 2013, operating under the Original Agreement,
115,828 tonnes of ore were mined at Lockerby, producing approximately 6.1
million pounds of contained nickel and 4.6 million pounds of payable nickel, at
an average head grade of 2.38% and an average nickel recovery of 80.5%, and 3.5
million pounds of payable copper at an average head grade of 1.31% and an
average copper recovery of 92.13%.
Increased production in 2013 reflects the commencement of commercial production
on July 1, 2012, as well as the achievement of full production in first quarter
of 2013.
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For the year ended
December 31, December 31,
2013 2012
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Tonnes of ore produced 245,903 204,841
Production
Contained nickel (pounds) 12,874,583 8,760,973
Payable nickel (pounds) - Original
Agreement (H1) 4,611,270 5,817,653
Net payable nickel (pounds) - GMV
agreement (H2) 3,500,393 -
Nickel head grade 2.39% 1.94%
Contained copper (pounds) 7,627,710 5,509,478
Payable copper (pounds) - Original
Agreement (H1) 3,450,151 4,513,730
Net payable copper (pounds) - GMV
agreement (H2) 1,988,593 -
Copper head grade 1.41% 1.22%
Tonnes of ore shipped 242,003 198,694
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Revenue
Revenues in the year ended December 31, 2013 show a material increase over the
prior year due to the ramp-up following development and first commercial
production in mid-2012 and commencement of full production from the Lockerby
Mine in the first quarter of 2013, combined with the capitalization of revenues
during the first half of 2012. Contained metal production from the Lockerby Mine
increased from 8.8 million contained nickel pounds in 2012 to 12.9 million
contained nickel pounds in 2013 (for an increase of 47% year-over-year).
The amendment to the Glencore ore-processing agreement and adoption of a GMV
Agreement in the second half of 2013 resulted in revenues that were recorded net
of the deduction of processing costs and other GMV deductions (as disclosed and
explained in the Company's MD&A for the nine months ended September 30, 2013).
Revenues under the Original Agreement in the prior year and first half of 2013
were recorded gross of processing costs.
The Company recorded total revenue of $71.6 million in the year ended December
31, 2013, compared with total revenue of $36.1 million reported in the prior
year, which did not include $28.3 million in revenues that were capitalized as
they were incurred prior to commercial production (reached July 1, 2012). With
2012 revenues grossed up for comparison purposes, which is a non-IFRS measure,
2013 revenues of $71.6 million are above the prior year by 7.2 million or 11%,
reflecting 47% higher contained metal production, partly offset by the impact of
GMV accounting, which lowered recorded revenues in the second half of 2013, and
lower average realized nickel prices in 2013 (by $0.66 per pound or 9%). Lower
realized nickel prices were partially buffered by slightly weaker average
Canadian-US dollar exchange rates, which led to higher values for revenues as
presented in Canadian dollars.
As disclosed in the Company's MD&A for the nine months ended September 30, 2013,
the change in accounting generated by the GMV Agreement also resulted in a
change to the Company's performance metrics, in order to ensure that the
Company's performance is comparable to prior periods. Prior to the third quarter
of 2013, the Company's performance metrics included payable nickel and copper,
total cash production costs, and cash production costs per pound of payable
nickel produced. Under the GMV Agreement, the Company's performance metrics
include contained nickel and copper, net-GMV nickel and copper payable pounds,
total cash production costs, and cash production costs per net-GMV pound of
nickel produced. See the "Outlook for 2014" section for details about
operational metrics, and the manner in which the economic performance of the
Lockerby Mine under the GMV Agreement may be compared to prior periods.
Revenues recorded under the Original Agreement in the first half of 2013 were
affected by volume adjustments, following milling by Glencore. Estimated grade
was determined by the Lockerby geology department, and in the event that the
Glencore milling results returned a different grade than the Company's'
estimated grade, a quantity adjustment was made to revenue in the statement of
comprehensive loss in the period in which the new information became available.
As at December 31, 2013, final pricing for ore processed under the Original
Agreement was available for all ore and, as such, revenue for the year ended
December 31, 2013 includes adjustments for all final settlements under the
Original Agreement.
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For the year ended
December 31, December 31,
Canadian $, 2013 2012
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Provisional nickel revenue - original
agreement(1) $ 32,562,602 $ 48,027,432
Provisional net nickel revenue - GMV
agreement 21,505,949
Nickel quantity adjustment 1,503,217 (3,996,445)
Nickel price adjustment (4,957,957) (1,050,046)
Provisional by-product revenue - original
agreement(1) 11,845,727 18,685,469
Provisional net by-product revenue - GMV
agreement 8,774,676
By-product price and quantity adjustment 858,823 1,945,388
By-product price and quantity adjustment -
prior period (446,682) -
Forward sales agreements (2,320) 807,868
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Total revenue $ 71,644,035 $ 64,419,666
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(1) For the purposes of this press release, year-to-date revenue includes
pre-production capitalized revenue.
Total cash production costs(2)
Total cash production costs, which are based on cost of sales less by-product
revenue, were $45.6 million for the year ended December 31, 2013. Total cash
production costs were principally composed of labour, underground mining costs,
surface ore-handling and trucking costs, treatment costs prior to July 1, 2013,
and principal payments on equipment leases, partly offset by by-product revenue.
Due to the change from the Original Agreement to the GMV agreement, in the
second half of 2013 total cash production costs exclude treatment costs, and the
associated by-product credits are on a net-GMV basis. As a result of this
difference, cash production costs per payable pound of nickel are not comparable
between the year ended December 31, 2013 and the corresponding period from 2012.
Accordingly, the table below shows two different metrics for cash production
costs per pound: a GMV-net metric for the second half of 2013 ($5.15 per pound),
and the previous metric reported for the six months ended June 30, 2013,
consistent with the Original Agreement ($5.97 per payable pound), which includes
final-quantity adjustments for the last lots shipped in June which increased the
quantity of nickel produced in the first half of 2013 by approximately 98,000
pounds and lowered the unit costs to $5.97 per pound produced, from $6.10 per
pound produced included in the Company's MD&A for Q3 2013 . For additional
information, see the "Outlook for 2014" section.
(2) For additional information, see Non-IFRS Financial Measures section.
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For the six For the For the For the
months ended six months year ended year ended
Canadian $, except December ended June December December
production amounts 31, 2013 30, 2013 31, 2013 31, 2012
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Cost of goods sold(1) $ 26,621,211 $ 40,435,131 $ 67,056,342 $ 36,742,279
Provisional by-product
revenue(2) (8,586,329) (12,034,074) (20,620,403) (10,321,469)
By-product revenue -
quantity and price
adjustments - Original
Agreement (1,595) (857,228) (858,823) (1,747,561)
Forward sales
agreements related to
by-products - (24,723) (24,723) (284,412)
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Total cash production
costs(3) (net of by-
product credits) $ 18,033,287 $ 27,519,106 $ 45,552,393 $ 24,388,837
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Payable nickel
production (pounds) -
Original Agreement - 4,611,270 4,611,270 3,092,000
Cash production cost
per pound of
nickel(3,4) produced -
original agreement $ - $ 5.97 $ 5.97 $ 7.89
Net payable nickel
production (pounds) -
GMV agreement 3,500,393 - 3,500,393 -
Cash production cost
per pound of
nickel(3,4) produced -
GMV agreement $ 5.15 $ - $ 5.15
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(1) Cost of goods sold does not include depreciation.
(2) Revenue presented for the year ended December 31, 2013 includes revenue
based on the Original Agreement from January 1, 2013 to June 30, 2013
and revenue net of GMV deductions per the GMV agreement, from July 1,
2013 to December 31, 2013.
(3) For additional information, see Non-IFRS Financial Measures section.
(4) Cash production cost per pound based on cash production cost for the
commercial production period divided by associated net payable nickel
production for the same period. Original Agreement unit costs for six
months are not mixed with GMV unit costs for Q3 and Q4 2013. See
"Outlook for 2014" section for details about the calculation of cash
cost metrics.
Capital
The Company made capital expenditures of $13.0 million in the year ended
December 31, 2013, mostly representing underground development costs at the
Lockerby Mine.
The development rate for the year ended December 31, 2013 averaged 5.5 metres
per day.
Impairment of tangible assets
The Company modified the Lockerby mine plan during third quarter of 2013, in
response to the significant downturn in the market prices of nickel and copper,
and the associated weakened economics for deeper levels of the mine. The change
focused the modified mine plan on the Lockerby 67 and 68-level zones, which
implied lower future production over the life of the mine, triggering a review
for impairment. Upon assessment, including updated assumptions and estimates,
the Company recorded an impairment charge of $23.4 million associated with the
Lockerby Mine during the year ended December 31, 2013. Improved nickel prices
and a weaker Canadian dollar in early 2014 are enabling an optimization of the
Lockerby mine plan considering alternate scenarios that aim to extend the life
and maximize the mine's value.
Exploration
The Corporation'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. Due to the downturn in nickel prices seen through 2013, the
Corporation has not incurred any significant exploration expenditures on its
exploration properties since December 31, 2012.
Lockerby South
During the year ended December 31, 2013, the Company recorded an impairment
charge of $0.5 million in the statement of comprehensive loss associated with
the Lockerby South exploration asset. The impairment assessment of this
exploration asset was triggered by the failure of the exploration program at
Lockerby South to find any significant mineralized zones with economic
viability.
Link
During the year ended December 31, 2013, the Company recorded an impairment
charge of $4.0 million in the statement of comprehensive loss associated with
the Link exploration asset. The impairment assessment of this exploration asset
was triggered by the current low metal price environment and the low-grade
mineralization discovered at the Link exploration area, which is not
economically viable at current metal prices.
OUTLOOK FOR 2014
-- Production of between 13.5 million and 15.1 million pounds of contained
nickel, an 11% increase (mid -point) over 2013;
-- Production of between 7.2 million and 8.0 million pounds of contained
copper;
-- GMV-net production of between 6.8 million and 7.6 million pounds of
nickel, and between 3.6 million and 4.0 million pounds of copper;
-- Mine site operating costs between $58.1 and $61.0 million;
-- Cash production costs between $5.22 and $5.74 per pound(1) of GMV-net
payable nickel.
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Canadian $, except metal pounds 2014
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Contained nickel lbs (millions) 13.5 - 15.1
Contained copper lbs (millions) 7.2 - 8.0
GMV net payable nickel lbs (millions) 6.8 - 7.6
GMV net payable copper lbs (millions) 3.6 - 4.0
Mine site operating costs (millions) $58.1 - $61.0
Cash production cost per pound of nickel produced(1) $5.22 - $5.74
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(1) For additional information, see Non-IFRS Financial Measures section
Assumptions: Cu per lb US$3.25, CAD/USD 1:1
Capital expenditures
Capital expenditures for 2014 are projected to be approximately $7.2 million,
including approximately $3.5 million related to underground development.
General and administrative expenses
General and administrative expenses for 2014 are projected to be approximately
$4.4 million, not including share -based compensation. Financing costs and
exploration expenditures are projected to be approximately $1.8 million and $0.4
million, respectively, in 2014.
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 with National Instrument 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 it operates. FNI
owns and operates the Lockerby Mine in the Sudbury Basin in northern Ontario,
which reached full production during 2013 and is expected to produce
approximately 14 million pounds of contained nickel and approximately 7 million
pounds of contained copper in 2014, providing a foundation from which to grow
the Company. More than half of FNI's common shares are held by institutional
investors. FNI's shares are traded on the TSX under the symbol FNI.
To learn more about the Company please visit www.fnimining.com and follow us on
LinkedIn and Twitter @FNI_Mining.
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.
Non-IFRS Financial Measures The cash cost per pound of nickel produced, cash
cost per net-GMV 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") 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. On a GMV basis, total cash production costs include
mining costs, surface ore-handling and trucking costs, equipment operating lease
costs, mine site general and administration costs, environmental costs and Vale
royalties, less net-GMV by-product revenue, including forward sales gains and
losses, and price adjustments from sales of copper, cobalt and PGE's.
FOR FURTHER INFORMATION PLEASE CONTACT:
First Nickel Inc.
Thomas Boehlert
President & CEO
416 362-7050 x 225
tboehlert@firstnickel.com
First Nickel Inc.
Paul Davis
VP, Exploration
416 362 7050 x 226
pdavis@firstnickel.com
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