Mr. Marc LeVier reports
GREAT WESTERN MINERALS REPORTS SECOND QUARTER 2014 RESULTS
Great Western Minerals Group Ltd. (GWMG) is releasing its second quarter financial results through June 30, 2014, and providing an update on the company's activities. All amounts are presented in Canadian dollars unless indicated otherwise.
Highlights and results:
- Second quarter revenue increased 31 per cent to $5.6-million over the prior-year period on strong alloy sales as a result of enhanced capabilities and increased customer demand;
- Revenue was generated by the company's production subsidiary, Less Common Metals Ltd. (LCM);
- Released the Steenkampskraal project's feasibility study results during the quarter;
- Company moving permit process forward and focused on securing financing to develop the project;
- Company had $13.1-million in cash as of June 30, 2014.
Marc LeVier, company president and chief executive officer, commented: "During the first half of this year, we successfully advanced our mine to metals strategy. We completed and published the Steenkampskraal feasibility study, which reinforced our belief that we have the industry's best-sized, most economically viable, high-grade, critical rare-earth asset that can be produced in a cost-effective manner. We also focused much time and energy on implementing efficiencies throughout the organization as we build a foundation to support future progress at SKK and LCM."
Mr. LeVier added: "Since the conclusion of the feasibility study, we have continued to progress permit applications for the SKK operation and have been actively targeting sources of additional financing, which would allow continuation of the company's operations and for the development of the Steenkampskraal project. We have also had very preliminary discussions with the company's bondholders surrounding the potential restructuring of our current debt."
Manufacturing services
Manufacturing services revenue was $5.6-million in the second quarter of 2014, a $1.3-million or 31-per-cent increase over the same period of the prior year, as higher volumes and favourable exchange rates more than offset declining alloy prices. In the recent quarter, the company sold 85 metric tonnes of alloys, compared with 69 metric tonnes of alloys in the second quarter of 2013. The increase in volume can be attributed to increased customer demand for product from the new strip cast furnaces that are now fully commissioned. Future growth will continue to be dependent on the company's ability to obtain the necessary rare-earth materials at competitive pricing. The company is working with its customers to identify sources of raw material to meet their short-term demands until the SKK project is developed and production is achieved.
Gross margin of $1.1-million was relatively consistent with the prior-year period; however, as a percentage of revenue, gross margin declined to 19.9 per cent, from 24.8 per cent. Margin contraction primarily reflected a change in product mix as higher-volume, lower-margin sales occurred during the second quarter of 2014, compared with the prior-year period. The manufacturing services segment generated a loss of $1.1-million from continuing operations in the second quarter of 2014, compared with a loss of $400,000 in the 2013 period.
During the 2014 second quarter, the company completed a sale of certain assets of its Great Western Technologies Inc. (GWTI) operation. GWTI paid $741,836 (U.S.) for the acquirer to assume GWTI's lease obligations and $1.2-million (U.S.) in restoration liabilities associated with the GWTI operation. As a result, the acquirer assumed ownership of GWTI's property, plant, equipment and inventory. Accordingly, the results of GWTI and cash flows of GWTI's operations have been separately presented as discontinued operations in the company's condensed consolidated interim statements of comprehensive loss and condensed consolidated interim statements of cash flows.
Steenkampskraal project
During the 2014 second quarter, the company's focus was on various technical and engineering studies, mine planning activities, and working with its independent consultants to enable the completion of the SKK project feasibility study. The company expended $800,000 during the quarter on those activities, compared with $2.4-million for various exploration and evaluation investigations during the second quarter of 2013.
In early May, the company announced the results of the SKK project feasibility study, indicating the following highlights:
- $274-million after-tax net present value applying a 10-per-cent discount rate;
- 50-per-cent after-tax internal rate of return;
- 3.3-year estimated payback period;
- 13-year life of mine;
- Initial capital expenditures of $118.8-million with postcommercial production capital expenditures of $51.5-million.
The National Instrument 43-101-compliant technical report containing the results of the feasibility study and the reserves estimate was filed on the SEDAR website on June 20, 2014.
The company also continued to progress applications with the Department of Energy's national nuclear regulator, Department of Mineral Resources and on the Department of Water Affairs integrated water use permit. In addition, the company is reviewing capital expenditure improvement opportunities and optimization testing in the lab on several aspects of the process flow sheet. Great Western continues to work toward obtaining an acceptable tolling arrangement for the separation of the mixed rare-earth carbonate concentrate that will be produced at SKK.
Liquidity
The company's cash and cash equivalent position at June 30, 2014, was $13.1-million, compared with $23.6-million at the end of 2013. The company continues to take a prudent approach to expense management and has significantly reduced its monthly cash outlays following various operational efficiency initiatives.
On April 7, 2014, the company made its fourth semi-annual interest payment of $3.6-million (U.S.) to service its convertible bonds and the first from funds not held in escrow. The company believes that its current capital level will allow it to perform certain regulatory and compliance work and make its scheduled interest payments for 2014.
Qualified persons
Victor-Mark Fitzmaurice, PrEng, MEng (mining), managing director of Rare Earth Extraction Co. Ltd. and Steenkampskraal Monazite Mine (Pty.) Ltd., is the qualified person (as defined in NI 43-101) responsible for supervising the preparation of the technical content of this news release.
Teleconference and webcast
The company will host a conference call and webcast to review its results, key market initiatives and business strategy on Thursday, Aug. 14, 2014, at 11 a.m. ET. A question-and-answer session will follow.
The conference call can be accessed by calling 201-689-8471. The live listen-only audio webcast can be monitored on the company's website, where it will be archived afterward, along with a transcript once available.
A telephonic replay will be available from 2 p.m. ET on the day of the teleconference until Thursday, Aug. 21, 2014. To listen to the archived call, dial 858-384-5517 and enter replay PIN 13585619.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE LOSS
(in Canadian dollars)
For the three months ended For the six months ended
June 30, June 30,
2014 2013 2014 2013
Sales $ 5,566,088 $ 4,258,826 $12,720,107 $ 7,600,477
Cost of materials 4,457,998 3,200,976 10,353,685 5,456,418
------------ ------------ ------------ ------------
Gross margin 1,108,090 1,057,850 2,366,422 2,144,059
------------ ------------ ------------ ------------
Operating expenses
General and
administration 599,597 1,418,537 1,249,295 2,615,925
Wages and benefits 1,541,543 1,758,757 3,162,676 3,257,151
Stock-based
compensation 36,914 403,641 67,141 571,255
Professional fees 375,773 580,194 702,989 1,177,418
Investor relations 32,322 45,126 74,551 122,075
Occupancy 1,072,439 412,419 1,452,826 892,161
Depreciation and
amortization 457,055 358,417 900,451 720,933
Exploration and
evaluation 757,324 2,405,479 2,051,093 4,781,468
Impairment of
property, plant
and equipment 425,288 - 425,288 153,487
Exchange (gain)
loss (2,017,561) 994,410 (111,827) 1,012,713
------------ ------------ ------------ ------------
Total expenses 3,280,694 8,376,980 9,974,483 15,304,586
Other
Interest expense
and finance costs (3,878,076) (3,176,291) (7,585,098) (5,937,684)
Interest income 8,616 485 27,002 75,814
Gain (loss) on
conversion option 45,554 1,081,107 (29,418) 6,743,509
Other income
(expense) (65,877) 5,410 (60,237) 10,373
------------ ------------ ------------ ------------
Loss before income
taxes 6,062,387 9,408,419 15,255,812 12,268,515
Income tax recovery - - - 115,155
------------ ------------ ------------ ------------
Net loss continuing
operations 6,062,387 9,408,419 15,255,812 12,153,360
Discontinued
operation
Loss from
discontinued
operation, net of
tax 189,725 92,915 158,221 318,501
------------ ------------ ------------ ------------
Net loss 6,252,112 9,501,334 15,414,033 12,471,861
Other comprehensive
income (loss)
Items that may be
reclassified to
profit and loss
Translation
adjustment (1,088,700) 29,650 649,173 (2,138,050)
Discontinued
operation
cumulative
translation
adjustment loss
reclassified to
loss 334,659 - 334,659 -
------------ ------------ ------------ ------------
Other comprehensive
income (loss) (754,041) 29,650 983,832 (2,138,050)
------------ ------------ ------------ ------------
Total comprehensive
loss $ 7,006,153 $ 9,471,684 $14,430,201 $14,609,911
============ ============ ============ ============
Per-share amounts
Basis and fully
diluted loss per
share from
continuing
operations $ 0.014 $ 0.023 $ 0.036 $ 0.029
Basic and fully
diluted loss per
share from
discontinued
operation 0.000 0.000 0.000 0.001
------------ ------------ ------------ ------------
Basic and fully
diluted loss per
share $ 0.014 $ 0.023 $ 0.036 $ 0.030
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