Mr. Michael Winship reports
ORVANA REPORTS RESULTS FOR THE FIRST QUARTER OF FISCAL 2014 WITH ADJUSTED NET INCOME OF $1.2 MILLION OR $0.01 PER SHARE
Orvana Minerals Corp. released today financial and operating results for the first quarter ended Dec. 31, 2013.
The company reported net income in fiscal 2014 of $6.0-million or four cents per share and adjusted net income of $1.2-million or one cent per share, excluding the unrealized gain from the revaluation of the company's financial instruments and the tax effect thereof.
The unaudited condensed interim consolidated financial statements for the first quarter of fiscal 2014 and management's discussion and analysis related thereto are available on SEDAR and at the company's website.
Dollar amounts (other than per ounce or pound and per-share amounts) are in thousands of United States dollars unless stated otherwise, and fine troy ounces of gold and silver are referred to as ounces.
First-quarter 2014 operating and financial highlights:
- Orvana produced 18,855 ounces of gold, 4.7 million pounds of copper and
252,830 ounces of silver, and had sales of 19,613 ounces of gold, 4.4
million pounds of copper and 218,016 ounces of silver, in the first
quarter of fiscal 2014 compared with production of 17,759 ounces of gold,
4.4 million pounds of copper and 233,452 ounces of silver, and sales of
12,895 ounces of gold, 4.0 million pounds of copper and 244,516 ounces
of silver, in the first quarter of fiscal 2013 (1).
- Orvana recognized revenue of $35,220 in the first quarter of fiscal 2014
compared with revenue of $35,651 in the first quarter of fiscal 2013.
- Mining costs for the first quarter of fiscal 2014 increased by $3,530 or
17 per cent from $20,246 to $23,776 primarily due to higher sales volume for the
first quarter of fiscal 2014 compared with the first quarter of fiscal
2013.
- Net income was $6,008 in the first quarter of fiscal 2014 compared with
$13,651 in the first quarter of fiscal 2013.
- Adjusted net income was $1,211 in the first quarter of fiscal 2014
compared with $4,341 in the first quarter of fiscal 2013, primarily due to
lower metal prices (2).
- Orvana had cash flows provided by operating activities of $3,754 in the
first quarter of fiscal 2014 compared with $51 in the first quarter of
fiscal 2013 and cash flows provided by operating activities before
changes in non-cash working capital of $8,502 in the first quarter of
fiscal 2014 compared with $8,189 in the first quarter of fiscal 2013 (2).
- Orvana continued to reduce outstanding debt balances with debt net of
cash, cash equivalents and restricted cash for debt repayment of $39,475
at Dec. 31, 2013.
- Working capital increased to $16,351 at Dec. 31, 2013, compared with
$10,337 at Sept. 30, 2013.
- Capital expenditures were $3,120 for the first quarter of fiscal 2014,
consisting mostly of primary development at EVBC, EVBC hoist repair and
upgrade costs, and tailings dam raises at both EVBC and UMZ, compared with
$3,892 for the fourth quarter of fiscal 2013.
- There was significant progress toward the completion of the hoist
repairs and upgrades at the Boinas mine, with expected completion by the
end of the second quarter of fiscal 2014.
- All-in sustaining costs (byproduct) of $1,116 per ounce of gold at EVBC
compared with $1,363 in the first quarter of fiscal 2013. All-in
sustaining costs (co-product) of $874 per ounce of gold, $16.39 per
ounce of silver and $2.46 per pound of copper at the UMZ mine compared with $1,153 per ounce of gold, $22.87 per ounce of silver and $2.23 per
pound of copper in the first quarter of fiscal 2013 (3).
- For a description of the EVBC mines and the UMZ mine, please see
the overall performance -- EVBC mines and overall performance -- UMZ mine
sections of the first-quarter 2014 management's discussion and analysis.
- Adjusted net income (loss), cash flows from operating activities before
changes in non-cash working capital and all-in sustaining costs are
non-IFRS (international financial reporting standards) performance measures with no standard definition under IFRS.
The company believes that, in addition to conventional measures
prepared in accordance with IFRS, the company and certain investors use
this information to evaluate the company's performance, including the
company's ability to generate cash flows from its mining operations.
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. For further information
and a detailed reconciliation, please see the other information -- non-IFRS measures section of the first-quarter 2014 management's discussion and analysis.
- The company, in conjunction with initiatives undertaken within the gold
mining industry, adopted all-in sustaining costs and all-in
costs -- non-IFRS performance measures as set out in the guidance
note released by the World Gold Council in June, 2013. The company
believes these performance measures more fully define the total costs
associated with its metal production; however, these performance
measures have no standardized meaning. Accordingly, they are 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. The company reports these measures on a metals-volumes-sold basis. The company began reporting these performance
measures in the management's discussion and analysis for the fiscal year ended Sept. 30, 2013, and
comparative periods have been restated accordingly. For further
information and a detailed reconciliation of these performance
measures, please see the other information -- non-IFRS measures
section of the first-quarter 2014 management's discussion and analysis.
"Our first-quarter results reflect consistent operating results from the EVBC and UMZ mines. While lower grade at the EVBC mines have impacted operating results, progress is being made toward achieving higher grade at the Boinas mine," said Michael Winship, president and chief executive officer. "In this challenging market environment, we remain focused on overall costs reduction and optimizing value of our operations."
Overall performance
During the first quarter of fiscal 2014, the company continues to achieve consistent operating results. The table summarizes the company's operating and financial performance data for the company for the periods shown.
Q4 2013 Q1 2014 Q1 2013 FY 2013
Operating performance (1)
Gold
Production (oz) 22,250 18,855 17,759 80,541
Sales (oz) 21,462 19,613 12,895 74,087
Average realized price/oz
(1) $1,329 $1,288 $1,684 $1,504
Copper
Production (000 lb) 4,509 4,719 4,384 17,304
Sales (000 lb) 4,427 4,398 3,974 16,312
Average realized price/lb
(1) $3.20 $3.23 $3.17 $3.33
Silver
Production (oz) 289,335 252,830 233,452 1,017,811
Sales (oz) 314,011 218,016 244,516 1,073,394
Average realized price/oz
(1) $21.05 $20.69 $29.20 $25.01
Financial performance
Revenue (1) $43,975 $35,220 $35,651 $162,199
Mining costs (1) $25,643 $23,776 $20,246 $101,063
Impairment charge ($150) - - $6,273
Gross margin $12,303 $4,508 $11,386 $30,998
Derivative instruments gain
(loss) ($9,853) $8,484 $11,748 $42,140
Net income $1,174 $6,008 $13,651 $32,623
Net income per share
(basic/diluted) $0.01 $0.04 $0.10 $0.24
Adjusted net income (2) $7,814 $1,211 $4,341 $12,420
Adjusted net income per share
(basic/ diluted) (2) $0.06 $0.01 $0.03 $0.09
Operating cash flows $7,659 $3,754 $51 $32,569
Operating cash flows before non-
cash working capital changes
(1) $15,265 $8,502 $8,189 $38,685
Ending cash and cash
equivalents $13,039 $9,368 $11,988 $13,039
Restricted cash (including long-
term) $17,839 $19,063 $15,954 $17,839
Capital expenditures (1) $3,892 $3,120 $4,229 $21,157
(1) Refer to the first-quarter 2014 management's discussion and analysis for
further information on operating performance, metals production, metals
sales, sales volumes, revenue, mining costs, adjusted net income and capital
expenditures.
(2) Adjusted net income represents net income of $6,008 less the tax-adjusted
unrealized gain of $4,798 on the company's outstanding derivative
instruments. Refer to the first-quarter 2014 management's discussion and
analysis for further information.
EVBC mines
During the first quarter of fiscal 2014, the EVBC mines produced 13,988 ounces of gold, 1.3 million pounds of copper and 33,838 ounces of silver compared with 17,823 ounces of gold, 1.9 million pounds of copper and 54,241 ounces of silver in the fourth quarter of fiscal 2013. Although the tonnes milled were approximately the same, production was lower in the first quarter of fiscal 2014 compared with the fourth quarter of fiscal 2013 as a result of a decrease in gold, copper and silver head grades of 20 per cent, 26 per cent and 36 per cent due to lower head grades in the current areas being mined, primarily in the Boinas mine. In addition, during the quarter, the tonnes mined at the Carles mine were lower than the fourth quarter of fiscal 2013. The company mined a greater volume of skarns at the Boinas mine at lower average head grade than the average head grade achieved at the Carles mine.
During the first quarter of fiscal 2014, significant work was completed to recover a failed stope in the San Martin skarns area in the Boinas mine, which occurred in the third quarter of fiscal 2012. The completion of this work, expected in the second quarter, will ensure ground stability to access ore from other nearby stopes and provide access to higher-grade ore. Mining costs of $415 associated with the recovery were expensed during the quarter.
As a result of a hoisting incident at Boinas mine in June, 2013, the company continues to use an alternative production schedule that incorporates ramp haulage for Boinas skarns. Progress on the hoist recovery continues with steel shaft reconstruction and installation of the new hoisting controls under way. The company expects completion of hoist repairs and upgrades late in the second quarter of fiscal 2014. The costs of the basic recovery of this project continue to be estimated at $2,244. The estimated costs of the upgrades to enhance the capabilities of the hoist with enhanced performance design and safety improvements remain at approximately $2,000. Modification to the underground materials handling system to enhance ore movement and provide the potential to hoist oxides is also being completed. The repair costs are being capitalized to property, plant and equipment when incurred, and future insurance proceeds will be recorded in other income once received. The cost of hoist upgrades will also be capitalized to property, plant and equipment.
The table includes consolidated operating and financial performance data for the EVBC mines for the periods set out.
Q4 2013 Q1 2014 Q1 2013 FY 2013
Operating performance
Ore mined (tonnes) (wmt) 204,859 186,874 163,051 752,572
Ore milled (tonnes) (dmt) 181,763 180,713 145,890 685,697
Gold
Grade (g/t) 3.26 2.62 3.19 3.24
Recovery (%) 93.4 92.0 93.2 92.5
Production (oz) 17,823 13,988 13,949 65,992
Sales (oz) 17,411 14,954 8,759 59,802
Copper
Grade (%) 0.54 0.40 0.51 0.52
Recovery (%) 86.2 79.3 82.5 84.4
Production (000 lb) 1,880 1,258 1,347 6,658
Sales (000 lb) 1,990 1,412 816 6,085
Silver
Grade (g/t) 11.35 7.23 11.46 11.24
Recovery (%) 81.8 80.5 79.8 79.8
Production (oz) 54,241 33,838 42,877 197,768
Sales (oz) 62,447 37,565 33,279 190,843
Financial performance
Revenue $27,904 $21,844 $17,278 $102,309
Mining costs $18,017 $16,445 $9,731 $62,867
Derivative instruments gain
(loss) ($9,853) $8,484 $11,748 $42,140
Income (loss) before tax $6,994 $8,009 $16,020 $55,270
Capital expenditures (1) $3,748 $3,727 $3,355 $13,248
Cash operating costs (byproduct)
($/oz) gold (1) $759 $884 $847 $803
All-in sustaining costs (byproduct)
($/oz) gold (1) $977 $1,116 $1,363 $1,068
All-in costs (byproduct) ($/oz)
gold (1) $1,035 $1,214 $1,363 $1,086
(1) Refer to the first-quarter 2014 management's discussion and analysis for
further information on operating performance, capital expenditures, all-in
sustaining costs and all-in costs. Costs are reported per ounce of gold sold
in the period.
UMZ mine, Bolivia
During the first quarter of fiscal 2014, the UMZ mine produced 4,867 ounces of gold, 3.5 million pounds of copper and 218,992 ounces of silver compared with 4,427 ounces of gold, 2.6 million pounds of copper and 235,094 ounces of silver in the fourth quarter of fiscal 2013.
In the first quarter of fiscal 2014, the company produced a lower-grade copper concentrate resulting in an increase in copper recoveries, and the mining of more sulphides resulted in an increase in head grade. Production in the first quarter of fiscal 2014 compared with the fourth quarter of fiscal 2013 in that:
- Gold increased by 10 per cent, primarily as a result of a 7-per-cent increase in recoveries and 3-per-cent-higher head grades.
- Copper increased by 32 per cent as a result of 37-per-cent-higher recoveries.
- Silver decreased by 7 per cent as a result of a 5-per-cent decrease in recoveries.
During the third quarter of fiscal 2013, the company suspended the processing of oxides through the leach-precipitation-flotation process. It was no longer economical to process oxides through this process as costs were significantly higher than flotation-only processing costs and throughput of the LPF circuit was approximately half that of the flotation-only circuit. The company is continuing to evaluate reagents that may allow it to process oxide ores through its flotation-only process. Overall production was negatively impacted by testing of the reagents through the processing plant, which took place during the first quarter of fiscal 2014. Testing of oxides processing continues in the second quarter of fiscal 2014.
As a result of the additional testing, which continues to be undertaken by the company relating to the processing of oxide ores, costs to mine and stockpile oxide ores continue to be capitalized. The oxides ore stockpile had a carrying value of $2,016 at Dec. 31, 2013.
In the fourth quarter, the company commenced the implementation of the addition of gold gravity concentrators. This implementation, scheduled to be completed in the second quarter of fiscal 2014, is expected to increase gold recoveries to between 60 per cent to 65 per cent from between 40 per cent to 45 per cent and, therefore, result in increased gold production from the UMZ mine in the second half of fiscal 2014 and thereafter.
The company continues to implement a number of cost-saving initiatives at the UMZ mine. During the first quarter of fiscal 2014, personnel were reduced by 12 per cent, which will result in future savings and efficiencies at the UMZ mine.
The table includes operating and financial performance data for the UMZ mine for the periods set out.
Q4 2013 Q1 2014 Q1 2013 FY 2013
Operating performance
Ore mined (tonnes) 245,975 247,257 288,645 1,013,645
Ore milled (tonnes) 206,431 206,416 201,312 788,149
Gold
Grade (g/t) 1.44 1.48 1.18 1.26
Recovery (%) 46.5 49.7 49.8 45.6
Production (oz) 4,427 4,867 3,810 14,549
Sales (oz) 4,051 4,659 4,136 14,285
Copper
Grade (%) 1.43 1.38 1.45 1.39
Recovery (%) 40.3 55.3 47.4 44.2
Production (000 lb) 2,630 3,461 3,037 10,646
Sales (000 lb) 2,437 2,986 3,158 10,228
Silver
Grade (g/t) 54.57 53.57 51.99 52.67
Recovery (%) 64.9 61.6 56.6 61.5
Production (oz) 235,094 218,992 190,575 820,043
Sales (oz) 251,564 180,451 208,492 882,551
Financial performance
Revenue $16,072 $13,376 $18,191 $59,890
Mining costs $7,627 $7,331 $10,333 $38,196
Income before tax $8,463 $3,036 $6,063 $4,545
Capital expenditures $581 $789 $1,382 $2,691
Cash operating costs (co-
product) ($/oz) gold (1) $740 $761 $1,010 $951
Cash operating costs (co-
product) ($/lb) copper (1) (3) $1.97 $2.18 $2.05 $2.16
Cash operating costs (co-
product) ($/oz) silver (1) $13.17 $14.56 $20.35 $17.64
All-in sustaining costs (co-
product) ($/oz) gold (1) $823 $874 $1,153 $1,051
All-in sustaining costs (co-
product) ($/lb) copper (1) $2.17 $2.46 $2.33 $2.38
All-in sustaining costs (co-
product) ($/oz) silver (1) $14.49 $16.39 $22.87 $19.30
All-in costs (co-product) ($/oz)
gold $823 $874 $1,153 $1,051
All-in costs (co-product) ($/lb)
copper $2.17 $2.46 $2.33 $2.38
All-in costs (co-product) ($/oz)
silver $14.49 $16.39 $22.87 $19.30
(1) Refer to the first-quarter 2014 management's discussion and analysis for
further information on operating performance, cash operating costs, all-in
sustaining costs and all-in costs. Costs are reported per ounce of gold or
silver or per pound of copper sold in the period.
Copperwood project
Orvana continues to advance its copper project located in the Upper Peninsula of Michigan, U.S. The company has achieved the necessary permits, and optimization work continues.
Certain additional studies are being conducted in accordance with the wetland permit conditions to include baseline studies of the designated preservation areas. Certain optimization work continues with a focus on additional metallurgical testing and mine design. Total capital expenditures in respect of the Copperwood project for the first quarter of fiscal 2014 were $127 compared with $546 for the fourth quarter of fiscal 2013.
Orvana is continuing to investigate a variety of possible options and financing alternatives to enhance the value of the Copperwood project to Orvana's shareholders. Holding costs of the Copperwood project are being minimized in fiscal 2014 while the company pursues various alternatives to advance the project.
Outlook
Orvana's short-term focus is operational optimization at the EVBC mines and the UMZ mine to generate increasing operating cash flows in order to pay down debt and pursue growth alternatives. Operational and corporate reviews have been initiated to seek means to reduce operating and capital costs to improve liquidity and cash flows given the recent declines and continued volatility in the metals markets. Orvana will continue to derisk the Copperwood project and look for means to realize value. In fiscal 2014, Orvana has allocated certain amounts toward internal growth exploration initiatives at both the EVBC mines and the UMZ mine, and the regions thereof.
The table sets out Orvana's first-quarter-of-fiscal-2014 guidance and production, as well as its fiscal 2014 guidance.
Q1 2014 production FY 2014 guidance
EVBC mines
Gold (oz) 13,988 65,000-75,000
Copper (million lb) 1.3 6.0-6.5
Silver (oz) 33,838 175,000-200,000
UMZ mine
Gold (oz) 4,867 15,000-18,000
Copper (million lb) 3.5 12.0-14.0
Silver (oz) 218,992 700,000-750,000
Total
Gold (oz) 18,855 80,000-93,000
Copper (million lb) 4.4 18.0-20.5
Silver (oz) 252,830 875,000-950,000
At EVBC, while production and sales were lower in the first quarter of fiscal 2014 as a result of lower head grades in the areas being mined, the company's focus at EVBC continues to be on improving head grades, increasing gold production and reducing total all-in costs per ounce of gold. The company will continue to focus on these initiatives in fiscal 2014. Over the next few months the company will focus on the completion of the hoist repair, upgrade and the recovery of the San Martin stope.
The company's focus at the UMZ mine continues to be on improving metal production and reducing operating costs. The suspension of the LPF process in the fourth quarter of fiscal 2013 has already contributed materially to these goals, particularly in unit cost reduction. Over the next quarter, the company will continue to focus on implementation of the gold gravity concentrators, further testing of oxides processing and exploration activities.
The process for obtaining major permitting in respect of the Copperwood project was completed in fiscal 2013. Orvana is continuing to optimize the Copperwood project and investigate a variety of possible options to enhance the value of the Copperwood project to Orvana's shareholders.
At current market gold and copper prices, the company generated positive operating cash flows in the first quarter of fiscal 2014. During the quarter, financial and investing activities, including the repayment of debt and capital expenditures, resulted in negative free cash flow. Following the repayment of, among other things, amounts under the EVBC loan due in fiscal 2014, the Fabulosa loan and the company's planned capital expenditures, at current metal market prices, the company expects to generate positive free cash flows for the remainder of fiscal 2014.
Orvana's long-term focus is to utilize future cash flow and mining capabilities to build long-term value for its shareholders. Growth opportunities, particularly near the Spanish operations, are being investigated.
The company will hold a conference call on Feb. 11, 2014, at 10 a.m. (Eastern Time) to discuss its financial and operational results for the first quarter of fiscal 2014. Following the presentation there will be a question-and-answer period for analysts and investors.
The conference call details will be made available before the end of close today on the front page of Orvana's website.
We seek Safe Harbor.
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