Ms. Jessica Helm reports
IVERNIA REPORTS SECOND QUARTER 2014 FINANCIAL RESULTS
Ivernia Inc. has released its results for the three and six months ended June 30, 2014. Principal activities during the second quarter of 2014 focused on increasing production, continuing cost-reduction initiatives, process optimizations and improving the working capital position. With respect to operations, the company's work centred on improving recovery, head grades of ore delivered to the mill and reclamation of low-grade concentrate sent to the process dam as part of its efforts to recover the production lost in the first quarter due to an unusual rainfall event. All dollar amounts are in U.S. dollars unless stated otherwise.
Concentrate revenue for the second quarter of 2014 was $41.5-million from the sale of 31,000 tonnes of concentrate containing 20,700 tonnes of lead metal, compared with revenue of $22.1-million for the second quarter of 2013 from 16,700 tonnes of concentrate containing 10,700 tonnes of lead metal. Concentrate revenue for the first six months of 2014 was $74.1-million from the sale of 56,900 tonnes of concentrate containing 37,800 tonnes of lead metal, compared with revenue of $22.1-million for the first six months of 2013 from the sale of 16,700 tonnes of concentrate containing 10,700 tonnes of lead metal.
The company was cash flow positive in the second quarter with an $8-million net increase in cash over the end of the first quarter of 2014, primarily driven by an increase in equity of $5-million (Canadian) from the private placement, and positive cash flow from operations of $4.8-million through a focused effort to conserve cash and maintain cash flow flexibility. The company generated an operating income of $1.3-million for the quarter.
Second quarter of 2014 highlights
Financial:
- Ivernia had revenue of $41.5-million on the sale of 31,000 tonnes of concentrate containing 20,700 tonnes
of lead.
- The company had a gross profit of $16.1-million.
- Ivernia had cash flow provided by operations of $4.8-million.
- Ivernia had net income after tax of $2.4-million.
- On March 31, 2014, the company entered into an amendment to the credit facility with Sprott Resource
Lending Partnership to postpone the commencement of repayment of principal instalments
from March 31, 2014, to June 30, 2014, and to allow the $20-million (Canadian) principal to be repaid in equal
monthly instalments over a 24-month period ending May 31, 2016, further strengthening Ivernia's cash flow position.
- As part of amending the Sprott facility, Ivernia closed a private placement of 41,666,667 common
shares at 12 Canadian cents per share for proceeds of $5-million (Canadian) on April 11, 2014, with five existing
shareholders to improve the company's working capital.
- The company's principal repayments of $800,000 (Canadian) per month under the Sprott facility commenced on
June 30, 2014.
Operational:
- A new quarterly production record was set as the company produced 31,900 dry metric tonnes of concentrate
containing 21,500 tonnes of lead metal, representing increases of 21 per cent and 24 per cent, respectively,
compared with the first quarter of 2014.
- Operations continue to be focused on maximizing production and sales levels, and reducing costs.
- During April, 2014, the company switched the power station at the mine from diesel to natural gas
generators, which has and will continue to result in significant cost reductions.
- For 2014, Ivernia expects to produce and sell between 80,000 and 85,000 tonnes of lead contained in
concentrate, and remain on target to meet the sales and production levels released in its 2014
guidance. Head grades will reduce in the second half of the year compared with the head grades
recorded during the second quarter, which was anticipated in the company's mine plan.
- The company announced the appointment of Alan You Lee as chief financial officer of the company effective June 10, 2014, with the interim CFO stepping down to pursue a new role
within Enirgi Group Corp.
FINANCIAL AND OPERATING HIGHLIGHTS
(in thousands of U.S. dollars, except per-share amounts and where noted)
Three months ended June 30, Six months ended June 30,
2014 2013 2014 2013
Financial highlights
Revenue (1) $ 41,500 $ 22,053 $ 74,105 $ 22,053
Gross profit (loss) $ 16,142 $ 2,612 $ 26,034 $ (4,429)
Net income (loss) $ 2,356 $ (27,670) $ (536) $ (34,955)
Basic and diluted earnings
(loss) per share $ 0.00 $ (0.04) $ (0.00) $ (0.05)
Cash flow provided by (used in)
operating activities $ 4,831 $ (1,639) $ 6,034 $ (9,061)
Operating highlights
Ore milled (000s tonnes) 294.2 160.0 657.9 160.0
Average head grade (% lead) 8.4% 8.1% 7.2% 8.1%
Recovery (%) 84.2% 69.0% 80.7% 69.0%
Concentrate produced
(000s dry tonnes) 31.9 14.1 58.3 14.1
Concentrate sold (000s dry tonnes) 31.0 16.7 56.9 16.7
Lead metal in concentrate
produced (000s tonnes) 21.5 9.0 38.8 9.0
Lead metal in concentrate sold
(000s tonnes) (3) 20.7 10.7 37.8 10.7
Concentrate inventory
(000s of dry tonnes) 5.2 7.3 5.2 7.3
Average lead price -- LME cash
settlement ($ per pound) (2) $ 0.95 $ 0.93 $ 0.95 $ 0.99
Ivernia's realized average lead
sale price ($ per pound) $ 0.98 $ 0.98 $ 0.97 $ 0.98
Notes:
(1) The mine was placed on care and maintenance in April, 2011. In April, 2013, the
company recommenced mining, processing and transportation operations.
(2) For the average lead price the London Metal Exchange cash settlement is calculated
from April 4, 2013, onward, being the date of restart of milling and processing
operations.
(3) The figures for lead metal in concentrate sold for the second quarter of 2014 are
subject to adjustment for the final settlement of weights and assays for concentrate
shipped during this period.
Operations review
During the second quarter the company sold approximately 31,000 dry metric tonnes of concentrate containing 20,700 tonnes of lead metal, well in excess of the second quarter of 2013 where sales were 16,700 dry metric tonnes containing 10,700 tonnes of lead metal.
The company set a new quarterly record for production at the mine with the level of concentrate and lead metal produced increasing by 21 per cent and 24 per cent, respectively, compared with the first quarter of 2014. During the second quarter of 2014 the mill treated 294,200 dry metric tonnes of ore, which was an increase of 84 per cent compared with the corresponding quarter in 2013. The average head grade of ore for the second quarter of 2014 was 8.4 per cent lead, compared with 8.1 per cent during the second quarter of 2013.
The plant recovered an average of 84.2 per cent of the lead in ore delivered to the mill, producing 31,900 dry metric tonnes of concentrate with an average grade of 67.3 per cent containing 21,500 tonnes of lead metal, of which 800 tonnes was reclaimed from processing lead concentrate sent to the process dam. This compares favourably with the corresponding quarter in 2013 when the average plant recovery was 69 per cent, resulting in the production of 14,100 dry metric tonnes of concentrate with an average grade of 64 per cent containing 9,000 tonnes of lead metal, representing increases of 126 per cent and 139 per cent in the production of concentrate and lead metal, respectively. The higher recoveries in the second quarter of 2014 are principally attributed to the contingency plans that were activated at the end of the first quarter, as discussed below.
In the first quarter of 2014, the mine faced a variety of challenges from an extreme weather event to unusual ore characteristics. The challenges of the first quarter resulted in the mine being behind its 2014 guidance production level at the end of the quarter. The improved performance in the second quarter has significantly reduced the gap between actual and expected production and sales, keeping the company on target to meet production and sales levels as disclosed in the 2014 guidance, as defined below.
A number of contingency plans were activated at the end of the first quarter to improve production during the second quarter. These plans centred on improving recovery, head grades of ore delivered to the mill and the reclamation of low-grade concentrate sent to the process dam. In general, during periods when the company is processing higher-grade ore, its production capacity is limited by the processing capability of the filter press. Accordingly, due to the higher grades of ore being processed and amount of lead in the circuit during the second quarter, the company's milling and production capacity for the quarter was limited by filter press. This resulted in milled tonnes being 19 per cent lower in the second quarter than the first quarter, however, despite the lower milling rates the company produced 21,500 tonnes of lead metal during the second quarter, which was a new quarterly record for the mine. See "production outlook."
The company was cash flow positive in the second quarter with an $8-million net increase in cash over the end of the first quarter of 2014, primarily driven by an increase in equity of $5-million (Canadian) from the private placement, and positive cash flow from operations of $4.8-million through a focused effort to conserve cash and maintain cash flow flexibility. The company generated an operating income of $1.3-million for the quarter. Adverse weather in southwest Australia delayed a shipment at the end of the quarter, resulting in slightly lower sales for the quarter with the shipment being delivered early in the third quarter. For the second quarter, the London Metal Exchange cash settlement lead price averaged 95 cents per pound, which was slightly lower than 96 cents per pound for the first quarter, but higher than the second quarter of 2013 where the average was 93 cents per pound.
The company completed two major projects at the Paroo Station mine during the second quarter of 2014. The first was a gas-power generation project that resulted in the Paroo Station mine switching the supply of fuel to the power plant from diesel to natural gas during April, 2014. This will result in continuing cost savings for the mine. The second was the tailings storage facility lift. This involved raising of the dam walls to enable greater storage capacity within the TSF to support continuous processing operations. During the quarter the company began negotiations with the native titleholders in relation to a new expanded land use agreement covering the mine, and related exploration and operation activity.
In the second quarter of 2014, the company entered into a services agreement with a new camp services provider for the mine that is expected to realize cost savings going forward.
The company has commenced a project to understand and determine the optimal use and development of the mine and its deposits with due consideration of the company's current financial condition. Among other things, the project will study ore throughput rates for the mill and processing scenarios, capital requirements and operating costs, expanded regulatory and stakeholder approvals, and land access requirements. The company's ability to achieve higher production capacity is subject to a number of preconditions, including the development of the Pinzon deposit, the receipt of regulatory approval to increase its annual ore throughput rate above 1.7 million tonnes per year and a capital investment to complete the mill expansion. The outcomes from the project are expected to be developed over the next six to 12 months.
SUMMARY QUARTERLY MINE PRODUCTION, PROCESS PRODUCTION, SHIPMENTS AND INVENTORIES
Three months ended June 30, Six months ended June 30,
2014 2013 2014 2013
Mining
Ore mined (000s tonnes) (1) 400.3 171.0 870.6 171.0
Total ore and waste mined (000s of BCM) 958.5 187.0 1,769.1 187.0
Processing
Ore milled (000s tonnes) 294.2 160.0 657.9 160.0
Average head grade (% lead) 8.4% 8.1% 7.2% 8.1%
Average recovery (%) 84.2% 69.0% 80.7% 69.0%
Concentrate produced (000s dry tonnes) 31.9 14.1 58.3 14.1
Concentrate grade (% lead) 67.3% 64.0% 66.5% 64.0%
Lead metal in concentrate produced
(000s tonnes) 21.5 9.0 38.8 9.0
Sales and inventories
Concentrate sold (000s dry tonnes) 31.0 16.7 56.9 16.7
Concentrate grade (% lead) 66.9% 64.0% 66.4% 64.0%
Lead metal in concentrate sold
(000s tonnes) 20.7 10.7 37.8 10.7
Concentrate inventory (000s dry tonnes) 5.2 7.3 5.2 7.3
Note:
(1) Ore mined does not include low-grade ore.
The mine was not operational during the first quarter of 2013. In April, 2013, the company recommenced mining, processing and transportation operations.
Production outlook
Whilst significantly improved head grades were recorded during the second quarter of 2014, the company does not expect that this will continue into the third quarter and expects the head grade to be reduced in line with the mine plan supporting the 2014 guidance below. With a lowering of the head grade it expects that milling tonnages will increase to maintain its planned level of lead production. During the second quarter, the milling rates were maximized, but were lower than capacity due to the processing rate being restricted by the amount of lead that could be filtered. The milling rates required for planned head grades expected to be processed for the second half of 2014 are achievable based on the plant's milling capacity.
Full-year guidance of expected production and sales of between 80,000 to 85,000 tonnes of lead contained in concentrate remains unchanged.
Amendment to Sprott facility and private placement
On March 31, 2014, the Sprott facility was amended to postpone the commencement of principal repayments from March 31, 2014, to June 30, 2014, and to extend the maturity date of the Sprott facility from Feb. 28, 2015, to May 31, 2016, thereby allowing principal repayments to occur in equal instalments over a period of 24 months. In consideration for these amendments to the Sprott facility, Ivernia issued an additional 3,007,518 Ivernia common shares to Sprott and its nominees having a value of $400,000 (Canadian) on March 31, 2014, and Ivernia closed a private placement of 41,666,667 common shares at 12 Canadian cents per share for proceeds of $5-million (Canadian) on April 11, 2014, to improve the company's working capital. In connection with these amendments to the Sprott facility, Enirgi Group agreed to postpone the maturity date of the $6-million (Canadian) Enirgi loan facility to June 30, 2016.
Capital resources, liquidity and working capital requirements
The company had a working capital deficiency as at Dec. 31, 2013, of approximately $6.8-million due, in part, to the current portion of its long-term debt. As a result, the finance committee of the board of directors worked with management starting at the end of 2013 to help ensure that the company remains cash flow positive in 2014 and to improve the company's working capital position. The finance committee and management determined that given the budgeted expenditures for 2014, the state of lead prices in recent months, interest payments, the commencement of principal repayments to Sprott on March 31, 2014, and the potentially significant consequences that even a minor transportation disruption (such as the one that occurred in late January, 2014) could have on the company's cash flows that it was necessary for the company to take pro-active steps to improve its working capital position and to reduce the risk of the company becoming cash flow negative in 2014. Accordingly, the finance committee engaged in discussions with Sprott that resulted in amending the Sprott facility on March 31, 2014, and closing a related private placement of common shares for proceeds of $5-million (Canadian) on April 11, 2014. The Sprott facility, as amended, and related private placement proceeds have improved the company's working capital position since year-end. In particular, the Sprott facility, as amended, postponed the commencement of principal repayments by three months until June 30, 2014, and allows Ivernia to repay the $20-million (Canadian) principal in equal monthly instalments of $833,333 (Canadian) over 24 months, compared with monthly instalments of $1,666,667 (Canadian) over 12 months.
Due in part to the actions taken, as at June 30, 2014, the company had $16-million in cash and cash equivalents, and had a working capital surplus of $4.5-million. Management expects that the company will remain cash flow positive for 2014, assuming current lead prices and foreign exchange rates do not materially deteriorate. However, continuing cash flow from operating activities continues to be exposed to fluctuations in metal prices, production and shipping rates, the exchange rate between the Australian dollar and the U.S. dollar, and demand for lead concentrate. If management considers cash flow from operating activities to be insufficient to finance non-operating activities going forward or that working capital will not be sufficient to meet the covenants under the Sprott facility, the company may need to consider additional financing in the future.
Management's discussion and analysis and consolidated financial statements
Ivernia's unaudited financial statements and management's discussion and analysis for the three and six months ended June 30, 2014, will be filed today and will be available on the Ivernia website or on SEDAR.
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