Mr. Mark Selby reports
RNC ANNOUNCES Q1 2018 RESULTS
Royal Nickel Corp. has released its financial results and a review of activities for the quarter ended March 31, 2018. All amounts are expressed in Canadian dollars, unless otherwise noted, and are based on the unaudited financial statements of the corporation for the quarter ended March 31, 2018.
Mark Selby, president and chief executive officer, commented: "Since Royal Nickel announced, on March 22, an important shift in its corporate objectives and priorities -- that its central strategic focus going forward will be the advancement of the Dumont nickel-cobalt project -- we have initiated testwork to produce nickel and cobalt sulphate directly from nickel-sulphide concentrate without smelting and refining. We believe this innovative approach to produce nickel and cobalt sulphate and supply battery materials to the automotive industry, along with our innovative roasting approach as an alternative to traditional smelting and refining, provide significant value enhancements opportunities to an already economically robust project. Dumont is well positioned as the largest undeveloped nickel and cobalt reserve in the world and one of the few large-scale shovel-ready projects able to deliver large quantities of nickel and cobalt to market in the next few years. Our overriding objective is to position Royal Nickel shareholders to participate fully in the very promising future for nickel and cobalt powered by continued robust demand growth from stainless steel and the significant expected demand growth in electric vehicles."
Mr. Selby continued: "The Beta Hunt mine is now considered non-core to Royal Nickel and has been reclassified as discontinued operations for accounting purposes. The strategic alternatives process that is under way, which may result in a sale of all or a portion of Beta Hunt, has attracted a number of interested parties. We continue to expect the process to be completed by early Q3 2018. While the strategic alternatives process is ongoing, mine performance continues to improve. In the first three months of 2018, mined gold production increased for the fourth consecutive quarter, and the improved quality and quantity of new mining areas give us confidence that improvements in gold ounces mined and grade will continue."
and recent highlights:
On Jan. 15, 2018, Royal Nickel announced it expects to undertake a series of initiatives during 2018 to position Royal Nickel to make a decision to begin construction of the Dumont nickel-cobalt project in 2019.
- On March 22, 2018, Royal Nickel announced it is sharpening its focus to the advancement of the Dumont nickel-cobalt development project, the largest undeveloped nickel and cobalt reserve in the world, and initiating a strategic alternatives process for its 100-per-cent-owned Beta Hunt gold and nickel mine in Western Australia. PCF Capital Group, based in Perth, Western Australia, and Haywood Securities Inc. have been retained as financial advisers for the Beta Hunt process. Strategic alternatives may include, but are not limited to, the sale of all or a portion of Royal Nickel's interest in Beta Hunt. There are no assurances that the process will result in a transaction or, if a transaction is undertaken, as to the commercial terms or timing of such a transaction.
- On April 9, 2018, Royal Nickel announced it was commencing testwork to produce nickel and cobalt sulphate directly from nickel-sulphide concentrate, without smelting and refining. Based on Royal Nickel's discussion with leading auto-industry and battery-materials market participants, there is significant interest in a process which could be based in North America to supply North American and European auto companies with nickel and cobalt sulphate without having to go through the cost and complexity associated with traditional smelters/refineries and processing facilities in Asia.
- Mined gold production at Beta Hunt during the first quarter was 13,780 ounces, up 8 per cent compared with 12,722 ounces in the fourth quarter of 2017, and gold tonnes mined were 169,000 tonnes in the first quarter, up 6 per cent compared with 160,000 tonnes in the fourth quarter of 2017. Gold sales were 7,978 ounces in the first quarter, a decrease of 38 per cent compared with 12,896 ounces in the fourth quarter of 2017. First quarter sales were adversely impacted by the timing of tolling schedules and above-normal seasonal rains, which limited mined material delivery to tolling-mill service providers.
- For the first quarter of 2018, gold mining cash cost per ounce decreased by 8 per cent to $812 (U.S.) per ounce from $882 (U.S.) per ounce in the fourth quarter of 2017. On a cost-per-ounce-sold basis, gold cash costs, net of byproduct credits, increased by 4.5 per cent to $1,502 (U.S.) per ounce sold, and all-in sustaining costs, net of byproduct credits, increased by 3.5 per cent to $1,594 (U.S.) per ounce sold, compared with $1,437 (U.S.) and $1,539 (U.S.), respectively, in the fourth quarter of 2017 due to a combination of lower nickel byproduct credit, delays in milling which resulted in only lower-grade material (2.36 grams per tonne versus mined grade of 2.54 g/t) mined early in the quarter being processed, and a higher proportion of the material processed in the higher-cost toll-milling facility (of the two toll-milling facilities used by Beta Hunt). The first toll subsequent to the end of the quarter has processed over 80,000 tonnes at a grade of 2.7 g/t, approximately a 15-per-cent-higher grade than the first quarter. Costs in the second quarter should also improve as mined nickel production is expected to double and grades are expected to average 2.7 per cent to 2.8 per cent (versus 1.89 per cent in the first quarter). Reference is made to the non-IFRS (international financial reporting standards) measures section in Royal Nickel's management's discussion and analysis for the period ended March 31, 2017.
- Reed mine's first quarter 2018 copper-contained-in-concentrate production was 1.9 million pounds (29-per-cent basis) compared with 2.0 million pounds (30-per-cent basis) in the fourth quarter of 2017. Cash costs decreased by 74 per cent to 51 U.S. cents per pound sold, and all-in sustaining costs decreased to 54 U.S. cents per pound sold, compared with $1.97 (U.S.) and $1.98 (U.S.), respectively, in the fourth quarter of 2017, due to a combination of higher copper grades, higher gold, silver and zinc byproduct credits, and the elected dilutionary effect of the company not financing its share of mining and general and administration costs. If unfinanced mining costs and general and administrative costs were included, the first quarter cash operating costs and all-in sustaining costs would have been $1.99 (U.S.) and $2.02 (U.S.), respectively. Royal Nickel's share of gold-in-concentrate production for the first quarter of 2018 from the Reed Mine was 349 ounces. Reference is made to the non-IFRS measures section in Royal Nickel's management's discussion and analysis for the period ended March 31, 2017.
- Royal Nickel's share of operating income from the Reed mine was $2.2-million for the three months ended March 31, 2018.
- Royal Nickel's adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) from continuing operations for the three months ended March 31, 2018, was $3.7-million, or one cent per share, compared with a loss of $200,000, or nil per share, for the three months ended March 31, 2017. Reference is made to the non-IFRS measures section in Royal Nickel's management's discussion and analysis for the period ended March 31, 2017.
- Royal Nickel incurred a net loss from continuing operations of $1.8-million (one cent per share) for the three months ended March 31, 2018, compared with a net loss of $3.1-million (one cent per share) for the three months ended March 31, 2017. Royal Nickel incurred a net loss from discontinued operations of $10.7-million (three cents per share) for the three months ended March 31, 2018, compared with a net loss of $1.3-million (one cent per share) for the three months ended March 31, 2017.
Q1 2018 results
Dumont nickel-cobalt project
On April 20, 2017, Royal Nickel closed a series of transactions under which Waterton acquired 50 per cent of Royal Nickel's interest in the Dumont nickel-cobalt project for $22.5-million (U.S.) ($30.3-million (Canadian)) in cash. Royal Nickel and Waterton each contributed or committed $17.5-million (U.S.) ($23.6-million (Canadian)) into the Magneto joint venture. Of this amount, $5-million (U.S.) ($6.7-million (Canadian)) is allocated to Dumont-related carrying costs and other expenses incurred over the next four years (expected to include the cost of an updated feasibility study).
During Q1 2018, the Magneto JV continued its activities in support of the Dumont nickel-cobalt project. The following were the major activities undertaken during the first quarter of 2018:
Continuing discussions with potential strategic investors, offtake partners and financiers;
Technical review of nickel sulphation roasting for Dumont began and preparation of the test plan for a Q2 2018 start;
- Initiated a value-in-use study for Dumont roasted concentrate with CRU Consulting. The work is expected to be completed in Q2 2018;
- Work continued on the closure plan for Dumont, providing updates to the government comments received in March, 2017.
Reed mine 2017
For the three months ended March 31, 2018, Royal Nickel's 29-per-cent share of metal-contained-in-concentrate production from the Reed mine was 900 tonnes of copper and 349 ounces of gold. Costs improved during the quarter due to a combination of higher copper grades, higher gold, silver and zinc byproduct credits, and the elected dilutionary effect of not financing its share of mining and general and administration costs.
REED MINE 2017 OPERATING REVIEW
Q1 2018 Q1 2017
Ore (tonnes hoisted) 122,309 119,853
Ore (tonnes milled) 92,954 108,139
Copper (%) 3.54 2.96
Zinc (%) 0.93 0.67
Gold (g/t) 0.70 0.44
Silver (g/t) 9.43 5.64
REED MINE 2017 PRODUCTION AND COSTS
Q1 2018 Q1 2017
Copper contained in concentrate (000 tonnes) 0.86 0.85
Gold contained in concentrate (ounces) 349 283
Copper cash operating cost per pound sold (1) (2) $0.51 $2.06
Copper all-in sustaining cost per pound sold (1) (2) $0.54 $2.10
(1) Cash operating cost per pound and all-in sustaining cost per pound
are not recognized measures under IFRS. Such non-IFRS financial measures
do not have any standardized meaning prescribed by IFRS and are
therefore unlikely to be comparable with similar measures presented by
other issuers. Management uses these measures internally. The use of
these measures enables management to better assess performance trends.
Management understands that a number of investors and others who follow
Royal Nickel's assess performance in this way. Management believes that
these measures better reflect Royal Nickel's performance and are better
indications of its expected performance in future periods. These data 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.
(2) The corporation has elected, effective Jan. 1, 2018, to allow its
interest in the Reed joint venture to be diluted by not financing its
share of mining costs and general and administration costs related to
production. Consequently those costs are not included in the cost
The Reed mine is scheduled to cease mining operations in Q3 2018 with processing of stockpiled material expected to continue through December, 2018.
Reed mine 2018 guidance
Hudbay has not provided production guidance for the Reed mine.
With limited near-term exploration potential and an interest in maximizing cash flow from the remaining mine production, Royal Nickel has elected to allow its interest in the Reed joint venture to be diluted by not financing its share of the operating costs, resulting in a estimated decline in its interest from 30 per cent to 26 per cent. Over the course of 2018, it results in a minor production loss of 9.4 per cent, or 300,000 tonnes, if it had retained a 30-per-cent interest in the mine. Royal Nickel will continue to pay 30 per cent of the closure costs, which is currently estimated to be $900,000 less recovery for equipment and facilities.
The following information is Royal Nickel management's estimate of production and costs. In 2018, Royal Nickel expects its share of production from the Reed mine to be 2,250 tonnes to 2,500 tonnes of copper and 800 ounces to 1,000 ounces of gold. Although production at Reed mine is expected to end in Q3 2018, processing of stockpiled ore is expected to continue through December, 2018.
Orford Mining Corp.
Royal Nickel owns a 44-per-cent interest in Orford Mining. Orford's main assets consist of exploration properties in Northern Quebec, comprising the Qiqavik and West Raglan projects, and the Carolina gold belt in the United States, comprising the Jones-Keystone/Loflin, and Landrum-Faulkner gold properties.
On March 2, 2016, Royal Nickel announced that its TNN subsidiary (a predecessor to Orford Mining) had discovered a new high-grade gold-silver-copper-zinc-mineralized trend at its newly consolidated Qiqavik project in Northern Quebec. High-grade gold mineralization was found during the 2015 exploration season with several grab samples ranging from five g/t up to 198 g/t over 15 kilometres of strike length, with several outcropping areas also containing high-grade silver, copper and zinc, representing a potentially important new discovery in an underexplored volcano-sedimentary belt within the Cape Smith belt.
On Oct. 30, 2017, Orford announced results from the 2017 exploration programs at its Qiqavik property in Northern Quebec. At Qiqavik, the 2017 field program began on July 19. This program consisted of diamond drilling of 2,723 metres in 23 holes, 721 line kilometres of airborne (drone) magnetic surveying, and 105.6 line kilometres of Abitibi Geophysics ground OreVision induced polarization surveying, prospecting, mapping, surface rock sampling, and till sampling. This work led to a better understanding of the occurrences discovered in 2016 and to the identification of many additional mineralized occurrences on the property, including two occurrences with visible gold. Work completed during the 2017 program demonstrates that gold is associated with secondary splay structures located along the district-scale Qiqavik Break shear zone, which extends the full 40 km length of the Qiqavik property. Geological data indicate that gold mineralization at Qiqavik is structurally controlled and associated with porphyry intrusions in places. Typically in structurally controlled gold deposits the intensity of mineralization varies along the length of the structures with ore shoots focused in zones of dilation. Orford is currently analyzing airborne magnetic and field mapping data collected during the summer 2017 program to identify and locate sites of dilation along structures that were active at the time of gold mineralization in order to target significant gold-mineralization accumulations. To assist in this targeting a helicopter-borne magnetic survey covering the entire 248-square-kilometre extent of the Qiqavik property was completed in April, 2018.
Carolina gold belt
Royal Nickel, through TNN, acquired options to earn a 70-per-cent interest in both the Jones-Keystone/Loflin and Landrum-Faulkner gold properties in the Carolina gold belt, home to the Haile mine. These options are now held by Orford, in which Royal Nickel owns a 44-per-cent equity interest. The current development of the more-than-four-million-ounce Haile gold mine in South Carolina by OceanaGold has refocused attention on the Carolinas as a highly prospective, underexplored and development-friendly jurisdiction.
The Jones-Keystone and Landrum-Faulkner properties occur at or near the same regional geological contact as the Haile and Ridgeway mines. At Jones-Keystone, mineralization is exposed at surface and historical drilling has yielded multiple drill hole intercepts in the one g/t to three g/t range, including an interval of 1.56 g/t Au over 54 m core length including 3.01 g/t Au over 28 m core length in historical hole JK10-006, and an interval of 1.27 g/t Au over 104 m core length including 3.03 g/t Au over 14 m core length in historical hole JK11-017.
On March 1, 2018, Orford announced the results of the first phase of exploration on the Carolina gold properties. From December, 2017, to February, 2018, Orford completed a program of Abitibi Geophysics OreVision ground induced polarization and ground magnetics geophysics combined with surface geological mapping and relogging of historical core on the Carolina gold properties. This program has yielded strong IP chargeability and resistivity anomalies which are coincident with and extend at depth and along strike well beyond known Haile-style gold mineralization. Geological mapping and historical core relogging led by Ken Gillon, former regional exploration geologist at Haile gold mines (Romarco, OceanaGold), and the past-producing Ridgeway gold mine (Kennecott), has identified alteration vectors which suggest that the mineralized systems may be more extensive than previously thought.
At the Jones-Keystone property, strong chargeability anomalies not only coincide with historically drilled mineralization but also extend at depth and along strike beyond known mineralization. In the eastern portion of the property, orientation of the IP chargeability anomaly suggests that the mineralized zone may dip to the south, which is the opposite of the previous interpretation. Relogging of historical drill holes in this area also shows that drilling stopped in alteration with intensity increasing with depth, which suggests that the mineralization system may have deep roots. In the untested southern portion of the property several coincident chargeability and resistivity anomalies occur. The two strongest of these extend over strike lengths of at least 300 m each.
At the Landrum-Faulkner property, mapping has outlined multiple parallel zones of sericitic and silicic alteration extending over the entire length of the grid. One of these zones is coincident with a strong 600-metre-long chargeability and resistivity anomaly and extends under a historical surface grab sample occurrence of six g/t Au.
Drilling on the Carolina properties began on April 23, 2018.
Beta Hunt mine
In the first quarter of 2018, the Beta Hunt mine continued to be focused on ramping up its gold production and mined 169,000 tonnes of gold mineralization containing 13,780 ounces of gold. As previously noted on March 22, 2018, Royal Nickel initiated a strategic alternatives process which may include the sale of all or a portion of the Beta Hunt mine.
The associated table sets out first quarter 2018 results for the Beta Hunt mine.
BETA HUNT GOLD AND NICKEL OPERATION
Q1 2018 Q4 2017 Q3 2017 Q2 2017 Q1 2017
Gold tonnes mined (000s) 169 160 145.5 123 102
Gold mined grade (g/t) (1) 2.54 2.47 2.24 2.09 1.69
Gold tonnes milled (000s) 110 158 182.3 98.1 114.3
Gold mill grade (g/t) (1) 2.36 2.39 2.23 2.07 1.62
Gold milled (ounces) 8,372 12,128 13,047 6,535 3,597
Gold mined (ounces) (1) (2) 13,780 12,722 10,489 8,281 5,535
Gold sales (ounces) 7,978 12,896 8,659 5,891 6,132
Nickel tonnes mined (000s) 7.8 8.6 8.3 10.1 6.8
Nickel tonnes milled (000s) 8.7 7.0 10.2 9.6 6.8
Nickel mill grade (%) 1.89 2.64 2.84 2.84 2.51
Nickel-in-concentrate tonnes (000s) 0.14 0.16 0.25 0.24 0.15
BETA HUNT GOLD AND NICKEL OPERATION (5)
(in U.S. dollars)
Q1 2018 Q1 2017
Gold mining cash cost per ounce (per ounce mined) (5) $812 $1,347
Gold all-in sustaining cost, net of byproduct
credits (per ounce sold) (3) (4) 1,594 $1,685
Gold C1 cash operating cost, net of byproduct
credits (per ounce sold) (3) (4) 1,502 $1,647
Nickel C1 cash operating cost (per lb. sold) (4) 4.54 $2.97
Nickel C1 cash operating cost (per tonne sold) (4) 10,003 $6,541
Nickel all-in sustaining cost (per lb. sold) (4) 4.55 $3.00
Nickel all-in sustaining cost (per tonne sold) (4) 10,038 $6,618
(1) The difference in gold sales ounces and gold mined ounces is due to
timing differences in receipt of gold sales depending on completion date of
(2) As of March 31, 2018, 104,000 tonnes of gold mineralization from first
quarter 2018 production remained on the ROM pad for tolling in the subsequent
quarter, compared with 45,400 tonnes of gold as of Dec. 31, 2017.
(3) Gold operations declared commercial production in the second quarter of
2017 with effect on July 1, 2017. Prior to July 1, 2017, gold operations were
in the ramp-up stage toward commercial production, and operating and sustaining
costs per ounce for those periods are not comparable with other companies.
(4) All-in sustaining cost, net of byproduct credits, cash operating cost, net
of byproduct credits, cash operating cost, cash operating cost per tonne, all-in
sustaining cost, and all-in sustaining cost per tonne are not recognized measures
under IFRS. Such non-IFRS financial measures do not have any standardized meaning
prescribed by IFRS and are therefore unlikely to be comparable with similar
measures presented by other issuers. Management uses these measures internally.
The use of these measures enables management to better assess performance trends.
Management understands that a number of investors and others who follow Royal
Nickel's performance assess performance in this way. Management believes that
these measures better reflect Royal Nickel's performance and are better
indications of its expected performance in future periods. These data 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.
(5) Reference is made to the non-IFRS measures section of the managment's
discussion and analysis.
Two thousand seventeen was a period of transition for the Beta Hunt mine, as it ramped up gold production in the first half of the year before declaring commercial production on July 1, 2017. Until declaration of commercial production, Beta Hunt's gold cost of sales, net of gold revenue, were capitalized to property, plant and equipment.
Beta Hunt mine 2018 guidance
With the announcement of the strategic alternatives process for Beta Hunt, which Royal Nickel anticipates would result in the sale of a majority interest and control of the asset during the third quarter of 2018, Royal Nickel is not providing full-year guidance. Royal Nickel expects continued quarter-over-quarter improvement in tonnes, grade and ounces produced in the second quarter.
The decision by SLM to produce at the Beta Hunt mine was not based on a feasibility study of mineral reserves demonstrating economic and technical viability, and, as a result, there may be an increased uncertainty of achieving any particular level of recovery of minerals or the cost of such recovery, including increased risks associated with developing a commercially minable deposit. Historically, such projects have a much higher risk of economic and technical failure. There is no guarantee that anticipated production costs will be achieved. Failure to achieve the anticipated production costs would have a material adverse impact on SLM's cash flow and future profitability. It is further cautioned that the preliminary economic assessment is preliminary in nature. No mining feasibility study has been completed on Beta Hunt. Mineral resources are not mineral reserves and do not have demonstrated economic viability. There is no certainty that the PEA will be realized.
For the first three months of 2018, revenues from continuing operations of $6.3-million were in line with the prior-year amount of $6.1-million. For the first three months of 2018, the loss attributable to Royal Nickel shareholders from continuing operations of $1.8-million was lower than the loss of $3.1-million for the same period of 2017 by $1.3-million. The positive variance is primarily due to the volcanogenic massive sulphides operation, which reported earnings of $2.2-million for the first three months of 2018, compared with a loss of $1.2-million in the prior year, a $3.4-million variance. VMS reported lower mining costs in 2018 due to Royal Nickel's election to allow its interest in the Reed joint venture to be diluted by not financing its share of costs related to production. Consequently, those costs are no longer included in Royal Nickel's results. Partially offsetting the higher margins in VMS were higher share-based payments during the first three months of 2018 by $900,000 and a $1.2-million loss on the fair value adjustment of Royal Nickel's convertible debentures.
The loss attributable to Royal Nickel, inclusive of discontinued operations, for the first quarter of 2018 of $12.4-million was significantly lower than the loss in the prior quarter of $78.6-million by $66.2-million. During the fourth quarter of 2017, an impairment charge totalling $58.7-million was recorded in respect of the SLM operation.
HIGHLIGHTS OF ROYAL NICKEL'S FINANCIAL POSITION
(in millions of dollars)
March 31, 2018 Dec. 31, 2017
Cash and cash equivalents (1) $19.9 $24.4
Working capital deficit (2) $(22.8) $(29.0)
Property, plant and equipment $3.7 $23.5
Mineral property interests $49.8 $49.0
Total assets $105.4 $109.0
Shareholders equity $8.4 $10.9
(1) Seventeen million two hundred thousand dollars are dedicated
to the Magneto JV.
(2) Working capital deficit is a measure of current assets
(including cash and cash equivalents) less current liabilities.
Royal Nickel's ability to operate as a going concern is dependent on its ability to raise financing. While management has been successful in securing financing in the past, there can be no assurance that adequate or sufficient financing will be available in the future, or available under terms acceptable to Royal Nickel.
Royal Nickel will be hosting a conference call and webcast today beginning at 10 a.m. Eastern Time.
Live conference call and webcast access information:
North American callers please dial:
Local and international callers please dial: 647-427-7450
Webcast: available on-line
A recording of the conference call will be available for replay for a one-week period beginning at approximately 1 p.m. Eastern Time on May 14, 2018, and can be accessed as follows:
North American callers please dial: 1-855-859-2056
Local and international callers please dial:
About Royal Nickel Corp.
Royal Nickel is a multiasset mineral resource company with a portfolio of gold and base metal production and exploration properties. Royal Nickel's principal assets are the producing Beta Hunt gold and nickel mine in Western Australia, a 50-per-cent interest in a nickel joint venture with Waterton that holds the Dumont nickel project in the Abitibi region of Quebec, and a 29-per-cent stake in the producing Reed mine in the Flin Flon-Snow Lake region of Manitoba, Canada. Royal Nickel also owns a 44-per-cent interest in Orford Mining, a mineral explorer focused on highly prospective and underexplored areas of Northern Quebec and the Carolina gold belt in United States.
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