Mr. Mark Selby reports
RNC ANNOUNCES Q2 2018 RESULTS
Royal Nickel Corp. has provided its financial results and review of activities for the quarter ended June 30, 2018. All amounts are expressed in Canadian dollars, unless otherwise noted, and are based on the unaudited financial statements of the company for the quarter ended June 30, 2018.
Mark Selby, president and chief executive officer, commented: "RNC is focused on maximizing the value of the Dumont nickel-cobalt project. Dumont remains one of the world's premier battery metals projects containing the world's largest undeveloped reserves of nickel and second largest undeveloped reserves of cobalt. As one of the only large-scale fully permitted, shovel-ready nickel-cobalt projects globally, Dumont is ideally positioned to deliver the nickel and cobalt required to meet the massive demand growth expected from the electric vehicle (EV) market in the coming decade. During the balance of the year, RNC will aggressively advance Dumont on multiple fronts towards a construction decision in 2019."
Mr. Selby continued: "The Beta Hunt mine, which is now considered non-core to RNC, had a strong second quarter with a 24-per-cent improvement in mined grade compared to the first quarter. Mined production was lower than in the first quarter due to a combination of focused mining on high-grade specimen gold in certain areas of the mine and delays in securing financing for the mine in May and June (which led to production constraints). We continue to make progress in the final phase of the sale process for Beta Hunt, which we expect to announce by the end of the month."
Second quarter of 2018
and recent highlights
The company had net earnings from continuing operations of $5.9-million (two cents per share) for the three months ended June 30, 2018, compared with net earnings from continuing operations of $5.9-million (two cents per share) for the three months ended June 30, 2017. The company incurred a net loss from discontinued operations of $7.0-million (two cents per share) for the three months ended June 30, 2018, compared with a net loss from discontinued operations of $1.0-million (nil per share) for the three months ended June 30, 2017.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) from continuing operations for the three months ended June 30, 2018, was $9.3-million or three cents per share, compared with $3.5-million or one cent per share for the three months ended June 30, 2017. Reference is made to the non-international financial reporting standards (non-IFRS) measures section in the company's management's discussion and analysis (MD&A) for the period ended June 30, 2018.
Reed mine second quarter 2018 copper contained in concentrate production was 2.9 million pounds (1,340 tonnes) (27 per cent basis) compared with the second quarter of 2017 of 3.1 million pounds (1,410 t) (30 per cent basis). Cash operating costs decreased by 73 per cent to 42 U.S. cents per pound sold and all-in sustaining costs decreased to 44 U.S. cents per pound sold compared with $1.58 (U.S.) and $1.66 (U.S.), respectively, in the second quarter of 2017 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. If unfinanced mining costs and general and administration costs were included, the second quarter cash operating cost and all-in sustaining cost would have been $1.16 (U.S.) and $1.18 (U.S.) per pound, respectively. The company's share of gold in concentrate production for the second quarter of 2018 from the Reed mine was 603 ounces. Reference is made to the non-IFRS (international financial reporting standards) measures section in the company's management's discussion and analysis for the period ended June 30, 2018.
The company's share of operating income from the Reed mine was $5.9-million for the three months ended June 30, 2018 (compared with $600,000 for the three months ended June 30, 2017), and $8.1-million for the six months ended June 30, 2018 (compared with an operating loss of $600,000 for the six months ended June 30, 2017).
On June 18, 2018, the company announced that in lieu of the previously announced debt extension and equity raise announced on May 31, 2018, it would withdraw $12-million (U.S.) of its capital from the Dumont joint venture. The cash withdrawal avoided significant equity dilution at current market share prices, while allowing the company to significantly reduce its debt and eliminate the majority of its 2018 debt payments.
In order to obtain the withdrawal of these funds, the Dumont conversion cap under the $10-million (U.S.) convertible note (entered into by the company and Waterton in June, 2017) was removed. As a result, on a conversion of the full amount of the $10-million (U.S.) convertible note into units of the Dumont JV, the company's interest would be diluted to approximately 28 per cent (as compared with 40 per cent under the prior terms of the convertible debenture). On July 23, 2018, the company announced it had received a conversion notice from Waterton for the full principal amount of the $10-million (U.S.) convertible note. As a result, RNC's interest in the Dumont JV will be diluted to approximately 28 per cent. After giving effect to the conversion, the company retains its right to act as manager of the Dumont JV, but will no longer hold veto rights on certain fundamental joint venture matters or the ability to trigger certain exit rights included in the current joint venture arrangements.
Mined gold production at the Beta Hunt mine during the second quarter of 2018 was 13,320 ounces, up 60 per cent compared with 8,281 ounces in the second quarter of 2017 and gold tonnes mined was 132,000 t in the second quarter, up 7 per cent from the 123,000 t mined in the second quarter of 2017. Gold sales were 11,508 ounces in the second quarter, an increase of 95 per cent compared with 5,891 ounces in the second quarter of 2017. Second 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 second quarter of 2018, gold mining cash cost per ounce decreased by 34 per cent to $682 (U.S.) per ounce from $1,032 (U.S.) per ounce in the second quarter of 2017. On a cost-per-ounce-sold basis, gold cash operating costs, net of byproduct credits, decreased by 30 per cent to $1,185 (U.S.) per ounce sold, and all-in sustaining costs, net of byproduct credits, decreased by 31 per cent to $1,230 (U.S.) per ounce sold, compared with $1,687 (U.S.) and $1,786 (U.S.), respectively, in the second quarter of 2017 due to a significant increase in gold grades of more than 50 per cent (in both mined and milled tonnes). Reference is made to the non-IFRS measures section of the MD&A.
Second quarter of 2018 results
Dumont nickel-cobalt project
The company remains focused on aggressively advancing Dumont toward a construction decision in 2019. During the second quarter of 2018, the Dumont JV continued its activities in support of the Dumont nickel-cobalt project including the following activities:
Test work on sulphation roasting of Dumont nickel concentrate, which the company believes has the potential to deliver a simpler, lower cost process to deliver nickel and cobalt to the EV market, began in the second quarter of 2018 and will continue through the third quarter.
CRU International Ltd. continued with its value-in-use study for roasted Dumont concentrate which it believes will deliver a much higher value for Dumont concentrate than traditional smelting and refining. The study is expected to be completed in the third quarter, with results to be included in a potential future technical report update.
For the three months ended June 30, 2018, the company's 27-per-cent share of metal contained in concentrate production from the Reed mine was 1,335,000 t of copper and 603 ounces of gold. Costs improved during the quarter compared with the prior year primarily due to the effect of the company electing not to finance its share of mining and general and administration costs.
REED MINE OPERATING REVIEW
Q2 2018 Q2 2017
Ore (tonnes hoisted) 142,132 121,115
Ore (tonnes milled) 161,505 123,988
Copper (%) 3.25 4.12
Zinc (%) 0.75 0.41
Gold (g/t) 0.79 0.47
Silver (g/t) 8.34 6.19
REED MINE PRODUCTION AND COSTS
(company portion only)
Q2 2018 Q2 2017
Copper contained in concentrate (kilo tonnes) 1.34 1.41
Gold contained in concentrate (ounces) 603 293
Copper cash operating cost per pound sold (1) (2) 0.42 1.58
Copper all-in sustaining cost per pound sold 1,20.44 1.66
The company has elected effective Jan. 1, 2018, to allow its interest in the Reed mine 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 computation.
The Reed mine ceased mining operations in the third quarter of 2018 with processing of stockpiled material expected to continue into the fourth quarter of 2018.
Reed mine 2018 guidance
Hudbay Minerals Inc., the operator of the Reed mine, does not provide any production guidance. The following information is management's estimate of production and costs. In 2018, the company expects its share of production from the Reed mine to be 2,700 to 3,000 t of copper and 800 to 1,000 oz of gold, including processing of the stockpile.
The company elected effective Jan. 1, 2018, to allow its interest in the Reed mine to be diluted by not financing its share of the operating costs resulting in an estimated decline in its interest from 30 per cent to 26 per cent. Over the course of 2018, this dilution results in a minor production loss of 6 per cent, or 130,000 t (as compared with a 30-per-cent interest in the mine). The company's share of closure costs is currently estimated at $900,000 less recovery for equipment and facilities.
Orford Mining Corp.
The company currently owns a 35-per-cent interest (42 per cent as of June 30, 2018) 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. Exploration activities are under way on the Qiqavik project and on both Carolina properties. Orford is currently conducting an exploration program at the Qiqavik property guided by 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 further 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.
Beta Hunt mine
In the second quarter of 2018, the Beta Hunt mine continued to be focused on ramping up its gold production and mined 132,000 t of gold mineralization (2017 -- 123,000 t) containing 13,320 oz of gold (2017 -- 8,281). On March 22, 2018, the company announced it had initiated a strategic alternatives process which may include the sale of all or a portion of the Beta Hunt mine. On July 23, 2018, the company announced that it had successfully completed the second phase of the sale process with the selection of a preferred bidder. The company has granted exclusivity to this bidder to allow for completion of the final phase of the sale process, which it expects to announce by the end of the month. The company notes that there can be no assurance that the sale process will result in a completed transaction or that, if a transaction is undertaken, as to final terms and timing.
BETA HUNT MINE PRODUCTION
Beta Hunt gold and nickel operation Q2 2018 Q2 2017
Gold tonnes mined (000s) 132 123
Gold mined grade (g/t) (1) 3.14 2.09
Gold tonnes milled (000s) 112 98.1
Gold mill grade (g/t) (1) 3.24 2.07
Gold milled (ounces) 11,844 6,535
Gold mined (ounces) (1) (2) 13,320 8,281
Gold sales (ounces) 11,508 5,891
Nickel tonnes mined (000s) 8.3 10.1
Nickel tonnes milled (000s) 8.3 9.6
Nickel mill grade, nickel (%) 2.55 2.84
Nickel in concentrate tonnes (000s) 0.19 0.24
Beta Hunt gold and nickel operation Q2 2018 Q2 2017
Gold mining cash cost per ounce (US$ per ounce mined) $682 $1,032
Gold all-in sustaining cost, net of byproduct credits (US$ per ounce sold) (3) $1,230 $1,786
Gold C1 cash operating cost, net of byproduct credits (US$ per ounce sold) (3) $1,185 $1,687
Nickel C1 cash operating cost (US$ per lb sold) $3.84 $3.31
Nickel C1 cash operating cost (US$ per tonne sold) $8,467 $7,293
Nickel all-in sustaining cost (AISC) (US$ per lb sold) $3.93 $4.15
Nickel all-in sustaining cost (AISC) (US$ per tonne sold) $8,661 $9,150
(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 tolling campaigns.
(2) As of June 30, 2018, 126,500 t of gold mineralization from the first and second quarter 2018
production remained on the run-of-mine pad for tolling in the subsequent quarter, compared with
105,500 t of gold as of March 31, 2018.
(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.
Beta Hunt mine 2018 guidance
With the announcement of the strategic alternatives process for the Beta Hunt mine which the company anticipates would result in the sale of a majority interest and control of the asset during the third quarter of 2018, it is not providing full year guidance.
Cautionary statement: The decision by Salt Lake Mining Pty. Ltd. (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 (PEA) 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 second quarter of 2018, revenues from continuing operations of $10.3-million were in line with the prior year comparative period of $9.6-million. The earnings attributable to company shareholders from continuing operations for the second quarter of 2018 were $6.0-million, in line with earnings attributable to RNC shareholders of $6.0-million for the comparable quarter in 2017. Earning in the current period are primarily due to the Reed mine which reported operating income of $5.9-million for the second quarter of 2018 compared with earnings of $600,000 in the comparable quarter of the prior year period, a $5.3-million variance. The Reed mine reported lower mining costs in 2018 due to the company's election to allow its interest in the Reed mine to be diluted by not financing its share of costs related to production. Consequently, those costs are no longer included in the company's results. Contributing to the higher earnings from continuing operations was a $2.1-million gain on the fair value adjustment of the company's convertible debentures.
The net loss attributable to shareholders of the company, inclusive of discontinued operations, for the second quarter of 2018 of $1.1-million was significantly lower than the net loss in the prior quarter of $12.5-million by $11.4-million. This is mainly the result of significantly lower mining costs at the Reed mine.
The company'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 the company.
The company 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: 1-888-231-8191
Local and international callers please dial: 647-427-7450
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 Aug. 15, 2018, and can be accessed as follows:
North American callers please dial: 1-855-859-2056, pass code 1384407
Local and international callers please dial: 416-849-0833, pass code 1384407
About Royal Nickel Corp.
Royal Nickel is a multiasset mineral resource company with a portfolio of nickel, cobalt, and gold production and exploration properties. The company has a 28-per-cent interest in a nickel joint venture with Waterton that owns the Dumont nickel-cobalt project located in the Abitibi region of Quebec, which contains the second-largest nickel reserve and eighth-largest cobalt reserve (the largest undeveloped nickel reserve and second-largest undeveloped cobalt reserve in the world). The company has a 100-per-cent interest in the producing Beta Hunt gold and nickel mine located in Western Australia and a 35-per-cent interest in Orford Mining Corp., a mineral explorer focused on highly prospective and underexplored areas of Northern Quebec and the Carolina gold belt in the United States. The company also has a 27-per-cent stake in the producing Reed mine in Manitoba.
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