First Nickel Reports 2011 Financial and Operating Results Steady Progress on the Lockerby Mine Re-Start
Steady Progress on the Lockerby Mine Re-start
TORONTO, ONTARIO -- (Marketwire) -- 03/27/12 -- First Nickel Inc. ("First Nickel", "FNI" or the "Company") (TSX: FNI) today announced its results for the year ended December 31, 2011. The Company's audited financial statements, and management's discussion and analysis for the period have been filed with SEDAR and will be available at www.sedar.com and on the Company's website at www.firstnickel.com. This news release should be read in conjunction with the Company's financial statements for the year ended December 30, 2011 and management's discussion and analysis. This news release contains forward-looking information that is subject to the risks and assumptions set out in our Cautionary Statement on Forward-Looking Information located at the end of this news release (All dollar amounts herein are in Canadian funds unless otherwise indicated.)
2011 Financial and Lockerby Mine Operating Highlights:
-- Development: Commenced in May 2011 with an upgraded mobile equipment
fleet.
-- Production: Ore extraction from the Depth Zone of the Lockerby Mine
began in September 2011 for the first time since re-emerging from care
and maintenance.
-- Deliveries: 23,924 tonnes of ore shipped to Xstrata resulting in 901,657
pounds of payable nickel and 537,831 pounds of payable copper.
-- Strong Financial Position: Ended the year with $26.0 million in
unrestricted cash and reported net earnings of $25.2 million or $0.05
per share for 2011, compared to a loss of $10.2 million or $0.06 per
share for 2010.
-- New Management Team: The Company named Thomas M. Boehlert as President
and Chief Executive Officer in September. Mr. Boehlert hired Steven
Cresswell as Chief Financial Officer and Sean Samson as Head of
Corporate Development in December. Mr. Samson is currently serving as
Interim-VP of Operations.
CEO Commentary
Mr. Thomas M. Boehlert, President and CEO of First Nickel commented, "Activities during 2011 focused on successfully recommencing operations at the Lockerby Mine and significantly strengthening First Nickel's management capabilities and financial resources. First Nickel is well positioned to grow its resource base through exploration on existing properties and through the acquisition of additional advanced stage exploration, development and/or producing assets."
Summary of Financial and Operating Results
First Nickel's Lockerby Project is in the pre-commercial production stage, during which time sales under the existing Off-take Agreement are not classified as revenues, but as a reduction in capital costs, and operating costs are capitalized.
A substantial gain During 2011, the Company realized a substantial gain on the settlement of hedge contracts. As reported on September 27, 2011, FNI closed out hedge positions of 15 million pounds of nickel, 12 million pounds of copper and the corresponding foreign exchange and interest rate contracts entered into in July 2011. The Company received net cash proceeds of approximately US$35.0 million as a result of this transaction.
The following table presents a summary of the audited results of operations for the twelve-month periods ended December 31st.
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First Nickel Inc. For the 12 months ended
December 31
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2011 2010
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Expenses
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Care and maintenance expense $ -- $ 5,138,684
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General and administrative, excluding
share-based
compensation $ 3,734,873 $ 2,364,192
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Share-based compensation $ 855,168 $ 173,596
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Depreciation and amortization $ 12,240 $ 17,040
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Foreign exchange loss (gain) $ (53,625) $ (71,061)
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Change in fair value of equity conversion
option $ (5,634,737) $ 612,115
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Interest on convertible loan $ 942,080 $ 942,080
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Accretion on convertible loan $ 1,151,301 $ 697,837
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Accretion of asset retirement obligations $ 97,941 $ 199,200
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(Gain)/loss on hedge settlement, net $ (33,019,915) --
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Loss on mobile equipment $ 500,000 --
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Write-offs on exploration properties $ 7,010,192 --
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Interest on bridge loan $ 16,226 $ 198,632
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Interest paid and other expenses -- $ 17,718
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(Interest collected and other income) $ (296,814) $ (78,563)
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Earnings/(loss) before taxes $ 24,685,070 $ (10,211,470)
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Recovery of income and mining taxes $ 472,017 $ 16,930
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Net earnings/(loss) and comprehensive $ $
earnings/(loss) for the period 25,157,087 (10,194,540)
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Earnings/(loss) per share - basic and
diluted $ 0.05 $ (0.06)
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Weighted average number of common shares
outstanding 480,012,713 173,298,556
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Lockerby Mine 2011 Operating Results
-- No lost time incidents in over one year
-- First ore shipment delivery in September
-- 23,924 tonnes of ore were shipped to Xstrata in 2011
-- Ramp development advanced and approaching 66 Level
The Company spent approximately $35.0 million on the Lockerby Depth project during 2011.
Safety, Health & Environment
The Company's directors, management, employees and contractors place the highest priority on safety, health and the environment. Lockerby operations proceed 7 days a week, 24 hours a day. In 2011 there were zero lost time injuries and three minor reportable environmental incidents. All regulated environmental requirements were completed and submitted.
Production
In 2011, production restarted at Lockerby, with first ore being shipped to Xstrata in September. For the year, Lockerby shipped 23,924 tonnes of ore at an average nickel grade of 1.71% and an average copper grade of 1.02%, resulting in 901,657 pounds of payable nickel and 537,831 pounds of payable copper. Average ore production rates were 433 tonnes per day ("tpd") in November, and 209 tpd in December. December production was hampered by the site's loss of a 6-yard scoop tram that is scheduled to be replaced in Q1 2012. Production rates are expected to ramp-up over the course of 2012 with commercial production expected to be achieved by mid-2012 and full production expected to be achieved by year end 2012 at an expected rate of 800 tpd. Once in full production, the mine is expected to produce approximately 10 million pounds of nickel and 7 million pounds of copper annually.
Development
The development program for the depth project commenced from the 65-3 level in May 2011. Development delays first experienced and reported in the third quarter were resolved in the fourth quarter. A total advance of 1,226 metres was achieved in 2011. The ramp bottom was located just above the 65 level at the end of 2011.
Mobile Equipment
The mobile fleet was upgraded in 2011 with four new 42-ton haul trucks and three new 6-yard scoop trams. The third new scoop was buried in 65-3-0 stope and was subsequently abandoned in late December 2011. In response to the loss, the Company expedited the commissioning of an anfo loader and reactivated one of its older scoops which has limited the impact of the lost piece of equipment. A replacement scoop will be in operation in early Q2 2012.
Exploration
Significant additional upside potential remains at Lockerby. The production profile outlined in the current mine plan as defined in the GENIVAR feasibility study (updated in November 2010) does not incorporate any production from ore sourced from resources identified in other areas of the mine including the Lockerby East and Upper West Zones. As the mineralization is open at depth below the 70 Level, opportunities exist to further expand the Depth Zone.
The completion of $2.1 million in flow-through financing in the second quarter of 2011 provided funding for the Company's exploration programs to December 31, 2012. Exploration activities during the fourth quarter were minimized in order to maximize initial production efforts. Exploration activities in Southeastern Ontario during the fourth quarter consisted of an airborne geophysical survey at selected properties, ground mapping and sampling of priority targets, and the identification of drill targets on the Company's Dundonald property.
The Company continues to actively source additional high quality exploration properties and review property submissions as they are received from third parties.
Developments Subsequent to December 31, 2011
Subsequent to year end, development and production activities at Lockerby have continued to progress. Crews are working safely, are pushing the ramp towards the 66 Level, and completing the lateral development on both the 65-2 and 65-0 Levels.
2012 Outlook for Lockerby Mine and First Nickel Inc.
The Company anticipates being in commercial production by mid-2012, while continuing to maintain a safe and environmentally compliant operation. First Nickel will continue to review mining operations to identify optimization opportunities. Upon achieving commercial production, the Company will commence recognizing revenue and operating expenses in the statement of operations.
First Nickel expects to be at or near the full production rate of approximately 10 million pounds of nickel per annum in the fourth quarter of 2012. In addition to Lockerby, First Nickel will continue exploration activities at its other Ontario properties and seek to add to the portfolio of base metal projects through acquisitions of promising exploration properties and operating mines.
Development programs will continue to push the ramp down to the 68 level.
Exploration expenditures for 2012 have been budgeted at $3.4 million and will include 11,000 metres of diamond drilling, borehole geophysics and surface mapping and sampling on four of the Company's properties, to assess potential growth opportunities, with the objective of increasing mineral resources for the Company.
The 2012 surface exploration programs consist of the following:
-- 5,000 metres of surface drilling on the Link zone
-- 3,000 metres of surface drilling on the Belmont Project
-- 3,000 metres of surface drilling on the Raglan Hill Project
As previously reported in the Company's guidance news release dated January 25, 2012, the Company anticipates:
-- Commercial production by mid- 2012
-- Production of between 6.3 to 7.4 million pounds of payable nickel
-- Total cash production costs estimated to be $56.2 to $61.4 million(i)
-- Total cash production costs of $6.00 per lb(i)of nickel by year end
Production and Cost Outlook
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H1 H2 Q4
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Nickel lbs 2.5 - 2.9 M 3.8 - 4.5 M 2.1 - 2.5 M
Copper lbs 1.8 - 2.0 M 2.7 - 3.0 M 1.4 - 1.6 M
Total Cash Production
Costs(i) $27.8 - $30.2 M $28.4 - $31.2 M $15.1 - $16.6
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Assumptions: Ni per lb - $8.50, Cu per lb - $3.25, CAD/USD $1.00
Mineral Reserves and Resources
Mineral reserves and resources were last estimated to CIM standards by GENIVAR in its feasibility study dated February 2009.
Mineral Resources
Mining Zone Tonnes Ni Cu
(Mt) (%) (%)
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Lockerby Project
Depth Zone(1) - Indicated 1.42 2.58 1.60
Depth Zone(1)- Inferred 0.53 1.79 1.13
Upper West Zone(3) - Indicated 0.25 0.95 1.00
Conwest Zone - Indicated 8.55 0.45 0.31
Conwest Zone - Inferred 2.00 0.38 0.30
Lockerby East Zone(2) - Indicated 0.18 2.32 0.78
Lockerby East Zone(2) - Inferred 0.04 2.93 0.80
Dundonald Project
Dundonald South - Inferred 0.116 3.16 --
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1. 1.5% nickel equivalent (NiEq) cut-off grade used for the Lockerby Depth
resource estimate (NiEq = Ni grade + (0.32 X Cu grade) + (0.53 X Co
grade)) rounded to the nearest 10,000 tonnes;
2. A 1.0% nickel equivalent (NiEq) cut-off grade was used for the Lockerby
East resource estimate (NiEq = Ni grade + (0.32 X Cu grade) + (0.53 X Co
grade)) rounded to the nearest 10,000 tonnes;
3. A 0.8% nickel equivalent (NiEq) cut-off grade was used for the Upper
West resource estimate (NiEq = Ni grade + (0.32 X Cu grade) + (0.53 X Co
grade)) rounded to the nearest 10,000 tonnes;
4. Total indicated and inferred tonnes represent the sum of the detailed
estimates rounded to the nearest 10,000 tonnes;
5. Mineral resources which are not mineral reserves do not have
demonstrated economic viability. The estimate of mineral resources may
be materially affected by environmental, permitting, legal, taxation,
sociopolitical, marketing, or other relevant issues;
6. Represents reported inferred resources. There has been insufficient
exploration to define these inferred resources as indicated or measured
mineral resources and it is uncertain if further exploration will result
in upgrading them to an indicated or measured mineral resource category.
Indicated mineral resources were converted into probable mineral reserves by GENIVAR. The probable mineral reserves for the Contact and Hanging Zones of the Lockerby Depth Orebody are shown in the following table using a cut-off nickel equivalent grade of 1.5% and the nickel equivalent price was calculated using US$8.75/lb Ni, US$3.00/lb Cu, US$15.00/lb Co and US$:C$ at par.
Probable Mineral Reserves by Zone: Lockerby Depth Zone
NiEq
Mining Zone Diluted Ni Cu Co (%) 1.5%
Tonnes (%) (%) (%) cut-off
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Contact Zone 1,252,800 2.34 1.38 0.88 2.83
Hanging Zone 183,400 1.46 1.20 0.053 1.87
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Total 1,436,200 2.23 1.36 0,083 2.71
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1) Indicated mineral resources were converted to probable mineral reserve
by GENIVAR;
2) Minimum mining width of 3 metres;
3) 25% dilution by volume;
4) 90% Recovery applied to both ore development and stoping;
5) 1.5% NiEq cut-off grade (NiEq = Ni% + Cu%(i)0.32 + Co%(i)0.53).
Qualified Person
The foregoing scientific and technical information has been prepared or reviewed by Paul C. Davis, P.Geo., Vice-President Exploration of the Company. Mr. Davis is a "qualified person" within the meaning of National Instrument 43-101.
The Company follows rigorous quality control practices and procedures in full compliance of NI 43-101, and these are described on the Company's website and in all technical news releases.
About First Nickel Inc.
First Nickel is a Canadian mining and exploration company. The Company's mission is to be the most dynamic North American emerging base metal mining company in which to work and invest and to be respected in the communities in which we operate. FNI is in the process of ramping up production at its Lockerby nickel / copper mine in the Sudbury Basin in northern Ontario. Once the Lockerby Mine reaches full production (expected by end of 2012), it is expected to produce at a rate of approximately 10 million pounds of nickel and approximately 7 million pounds of copper annually, providing a strong base of cash flow from which to grow the Company. In addition to the Lockerby nickel mine, the Company owns exploration properties in the Sudbury Basin, the Timmins region of northern Ontario, and the Belmont region of Eastern Ontario. First Nickel's shares are traded on the TSX under the symbol FNI.
Cautionary Statement Regarding Forward-Looking Information
Certain statements contained in this news release may contain forward-looking information about First Nickel. Forward-looking information can often be identified by the use of forward-looking terminology such as "anticipate", "believe", "continue", "budget", "forecast", "estimate", "schedule", "expect", "goal", "intend", "target", "potential", "objective", "may", "plan" or "will" or the negative thereof or variations thereon or similar terminology. Forward-looking information may include, but is not limited to: the resumption of operations at Lockerby mine and the continued operation thereof; expectations of obtaining financing in the near term; future financial or operating performance of the Company and its projects; the future price of metals; the long term supply and demand for nickel; continuation of exploration activities; mineral reserve and mineral resource estimates; the realization of mineral resource estimates; costs of production and key supplies; capital, operating and exploration expenditures; forecasts of sales and production; costs and timing of the development of new and existing deposits; costs and timing of future exploration; the requirements for additional capital; government regulation of mining operations; environmental risks, reclamation expenses and/or title disputes or claims.
By its nature, forward-looking information is based on certain factors and assumptions which involve known and unknown risks, uncertainties and other factors which may cause the actual results, realization of mineral resources, performance or achievements of the Company, financial position or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. Accordingly, actual events may differ materially from those implied by any forward-looking information. Readers are cautioned not to place undue reliance on forward-looking information, which speak only as of the date the statements were made and readers are also advised to consider such forward-looking information while considering the risk factors set forth in the management's discussion and analysis for the year ended December 31, 2011 under the heading "Risks and Uncertainties" and under the heading "Risk Factors" in the Company's Annual Information Form for the year ended December 31, 2011. The Company disclaims any intention or obligation to publicly update or otherwise revise any forward-looking information whether as a result of new information, future events or other such factors which affect this information or to explain any material difference between subsequent actual events and such forward-looking information, except as required by applicable law.
(i) Non-GAAP Financial Measures The cash cost per pound of nickel produced, and total production costs are non-GAAP financial measures that do not have a standardized meaning under Canadian Generally Accepted Accounting Principles ("GAAP"), and as a result may not be comparable to similar measures presented by other companies. Management uses these statistics to monitor operating costs and profitability, and believes that certain investors use this information to evaluate the Company's performance and ability to generate cash flow in addition to conventional GAAP measures. 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 GAAP. Total cash production costs include mining costs, milling, equipment operating lease costs, mine site general and administration costs, environmental costs, transportation, and refining of concentrate, less by-product credits from sales of copper, cobalt and PGE's . The cash production cost per pound of nickel produced is the total production costs divided by pounds of nickel produced.
Contacts:
First Nickel Inc.
Thomas Boehlert
President & CEO
416 362-7050
tboehlert@firstnickel.com
CHF Investor Relations
Robin Cook
Senior Account Manager
416 868 1079 x 228
robin@chfir.com
