TORONTO, ON — (
This release does not constitute management’s discussion and analysis (“MD&A”) as contemplated by applicable securities laws and should be read in conjunction with the MD&A and the Company’s condensed interim consolidated financial statements for the three and six months ended June 30, 2015, which are available on SEDAR at www.sedar.com and on the Company’s website. Unless otherwise noted, references herein to “$” are to thousands of United States dollar. References to “C$” are to thousands of Canadian dollar. Tables are expressed in thousands of United States dollar, except where otherwise noted.
- Loss of $1,522 or $0.01 per share for the three months ended June 30, 2015 compared to income of $4,020 or $0.02 per share for the second quarter of 2014;
- Operating cash flow1 of $2,387 for the second quarter of 2015 compared to $13,149 for the second quarter of 2014;
- Net sales revenue in the second quarter of 2015 decreased by 41% over the second quarter of 2014;
- Gold ounce (“oz”) production for the second quarter of 2015 was 25% lower than the second quarter of 2014;
- There was no copper production at Aranzazu for the second quarter of 2015. Copper production at Aranzazu for the second quarter of 2014 was 3,800,257 pounds;
- Gross margin of $2,336 for the second quarter of 2015, compared to a gross margin of $11,151 for the second quarter of 2014;
- On June 9, 2015, the Company completed a non-brokered private placement (the “private placement”) by issuing 57,009,346 common shares for gross proceeds of $4,940 (C$6,100);
- On August 7, 2015, the Company announced an updated Preliminary Economic Assessment (“PEA”) National Instrument 43-101 (“NI 43-101”) compliant report for the restart of operations at Aranzazu. This PEA demonstrated a net present value (“NPV”) of $103.1 million based on certain assumptions (
See Section 3, Review of Mining Operations and Development Projects, for further information).
Production and Cash Costs
Gold production for the second quarter of 2015 was 25% lower than the second quarter of 2014. Gold production and cash costs1for the three months ended June 30, 2015 and 2014 were as follows:
| For the three months ended
June 30, 2015
| For the three months ended
June 30, 2014
|Oz produced||Cash Costs 1||Oz Produced||Cash Costs 1|
|Total / Average||33,616||$||918||44,764||$||863|
Gold production at San Andres in the second quarter of 2015 decreased by 10% primarily due to lower recoveries than in comparable period. Recoveries are expected to improve to 2014 levels in the second half of 2015. Average cash cost per oz of gold produced1 in the second quarter of 2015 increased by 24% over the second quarter of 2014 as a result of lower than expected production.
Gold production in the second quarter of 2015 was 36% lower than the second quarter of 2014 due to the decrease in tonnes mined as well as a lower than expected grade. Sao Francisco is mining in areas outside of its original mine model. Average cash cost per oz of gold produced1 in the second quarter of 2015 was 5% higher than in the second quarter of 2014 as a result of the lower production.
As a result of the Company having been unable to either internally generate or externally raise the financing required to maintain or expand the Aranzazu operations, on January 15, 2015, the Company announced that all mining activities at Aranzazu would be temporarily suspended and that all capital projects, including underground development work, would be deferred. Processing of copper concentrate was completed at the end of February 2015. As at the date of this MDA, the Aranzazu project is on full care-and-maintenance. There was no copper production during the second quarter of 2015. Total copper production for the three months ended June 30, 2014 was 4,254,778 pounds.
The Serrote project early development phase is continuing and the Company is continuing to pursue options to maximize the value of Serrote and the Company is also considering a revised development and operating plan that would require lower capital expenditures and an earlier execution schedule.
Revenues and Cost of Goods Sold
Revenues for the three months ended June 30, 2015 decreased by 41% compared to the three months ended June 30, 2014. The decrease in gold sales is attributable to both a 21% decrease in gold sales volumes and a decrease of 7% in the realized average gold price per oz. The decrease in gold sales volumes is mainly due to the disposal of Sao Vicente, and the wind down of mining operations at Sao Francisco.
The decrease in copper sales is due to the suspension of operations at Aranzazu mine. As a result, there were no copper concentrate sales during the second quarter of 2015, only revaluations of outstanding shipments. Total copper sales revenue for the three months ended June 30, 2014 were related to the shipment of 6,881 DMT of copper concentrate at $1,697 per DMT.
For the three months ended June 30, 2015 and 2014, total cost of goods sold from San Andres was $19,286 or $941 per oz compared to $19,137 or $881 per oz, respectively. For the three months ended June 30, 2015 and 2014, cash operating costs were $857 per oz and $817 per oz, respectively, while non-cash depletion and amortization charges were $83 per oz and $64 per oz, respectively. There were no write-downs of production inventory to net realizable value for the three months ended June 30, 2015 and 2014.
At the Brazilian Mines, for the three months ended June 30, 2015 and 2014, total cost of goods sold was $16,661 or $1,240 per oz compared to $22,131 or $1,030 per oz, respectively. For the three months ended June 30, 2015 and 2014, cash operating costs were $1,231 per oz and $1,000 per oz, respectively, while non-cash depletion and amortization charges were $10 per oz and $30 per oz, respectively. The cash operating costs for the three months ended June 30, 2015 included write downs of $777 or $58 per oz to bring production inventory to net realizable value (2014: $Nil and $Nil per oz).
There was no production at the Aranzazu mine during the second quarter of 2015. Total cost of goods sold for the three months ended June 30, 2015 of $349 was related to the prior quarter’s production. Total cost of goods sold for the second quarter of 2014 was $12,830 or $1,865 per DMT. The cash operating costs and non-cash depletion and amortization charges for the three months ended June 30, 2014 were $1,674 per DMT and $190 per DMT, respectively.
For the three months ended June 30, 2015 and 2014, general and administrative costs were $2,389 and $2,548, respectively. Salaries, wages and benefits decreased as a result of corporate reorganizations. Other expenses for the three months ended June 30, 2015 include legal settlements, insurance premiums and software expenses. Other expenses for the three months ended June 30, 2014 include $212 relating to accruals for on-going litigations.
Total finance costs for the three months ended June 30, 2015 and 2014 were $1,650 and $1,123, respectively. The increase in finance costs reflects the interest expense on the Bridge Loan which is no longer capitalized to the Serrote project from the beginning of 2015.
Total other income for the three months ended June 30, 2015 and 2014 was $239 and $Nil, respectively. The increase is related to an insurance claim received for the copper concentrate stolen in 2014.
Total other losses for the three months ended June 30, 2015 and 2014 were $533 and $639, respectively. The decrease in other losses is mainly related to lower losses in foreign exchange and changes in the fair value of gold loan.
Outlook and Strategy
Other key factors influencing profitability and operating cash flows are production levels (impacted by grades, ore quantities, labour, plant and equipment availabilities, and process recoveries) and production and processing costs (impacted by production levels, prices and usage of key consumables, labour, inflation, and exchange rates).
|Gold Mines||Cash Cost per oz 1||2015 Production|
|San Andres||$800 – $850||85,000 – 95,000 oz|
|Sao Francisco||$950 – $1,100||55,000 – 60,000 oz|
|Total||$900 – $1,000||140,000 – 155,000 oz|
1 Please see the cautionary note at the end of this press release.
To the date of the MD&A, the indicators have been that the pro-rata guidance will be achieved at each operating mine.
For 2015, the updated capital expenditure is expected to be $12,800 relating to San Andres and principally includes the heap leach expansion, power line and committed community expenditures.
This news release includes certain non-GAAP performance measures, in particular, the average cash cost per oz of gold, average cash cost per pound of copper and operating cash flow which are non-GAAP performance measures. These non-GAAP measures do not have any standardized meaning within IFRS and therefore may not be comparable to similar measures presented by other companies. The Company believes that these measures provide investors with additional information which is useful in evaluating the Company’s performance and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.
Average cash cost per oz of gold or per pound of copper is presented as it represents an industry standard method of comparing certain costs on a per unit basis. Total cash cost of gold produced includes on-site mining, processing, administration costs, off-site refining and royalty charges, reduced by silver by-product credits, but excludes amortization, reclamation, and exploration costs, as well as capital expenditures. Total cash cost of gold produced is divided by oz produced to arrive at cash cost per oz. Similarly, total cash cost of copper produced includes the above costs, and is net of gold and silver by-products, but includes offsite treatment and refining charges. Total cash cost of copper produced is divided by pounds of copper produced to arrive at an average cash cost per pound.
Operating cash flow is the term the Company uses to describe the cash that is generated from operations excluding depletion and amortization, inventory write-downs, stock based compensation and impairment charges.
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This news release contains certain “forward-looking information” and “forward-looking statements”, as defined in applicable securities laws (collectively, “forward-looking statements”). All statements other than statements of historical fact are forward-looking statements. Forward-looking statements relate to future events or future performance and reflect the Company’s current estimates, predictions, expectations or beliefs regarding future events and include, without limitation, statements with respect to: the amount of mineral reserves and mineral resources; the amount of future production over any period; the amount of waste tonnes mined; the amount of mining and haulage costs; cash costs; operating costs; strip ratios and mining rates; expected grades and ounces of metals and minerals; expected processing recoveries; expected time frames; prices of metals and minerals; mine life; and gold hedge programs. Often, but not always, forward-looking statements may be identified by the use of words such as “expects”, “anticipates”, “plans”, “projects”, “estimates”, “assumes”, “intends”, “strategy”, “goals”, “objectives” or variations thereof or stating that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved, or the negative of any of these terms and similar expressions.
Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by the Company, are inherently subject to significant business, economic and competitive uncertainties and contingencies. Forward-looking statements in this news release and related MD&A are based upon, without limitation, the following estimates and assumptions: the presence of and continuity of metals at the Company’s Mines at modeled grades; the capacities of various machinery and equipment; the availability of personnel, machinery and equipment at estimated prices; exchange rates; metals and minerals sales prices; appropriate discount rates; tax rates and royalty rates applicable to the mining operations; cash costs; anticipated mining losses and dilution; metals recovery rates, reasonable contingency requirements; and receipt of regulatory approvals on acceptable terms.
Known and unknown risks, uncertainties and other factors, many of which are beyond the Company’s ability to predict or control could cause actual results to differ materially from those contained in the forward-looking statements. Specific reference is made to the most recent Annual Information Form on file with certain Canadian provincial securities regulatory authorities for a discussion of some of the factors underlying forward-looking statements, which include, without limitation, gold and copper or certain other commodity price volatility, changes in debt and equity markets, the uncertainties involved in interpreting geological data, increases in costs, environmental compliance and changes in environmental legislation and regulation, interest rate and exchange rate fluctuations, general economic conditions and other risks involved in the mineral exploration and development industry. Readers are cautioned that the foregoing list of factors is not exhaustive of the factors that may affect the forward-looking statements.
All forward-looking statements herein are qualified by this cautionary statement. Accordingly, readers should not place undue reliance on forward-looking statements. The Company undertakes no obligation to update publicly or otherwise revise any forward-looking statements whether as a result of new information or future events or otherwise, except as may be required by law. If the Company does update one or more forward-looking statements, no inference should be drawn that it will make additional updates with respect to those or other forward-looking statements.
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