Focus on Copper
6 operating mines ~ 2 significant projects • Canada ▪ U.S. ▪ Chile
Message: 2008 Write Downs Result in $389 Million Loss for FNX
| March 30, 2009 | ||
| 2008 Write Downs Result in $389 Million Loss for FNX | ||
|
TORONTO, ONTARIO--(Marketwire - March 30, 2009) - FNX Mining Company Inc. (TSX:FNX) ("FNX" or "the Company") reports financial and operational results for fiscal 2008 and the fourth quarter of 2008. Net losses for the 2008 full year and fourth quarter were $388.5 million ($4.59 per share) and $397.4 million ($4.68 per share) respectively, including non-cash and unusual items of $509.8 million and $499.6 million respectively ($370.4 million and $365.0 million net of taxes, respectively). Unusual items include property, plant and equipment and intangible assets impairment write downs, as well as gains and losses on investments. Excluding unusual items, operating net losses for the 2008 full year and fourth quarter were $10.1 million ($0.12 per share) and $32.6 million ($0.38 per share). Included in the 2008 full year and fourth quarter earnings were negative provisional metal pricing adjustments of $41.6 million and $24.4 million respectively, compared to positive $7.0 million and $nil respectively in 2007. Production from its 100%-owned Sudbury, Ontario mines generated revenues of $245.0 million for the year and $27.3 million for the fourth quarter, compared to $267.8 million and $51.3 million respectively in 2007. Consolidated revenues, which include results from the 100%-owned DMC Mining Services business ("DMC"), were $378.1 million for the full year and $48.7 million for the fourth quarter, compared to $322.0 million and $105.6 million respectively in 2007. Cash flow from consolidated results for the full year and fourth quarter was $77.2 million ($0.91 per share) and $8.0 million ($0.09 per share) respectively, compared to operating cash flow of $167.2 million ($1.99 per share) and $50.9 million ($0.60 per share) in 2007. Consolidated adjusted EBITDA was $46.5 million for the full year and ($28.6) million for the fourth quarter, compared to $147.7 million and $24.5 million respectively in 2007. Terry MacGibbon, Chairman and CEO of FNX noted that, "FNX was dramatically impacted by the rapid commodity price decline and economic downturn in 2008. As a result, we made difficult and prudent decisions in the fourth quarter of 2008 and suspended all primary nickel production, lowered overall production and reduced capital expenditures by $70 million. The dramatic decline in commodity prices and the resulting reduction in production and employee layoffs have resulted in a non-cash asset impairment pre-tax write down of $509.8 million. Although considered impaired at long term commodity prices, our former producing deposits are on stand-by and could, at higher commodity prices, be quickly put back into production and have significant value." Mr. MacGibbon added, "The Company continues in these difficult times with a strong balance sheet, zero debt, a comprehensive plan to tightly control costs and expenditures and continues to focus on its high margin Levack Footwall Deposit development. Our challenges in 2009 are to control costs and concentrate on ore deposits which are cash positive or at least cash neutral, even at current low commodity prices. We will continue to focus on achieving the planned 2010 start up of the high grade Levack Footwall Deposit thereby positioning the Company for success when the economy improves and we see higher commodity prices." The average cash revenues per ton of ore shipped for full year 2008 and the fourth quarter were $195 and $100, respectively, while the average operating cash costs per ton shipped were $160 and $206 respectively, leaving an average cash operating margin per ton of ore shipped of $35 and ($106), respectively. The average realized revenue per ton in the fourth quarter was negatively impacted by the provisional price adjustments of $90 per ton. The higher average cash cost per ton shipped in the fourth quarter resulted primarily from cessation of nickel development resulting in increased fixed costs being attributed to nickel ore production and one time severance payments related to employee terminations and layoffs in the fourth quarter. ---------------------------------------------------------------------------- Table 1 - Financial and Operating Highlights Q4 2008 Q4 2007 2008 2007 ---------------------------------------------------------------------------- Consolidated ------------ Revenue 48,723 105,616 378,062 322,043 Net Earnings (Loss) (C$000) (397,402) 32,280 (388,540) 109,947 Basic Earnings (Loss) per Share (C$) (4.68) 0.38 (4.59) 1.31 Fully Diluted Earnings per Share (C$) (4.68) 0.38 (4.59) 1.30 Cash and Cash Equivalents (C$000) 129,561 35,160 129,561 35,160 Cash Flow from Operations (C$000) 7,966 50,877 77,166 167,242 Cash Flow per Share (C$) 0.09 0.60 0.91 1.99 Diluted Cash Flow per Share (C$) 0.09 0.60 0.91 1.98 Adjusted EBITDA (C$000) (28,618) 24,522 46,481 147,720 Mining Operations ------------------ Total Revenue (C$000) 27,265 51,324 244,958 267,751 Cash Operating Costs (C$000) 55,983 25,443 200,570 100,317 Cash Operating Margin (C$000) (28,718) 25,881 44,388 167,434 Depreciation and Amortization (C$000) 12,496 8,422 47,472 26,332 Operating Margin (C$000) (41,214) 17,459 (3,084) 141,102 Net Earnings (Loss) (C$000) (391,364) 31,041 (370,430) 108,708 Cash Flow From Operating Activities (C$000) 278 39,589 68,699 155,957 Total Ore Sold (tons) 271,336 239,066 1,255,987 926,881 Nickel Ore Sold (tons) 103,629 182,160 682,681 631,217 Grade of Nickel Ore Sold (%Ni) 1.5 1.2 1.2 1.3 Payable Metal Sold - Nickel (000 lbs) 3,011 3,289 13,140 12,219 Copper Ore Sold (tons) 167,707 56,906 573,306 295,664 Grade of Copper Ore Sold (%Cu) 5.3 1.2 3.7 1.4 Payable Metal Sold - Copper (000 lbs) 11,501 1,994 35,214 9,611 Payable Metal Sold - Total Precious Metals (oz) 16,801 5,063 52,034 24,380 Revenue per Ton Sold (C$) 100 215 195 289 Cash Operating Costs per Ton Sold (C$) 206 74 160 73 Cash Operating Margin per Ton Sold (C$) (106) 109 35 181 Realized Nickel Prices (US$/lb) 3.02 12.16 8.56 15.69 Realized Copper Prices (US$/lb) 0.66 2.94 2.53 3.27 Exchange Rate (C$ /US$) 1.21 0.98 1.07 1.07 DMC Mining Services ------------------- Total Revenue (C$000) 21,458 54,292 133,104 54,292 Cash Operating Costs (C$000) 21,769 49,764 129,031 49,764 Cash Operating Margin (C$000) (311) 4,528 4,073 4,528 Net Earnings (Loss) (C$000) (6,038) 1,239 (18,110) 1,239 Cash Flow from Operating Activities(C$000) 7,688 8,285 8,467 11,285 ---------------------------------------------------------------------------- Certain of the above items are considered to be non-GAAP performance measures (see below). Operations FNX's Sudbury operations delivered a record 1.255 million tons of ore to the third party mill in 2008, including 1.01 million tons from the Levack Complex and 0.24 million tons from the Podolsky Mine. Nickel ore shipped in 2008 totaled 682,681 tons and copper-precious metal ore shipped was 573,306 tons for an average daily production rate of approximately 3,400 tons. Payable metals for the year totaled 13.1 million pounds of nickel, 35.2 million pounds of copper, 18,495 ounces of platinum, 24,182 ounces of palladium, 9,357 ounces of gold and 166,027 pounds of cobalt. Included in the total production numbers was a 37,665 ton nickel ore batch test from Levack Mine shipped and processed in the fourth quarter. Excluded from the 2008 production numbers were 10,683 tons taken from a larger 15,027 ton pre-production bulk sample removed from the copper-precious metal Levack Footwall Deposit ("LFD") and shipped to third party processing facilities in July 2008. The average realized price per pound of nickel for the full year and fourth quarter was US$8.56 and US$3.02 respectively, while the average realized price per pound for copper was US$2.53 and US$0.66 respectively. Late in 2008, FNX suspended all nickel mining from the Levack Complex and reduced Sudbury and head office staff and hourly employees by approximately 300 people. The nickel contact deposits do not contain any payable precious metals, therefore the suspension of nickel production does not affect FNX's precious metal production and its agreement with Gold Wheaton. The 2009 production plan calls for shipping a total of 679,000 tons of copper-precious metal ore from the McCreedy West PM and 700 deposits, the Levack Rob's Deposit and the Podolsky 2000 Deposit. Details of the 2009 production forecast (see News Release dated February 6, 2009) include the production of 372,000 tons of copper-precious metal ore from the Podolsky Mine and 280,000 tons of McCreedy West copper-precious metal ore and 27,000 tons of Rob's Deposit nickel-copper ore from the Levack Complex. The payable metal forecast for 2009 includes 3.7 million pounds of nickel, 35.2 million pounds of copper and 58,000 ounces of platinum, palladium and gold. All operations will be closely monitored during 2009 to ensure the continued economic viability of the Company. The Sudbury Operations will be re-evaluated regularly during the year to further reduce or re-start suspended operations in response to future metal price trends. Sudbury operations had a 0.48 Lost Time Injury Frequency Rate in 2008, compared to 0.60 in 2007, and improved its year over year Total Medical Injury Frequency Rate by 12% to 8.00. As at December 31, 2008, FNX mining operations had 405 direct employees, compared to 692 as at December 31, 2007. At the end of 2008, the Company reviewed the carrying value of its assets using current assumptions and commodity prices. As a result of this review, the carrying value of several operations and properties were reduced or written down to zero. Table 2 shows a summary of the asset impairments and the related tax adjustment, while Table 3 provides year end carrying values for principal assets. It should be noted that in October of 2005, FNX issued 20.5 million common shares to purchase from Dynatec Corporation, for approximately $400 million, a 25% interest in the PP&E of the former Sudbury Joint Venture and 50% interest in the PP&E of certain other mineral exploration properties. FNX's respective 75% and 50% interest at that time had a carrying value of approximately $125 million. This transaction increased the carrying value of the Company's PP&E to approximately $525 million and its interest in the mining and mineral properties to 100%. ----------------------------------------------------------------------------
Table 2 - Summary of Non-Cash And Unusual Items Q4 2008 2008
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$ millions $ millions
Investment in SRA write down - 10.0
Mining property impairments 373.3 373.3
Mineral exploration properties impairment 107.3 107.3
DMC equipment impairment 6.8 6.8
Intangible assets impairment - 4.1
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Sub-total impairments and write downs 487.4 501.5
Loss on mark-to-market of GLW note receivable $14.9 $14.9
Bad debt expense - 4.6
Gain on disposal of investments - (8.5)
Gain on GLW shares acquired on note receivable (2.7) (2.7)
Tax adjustments (134.6) (139.4)
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Net Total Non-Cash and Unusual Adjustments $365.0 $370.4
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Table 3 - Net Carrying Values as at December 31, 2008 Net carrying
value
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$ millions
Levack Complex 30.0
Podolsky 15.8
Levack Footwall Deposit 362.3
Other Exploration Properties -
Corporate 1.6
DMC 25.4
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Total property, plant and equipment 435.1
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Development work during 2008 occurred on all three Sudbury operations. At the McCreedy West Mine, development work supported both nickel and copper-precious metal production plans, particularly the deepening of the main access ramp to the PM Deposit below the 1900 Level. The main access ramp will continue to be deepened in 2009 to access the deeper portions of the PM Deposit. Development work at the Levack Mine in 2008 included access to both the LFD through the 2650 Level ramp and development of the nickel deposits. The latter development work was curtailed in the second half of 2008 due to declining nickel prices. Subsequent to year end, the LFD was approved as development for commercial production by the Company's Board of Directors and the accumulated net costs will be transferred from mineral exploration properties to property under development. At the Podolsky Mine, development of the 2000 Deposit from both the 1750 and 2450 Levels continued throughout the year, while the new ramp from surface to the North Deposit was halted after the first quarter of 2008. The actual total capex in 2008 was $167.7 million, a reduction of $69.7 million from the original capex budget of $237.4 million. The 2008 capex reductions resulted from decisions taken in response to the worsening economic conditions during 2008 in order to preserve cash. The planned capex budget for 2009 is $64.2 million, including $38.9 million for LFD development, $11.3 million to complete the initial development at the Podolsky Mine and $10.2 million primarily for production support exploration. Exploration FNX's 2008 exploration expenditures were $6.9 million at the LFD and Rob's Deposit, $4.6 million for contact and footwall targets at the Levack Mine, $4.0 million at the Victoria Property, $2.4 million at the McCreedy West Mine and $0.7 million on the Falconbridge Footwall Project. (During the year, 61) (surface holes were drilled for a total of) 146,578 ft and 230 underground holes were completed totaling 161,712 ft. Exploration highlights in 2008 included disclosure of the initial indicated resource estimate from a 250 ft vertical slice of the minimum 2,500 ft long LFD. This limited portion of the LFD contained indicated resources of 754,000 tons averaging 8.1% Cu, 1.3% Ni and 7.8 g/t platinum, palladium and gold. This resource estimate was revised at the end of 2008 to contain 687,000 tons averaging 8.8% Cu, 1.4% Ni and 7.8 g/t platinum, palladium and gold, resulting in lower tons, higher grades and virtually the same amount of contained metal. A 15,027 ton bulk sample was also removed from the LFD via the 4000 Level crosscut at Xstrata Nickel's neighbouring Craig Mine. Approximately 10,683 tons from this larger bulk sample graded 8.3% Cu, 1.4% Ni and 8.8 g/t precious metals and were shipped for processing at third party facilities during 2008. FNX significantly changed its mineral resource profile in 2009 as a result of the rapid decline in base metal prices in the third and fourth quarters and a subsequent re-evaluation of its mineral resources that were added to the FNX mineral resource inventory in 2007. Using current long term commodity prices, the Company decreased its measured and indicated resources by almost half to 20.61 million tons and its inferred resources by three quarters to 6.61 million tons. An exploration program in the fall of 2008 at the Podolsky Property to test a Sudbury Breccia unit east of the historic Whistle Pit encountered unanticipated footwall rocks similar to the host units at the nearby 2000 Deposit. This new geologic environment will be further drill tested in the future. The $10.2 million 2009 exploration program is focused on detailed drilling of Rob's and LFD ($5.4 million) and a surface drilling program to follow-up on the new footwall environment discovered in 2008 on the Podolsky Mine property ($2.4 million). DMC Mining Services DMC Mining Services generated revenues of $133.1 million in 2008, a cash operating income of $4.1 million and a net loss of $18.1 million. With the severe downturn in metal prices in 2008, DMC wrote off $4.2 million from a client bankruptcy and several mining contracts were ended, cancelled or delayed. In September of 2008, FNX wrote off the last $4.1 million amortization of intangibles assets from the 2007 purchase of DMC. During the year, DMC spent $10.0 million on capital expenditures, mainly on underground trackless equipment for new projects. Depreciation was $8.7 million, resulting in a net operating cash flow of $6.1 million. DMC completed 2008 with an improved Lost Time injury Frequency Rate of 0.39 and a Total Medical Injury Frequency Rate of 2.32, compared to 0.69 and 4.91 respectively for 2007. As a result of contract completions at the end of 2008 and the anticipated reduction in mining contracts for 2009, DMC reduced its employee levels during 2008 from 1,049 to approximately 270 employees at the beginning of 2009. The challenge in 2009 for DMC will be to use its excellent safety record and contracting expertise to secure new mining contracts in the US and Canada to ensure at least a breakeven cash flow performance. Investments The Company's portfolio of shares had a mark-to-market value of $145.8 million on December 31, 2008, including $50 million in Gold Wheaton common shares due in mid-2010 from Gold Wheaton. The portfolio's predominate holding is 360 million common shares of Gold Wheaton Gold, which had a market value of $91.8 million as at December 31, 2008. FNX accounts for its investment in Gold Wheaton using the equity method and, therefore, is required to include in earnings FNX's 38% share of Gold Wheaton's earnings or loss for the period and the Company's investment therein is adjusted by an equivalent amount. For the quarter and year ended December 31, 2008, FNX's 38% share of the loss of its equity investee, Gold Wheaton, was $0.6 million and $1.6 million, respectively. Subsequent to year end, Gold Wheaton issued 460 million common shares. FNX did not participate in this equity issuance and FNX's ownership interest in Gold Wheaton declined to 26% and would lead to an equity dilution loss of approximately $23 million in the first quarter of 2009. Excluding the Gold Wheaton shares, the remaining investments were measured at a fair value of $4.0 million resulting in a revaluation loss of $17.3 million, net of tax, recognized in Accumulated Other Comprehensive Income. Share Capital There were 84,876,776 common shares outstanding as at March 27, 2009 and 2,022,667 stock options. In addition, there were 54,650 deferred share units in effect for a total fully diluted share count of 86,954,093. |
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