FNX Reports Q3 2007 Operating and Financial Results
FNX Mining Company Inc. (TSX: FNX) (“FNX” or “Company”) continued to increase production at its Sudbury, Ontario mining operations and reports record quarterly operating and production results and strong quarterly financial results. The total tons of ore, pounds of nickel, pounds of copper and ounces of total precious metals produced and sold were higher during the third quarter of 2007 than in any previous quarter. The Company’s financial results during the third quarter continued to be strong due to the Company’s continuing low cash operating costs and historically robust commodity prices. However, the financial results were adversely impacted, compared to previous quarters, by a very strong Canadian dollar and by significantly lower quarterly realized nickel prices.
During the first nine months of the year, the Company produced more tons of ore, pounds of nickel and copper and ounces of total precious metals and reported higher net earnings, earnings per share and cash flow from operating activities than in any previous comparable period in the Company’s history.
———————————————————————– —- UNAUDITED HIGHLIGHTS Three Months Ended Nine Months Ended ——————— September 30 September 30 2007 2006 2007 2006 ————————————————————————— Total Revenue (C$000) 56,767 52,964 216,427 119,743 Cash Operating Costs (C$000) 26,015 16,520 74,874 48,438 Cash Operating Margin (C$000) 30,752 36,444 141,553 71,305 Revenue per Ton Sold (C$) 229 320 315 257 Cash Operating Costs Per Ton Sold (C$) 105 100 109 104 Cash Operating Margin Per Ton Sold (C$) 124 220 206 153 Cash Cost per lb of Ni Sold (US$)(1) $2.39 (0.07) $2.78 0.51 Net Earnings (C$000) 12,485 20,476 77,667 49,013 Net Earnings per Share (C$) 0.15 0.24 0.93 0.59 EBITDA (C$000) 26,005 34,439 137,601 63,711 Cash Flow from Operating Activities (C$000) 27,586 27,316 116,365 49,626 Total Ore Sold (tons) 248,272 165,306 687,815 466,784 Nickel Ore Sold (tons) 156,232 75,248 449,057 233,040 Grade of Nickel Ore Sold (%Ni) 1.3 1.8 1.3 1.6 Payable Metal Sold – Nickel (000 lbs) 3,198 2,280 8,931 6,139 Copper Ore Sold (tons)(2) 92,040 90,058 238,758 233,744 Grade of Copper Ore Sold (%Cu)(2) 1.4 1.4 1.4 1.6 Payable Metal Sold – Copper (000 lbs) 2,929 2,640 7,617 7,309 Payable Metal Sold – Total Precious Metals (oz) 8,073 7,934 19,317 22,225 Realized Nickel Prices (US$/lb) 11.65 14.20 16.98 10.82 Realized Copper Prices (US$/lb) 3.57 3.60 3.36 3.29 C$/US$ 1.04 1.12 1.11 1.13 ————————————————————————— (1) Cash cost per pound of nickel sold is net of by-product credits. (2) The 2006 average copper grade and increase in copper ore tons, copper and precious metals reflects commercial production from the McCreedy West lower grade PM Deposit since May 2005 combined with the higher grade 700 Deposit.
John Lill, President and CEO of FNX noted that, “The third quarter production results were the best in the Company’s history and we continued to maintain low cash operating costs, however, our overall financial results were impacted by significantly lower quarterly nickel prices and a very strong Canadian dollar. We continue to be on track to meet or somewhat exceed our 2007 production targets”.
Mr. Lill added, “In August our initial drifting into the Podolsky 2000 Deposit intersected a massive sulphide zone containing high-grade Cu-Ni-Pt-Pd-Au mineralization. Detailed definition drilling completed to date has identified a high-grade zone of mineralization within the lower portion of the overall previously announced Podolsky Mine global resources. An initial measured resource of 102,000 tons grading 22.69% Cu, 1.43% Ni, 0.41 ounce per ton Pt-Pd-Au (“opt TPM”) was established and converted to a probable mineral reserve of 92,000 tons grading 18.54% Cu, 1.23% Ni, and 0.34 opt TPM. This high-grade measured resource is included within a larger measured resource of 401,000 tons grading 7.08% Cu, 0.69% Ni, and 0.17 opt TPM, which has also been converted to a probable mineral reserve of 324,000 tons grading 7.94% Cu, 0.67% Ni, and 0.17 opt TPM. Detailed drilling is continuing to convert additional Podolsky resources into reserves and to locate additional high-grade zones. The Company initiated shipment of pre-production Podolsky ore ahead of schedule and we expect to ship the forecasted 20,000 tons of pre-production ore by the end of the year. We also expect to achieve commercial production at Podolsky sometime during the first half of 2008.”
The Company had net earnings of $12.5 million ($0.15 per share) for the third quarter from its Sudbury operations on revenues of $56.8 million. This compares to net earnings of $20.5 million ($0.24 per share) in the third quarter of 2006 from revenues of $53.0 million. Cash operating margin this quarter was $124 per ton from cash operating revenue of $229 per ton and cash operating cost of $105 per ton, compared to a cash operating margin of $220 per ton from cash operating revenue of $320 per ton less cash operating cost of $100 per ton in the same period of 2006.
Year to date (“YTD”) net earnings for 2007 were $77.7 million ($0.93 per share) from revenues of $216.4 million, compared to nine month 2006 net earnings of $49.0 million ($0.59 per share) on revenues of $119.7 million. The YTD cash operating margin for 2007 was $206 per ton from cash operating revenue of $315 per ton and a cash operating cost of $109 per ton, compared to $153, $257, and $104 per ton, respectively, for the first nine months of 2006.
The EBITDA and cash flow for the third quarter were $26.0 million and $27.6 million ($0.33 per share) respectively, compared to $34.4 million and $27.3 million ($0.33 per share), respectively, in the same quarter in 2006. The YTD 2007 EBITDA and cash flow were $137.6 million and $116.4 million ($1.39 per share), respectively, while the first nine months 2006 EBITDA and cash flow were $63.7 million and $49.6 million ($0.59 per share) respectively.
At the end of the third quarter, the Company’s cash position was $108.2 million and the current market value of liquid securities was $36.6 million, compared to $115.1 million and $50.5 million, respectively, at the end of December 2006. The change in value of liquid securities was primarily due to the conversion of the Company’s Dynatec Corporation shares into FNX shares and the subsequent cancellation of those shares. Capital expenditures in the third quarter were $55.4 million and were $149.7 million YTD 2007, compared to $32.1 million and $68.6 million, respectively, for the same periods in 2006. Net changes in the cash balance as a result of operating, financing and investing activities were a net outflow of $1.7 million for the third quarter and a net outflow of $6.9 million YTD 2007, compared to net outflows of $4.8 million and $19.6 million, respectively, for 2006. Working capital at the end of the quarter was $116.7 million compared to $131.6 million at December 31, 2006. The Company remains debt free. During the third quarter of 2007 financial markets and corporate credit were adversely affected by defaults in the asset backed commercial paper market. FNX was not affected by this situation as the Company does not hold asset backed commercial paper in its portfolio of investments. FNX has historically and will continue in the future to invest all surplus cash resources in conservation, term deposits with major Canadian chartered banks.
The average realized price per pound of nickel and copper during the quarter was US$11.65 and US$3.57, respectively, compared to US$14.20 and US$3.60, respectively, for the third quarter of 2006. The average realized price per pound for nickel and copper for 2007 YTD was US$16.98 and US$3.36, respectively, compared to US$10.82 and US$3.29, respectively, for the first nine months of 2006. The cash cost to produce a pound of nickel, net of by-product credits, for the third quarter and YTD 2007 was US$2.39 and US$2.78, respectively, compared to US$(0.07) and US$0.51, respectively, for the same periods in 2006. This increase in the cash cost to produce a pound of nickel for 2007, net of by-product credits, is a result of increased nickel production from the Levack Mine ramp up and lower proportion of by-product revenues to operating costs with both the McCreedy West and Levack mines now in operation as the Levack Complex.
Operations
FNX employees in the Sudbury operations achieved an injury free third quarter and YTD at our Sudbury operations. The Safety Health and Environmental Management System remain under development and implementation is scheduled to begin in the fourth quarter of this year. There was one minor reportable environmental incident during the quarter at the Podolsky site, which was immediately remediated.
FNX sold 248,272 tons of ore during this quarter (an increase of 50% compared to Q3 2006), composed of 156,232 tons of nickel ore and 92,040 tons of copper-precious metal ore, compared to 165,306 tons sold in Q3 2006 composed of 75,248 tons of nickel ore and 90,058 tons of copper-precious metals ore. For 2007 YTD, 687,815 tons of ore were sold (an increase of 47% from the first nine months of 2006) composed of 449,057 tons of nickel ore and 238,758 tons of copper-precious metal ore. This compares to 466,784 total tons sold in the first nine months of 2006 composed of 233,040 tons of nickel ore and 233,744 tons of copper-precious metal ore. Payable nickel and copper produced during the quarter were 3.20 million and 2.93 million pounds, respectively, compared to 2.28 million and 2.64 million pounds, respectively, in the comparable quarter of 2006. YTD payable pounds of nickel and copper for 2007 were 8.93 million and 7.62 million, respectively, compared to 6.14 million and 7.31 million, respectively, during the first nine months of 2006. Precious metal production this quarter was 8,073 ounces, compared, to 7,934 ounces in Q3 2006. YTD 2007 precious metal production was 19,317 ounces, compared to 22,225 ounces for the same period in 2006. The decline in total precious metal production resulted from a decision to mine less tons from the PM Deposit to allow for mining of additional higher margin nickel ores. Overall nickel grades were lower year over year as anticipated (1.3% vs. 1.6%) due to mine sequencing related to startup of production from the Levack mine. During the third quarter there was a one month planned third party mill shutdown, which interrupted nickel delivery, although mining and stockpiling of the copper-rich PM ore continued uninterrupted. The Levack Complex is on track to meet or exceed the 2007 budget for ore tons sold and payable nickel metal.
Record capital expenditures of $55.4 million during the quarter supported the ramp-up of the Levack mine to the planned daily rate of 1,500 tons and development at the Podolsky Mine. This brings capital expenditures YTD 2007 to a total of $149.7 million.
Dynatec Mining Services
On October 15, 2007, FNX acquired from Sherritt International Corporation the Dynatec Mining Services Business (“DMSB”) comprised of the Canadian Mining Services Division and Dynatec Mining Corporation, which provides mining services in the United States. The purchase price was $53 million, paid in cash, including an estimated $19.9 million in working capital and is subject to final working capital and other adjustments. Approximately 400 DMSB employees will join the FNX Sudbury operations, while the remaining 950 employees will focus on the mining services business in the US and Canada.
Development
Xstrata Nickel continued to drive the 4000 Level crosscut from the Craig Mine toward the Levack Footwall Deposit (“LFD”), advancing 324 ft during this quarter for a total advance of 1,215 ft. One drill drift and the balance of the crosscut into the LFD will be completed in the fourth quarter of 2007. One underground drill was mobilized to the 4000 Level crosscut heading after quarter end to begin detailed drilling of portions of the LFD in order to guide future crosscut development and support resource modeling. FNX contractors completed 600 ft of advance on the 2650 Level decline ramp from the Levack Mine targeting the upper LFD and Rob’s Footwall Deposit (“Rob’s”). The access ramp is 58% complete and has approximately 932 ft to advance to intersect the upper LFD/Rob’s Deposit
At Podolsky during this quarter, the 2450 Level crosscut was driven through approximately 82 ft of high grade mineralization in the 2000 Deposit. Two underground drills were deployed and began delineating the high grade mineralization. FNX has shipped 1,405 tons of Podolsky development ore from the 2450 Level, with an estimated net realizable value of $1.2 million, to CVRD Inco and had an additional 1,810 tons in surface inventory at a fair value of $2.5 million. On the 1750 Level, the reaming of an 8 ft diameter vent raise was finished in the third quarter, half of the ground support was also completed and the related escapeway is scheduled for completion at the end of November.
Exploration
During the third quarter, a total of 78,787 ft of drilling was completed in 68 surface and underground holes in the Sudbury area. This brings the YTD total drilling to 296,864 ft in 229 holes. Quarterly exploration expenditures were $4.6 million bringing the YTD total exploration expenditures to $13.3 million.
Exploration drilling during this quarter focused on a search for nickel-rich contact deposits at McCreedy West Mine, down-dip and up-dip of the Inter Main Deposit and down-dip of the East Main Deposit. The latter was drilled from the 2000 Level of Xstrata Nickel’s Craig Mine. The bulk of the drilling in the third quarter was concentrated on the LFD, the Main Depths Deposit and areas west of the Levack #2 Shaft for contact deposits and on potential expansion of the copper-precious metal Keel Zone footwall environment, located up-dip from the LFD.
Two underground drills, located on the 4300 and 3000 Levels of the Craig Mine, continued to test the deeper extents of the LFD and the upper LFD/Rob’s, respectively. A third underground drill rig was testing the upper LFD/Rob’s from the Levack 2650 Level. Two surface drills were also drilling for potential new footwall copper-nickel-precious metal deposits elsewhere on the Levack property.
A 20,000 ft surface diamond drilling program was initiated at the end of this quarter at the Podolsky Nickel Ramp Deposit. This program is designed to support the $18 million (see September 4, 2007 news release) advanced exploration ramp development for both the North and Nickel Ramp Deposits. The Nickel Ramp Deposit is a nickel-rich contact deposit with current inferred resources of 6.68 million tons grading 0.75% nickel and 0.21% copper located below the historically mined Whistle Open Pit. The drilling objectives are to further validate historic intersections, upgrade the current resource classifications and provide samples for metallurgical and mineralogical testing. The North and Nickel Ramp decline was started at the beginning of the fourth quarter and, to date, has advanced a couple of hundred feet.
Investments
At the end of the third quarter, the Company held 13.3 million common shares of Lake Shore Gold Corp., 4.8 million common shares of International Nickel Ventures Corporation, 6.5 million common shares of Fieldex Exploration Inc., 6.9 million common shares of Superior Diamonds Inc., 1.1 million common shares of Visible Gold Mines Inc. and 3.2 million warrants of International Nickel Ventures Corporation. Collectively, the fair value of this investment portfolio as at September 30, 2007 was $36.5 million.
As a result of the completion on June 14, 2007 of the Plan of Arrangement between Sherritt International Corporation and Dynatec Corporation, FNX received 1.466 million shares of Sherritt based on the 7.717 million Dynatec shareholding previously held by the Company. In July 2007, the Company disposed of 1.466 million Sherritt shares at $17.40 per share for net proceeds of $25.5 million and net realized gain for Q3 of $4.0 million.
Provisions for Income and Resource Tax
The third quarter of 2007 included a provision for income taxes of $6.2 million, compared to $10.5 million in the third quarter of 2006. While FNX’s significant capital expenditures program in 2007 continues to add to the total amount of tax deductions available to the Company, Canadian income tax rules restrict the amount of such deductions permitted in any particular taxation year. Accordingly, the Company has included in the $41.4 million provision for taxes for the nine months ended September 30, 2007, a $17.5 million accrual for the estimated amount of current income taxes for 2007 to date. The Company’s income tax rate should continue to be approximately 38% in 2007. In June 2006, the Government of Canada enacted legislation reducing corporate tax rates over a period of several years. During the second quarter of 2006, FNX recorded a future income tax recovery of $13.8 million to reflect the positive impact of these tax rate reductions on transactions in prior years for which future taxes will be paid.
Foreign Exchange
Earnings were negatively impacted by the significant appreciation of the Canadian dollar relative to the US dollar during the third quarter of 2007. The Company’s account receivable from metal sales to CVRD Inco is denominated in US dollars and, with the decline in the closing foreign exchange rate from $1.07/US$ at June 30, 2007 to $1.00/US$ at September 30, 2007, resulted in the $6.0 million foreign exchange loss reported in other expenses. All other things being equal, revenues would have been approximately $7 million higher in the third quarter of 2007 and approximately $11 million higher for the YTD had the foreign exchange rate remained at $1.17/US$ for the year, rather than declining to $1.00/US$ .
A complete copy of the full financial statements and related notes is available on the Company’s web site at www.fnxmining.com and on SEDAR.
Quarterly Information
The unaudited balance sheet and statements of operations, comprehensive income, retained earnings and cash flow are appended to this news release. The full interim financial statements with accompanying notes and MD&A are filed on SEDAR and on our website at www.fnxmining.com .
Non-GAAP Performance Measures
This news release contains certain non-GAAP measures, including cash operating margin, cash cost per pound sold, EBITDA, etc. Please see Q3 2007′s MD&A on SEDAR and on the Company’s website for a description of non-GAAP performance measures.
Forward-Looking Statement
Certain information included in this press release, including information relating to future financial or operating performance and other statements that express management’s expectations or estimates of future performance constitute “forward-looking statements.” Such forward-looking statements include, without limitation, (i) estimates of future capital expenditures; (ii) estimates regarding timing of future development and production; and (iii) estimates of future costs towards profitable commercial operations. Where the Company expresses or implies an expectation or belief as to future events or results, such expectation or belief is expressed in good faith and believed to have a reasonable basis. However, forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially from future results expressed, projected or implied by such forward-looking statements. Such risks include, but are not limited to, interpretation and implications of drilling and geophysical results; estimates regarding timing of future capital expenditures and costs towards profitable commercial operations. Other factors that could cause actual results, developments or events to differ materially from those anticipated include, among others, increases/decreases in production; volatility in metals prices and demand; currency fluctuations; cash operating margins; cash operating risks inherent in mining or development activities, and legislative factors relating to prices, taxes, royalties, land use, title and permits, importing and exporting of minerals and environmental protection. Accordingly, undue reliance should not be placed on forward-looking statements. These forward-looking statements are made as at the date hereof and the Company odes not undertake any obligations to update publicly or revise any such forward-looking statements or any forward-looking statements contained in any other documents, whether as a result of new information, future events or otherwise, except as may be required under applicable securities law. For a more detailed discussion of such risks and other factors, see the Company’s latest filings with Canadian securities regulators.
Conference Call
FNX will host a 2007 Third Quarter Conference Call on Thursday, November 1, 2007 at 10:00 a.m. EST.
Conference Call numbers: Live in North America: Toll-Free Access: 1-866-696-5897 or 416-641-6105 Ask for “FNX Mining Conference Call” Replay Access information: Toll-Free Access: 1-800-408-3053 or 416-695-5800 Passcode: 3239008# Available until November 30, 2007 at Midnight EST.
Slides for the conference call may be accessed on the Company’s website www.fnxmining.com. There will be no transcript available of the conference call.
As at Consolidated Balance Sheets September 30 December 31 (in thousands of Canadian dollars) 2007 2006 ——————————————————————- ——————————————————————- (Unaudited) $ $ Assets Current Cash and cash equivalents 108,199 115,117 Accounts receivable 61,295 52,082 In-process inventory 3,151 960 Prepaid and other assets 1,465 259 ——————————————————————- 174,110 168,418 Investments 36,552 30,380 Property, plant and equipment 747,711 625,683 Reclamation and other deposits 6,099 6,099 ——————————————————————- 964,472 830,580 ——————————————————————- ——————————————————————- Liabilities Current Accounts payable and accrued liabilities 49,937 29,580 Deferred payment obligation 7,432 7,244 ——————————————————————- 57,369 36,824 ——————————————————————- Mine closure and site restoration 2,762 2,631 Future income and resource taxes 190,422 165,136 ——————————————————————- 193,184 167,767 ——————————————————————- 250,553 204,591 ——————————————————————- Shareholders’ equity Share capital 559,136 560,266 Contributed surplus 11,555 7,710 Retained earnings 135,680 58,013 Accumulated other comprehensive income 7,548 – ——————————————————————- 713,919 625,989 ——————————————————————- 964,472 830,580 ——————————————————————- ——————————————————————- Consolidated Statements of Operations (in thousands of Canadian dollars Three months ended Nine months ended except earnings per share) September 30 September 30 (Unaudited) 2007 2006 2007 2006 ————————————————————————— ————————————————————————— $ $ $ $ Mine operating revenues 56,767 52,964 216,427 119,743 ————————————————————————— Mine operating expenses Mining, excluding depreciation and amortization 26,015 16,520 74,874 48,438 Depreciation and amortization 7,080 3,338 17,910 9,365 ————————————————————————— 33,095 19,858 92,784 57,803 ————————————————————————— 23,672 33,106 123,643 61,940 ————————————————————————— Expenses Administration 1,958 1,850 6,428 7,125 Capital taxes 594 798 1,316 1,373 Depreciation 138 53 345 104 Stock-based compensation 777 589 2,355 1,721 Other expenses (income) 1,550 (1,165) (5,827) (3,476) ————————————————————————— 5,017 2,125 4,617 6,847 ————————————————————————— Earnings before taxes 18,655 30,981 119,026 55,093 Income and resource taxes (6,170) (10,505) (41,359) (6,080) ————————————————————————— Net earnings for the period 12,485 20,476 77,667 49,013 ————————————————————————— Basic earnings per share 0.15 0.24 0.93 0.59 ————————————————————————— ————————————————————————— Diluted earnings per share 0.15 0.24 0.91 0.58 ————————————————————————— ————————————————————————— Consolidated Statement of Comprehensive Income (in thousands of Canadian dollars except Three months Nine months earnings per share) ended ended (unaudited) September 30 September 30 2007 2007 ————————————————————————— ————————————————————————— $ $ Net earnings for the period 12,485 77,667 Other comprehensive income, net of tax Unrealized gains (losses) on available for sale investments (2,289) 3,745 ————————————————————————— Comprehensive income 10,196 81,412 ————————————————————————— ————————————————————————— Consolidated Statements of Retained Earnings Three months Nine months (Deficit) ended ended (in thousands of Canadian dollars) September 30 September 30 (Unaudited) 2007 2006 2007 2006 ————————————————————————— ————————————————————————— $ $ $ $ Retained earnings (deficit) – beginning of period 123,195 17,870 58,013 (10,667) Net earnings for the period 12,485 20,476 77,667 49,013 ————————————————————————— Retained earnings – end of period 135,680 38,346 135,680 38,346 ————————————————————————— ————————————————————————— Three months Nine months Consolidated Statements of Cash Flow ended ended (in thousands of Canadian dollars) September 30 September 30 (Unaudited) 2007 2006 2007 2006 ————————————————————————— ————————————————————————— $ $ $ $ Operating activities Net earnings for the period 12,485 20,476 77,667 49,013 Non-cash items Mine depreciation and amortization 7,080 3,338 17,910 9,365 Depreciation 138 53 345 104 Stock-based compensation 777 589 2,355 1,721 Future income and resource taxes 7,046 7,761 23,822 3,336 Interest on deferred payment obligation 63 129 188 383 Gain on disposal of shares (3,960) – (15,480) – Gain on sale of mineral exploration properties – – 1,077 – Write-down of mineral exploration properties – – (2,354) – Change in value of investments held for trading 788 – (146) – Other (136) 37 (306) 99 ————————————————————————— 24,281 32,383 105,078 64,021 Net change in non-cash working capital 3,305 (5,067) 11,287 (14,395) ————————————————————————— 27,586 27,316 116,365 49,626 ————————————————————————— Financing activities Common shares issued 1,027 53 4,049 808 ————————————————————————— Investing activities Investments – – (2,821) (996) Proceeds from disposal of investments 25,512 – 25,512 – Property, plant and equipment (55,443) (32,086) (149,689) (68,561) Reclamation deposits – (63) – (473) Other (334) – (334) – ————————————————————————— (30,265) (32,149) (127,332) (70,030) ————————————————————————— Change in cash and cash equivalents for the period (1,652) (4,780) (6,918) (19,596) Cash and cash equivalents – beginning of period 109,851 137,644 115,117 152,460 ————————————————————————— Cash and cash equivalents – end of period 108,199 132,864 108,199 132,864 ————————————————————————— —————————————————————————
Contacts: FNX Mining Company Inc. John Lill President and Chief Executive Officer (416) 628-5929 FNX Mining Company Inc. Ronald P. Gagel Senior Vice President and Chief Financial Officer (416) 628-5929 FNX Mining Company Inc. David Constable Vice President Investor Relations and Corporate Secretary (416) 628-5929 Email: info@fnxmining.com Website: www.fnxmining.com
SOURCE: FNX Mining Company Inc.