Mirabela Nickel Limited - Quarterly activity report for the period ended 30 September 2013

PERTH, Australia, Oct. 31, 2013 /CNW/ - Mirabela Nickel Limited (Mirabela or the Company) (ASX: MBN) announces its unaudited third quarter results for the period ended 30 September 2013.

HIGHLIGHTS

  • Production for the quarter of 3,962 tonnes of nickel in concentrate (Q2 2013: 4,080 tonnes).
  • Sales for the quarter of 2,786 tonnes of nickel in concentrate (Q2 2013: 4,168 tonnes).
  • Unit cash costs of US$6.19/lb for the quarter (Q2 2013: US$5.84/lb).
  • Year to date production of 12,193 tonnes of nickel in concentrate at an average unit cash cost of US$5.71/lb.
  • Average mined nickel grade of 0.41% for the quarter (Q2 2013: 0.50%) and total mining material movement of 9.2 million tonnes (Q2 2013: 10.4 million tonnes).
  • Processing plant throughput of 1.7 million tonnes (Q2 2013: 1.7 million tonnes).
  • Average processing plant nickel recovery of 53% (Q2 2013: 51%) and average nickel feed grade of 0.43% (Q2 2013: 0.47%) for the quarter.
  • Cash on hand and on deposit of US$70 million at quarter end (Q2 2013: US$108 million).

OPERATIONS

Mirabela's third quarter was challenging with the Brazil-wide nitrate supply disruption during July 2013 severely restricting mining operations during July and resulting in the mine being out of sequence for the duration of the quarter. Since the end of the quarter, the Company's operations have also been adversely impacted by the destabilising effect of the announcement by one of Mirabela's two customers, Votorantim Metais Niquel S.A. (Votorantim), relating to the planned closure of its smelting facilities, and subsequent events.

The Company also notes the ongoing challenging nickel market conditions with the LME nickel prices continuing to trade below the Company's cashflow break-even position after overheads, financing and capital costs.  In addition, there has been a recent change in market analyst opinions regarding the likelihood of a recovery of nickel prices in early 2014 on the back of an expected ban of Indonesian nickel exports to China, with the market analysts now considering the possibility of continued weak nickel prices for 2014.

Due to these factors, the Company is currently assessing operating options to minimise short-term and mid-term cash outflows. The Company does not expect to meet the low end of its production guidance (17,000 tonnes) and is not in a position to provide further guidance due to the uncertainty of its current situation.

In addition to the items discussed above, the Company notes that it has identified other impairment indicators and is in the process of performing an impairment test on the recoverability of its assets that could result in a non-cash write down of the carrying value of the assets.  Further detail on the impairment assessment will be provided once the analysis has been completed.

Safety

Mirabela's strong safety performance continued with no lost time injuries during the quarter. The Company's twelve month moving average Lost Time Injury Frequency Rate closed the quarter at 0.57. Mirabela continues to target further improvements to this strong safety record through ongoing safety training and safety improvement programmes, including critical risk inspections on thirteen key safety areas within the business.

Production Statistics

           
    Three months
ended
30 Sep 2013
Three months
ended
30 Jun 2013
% change
favourable/
(unfavourable)
Year to Date
2013
Mining          
Total Material Mined Tonnes 9,221,753 10,387,040 (11) 28,107,075
Ore Mined Tonnes 1,720,711 1,661,192 4 4,546,464
Nickel Grade % 0.41 0.50 (17) 0.46
           
Processing          
Total Ore Processed Tonnes 1,753,329 1,695,559 2 5,010,851
Nickel Grade % 0.43 0.47 (8) 0.46
Copper Grade % 0.09 0.10 (9) 0.10
Cobalt Grade % 0.01 0.02 (4) 0.02
Nickel Recovery % 53 51 3 53
Copper Recovery % 71 65 9 69
Cobalt Recovery % 27 27 2 28
           
Production          
Nickel in Concentrate DMT 3,962 4,080 (3) 12,193
Copper in Concentrate DMT 1,137 1,125 1 3,431
Cobalt in Concentrate DMT 71 71 - 214
           
Sales          
Nickel in Concentrate(1) DMT 2,786 4,168 (33) 10,860
Copper in Concentrate(1) DMT 805 1,143 (30) 3,067
Cobalt in Concentrate(1) DMT 51 71 (28) 192

(1)     Includes sales volume adjustments upon finalisation of assays.

Mining

Total material movement for the quarter was 9.2 million tonnes of material moved for 1.7 million tonnes of ore. Material movement was below expectations for the quarter mainly due to the nitrate supply disruption during July. The restricted nitrate resulted in limited mining for the month with the preferential mining of ore ahead of waste production. Extra contract loading capacity has been organised to increase the waste mining with a view to returning to the planned mine sequence.

Material movement was also adversely affected by poor mobile equipment availability, particularly the Company's front end loaders which are maintained by the Company's OEM endorsed service provider. The Company continues to explore alternatives to the current maintenance arrangements. U&M, Mirabela's mining service provider, also had issues with its loading fleet availability during the quarter.

Mine grades of 0.41% were lower than the previous quarter driven by the mine being out of sequence for the duration of the quarter and poor mined nickel grades.  The improvement in ore quality expected during the third quarter with mining resuming in the Southern end of the pit has not been realised with disappointing nickel grades mined for the quarter.  However, the improved MgO levels positively affected the plant performance during the quarter.  The average mined nickel grade for the year (0.46%) is approximately 10% below expectations. The Company's grade control RC drilling programme, which commenced during September, is expected to improve mining dilution. The Company is currently completing its annual independent review of Reserves and Resources.

Processing

During the quarter 1.7 million tonnes of ore was milled, at an average head grade of 0.43% nickel and achieving an average recovery of 53%. Ore quality limitations were the most significant constraint on nickel production levels. Recovery performance remained in line with expectations with recovery improving from the prior quarter due to lower MgO levels in the mine feed.

The marginally lower than target processing plant throughput was primarily driven by power supply disruption in Northeast Brazil, ongoing remediation work on the primary crusher and unplanned maintenance work on the SAG mill.  Further remediation work on the Primary Crusher is scheduled for January 2014 over a twelve day period.  This work will include the redressing of concrete, removal and replacement of the inner chamber wear plates, removal and redressing of old welding seams to remove stress concentration points and the replacement of the eccentric bush housing which has developed a crack.

During the quarter Mirabela produced 3,962 tonnes of contained nickel in concentrate, 1,137 tonnes of contained copper in concentrate, and 71 tonnes of contained cobalt in concentrate. A total of 2,786 tonnes of nickel in concentrate was sold to Votorantim with no shipments to Norilsk Nickel during the quarter.

The planned Norilsk Nickel shipment was delayed due to new storage and shipping requirements at the Ilheus port imposed by the Brazilian authorities. The Company continues to work with the Brazilian regulators to ensure that its Norilsk shipments from the Ilheus port can continue by way of bagged nickel concentrate or an alternate port facility. The Company is also assessing the possibility of transporting its concentrate in half height containers.

Exploration & Studies

Exploration activity for the quarter continued to focus on tenement maintenance only.

Unit Cash Costs

           
    Three months
ended
30 Sep 2013
Three months
ended
30 Jun 2013
% change
favourable/
(unfavourable)
Year to Date
2013
Payable Nickel Production(1) Lbs 7,773,887 8,005,416 (3) 23,924,029
           
Production Costs          
Mining Cost US$/lb 3.66 3.44 (6) 3.21
Processing Costs US$/lb 1.59 1.69 6 1.65
Administration Cost US$/lb 0.53 0.65 18 0.58
Subtotal US$/lb 5.78 5.78 - 5.44
           
Selling Costs          
Transport/Shipping Cost US$/lb 0.05 0.16 69 0.11
By-Product Credit(2) US$/lb (0.52) (1.42) (63) (1.04)
Smelter Charges US$/lb 0.88 1.32 33 1.20
Subtotal US$/lb 0.41 0.06 (583) 0.27
           
C1 Unit Cash Cost US$/lb 6.19 5.84 6 5.71
Unit Royalty Cost US$/lb 0.23 0.33 30 0.31
Realised Nickel Price(2) US$/lb 5.94 7.27 (18) 7.03
Realised Copper Price(2) US$/lb 2.54 2.99 (15) 2.97
Realised Cobalt Price(2) US$/lb 13.73 10.83 27 11.07
Average US$/Real Exchange Rate   2.29 2.07 11 2.12

(1)     Average payability of 89%
(2)     Including prior period QP adjustments

Mirabela recorded a C1 unit cash cost for the third quarter of US$6.19/lb, taking the average unit cash cost for the nine months ended 30 September 2013 to US$5.71/lb. Unit cash costs for the third quarter were higher than the second quarter predominately due to lower production levels.

Unit processing and administration costs per payable pound improved on the previous quarter primarily due to various cost saving initiatives and an improved exchange rate.  Unit mining costs per payable pound were higher in the third quarter primarily due to lower capitalised mining costs, lower payable nickel production, higher explosive costs (due to higher nitrate prices), higher usage of fuel and tires (due to greater average haulage distance) and preventative maintenance.  The improved exchange rate helped to soften these impacts.  Selling costs were also higher in the third quarter mostly as a result of no PGM (platinum group metals) by-product credits for the quarter.

CORPORATE

Cash and Debt

Mirabela closed the third quarter with cash on hand and on deposit of US$69.77 million. The decrease in cash on hand from 30 June 2013 (US$108.12 million) was driven by a combination of factors including negative cash flow from operations, primarily due to a lower level of sales to customers, overall lower nickel prices and the finalisation of nickel sales that occurred in October 2012 and January 2013 at an average finalisation price of US7.75/lb compared to an average provisional price of US7.85/lb; capital expenditure of US$6.90 million; the repayment of US$2.04 million relating to the Caterpillar finance lease facility and US$0.74 million for the Atlas Copco finance lease facility; and the interest payment of US$1.60 million on the working capital facility held with Banco Bradesco S.A. (Bradesco).

The Company's cash position continues to reduce as a result of the LME nickel prices continuing to trade below the Company's cashflow breakeven position after overheads, financing and capital costs.  The Company's cash on hand has reduced by US$73.24 million since the commencement of the 2013 financial year (1 January 2013).

The cash on hand as at 29 October 2013 is US$53.66 million and concentrate inventory is approximately 12,500 dry metric tonne.

The Company has the following debt structures currently in place:

  • The Company has on issue approximately US$395 million of 8.75% senior unsecured notes due 2018 (Notes) - bi-annual interest of US$17.28 million due 15 October 2013 was not paid on that date and the Company is currently utilising the cure period of 30 days while it continues to assess its funding options; and
  • The Company's subsidiary, Mirabela Mineração do Brasil Ltda, has:

    a)     a US$50 million facility with Bradesco which is secured by the Company's off-take contracts with Votorantim and Norilsk Nickel (Bradesco Facility) - a repayment of US$16.67 million of principle is due at the end of January 2014;

    b)     a US$55 million master funding and lease agreement with Caterpillar Financial Services Corporation.  Year to date the outstanding balance is US$11.23 million; and

    c)     a US$5.2 million financing facility with Atlas Copco Customer Finance, with an outstanding balance year to date of US$ 2.23 million.

As previously announced, on 26 September 2013, Votorantim provided notice that its concentrate sales agreement (Sales Agreement) with Mirabela would terminate at the end of November 2013, in conjunction with Votorantim's announcement of intention to close its smelting facilities. As required, Mirabela provided notice of this purported termination of the Sales Agreement to Bradesco. Following receipt of legal advice in respect of the purported termination of the Sales Agreement by Votorantim, discussions were held with Votorantim and Votorantim subsequently confirmed to the Company in writing that its purported termination of the Sales Agreement was invalid, that the Sales Agreement remains on foot, and that it intends to comply with its obligations under the Sales Agreement until the end of 2014.  Notwithstanding this, the Company only expects Votorantim to procure a small amount of nickel concentrate from Mirabela in 2014. As this will result in a diminished security position to Bradesco, and potentially trigger an event of default through a material adverse change clause in the Bradesco Facility, Mirabela has agreed to grant Bradesco security over the receivables pursuant to its off-take agreement with Norilsk Nickel.

The Company confirms that it did not make payment of interest on 15 October 2013, pursuant to the terms of the indenture relating to the Notes. The non-payment of interest pursuant to the indenture will only constitute an event of default if it continues for 30 days.

Share Capital

As at 30 September 2013 the Company's issued share capital consisted of 876,801,147 ordinary shares. A balance of 400,000 unlisted options and 5,091,810 performance rights were outstanding.

During the quarter a total of 3,750,000 options previously issued at an exercise price of A$3.00 (US$2.80) were unexercised and as a result have expired.

No options were exercised during the quarter.

The Company de-listed from the Canadian Stock Exchange (TSX) on 4 October 2013.  The decision to de-list was made due to the limited trading volume of Mirabela's shares on the TSX over a sustained period of time and as a result it is not expected that maintaining the listing will deliver significant future value for the Company and its Canadian Shareholders.

 

SOURCE: Mirabela Nickel Ltd.

For further information:

Mirabela Nickel Limited
Telephone: +61 8 9324 1177
info@mirabela.com.au

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Mirabela Nickel Ltd.

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