TMAC Reports Operating and Financial Results for First Quarter of 2017
TMAC Resources Inc. (TSX:TMR) (“TMAC” or the “Company”) is filing its First Quarter 2017 Financial Statements and Management’s Discussion & Analysis for the interim period ended March 31, 2017. The documents may be found on the Company’s website at www.tmacresources.com or, once filed, on SEDAR at www.sedar.com. Please read this news release in conjunction with them.
Dr. Catharine Farrow, Chief Executive Officer of TMAC, stated, “The first quarter of 2017 was transformational for TMAC with significant advancements in both mining and processing at Doris. We continued mine development as planned and we poured and sold our first gold. The underground mining and mine development produced more ore during the quarter than was processed. As a result, haulage of ore to surface was slowed as the surface stockpiles reached their storage capacity. However, longhole stope drilling stayed on plan with about one month’s mine production pre-drilled and ready for blasting, mucking and haulage to surface when the processing plant throughput warrants it. Mine development at Doris North is essentially complete for all mining planned above the diabase dyke in 2017 and 2018 and mine development of the BTD zone continues as planned.”
Dr. Farrow added, “On the processing side, we are pleased to have poured our first gold on February 9. While the processing plant operated at or above its capacity of 1,000 tonnes per day during a number of days in April, TMAC encountered availability challenges triggered by some equipment issues which were compounded by a challenging labour market due to increased competition in the industry in recent months, which prevented us from achieving steady state operations in the first quarter. Although we have now filled most of our plant operational positions with high quality people and augmented our specialized training programs, our ability to fill those positions as quickly as we had planned was impacted by a challenging labour environment due to a recent increase in competition from other projects currently under development in Canada. The TMAC team have engaged the help of experienced processing experts and, along with assistance from specialists, are conducting plant optimization programs to systematically address mechanical and process issues affecting plant stability. As plant stability continues to improve, recovery optimization will become the focus. The slower than expected ramp up resulted in fewer ounces of gold being poured than planned, and our gold production guidance for 2017 being lowered to 100,000 to 120,000 ounces of gold from 130,000 to 140,000 ounces of gold. Cash balances remain strong with $28.9 million of unrestricted cash and, along with planned revenues, will provide sufficient funds to achieve commercial production in the second quarter of 2017 and maintain a positive cash balance throughout 2017.”
Finally, Dr. Farrow noted, “We would like to acknowledge the hard work and dedication of our employees, contractors and consultants who have worked tirelessly to transform TMAC from an exploration company to a gold producing company over the past two years, and those who have assembled and who are commissioning and completing the processing plant ramp up since its arrival at the Hope Bay site in late August 2016.”
FIRST QUARTER 2017 HIGHLIGHTS
Overview
- Mining in the first quarter of 2017 produced 29,000 tonnes of ore at an estimated grade of 12.8 g/t, more than replacing the tonnes processed through the Processing Plant in the same period.
- The ore stockpiles at March 31, 2017 are estimated to contain 131,600 tonnes of ore at a grade of 13 g/t, or 56,800 ounces of gold.
- Underground mine development activities progressed as planned with lateral mine development at Doris North to access stoping areas above the dyke for mining in 2017 and 2018 essentially completed. Development of the BTD zone to facilitate increasing tonnages from 1,000 to 2,000 tonnes per day (“tpd”) in 2018 continued as planned.
- Underground longhole stope drilling stayed on plan with 53,200 tonnes of ore drilled and ready for blasting and mucking. This represents more than one month’s mine production.
- Blasting, mucking and hauling of ore to surface has been deliberately slowed down as surface ore stockpiles have reached storage capacity. As the Processing Plant feed rate picks up ore blasting, mucking and hauling to surface can be quickly ramped up.
- Commissioning of the Processing Plant, with a crushing, grinding and flotation concentrate producing circuit (a “Python”) designed and fabricated by Gekko Systems Pty Ltd. (“Gekko”) to process 1,000 tpd of ore at full capacity, commenced in January.
- The Processing Plant processed 19,000 tonnes of ore as part of the commissioning process and produced 4,390 ounces of gold in the form of high purity doré bars, of which, 4,250 ounces were sold in the first quarter generating proceeds of $7.0 million which were capitalized to development costs on the Statement of Financial Position. The gold-in-circuit inventory was estimated to be fully loaded in the first quarter.
- While the Processing Plant operated for a number of days in April at or above its designed capacity of 1,000 tpd, periods of circuit instability resulted in interruptions in availability. Accordingly, the ramp up was slower than planned and Doris is now expected to reach commercial production in the second quarter of 2017.
- The slower than expected ramp up resulted in less gold production than expected in the first quarter necessitating a change in TMAC’s 2017 guidance from the previously expected 130,000-140,000 ounces to 100,000-120,000 ounces.
- The overall capital cost guidance, including pre-commercial production, expansion, sustaining and exploration expenditures, has increased from $70 million to $83 million as a result of the slower ramp up of the Processing Plant. This increase will, however, be partially offset by a reduction in total overall operating expenses for the year.
- The cash operating costs and the all-in sustaining cost per ounce sold after achieving commercial production guidance remains at <US$600 per ounce of gold and <US$750 per ounce of gold, respectively.
- Once commercial production and steady state processing is achieved, TMAC plans to optimize its 2017 gold production by blending mill feed from the ore stockpiles and underground production.
- The fabrication by Gekko of the second Python was essentially complete and will be shipped in the 2017 sealift.
- Underground drilling on the BTD zones resumed late in the first quarter of 2017.
- Equipment and supplies required to support the 2017 diamond drilling program at Boston, were transported in March and April from Doris to Boston by the Rimpull tundra transporter on a winter track.
- A 100-person camp, currently located in Cambridge Bay, has been secured by TMAC for delivery to Hope Bay in the 2017 sealift. The extra bed space will facilitate TMAC’s future exploration and development efforts on the Hope Bay belt.
- Net loss and comprehensive loss for the quarter totalled $2.4 million, or $0.03 per share, compared with $0.2 million, or $0.00 per share, in the first quarter of 2016. TMAC did not have any revenues in either period and the principal difference between the net loss in the comparative quarters is due to a greater foreign exchange gain in 2016. Cash balances at March 31, 2017 were $28.9 million plus $10.0 million included in restricted cash under the terms of the Credit Facility.
Processing Plant Update
The Processing Plant ramp up has encountered issues that have affected its availability. As a result, a detailed, systematic plant optimization program has been implemented to improve plant stability to expected steady state levels. Challenges and mitigations include:
- Issues with certain original equipment manufacturers’ components resulted in reduced Processing Plant availability. While these components are in the process of being replaced at the supplier’s cost, management has and continues to make corrective action to compensate for the mechanical issues.
- A challenging labour market, due to a recent increase in competition from other projects currently under development in Canada, affected the availability of qualified processing plant operators. Processing plant labour stability has been significantly improved with most operational positions filled by May with high quality personnel. TMAC has acquired additional assistance from consultants, contractors and others to provide the necessary technical and metallurgical support. The Processing Plant training program has been augmented to ensure that the new personnel arriving at site are provided with additional specialized classroom and ‘hands on’ training.
- TMAC has contracted two consultants, an operations’ ramp up specialist and a processing plant specialist, to provide additional input into improving the ramp up. Many of their recommendations are now being implemented on a priority basis and a formal Processing Plant improvement process has been implemented to augment TMAC’s systematic ‘root cause analysis’ improvement process. The most significant of the improvements currently underway are focused on water balance and management, gravity and flotation mass pull optimization and leach residency optimization.
- The Processing Plant is being fed lower grade stockpile ore while the improvements to circuit stability are being implemented. As plant stability continues to improve, recovery optimization will become the focus.
- The commissioning of the first Python has identified optimizations that are being incorporated into the second Python in time for the 2017 sealift delivery, installation in the fourth quarter and production therefrom planned for 2018.
2017 OUTLOOK
TMAC completed its first gold pour from its Doris mine on February 9, 2017. TMAC’s focus for 2017 remains the orderly ramp up of gold production by the Processing Plant and the ramp up of underground development to support an increase in production at Doris in 2018 from approximately 1,000 tpd to 2,000 tpd. A second 1,000 tpd capacity Python is planned for delivery on the 2017 sealift. The key production statistics and expected expenditures in 2017 are provided in Table 1 below.
Table 1: Summary of key production statistics and expected expenditures for 2017.
| Three months | Revised 2017 forecast | Original 2017 forecast | ||||
| Ore mined (tonnes) | 29,000 | 260,000 | 275,000 | |||
| Average grade mined (grams/tonne) | 12.8 | 13 | 13 | |||
| Ore milled (tonnes) | 19,000 | 260,000 | 325,000 | |||
| Gold sold (ounces) | 4,250 | 100,000 – 120,000 | 130,000 – 140,000 | |||
| Cash cost per ounce sold (2)(3) | - | <US$600 | <US$600 | |||
| All-in sustaining cost per ounce sold (2)(3) | - | <US$750 | <US$750 | |||
| Capital expenditures: | ||||||
| Sustaining | - | $16 million | $15 million | |||
| Pre-commercial production(4) and expansion | $19.0 million | $49 million | $35 million | |||
| Exploration and evaluation | $2.6 million | $20 million | $22 million |
| 1. | CAD/USD exchange of 1.30. | |||||
| 2. | Refer to non-IFRS measures below. | |||||
| 3. | Cash cost and all in sustaining cost per ounce sold (“AISC”) refers to results after achieving commercial production. | |||||
| 4. | Total costs before pre-commercial production gold sale proceeds. | |||||
Sustaining capital expenditures include costs for improvements to and optimization of the Processing Plant, construction activities in the tailings impoundment area, water discharge, surface equipment, an equipment wash-bay, final installation and commissioning of the last two generators at the power plant and other miscellaneous items.
Expansion capital includes the costs associated with the development of the Doris North BTD zone, completing and installing the second Python including its related equipment and infrastructure, and the purchase and installation of an additional camp for site with bed-space for 100 people. Development of the BTD zones is dependent on further exploration success but is anticipated to be a future source of ore to feed the expanding capacity of the Processing Plant noted above. Expansion capital includes a one-time charge of $8 million, payable to Nunavut Tunngavik Inc. in eight equal quarterly instalments commencing in the quarter immediately after achieving commercial production at Hope Bay.
Pre-commercial production capital includes the costs associated with completing the commissioning and ramp up of the Processing Plant and surface infrastructure capital costs incurred up to the point of reaching commercial production.
The delay in achieving commercial production and the additional costs incurred to date and expected to be incurred to achieve commercial production are estimated to total approximately $13 million. Despite the delay, TMAC forecasts sufficient cash on hand to be able to achieve commercial production and achieve positive cash flow from mining operations.
Camp space has been constrained by the number of additional personnel at camp to facilitate the ramp up. This has led to rescheduling of certain regional and Madrid exploration programs.
CONFERENCE CALL AND WEBCAST
Senior management will host a conference call today, Monday, May 15, 2017 at 10:00 am (ET).
Webcast access:
A live audio webcast of the conference call will be available on the Company’s website at www.tmacresources.com An archive of the webcast will be available on the Company’s website.
Telephone access:
Please call the numbers below five to ten minutes prior to the scheduled start of the call.
Toronto local or international 1 (416) 915-3239
Toll-Free (North America) 1 (800) 319-4610
ABOUT TMAC RESOURCES
TMAC holds a 100% interest in the Hope Bay Project located in Nunavut, Canada. TMAC is a fully financed, emerging gold producer with the Doris Mine pouring first gold in the first quarter of 2017 and Madrid and Boston expected to commence production in 2020 and 2022, respectively. The Company has a board of directors with depth of experience and market credibility and an exploration and development team with an extensive track record of developing high grade, profitable underground mines. TMAC’s shares trade on the Toronto Stock Exchange under the trading symbol TMR.
SCIENTIFIC AND TECHNICAL INFORMATION
Scientific and technical information related to Doris mine development was prepared by, and all other scientific and technical information contained in this document was reviewed and approved by David King, P.Geo., the Vice President, Exploration and Geoscience of TMAC, and Paul Christman, P.Eng., the Manager of Mining of TMAC, each of whom is a “qualified person” as defined by National Instrument 43-101 – Standards of Disclosure for Mineral Projects.
FORWARD-LOOKING INFORMATION
This release contains "forward-looking information” within the meaning of applicable securities laws that is intended to be covered by the safe harbours created by those laws. “Forward-looking information” includes statements that use forward-looking terminology such as “may”, “will”, “expect”, “anticipate”, “believe”, “continue”, “potential” or the negative thereof or other variations thereof or comparable terminology. Such forward-looking information includes, without limitation, bringing the timing for bringing Madrid and Boston into production and the rate of ramp up at Doris throughout 2017.
Forward-looking information is not a guarantee of future performance and management bases forward-looking statements on a number of estimates and assumptions at the date the statements are made. Furthermore, such forward-looking information involves a variety of known and unknown risks, uncertainties and other factors, which may cause the actual plans, intentions, activities, results, performance or achievements of the Company to be materially different from any plans, intentions, activities, results, performance or achievements expressed or implied by such forward-looking information. See “Risk Factors” in the Company’s Annual Information Form dated February 23, 2017 filed on SEDAR at www.sedar.com for a discussion of these risks.
| CONDENSED STATEMENT OF FINANCIAL POSITION | ||||||
| (Unaudited) | ||||||
| (Expressed in Canadian dollars) | ||||||
|
| As at | As at December 31, 2016 | ||||
| $millions | $millions | |||||
| Assets | ||||||
| Current assets | ||||||
| Cash and cash equivalents | 28.9 | 62.5 | ||||
| Amounts receivable | 1.4 | 7.3 | ||||
| Inventories | 81.7 | 77.7 | ||||
| Prepaid expenses | 3.4 | 0.8 | ||||
| 115.4 | 148.3 | |||||
| Non-current assets | ||||||
| Property, plant and equipment | 838.7 | 801.4 | ||||
| Goodwill | 80.6 | 80.6 | ||||
| Restricted cash | 52.0 | 44.5 | ||||
| Other assets | 0.4 | 15.0 | ||||
| 971.7 | 941.5 | |||||
| Total assets | 1,087.1 | 1,089.8 | ||||
| Liabilities | ||||||
| Current liabilities | ||||||
| Accounts payable and accrued liabilities | 20.0 | 26.8 | ||||
| Debt Facility | 70.1 | 46.1 | ||||
| Gold Call Options | 3.7 | 2.9 | ||||
| Other liabilities | 0.7 | 0.8 | ||||
| 94.5 | 76.6 | |||||
| Non-current liabilities | ||||||
| Debt Facility | 94.5 | 115.3 | ||||
| Provision for environmental rehabilitation | 24.9 | 24.9 | ||||
| Deferred tax liabilities | 67.2 | 67.9 | ||||
| 186.6 | 208.1 | |||||
| Total liabilities | 281.1 | 284.7 | ||||
| Equity | ||||||
| Share capital | 833.7 | 830.2 | ||||
| Warrants | 0.6 | 1.2 | ||||
| Contributed surplus | 9.3 | 8.9 | ||||
| Accumulated deficit | (37.6) | (35.2) | ||||
| 806.0 | 805.1 | |||||
| Total equity and liabilities | 1,087.1 | 1,089.8 | ||||
| CONDENSED STATEMENT OF PROFIT OR LOSS | ||||||
| (Unaudited) | ||||||
| (Expressed in Canadian dollars) | ||||||
| Three 31, 2017 | Three 31, 2016 | |||||
| $millions | $millions | |||||
| General and administrative | ||||||
| Salaries and wages | 1.7 | 1.6 | ||||
| Share-based payments | 0.7 | 0.6 | ||||
| Professional and consulting fees | 0.2 | 0.2 | ||||
| Travel | 0.1 | 0.1 | ||||
| Investor relations | 0.2 | 0.1 | ||||
| Office, regulatory and general | 0.4 | 0.2 | ||||
| Loss before the following | 3.3 | 2.8 | ||||
| Finance income | (0.2) | (0.1) | ||||
| Finance expense | 0.1 | 0.2 | ||||
| Foreign exchange loss (gain) | (1.0) | (3.5) | ||||
| Fair value loss (gain) | 0.8 | 1.5 | ||||
| Other | 0.1 | - | ||||
| Loss before income taxes for the period | 3.1 | 0.9 | ||||
| Current income tax expense (recovery) | 0.1 | - | ||||
| Deferred income tax expense (recovery) | (0.8) | (0.7) | ||||
| Net loss and comprehensive loss for the period | 2.4 | 0.2 | ||||
| Net loss per share | ||||||
| Basic and diluted | ($0.03) | ($0.00) | ||||
| Weighted average number of shares (millions) | ||||||
| Basic and diluted | 83.8 | 77.7 | ||||
| CONDENSED STATEMENT OF CASH FLOWS | ||||||
| (Unaudited) | ||||||
| (Expressed in Canadian dollars) | ||||||
| Three months 31, 2017 | Three months 31, 2016 | |||||
| $millions | $millions | |||||
| Net loss for the period | (2.4) | (0.2) | ||||
| Operating activities | ||||||
| Adjusted for: | ||||||
| Share-based payments | 0.7 | 0.6 | ||||
| Finance income | (0.2) | (0.1) | ||||
| Finance expense | 0.1 | 0.2 | ||||
| Unrealized foreign exchange loss (gain) | (1.0) | (3.5) | ||||
| Fair value loss (gain) | 0.8 | 1.5 | ||||
| Current income tax expense (recovery) | 0.1 | - | ||||
| Deferred income tax expense (recovery) | (0.8) | (0.7) | ||||
| Increase (decrease) in non-cash operating working capital: | ||||||
| Amounts receivable | 5.9 | 2.9 | ||||
| Inventories | (8.2) | - | ||||
| Operating cash flows before interest and tax | (5.0) | 0.7 | ||||
| Cash taxes paid | - | - | ||||
| Cash interest paid | - | - | ||||
| Cash flows from (used in) operating activities | (5.0) | 0.7 | ||||
| Investing activities | ||||||
| Additions to property, plant and equipment | (23.8) | (27.6) | ||||
| Interest received | 0.1 | 0.1 | ||||
| Restricted cash | (7.5) | (10.5) | ||||
| Cash flows from (used in) investing activities | (31.2) | (38.0) | ||||
| Financing activities | ||||||
| Debt Facility drawdowns | - | 69.5 | ||||
| Flow-through financing, net of issue costs | - | 8.9 | ||||
| Warrants exercised | 2.6 | - | ||||
| Cash flows from (used in) financing activities | 2.6 | 78.4 | ||||
| Effects of exchange rate changes on cash and cash equivalents | - | (1.5) | ||||
| Net increase in cash and cash equivalents for the period | (33.6) | 39.6 | ||||
| Cash and cash equivalents at the beginning of the period | 62.5 | 44.1 | ||||
| Cash and cash equivalents at the end of the period | 28.9 | 83.7 |
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Contact
TMAC Resources Inc.
Catharine Farrow, 416-628-0216
Chief Executive Officer
or
Ann Wilkinson, 416-628-0216
Vice President, Investor Relations
www.tmacresources.com
or
Renmark Financial Communications Inc.
Daniel Gordon
Tel: (416) 644-2020 or (514) 939-3989
dgordon@renmarkfinancial.com
www.renmarkfinancial.com