Orvana Minerals loses $6.95-million (U.S.) in Q2 2014

2014-05-14 17:50 ET - News Release

Mr. Michael Winship reports

ORVANA RELEASES RESULTS FOR THE SECOND QUARTER OF FISCAL 2014

Orvana Minerals Corp. has released its financial and operating results for the second quarter ended March 31, 2014.

The company reported a net loss in the second quarter of fiscal 2014 of $7.0-million, or five cents per share, and an adjusted net loss of $3.3-million, or two cents per share, excluding the unrealized loss from the revaluation of the company's derivative instruments and the tax effect thereof, and the loss from discontinued operations relating to the divestiture of Copperwood.

The unaudited condensed interim consolidated financial statements for the second quarter of fiscal 2014, and management's discussion and analysis related thereto are available on SEDAR and the company's website.

Dollar amounts (other than per-ounce/pound and per-share amounts) are in thousands of U.S. dollars unless stated otherwise, and fine troy ounces of gold and silver are referred to as ounces.

Q2 2014 operating and financial highlights

• Adjusted net loss was $3,340 in the second quarter of fiscal 2014 compared with adjusted net income of $991 in the second quarter of fiscal 2013, primarily due to lower revenue from lower sales and lower commodity prices.
• Orvana had cash flows provided by operating activities from continuing operations of $3,886 in the second quarter of fiscal 2014 compared with $14,080 in the second quarter of fiscal 2013 and cash flows provided by operating activities before changes in non-cash working capital of $3,587 in the second quarter of fiscal 2014 compared with $10,604 in the second quarter of fiscal 2013.
• Working capital increased to $30,753 at March 31, 2014, including the reclassification of Copperwood as an asset held for sale compared with $16,351 at Dec. 31, 2013.
• Capital expenditures were $10,302 for the first half of fiscal 2014 consisting primarily of primary mine development at the EVBC mines, EVBC hoist repairs and upgrade costs, the addition of gravity gold concentrators at the Don Mario mine, and tailings dam raises at both the EVBC and the Don Mario mines compared with $10,681 for the first half of fiscal 2013.
• Debt net of cash, cash equivalents and restricted cash for debt repayment was $39,995 at March 31, 2014, and payment of long-term principal and interest was $7,900 in the six months ended March 31, 2014.
• All-in sustaining costs (byproduct) were $1,431 per ounce of gold at EVBC compared with $1,032 in the second quarter of fiscal 2013. All-in sustaining costs (co-product) were $967 per ounce of gold, $17.70 per ounce of silver and $2.57 per pound of copper at the Don Mario mine compared with $1,262 per ounce of gold, $24.39 per ounce of silver and $2.70 per pound of copper in the second quarter of fiscal 2013.

"With completion of the hoist repair and upgrades at EVBC, we expect the second half of fiscal 2014 to be closer to expectations," said Michael Winship, president and chief executive officer. "We are pleased with year-to-date performance at the Don Mario mine and accordingly have revised guidance."

Outlook

Orvana's short-term focus is operational optimization at the EVBC mines and the Don Mario mine to generate increasing operating cash flows in order to pay down debt and pursue growth alternatives. Production optimization projects have been initiated at both operating sites. Continuing benefits have and will continue to be achieved at the Don Mario mine. However, EVBC has been hampered with the loss of hoisting over the last nine months. Operational and corporate reviews have been under way to increase production to reduce operating and capital costs to improve liquidity and cash flows given the recent declines and continued volatility in the metals markets.

At EVBC, production and sales were lower in the first half of fiscal 2014 as a result of lower head grades in the areas being mined. The company's focus at EVBC continues to be on improving head grades, increasing metal production and reducing total all-in costs per ounce of gold. With the completion of the hoist repairs and upgrades and the recovery of the San Martin area, the company will continue to focus on these initiatives in the second half of fiscal 2014. Management changes have been made at EVBC to deal with the poor performance and the organization is being strengthened. Management expects the return to higher-grade mineralization to take some additional time and, accordingly, has revised its production guidance lower given the volumes of metals produced to date.

The company's focus at the Don Mario mine continues to be on improving metal production and reducing operating costs. The suspension of the leach-precipitation-floatation (LPF) process in the fourth quarter of fiscal 2013 has already contributed materially to these goals, particularly in unit cost reduction. Over the remainder of fiscal 2014, the company will continue to work on optimizing recoveries of gold and silver from the new gold gravity concentrators, complete further testing of oxides processing, and advance exploration activities on a success-based model. Given the production from the Don Mario mine to date and expectations for the balance of the fiscal year, management has revised its production guidance upward for all three metals.

Orvana intends to use the proceeds received from the sale of Copperwood to repay indebtedness and for working capital. In fiscal 2014, Orvana has allocated certain amounts toward internal growth exploration initiatives at both the EVBC mines, and the Don Mario mine and the surrounding regions. Orvana's long-term focus is to utilize future operating cash flow and mining capabilities to build long-term value for its shareholders. Growth opportunities, particularly near the Spanish operations, will continue to be investigated.

Overall performance

During the second quarter of fiscal 2014, the company continues to achieve consistent operating results. The table summarizes the company's operating and financial performance data for the company for the periods shown.

                                OVERALL PERFORMANCE

                                   Q1 2014 Q2 2014  Q2 2013 YTD 2014 YTD 2013
Operating performance
Gold
Production (oz)                     18,855  19,535   18,144   38,390   35,903
Sales (oz)                          19,613  16,509   19,248   36,122   32,144
Average realized price/oz           $1,288  $1,283   $1,616   $1,286   $1,651
Copper
Production (000 lb)                  4,719   5,048    3,852    9,767    8,236
Sales (000 lb)                       4,398   3,546    3,848    7,944    7,822
Average realized price/lb            $3.23   $3.14    $3.50    $3.19    $3.45
Silver
Production (oz)                    252,830 277,656  191,374  530,486  424,826
Sales (oz)                         218,016 166,866  213,879  384,882  455,651
Average realized price/oz           $20.69  $20.37   $28.10   $20.55   $29.08
Financial performance
Revenue                            $35,220 $29,125  $45,576  $64,345  $81,227
Mining costs                       $23,776 $24,151  $27,438  $47,927  $47,684
Loss from discontinued operations      $16    $985      $72   $1,001      $72
Gross margin                        $4,508 ($2,173) $11,697   $2,335  $23,083
Derivative instruments gain (loss)  $8,484 ($2,343)  $6,545   $6,141  $18,293
Net income (loss)                   $6,008 ($6,953)  $6,483    ($945) $20,134
Net income (loss) per share
(basic/diluted)                      $0.04  ($0.05)   $0.05   ($0.01)   $0.15
Adjusted net income (loss)          $1,227 ($3,340)    $991  ($2,113)  $5,336
Adjusted net income (loss) per
share (basic/diluted)                $0.01  ($0.02)   $0.01   ($0.02)   $0.04
Operating cash flows before non-
cash working capital changes        $8,518  $3,587  $10,604  $12,105  $18,888
Operating cash flows                $3,885  $3,886  $14,080   $7,771  $14,335
Ending cash and cash equivalents    $9,368  $5,914  $14,346   $5,914  $14,346
Restricted cash (including long
term)                              $19,063 $17,905  $13,858  $17,905  $13,858
Capital expenditures                $3,120  $4,757   $8,753   $7,877  $12,982

EVBC mines

During the second quarter of fiscal 2014, the EVBC mines produced 15,441 ounces of gold, 1.3 million pounds of copper and 38,846 ounces of silver compared with 13,988 ounces of gold, 1.3 million pounds of copper and 33,838 ounces of silver during the first quarter of fiscal 2014, and 15,713 ounces of gold, 1.5 million pounds of copper and 41,848 ounces of silver during the second quarter of fiscal 2013. The increase in production compared with the first quarter of fiscal 2014 is primarily due to higher tonnes milled, and an increase in gold, copper and silver head grades of 7 per cent, 3 per cent and 13 per cent, respectively, and the decrease in production compared with the second quarter of fiscal 2013 is primarily due to a decrease in gold, copper and silver head grades of 8 per cent, 15 per cent and 19 per cent, respectively.

During the first quarter of fiscal 2014, significant work was completed at the EVBC mines to recover a failed zone in the San Martin skarns area in the Boinas mine, which occurred in the third quarter of fiscal 2012. This work was substantially completed in the second quarter of fiscal 2014 and is expected to ensure ground stability in order to allow for access to higher-grade mineralization from other nearby stopes. Mining costs of $264 and $652 associated with the recovery were expensed during the quarter and the first six months of fiscal 2014, respectively.

As a result of a hoisting accident at the Boinas mine in June, 2013, an alternative production schedule continued to be used during the second quarter of fiscal 2014 which incorporated ramp haulage for all materials mined. The hoist and shaft repairs, upgrades, and the majority of commissioning were completed during the second quarter of fiscal 2014 allowing hoisting to recommence. Modification to the underground materials handling system to enhance ore movement and provide the potential to hoist oxides was also completed, in addition to upgrades to the capabilities of the hoist with enhanced performance design and safety improvements. Subsequent to the end of the second quarter of fiscal 2014, the final certification process was completed. At March 31, 2014, the total costs of the basic recovery of and upgrades to the hoist were approximately $4,500. The repairs and upgrades costs were capitalized to property, plant and equipment. One of the two insurers that may afford coverage related to this loss has confirmed coverage. Orvana has exercised the disputed loss agreement clause under its policies which would result in both insurers having to work together to jointly resolve the insurance claim filed by the company in respect of the basic recovery costs of the hoist estimated at approximately $2,500. Future insurance proceeds will be recorded in other income once received.

Mine performance was negatively impacted by continued reliance on ramp access at the Boinas mine for ore, waste and backfill haulage. The grade was lower than planned due to filling delays in the higher-grade San Martin area, resulting in increased mining activity in the lower-grade black skarns and San Martin transition zones. Backfilling is now generally caught up to normal levels and will be further facilitated with the reduced trucking usage for ore due to hoisting capability.

The table includes consolidated operating and financial performance data for EVBC for the periods shown.

                                 EVBC PERFORMANCE

                                   Q1 2014 Q2 2014  Q2 2013 YTD 2014 YTD 2013
Operating performance
Ore mined (tonnes) (wmt)           186,874 185,835  191,460  372,709  354,511
Ore milled (tonnes) (dmt)          180,713 186,111  176,445  366,824  322,335
Gold
Grade (g/t)                           2.62    2.80     3.04     2.71     3.11
Recovery (%)                          92.0    92.2     90.9     92.1     92.0
Production (oz)                     13,988  15,441   15,713   29,429   29,662
Sales (oz)                          14,954  14,344   16,824   29,298   25,583
Copper
Grade (%)                             0.40    0.41     0.48     0.41     0.49
Recovery (%)                          79.3    78.2     80.4     78.7     81.4
Production (000 lb)                  1,258   1,322    1,488    2,580    2,835
Sales (000 lb)                       1,412   1,455    1,636    2,867    2,452
Silver
Grade (g/t)                           7.23    8.15    10.03     7.70    10.68
Recovery (%)                          80.5    79.6     73.8     80.1     76.6
Production (oz)                     33,838  38,846   41,848   72,684   84,725
Sales (oz)                          37,565  40,592   43,183   78,157   76,462
Financial performance
Revenue                            $21,844 $21,777  $31,446  $43,621  $48,906
Mining costs                       $16,445 $19,766  $17,317  $36,211  $27,230
Derivative instruments gain (loss)  $8,484 ($2,343)  $6,545   $6,141  $18,293
Income (loss) before tax            $8,009 ($7,364) $15,350     $645  $31,730
Capital expenditures                $3,727  $4,434   $3,243   $8,161   $6,598
Cash operating costs (byproduct)
($/oz) gold                           $884  $1,166     $784   $1,022     $805
All-in sustaining costs
(byproduct) ($/oz) gold             $1,116  $1,431   $1,032   $1,270   $1,145
All-in costs (byproduct) ($/oz)
gold                                $1,214  $1,564   $1,032   $1,385   $1,145

During the second quarter of fiscal 2014, the Don Mario mine produced 4,094 ounces of gold, 3.7 million pounds of copper and 238,810 ounces of silver compared with 4,867 ounces of gold, 3.5 million pounds of copper and 218,992 ounces of silver in the first quarter of fiscal 2014, and 2,432 ounces of gold, 2.4 million pounds of copper and 149,526 ounces of silver in the second quarter of fiscal 2013. The increase in copper and silver production compared with the first quarter of fiscal 2014 is primarily due to an increase in copper and silver head grades of 9 per cent and 20 per cent, respectively, and the increase in production compared with the second quarter of fiscal 2013 is primarily due to an increase in gold, copper and silver head grades of 44 per cent, 20 per cent and 53 per cent, respectively, and an increase in recoveries.

During the third quarter of fiscal 2013, the company suspended the processing of oxides through the LPF process. It was no longer economical to process oxides through this process as costs were significantly higher than flotation-only processing costs and throughput of the LPF circuit was approximately half that of the flotation-only circuit. The company is continuing to evaluate reagents which may allow it to process oxides through its flotation-only process. As a result of the additional testing which the company continues to undertake relating to the processing of oxides, costs to mine and stockpile oxides continues to be capitalized. The oxides stockpile had a carrying value of $2,866 at March 31, 2014. Suspension of the LPF circuit led to a throughput increase of over 5 per cent for the first half of fiscal 2014 compared with the same period in fiscal 2013 and a decrease in costs of approximately 30 per cent associated with running two LPF campaigns in the first half of fiscal 2013.

In the fourth quarter of fiscal 2013, the company commenced a program to add gold gravity concentrators to the processing circuit. This enhancement is expected to increase gold recoveries to between 60 per cent and 65 per cent from between 40 per cent and 45 per cent, resulting in expected increased gold production from the Don Mario mine in the second half of fiscal 2014 and thereafter. The two new gravity concentrators were commissioned in the third week of March, 2014. Additional work to improve the concentrator support structure and permanent bagging area is currently in progress to ensure optimization of the recoveries of gold from the gold gravity concentrators. Sales of the new gold concentrate that will be produced as a result of the implementation of such gold gravity concentrators are estimated to commence in the third quarter of fiscal 2014. No material impact is expected on the copper concentrate composition currently produced by the Don Mario mine as a result of the implementation of the gold gravity concentrators.

The table includes operating and financial performance data for the Don Mario mine for the periods shown.

                              DON MARIO PERFORMANCE

                                   Q1 2014 Q2 2014  Q2 2013 YTD 2014 YTD 2013
Operating performance
Ore mined (tonnes) (dmt)           247,257 246,551  322,086  493,808  693,851
Ore milled (tonnes) (dmt)          206,416 199,526  184,607  405,942  385,919
Gold
Grade (g/t)                           1.48    1.45     1.01     1.46     1.10
Recovery (%)                          49.7    44.1     40.7     47.7     45.8
Production (oz)                      4,867   4,094    2,432    8,961    6,242
Sales (oz)                           4,659   2,165    2,424    6,824    6,561
Copper
Grade (%)                             1.38    1.51     1.26     1.44     1.36
Recovery (%)                          55.3    56.3     46.0     55.8     46.8
Production (000 lb)                  3,461   3,726    2,363    7,187    5,400
Sales (000 lb)                       2,986   2,091    2,212    5,077    5,370
Silver
Grade (g/t)                          53.57   64.30    42.10    58.84     47.3
Recovery (%)                          61.6    57.9     59.8     59.6     58.0
Production (oz)                    218,992 238,810  149,526  457,802  340,101
Sales (oz)                         180,451 126,274  170,697  306,725  379,189
Financial performance
Revenue                            $13,376  $7,348  $14,130  $20,724  $32,321
Mining costs                        $7,331  $4,385  $10,121  $11,716  $20,454
Income before tax                   $3,036  $1,049     $369   $4,355   $6,432
Capital expenditures                  $789    $975     $413   $1,764   $1,795
Cash operating costs (co-product)
($/oz) gold                           $761    $794   $1,162     $772   $1,080
Cash operating costs (co-product)
($/lb) copper                        $2.18   $2.16    $2.49    $2.17    $2.24
Cash operating costs (co-product)
($/oz) silver                       $14.56  $14.98   $22.63   $14.73   $21.36
All-in sustaining costs (co-
product) ($/oz) gold                  $874    $967   $1,262     $908   $1,203
All-in sustaining costs (co-
product) ($/lb) copper               $2.46   $2.57    $2.70    $2.50    $2.49
All-in sustaining costs (co-
product) ($/oz) silver              $16.39  $17.70   $24.39   $16.91   $23.53
All-in costs (co-product) ($/oz)
gold                                  $874    $973   $1,265     $910   $1,205
All-in costs (co-product) ($/lb)
copper                               $2.46   $2.58    $2.71    $2.51    $2.50
All-in costs (co-product) ($/oz)
silver                              $16.39  $17.79   $24.45   $16.95   $23.56

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