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WINNIPEG, MANITOBA--(Marketwired - Nov. 13, 2014) - San Gold Corporation (TSX:SGR) (OTCQX:SGRCF) today reported 2014 third quarter financial and operating results.
During the quarter, the Company recognized a non-cash impairment charge of $71.8 million resulting in a net loss of $76.6 million for the quarter. Excluding the impairment, the net loss was $4.8 million. The reduction in the carrying value of the Company's assets reflects changes in financial market conditions and lower gold prices.
During the quarter, the Company produced 10,025 ounces of gold with cash operating costs of $1,153 per ounce of gold sold and cash flow from operations of $3.8 million.
Gold production in the third quarter of 2014 is lower relative to the same period of 2013, a result of the mine presently transitioning to a more selective, less dilutive long-hole mining method and the time required to develop additional working/mining areas in the recently discovered and relatively higher-grade 710-711 zones on 26 Level of the Rice Lake mine. Compared with the same quarter last year, operating expenses were reduced by $13.7 million, exploration expenses decreased by $4.2 million and depletion expense decreased by $4.5 million.
"Rice Lake operations are vastly improved compared with where they were eight months ago. Total operating costs have been significantly reduced compared with last quarter and we've addressed a number of critical administrative issues. Once development is complete in the 710- 711 zones later this year, we expect improved grades and significantly reduced capital expenditures. In addition to these changes, the pending merger with Kerr Mines will provide the Company with a second revenue stream by mid-2015 and, combined with the improvements underway at Rice Lake, provide a solid foundation for generating positive cash flows for the Company going forward," said Greg Gibson, San Gold's Chief Executive Officer.
2014 Third Quarter Highlights:
-- Achieved a mill head grade of 4.63 grams per tonne - a 26% improvement
from Q1 2014.
-- Produced 10,025 ounces of gold.
-- Mined ore at a rate of approximately 833 tons per day.
-- Milled ore at a throughput of 798 tons per day.
-- Recognized revenue of $12.8 million on gold sales of 9,185 ounces at a
realized price of $1,391 per ounce and total cash costs of $1,153 per
ounce of gold sold.
-- Generated $3.8 million in cash flow from operating activities. Before
changes in non- cash working capital, the Company used $1.7 million.
-- Recognized a loss from operations of $2.7 million and a total and
comprehensive loss of $4.8 million before a non-cash impairment charge
of $71.8 million. Including the non- cash impairment, the operating loss
was $74.5 million and the net loss was $76.6 million for the year.
Review of 2014 Third Quarter Results
Gold production was 10,025 ounces in the third quarter of 2014 compared with gold production of 20,220 ounces in the third quarter of 2013. The reduction in ounces of gold produced is the result of the mine transitioning to a more selective, less dilutive long-hole mining method. The mine is also in the process of developing additional working/mining areas in the recently discovered and relatively higher-grade 710-711 zones on 26 Level of the Rice Lake mine. Gold production of 33,483 ounces in the first nine months of 2014 was lower than production of 60,100 ounces in the same period of 2013.
The Company mined ore at a rate of approximately 798 tons per day for a total of 73,397 tons, a decrease of 56% compared to the rate of 1,825 tons per day in the same period of 2013. The Company intentionally reduced its mining rate compared with last year to allow the time to transition parts of the operation to a more selective, less dilutive long-hole mining method and to develop additional working/mining areas, particularly in the 710-711 zones. This will also provide more time to collect the necessary data to facilitate improved decision making ahead of mining operations and will improve grades, particularly in long-hole stopes, by allowing mining crews to be more selective in the ore blocks to be mined. In addition, the Company started using conventional methods in some targeted working areas to minimize dilution while maximizing the production capacity of existing infrastructure. These conventional methods will supplement the Company's long-hole production volumes with high-grade ore and provide a more flexible set of mining methods for balancing safety, productivity, grade control and unit operating costs.
The Rice Lake mill processed 76,649 tons of ore at an average grade of 4.63 grams of gold per tonne of ore. Mill head grade improved by 9% compared to the third quarter of 2013 as a result of more selective mining and lower dilution from the new mining methods. A quarterly mill throughput rate of 833 tons per day was achieved in the third quarter of 2014, a 56% decrease compared to throughput of 1,906 tons per day in the third quarter of 2013. Mill recovery increased to 96% compared with 94% in the third quarter of 2013. The improvement in mill recovery was due to the higher grade material processed and due to the mill improvement projects completed in the second quarter of 2014. The decrease in mill throughput relative to the prior period was mainly the result of decreased tonnage delivered from the mine.
The Company recorded a non-cash impairment of $71.8 million on September 30, 2014, upon completion of its periodic assessment of the value-in-use of its mineral properties.
Loss from operations in the third quarter of 2014 was $74.5 million compared to loss from operations of $0.6 million in the same period of last year. The change in loss from operations is primarily due to the recognition of a non-cash impairment charge of $71.8 million and reduced gold production and gold sales in the third quarter of 2014. The increase in loss from operations was partially offset by a $4.5 million decrease in depletion expense. The decrease in depletion expense is due to the reduced carrying value of mineral properties resulting from the non -cash impairment charge recognized in the fourth quarter of 2013 and in the current period, and to the decrease in gold production.
The Company earned quarterly revenue of $12.8 million, compared with revenue of $28.7 million in the third quarter of 2013. The Company realized $1,391 per ounce of gold sold in the third quarter of 2014, compared to $1,373 per ounce in the third quarter of 2013 and the Company sold 9,185 ounces of gold in the third quarter of 2014, compared with sales of 20,873 ounces in the third quarter of 2013.
Total cash operating costs were $10.6 million compared with $19.6 million in the third quarter of 2013. Cash operating costs per ounce sold in the third quarter of 2014, however, were 23% higher than the previous period as a result of a 55% reduction in ounces sold.
The Company generated $3.8 million of cash flow from operating activities compared with $1.4 million in the third quarter of 2013. Before changes in non-cash working capital, the Company used $1.7 million in cash flow in the third quarter of 2014, compared with $2.2 million generated in the third quarter of 2013.
The Company capitalized $5.0 million of property, plant, and equipment during the third quarter of 2014 and recognized $2.0 million in amortization. Year to date, the Company has capitalized $7.4 million of property, plant, and equipment and recognized $6.0 million in amortization.
The Company completed 16,600 metres of diamond drilling to test a number of targets identified by the recent comprehensive structural analysis and geologic modelling exercise. Increased drilling operations over the past several months have been carried out to better define the mineral resources for mine planning for the next year. Drilling has been focused on four zones: the down dip extensions of the 007 zone and the down dip extensions of the Hinge zone, now accessible from 16 Level of the Rice Lake mine, the down dip extensions of the historic Rice Lake mineralization above 26 Level, and, most importantly, the recently discovered 710-711 zones located in the immediate hanging wall of the Rice Lake mine.
Outlook
The Company is in the process of shifting its mining operations to the newly discovered, high - grade 710-711 zones of the Rice Lake mine, with less dependence on the Hinge and 007 mines than in recent years. Mining operations in the Rice Lake mine will continue alongside ongoing capital development projects to accelerate operational access to the down dip extensions of the 007 and Hinge mines. The Company expects recent changes to result in improved grade for the balance of the year and a further decrease in capital development and property, plant and equipment spending requirements.
The objective of the Company's exploration program is to develop a mine complex that can be exploited through existing infrastructure. Exploration activities for the remainder of the year will continue to focus on underground definition and extension drilling targets within the Company's mineral lease for both production planning and exploration purposes. The primary target of this program is the mineralized extensions of the recent 710-711 discoveries located within a newly discovered hanging wall mining horizon located between the San Antonio Mine (SAM) and Shoreline Basalt mining units. The 710-711 zones have a combined strike length of 500 metres and vertical continuity of approximately 280 metres. The newly discovered mining horizon remains open to surface and to depth and is located very close to existing Rice Lake mine infrastructure. Underground drill bays constructed earlier this year continue providing better access for definition drilling of these and other targets at depth.
The Company is currently reviewing every aspect of its operation, including mining methods, grade control initiatives, mill recovery and supply chain management. As part of this review, the Company is also considering strategic alternatives aimed at growing the Company through new discoveries and potential acquisitions or joint venture opportunities.
Transaction with Kerr Mines Inc.
Subsequent to the end of the quarter, the Company held a shareholder meeting on November 6, 2014. At the meeting, shareholders approved the Arrangement with Kerr Mines Inc. ("Kerr Mines") to merge their respective businesses, approved the issuance of up to 130,000,000 of subscription receipts related to the Arrangement, and authorized the San Gold board, for a period of one year, to amend the articles of amalgamation to consolidate every five San Gold Shares into one San Gold Share.
The merger with Kerr Mines would allow the Company to utilize the knowledge, skills, and equipment developed at its Rice Lake mine across multiple projects, most notably at Kerr Mines' wholly owned Copperstone mine. The high grade Copperstone mine will be similar in size to the Rice Lake mine and can be restarted quickly with low capital requirements under a combined management team. This would increase the Company's overall gold production, improve operating and administrative efficiencies and reduce all-in costs. Kerr Mines also entered into an agreement on November 12, 2014, to sell a number of other highly prospective properties and claims in the Kirkland-Larder Lake-Timmins region including the historic Kerr-Addison mine and a number of adjacent properties. This combination reflects the Company's new strategy of operating multiple, efficient high-grade gold mines that are located in mining friendly jurisdictions.
Under the terms of the merger each Kerr Mines shareholder would receive three common shares of the Company for every common share of Kerr Mines held by such Kerr Mines shareholder. In addition, each holder of outstanding stock options and common share purchase warrants of Kerr Mines would receive such number of replacement options or warrants of the Company based upon the same exchange ratio.
About San Gold
San Gold is an established Canadian gold producer, explorer, and developer that owns and operates the Rice Lake Mining Complex near Bissett, Manitoba. San Gold is on the Toronto Stock Exchange under the symbol "SGR" and on the OTCQX under the symbol "SGRCF".
This press release should be read in conjunction with the Company's consolidated financial statements for the quarter ended September 30, 2014 and associated Management's Discussion and Analysis ("MD&A"), which are available from the Company's website (www.sangold.ca), in the "News & Reports" section under "Financial Statements", and on SEDAR (www.sedar.com).
Cautionary Non-IFRS Statements
The Company believes that investors use certain indicators to assess gold mining companies. They are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared with International Financial Reporting Standards ("IFRS"). "Total cash operating costs" as used in this analysis is a non-IFRS term typically used by gold mining companies to assess the level of gross margin available to the Company per ounce of gold by subtracting these costs from the unit price realized during the period. This non-IFRS term is also used to assess the ability of a mining company to generate cash flow from operations. There may be some variation in the method of computation of "total cash operating costs" as determined by the Company compared with other mining companies. In this context, "total cash operating costs" reflects the per ounce cash costs allocated from in-process and dore inventory associated with ounces of gold sold in the period and net royalties. "Total cash operating costs" may vary from one period to another due to operating efficiencies, quantity of ore processed, grade of ore processed, and gold recovery rates.
Cautionary Note Regarding Forward Looking Statements
No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. This news release includes certain "forward- looking statements". All statements, other than statements of historical fact included in this release, including, without limitation, statements regarding forecast gold production, gold grades, recoveries, cash operating costs, potential mineralization, mineral resources, mineral reserves, exploration results, and future plans and objectives of the Company, are forward - looking statements that involve various risks and uncertainties. These forward-looking statements include, but are not limited to, statements with respect to mining and processing of mined ore, achieving projected recovery rates, anticipated production rates and mine life, operating efficiencies, costs and expenditures, changes in mineral resources and conversion of mineral resources to proven and probable mineral reserves, and other information that is based on forecasts of future operational or financial results, estimates of amounts not yet determinable and assumptions of management.
Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as "expects" or "does not expect", "is expected", "anticipates" or "does not anticipate", "plans", "estimates" or "intends", or stating that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved) are not statements of historical fact and may be "forward-looking statements." Forward-looking statements are subject to a variety of risks and uncertainties that could cause actual events or results to differ from those reflected in the forward-looking statements.
There can be no assurance that forward-looking statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from the Company's expectations include, among others, the actual results of current exploration activities, conclusions of economic evaluations and changes in project parameters as plans continue to be refined as well as future prices of precious metals, as well as those factors discussed in the section entitled "Other MD&A Requirements and Additional Disclosure and Risk Factors" in the Company's most recent quarterly Management's Analysis and Discussion ("MD&A"). Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.
Exploration results that include geophysics, sampling, and drill results on wide spacings may not be indicative of the occurrence of a mineral deposit. Such results do not provide assurance that further work will establish sufficient grade, continuity, metallurgical characteristics, and economic potential to be classed as a category of mineral resource. A mineral resource that is classified as "inferred" or "indicated" has a great amount of uncertainty as to its existence and economic and legal feasibility. It cannot be assumed that any or part of an "indicated mineral resource" or "inferred mineral resource" will ever be upgraded to a higher category of resource. Investors are cautioned not to assume that all or any part of mineral deposits in these categories will ever be converted into proven and probable reserves.
Cautionary Note to United States and Other Investors Concerning Estimates of Measured, Indicated and Inferred Mineral Resources:
This press release uses the terms "Measured", "Indicated", and "Inferred" resources. United States investors are advised that while such terms are recognized and required by Canadian regulations, the United States Securities and Exchange Commission does not recognize them. "Inferred Mineral Resources" have a great amount of uncertainty as to their existence, and as to their economic and legal feasibility. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources may not form the basis of feasibility or pre-feasibility studies. United States investors are cautioned not to assume that all or any part of Measured or Indicated Mineral Resources will ever be converted into Mineral Reserves. United States investors are also cautioned not to assume that all or any part of a Mineral Resource is economically or legally mineable.
Table 1: 2014 Third Quarter Income Statement
SAN GOLD CORPORATION
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF NET LOSS AND COMPREHENSIVE
LOSS
(Unaudited)
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Three month period ended Nine month period ended
September September September September
30 30 30 30
2014 2013 2014 2013
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------------ ------------ ------------ ------------
REVENUE $ 12,779,168 $ 28,650,971 $ 47,687,505 $ 83,345,430
OPERATIONS
Operations (Note 17) 15,518,512 29,243,757 57,384,345 80,600,275
Impairment charge
(Note 18) 71,800,000 - 71,800,000 -
INCOME (LOSS) FROM
OPERATIONS (74,539,344) (592,786) (81,496,840) 2,745,155
Exploration 124,672 4,340,030 275,409 14,700,076
General and
administrative (Note
19) 1,514,336 1,949,138 6,210,507 8,863,524
LOSS BEFORE OTHER INCOME
AND EXPENSES 76,178,352 6,881,954 87,982,756 20,818,445
OTHER INCOME AND
EXPENSES
Finance income - net
(Note 20) 35,014 27,620 302,664 (336,745)
Finance costs (Note
20) (3,458,849) (1,585,964) (8,333,940) (3,872,325)
Equity loss from
associate (Note 8) - - (317,550) -
Change in fair value
of derivative in
convertible
debentures (Note 12) 3,792,370 - 3,792,370 -
Foreign exchange loss (769,129) - (238,583) -
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LOSS BEFORE INCOME TAX 76,578,946 8,440,298 92,777,795 25,027,515
Income tax recovery on
flow-through shares - 2,022,532 - 5,381,726
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NET LOSS AND
COMPREHENSIVE LOSS FOR
THE PERIOD $ 76,578,946 $ 6,417,766 $ 92,777,795 $ 19,645,789
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NET LOSS PER COMMON
SHARE: (Note 23)
Basic $ (0.21)$ (0.02)$ (0.25)$ (0.06)
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------------ ------------ ------------ ------------
Diluted $ (0.21)$ (0.02)$ (0.25)$ (0.06)
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Table 2: Financial Highlights
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Q3 Q3 YTD YTD
2014 2013 2014 2013
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Total and
comprehensive
income (loss) (000) $ (76,579) $ (6,418) $ (92,778) $ (19,646)
Items not affecting
cash (000) $ 74,833 $ 8,612 $ 84,445 $ 24,693
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Cash provided (used)
by operating
activities before
changes in non-cash
working capital
(000) $ (1,746 ) $ 2,194 $ (8,333) $ 5,047
Net change in non-
cash working
capital (000) $ 5,518 $ (761) $ 10,498 $ (5,048)
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Cash provided by
operating
activities (000) $ 3,771 $ 1,433 $ 2,165 $ (1)
Earnings (loss) per
share
- basic $ (0.21) $ (0.02) $ (0.25) $ (0.06)
- diluted $ (0.21) $ (0.02) $ (0.25) $ (0.06)
Weighted average
number of common
shares outstanding
- basic 373,390,981 343,744,936 373,390,981 338,099,521
- diluted 373,390,981 343,744,936 373,390,981 338,099,521
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Table 3: Production Summary and Statistics
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Q3 Q3 Change Change
2014 2013 (#) (%)
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Ore milled (tons) 76,649 175,311 (98,662) -56%
Head grade (g/tonne Au) 4.63 4.24 0.39 9%
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Contained gold (ounces) 10,488 21,672 (11,184) -52%
Ounces of gold produced 10,025 20,220 (10,195) -50%
Ore mined (tons) 73,397 167,937 (94,540) -56%
Ore milled per day (tons) 833 1,906 (1,072) -56%
Ore mined per day (tons) 798 1,825 (1,028) -56%
Mill recovery (%) 96% 93% 2.3% 2.4%
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Table 4: Quarterly Production Summary and Statistics
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Q3 Q2 Q1 Q4
2014 2014 2014 2013
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Ore milled (tons) 76,649 115,802 119,996 148,042
Head grade (g/tonne Au) 4.63 4.18 3.67 3.78
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Contained gold (ounces) 10,488 12,115 12,830 16,308
Ounces of gold produced 10,025 11,375 12,083 15,118
Ore mined (tons) 73,397 112,018 123,868 144,165
Ore milled per day (tons) 833 1,273 1,333 1,609
Ore mined per day (tons) 798 1,231 1,376 1,567
Mill recovery (%) 96% 94% 94% 93%
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Q3 Q2 Q1 Q4
2013 2013 2013 2012
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Ore milled (tons) 175,311 162,344 156,013 168,088
Head grade (g/tonne Au) 4.24 5.05 4.15 4.22
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Contained gold (ounces) 21,672 23,964 18,884 20,539
Ounces of gold produced 20,220 22,526 17,354 19,019
Ore mined (tons) 167,937 173,350 143,859 171,351
Ore milled per day (tons) 1,906 1,784 1,733 1,827
Ore mined per day (tons) 1,825 1,905 1,598 1,863
Mill recovery (%) 93% 94% 92% 93%
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NOTE: Final refinery settlements, or the effects of rounding, may have resulted in increases or decreases to reported gold production.
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