Microsoft Word - 1603 31 March Qtly Report Board - FINAL
Activity Report
For the period ending 31 March 2016
Western Areas is an Australian‐based nickel miner listed on the ASX. The main asset is the 100% owned Forrestania Nickel Project, 400km east of Perth. Western Areas is Australia's second largest sulphide nickel miner producing approximately 25,000 tonnes per annum nickel in ore from the Flying Fox and Spotted Quoll mines.
Flying Fox and Spotted Quoll are two of the lowest cost and highest grade nickel mines in the world.
Western Areas is an active nickel explorer in Western Australia and holds significant exploration interests in Canada and Finland through shareholdings in Mustang Minerals and FinnAust Mining Plc.
The total Mineral Resource Estimate at Spotted Quoll now stands at approximately 2.3Mt at an average grade of 5.3% nickel containing 122.6kt of nickel. The total Ore Reserve Estimate at Spotted Quoll now stands at approximately 2.5Mt at 4.0% nickel containing 100.0kt of nickel.
The total Massive Sulphide Mineral Resource Estimate at Flying Fox now stands at approximately 2.1Mt at an average grade of 5.1% nickel containing 104.8kt of nickel.
QUARTER IN LINE WITH GUIDANCE, RECORD SPOTTED QUOLL ORE TONNES AND EQUITY RAISE COMPLETED
Western Areas (WSA or the Company) is pleased to report that production for the March quarter remains in line with full year guidance, with unit costs trending to the low end of guidance. There were no lost time injuries for the quarter and the Company is proud to continue to report a lost time injury frequency rate (LTIFR) of ZERO.
Mine production was 144,728 tonnes of ore at an average grade of 4.7% for 6,798 nickel tonnes. As foreshadowed in the December quarterly report, mine grade improved from the last quarter in line with the mine schedule and plan. Spotted Quoll ore tonnages set another record for the quarter with 82,711 tonnes at an average grade of 4.7% for 3,922 nickel tonnes. Mill production remains extremely consistent at 6,180 nickel tonnes produced.
Unit cash costs of production for the quarter remain low at A$2.27/lb (US$1.64/lb) and year to date unit cash costs are A$2.26/lb, which is at the low end of the improved FY16 guidance of A$2.25/lb to A$2.45/lb.
On 31 March 2016, the Company announced an underwritten share placement for A$60m to be followed by a Share Purchase Plan (SPP) capped at A$10m. The placement was completed overnight and closed heavily oversubscribed by existing and new investors both domestically and internationally. The placement was completed via a bookbuild process at A$2.00 per share, higher than the underwritten floor price of A$1.95.
The nickel price finished the quarter higher around US$4.00/lb. However offsetting this improvement was a strengthening Australian dollar.
The total Ore Reserve Estimate at Flying Fox
now stands at approximately 1.4Mt at an
average grade of 4.2% nickel containing 57.4kt of nickel.
The total Mineral Resource Estimate at Cosmos is unchanged at approximately 63Mt at an average grade of 0.9% nickel containing 567kt of nickel.
The Cosmic Boy concentrator consistently produces around 25,000 tonnes per annum of nickel contained in concentrate.
Western Areas has offtake agreements with BHP Billiton for 12,000tpa nickel in concentrate and 13,000tpa with Jinchuan for a total 25,000tpa nickel in concentrate.
The Board remains focused on the core business of low cost, long life nickel production, new nickel discoveries and generating returns to shareholders.
ASX code: WSA
Shares on issue: 263.4m shares Market capitalisation:
Approx A$527m @ $2.00 per share
Level 2, 2 Kings Park Road West Perth, WA 6005 www.westernareas.com.au
March Quarter 2016 Highlights:
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There were ZERO lost time injuries for the quarter which continued the zero LTIFR achieved at the end of April 2014. The Company has now operated for over 24 months without an LTI.
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Flying Fox mine production was 62,017 tonnes of ore mined at 4.6% for 2,876 nickel tonnes (6.3M lbs).
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Record Spotted Quoll production was 82,711 tonnes of ore at an average grade of 4.7% nickel for 3,922 nickel tonnes (8.6M lbs).
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Mill throughput was 156,190 tonnes of ore at an average grade of 4.4% nickel with recovery of 90% for 6,180 nickel tonnes
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Unit cash cost of production of nickel in concentrate was A$2.27/lb,
tracking to the low end of full year guidance.
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Cash at bank was A$42.5m (see page 2).
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Flying Fox Mineral Resource update results in an additional 10,538 nickel tonnes with 83% in the indicated category.
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Surface geophysics program at Cosmos was completed with a number of
significant anomalies identified for follow‐up work.
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Review commenced of historical drill core at Forrestania encompassing known lithium bearing pegmatites at Mt Hope and South Ironcap. Notable intersection at South Ironcap of 50.6m @ 1.0% Li2O including 9.0m @ 2.6% Li2O.
Activity Report
For the period ending 31 March 2016
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CORPORATE AND FINANCING
Cashflow
Cash at bank was A$42.5m at the end of the quarter (December quarter A$29.0m¹). This included A$25.0m drawn from the corporate bank facility to ensure sufficient working capital was maintained in line with treasury policy guidelines and to fund certain discretionary capital and exploration expenditure. Cash at bank plus nickel sales receivables was A$56.4m at quarter end.
Revenue received during the quarter was adversely affected by the continued soft Australian dollar nickel price and negative quotational price adjustments (A$2.8m) that related to the prior quarter, with further falls in the nickel price. Notwithstanding these factors, operational cashflow was generated at Forrestania.
Discretionary exploration expenditure continued at the Cosmos and Western Gawler projects. The March quarter was also impacted by the timing of capital payments for activity completed late in the December quarter resulting in cash outflows during the current period.
The June quarter cashflow is expected to benefit from the announced deferrals of capital and development expenditures that were implemented on 1 January 2016. Expectations for overall capital and exploration expenditure for the full year to 30 June 2016 remain in line with full year guidance.
Capital Management
Share Placement
On 31 March 2016 the Company completed an underwritten A$60m share placement to institutional and sophisticated investors via a variable price book build at an underwritten floor price of $1.95 per share. The equity raising was undertaken to strengthen the balance sheet and provide greater financial flexibility to fund certain growth initiatives. The equity raising was well supported by existing and new shareholders, closing well oversubscribed at an issue price of A$2.00/share, being a premium to the underwritten floor price.
Funds raised will be applied to:
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Replenishing working capital for the total purchase price and associated transaction costs for the Cosmos purchase (A$26 million);
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Repay the ANZ corporate debt facility (A$25 million);
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Provide flexibility to pursue growth projects with a particular emphasis on Cosmos and Western Gawler; and
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Provide working capital and general corporate purposes.
Share Purchase Plan (SPP)
In conjunction with the placement, a $10m SPP was opened on 6 April 2016, allowing retail shareholders to participate in the capital raising at the same price as the institutional shareholders. Eligible shareholders will be able to apply for up to $15,000 worth of new shares under the SPP. For the full details, including the terms and conditions, please refer to the offer booklet release to the ASX on 6 April 2016. The SPP will close at 5.00pm (Sydney time) on Wednesday, 27 April 2016.
A placement and SPP structure was considered the most optimal structure for raising the required funds promptly without taking market volatility risk over the 4 weeks normally required for the completion of a rights issue. Furthermore, a placement is typically completed at a tighter discount versus a rights issue. The funds being raised via the SPP is in line with the proportionate retail ownership of Western Areas.
¹ Comparative excludes FinnAust Mining Plc cash reported as at 31 December due to deconsolidation.
Activity Report
For the period ending 31 March 2016
Bank Facility
As referred to above, the Company accessed A$25m from its ANZ corporate loan facility during the quarter. The Company maintained a net cash position of A$17.5m at quarter end. Following completion of the share placement in April, the facility was repaid, re‐establishing the full A$50m available limit.
Hedging
When pricing is supportive, the Company manages nickel price and foreign exchange risk with a combination of short term quotation period (QP) hedging and a set limit of medium term hedging. The policy allows the use of forward sales, bought options and collar style options:
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QP hedging is used to manage the risk of price fluctuations for nickel already shipped to offtake partners that is yet to have its nickel price finalised.
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Medium term hedging is used to manage the risk of nickel price fluctuations with a maximum 25% of expected nickel sales per month hedged out for a maximum of 12 months.
At quarter's end, the hedge book consisted solely of US$ foreign exchange contracts. No nickel is currently hedged due to the current lack of price support. Details of hedges at quarter end are as follows:
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Hedging Details
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FY 2016
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US$ Hedging ‐ Collar Options
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US$ Sold
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$15,000,000
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Average US$ FX Cap
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$0.7300
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Average US$ FX Floor
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$0.6500
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FinnAust Mining Plc (WSA 38%)
During March, FinnAust completed the acquisition of Blue Jay Mining Limited ("Bluejay") and the Pituffik Titanium Project following receipt of Greenland Government approval. Furthermore, a £1m capital raising was completed during February at a price of GBP2 pence per share. Post the capital raising and Bluejay acquisition (which was settled with FinnAust shares), Western Areas now holds 38% of FinnAust and, as such, was deconsolidated from the Western Areas group financial accounts as at 31 March 2016.
Western Areas retains a keen interest in FinnAust's projects both in Greenland, where seafloor bathymetry and boomer profiling surveys have commenced and in Finland, where additional licences have been granted over prospective base metals tenure surrounding the three major project areas.
Further details can be viewed on the FinnAust website at: www.finnaust.com
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MINE SAFETY AND ENVIRONMENT
Safety
The March quarter was another quarter of excellent safety performance by all personnel. There were no lost time injuries (LTI) recorded and the LTI frequency rate remains at ZERO. Western Areas has now operated 729 days without an LTI and our safety commitment has also been demonstrated by a 25% reduction in medical treatment and restricted work injuries combined with a 23% fall in minor injuries in the period June 2015 to March 2016. Proactive actions such as a 30% increase in hazard reports (24,493 to 32,471) in the first nine months of the financial year and a 20% increase in Job Safety Analyses (489 to 596) in the same period were key contributors to the overall safety success.
As part of our community engagement in 2015, two Hyden aerodrome personnel participated in a four day on‐site training course to qualify as Aerodrome Reporting Officers. In March 2016, they returned to complete the aerodrome safety and serviceability inspection training with the Forrestania Aerodrome Manager. This training is recognised by the Civil Aviation Safety Authority (CASA). The nearby Hyden aerodrome (85km
Activity Report
For the period ending 31 March 2016
west) serves the surrounding farming communities and also provides Royal Flying Doctor Service (RFDS) patient handling facilities for RFDS transfers and other light aircraft landings.
Environment
One minor environmental incident occurred during the quarter when an operator cleared a small section of bushland beyond the approved clearing boundary. As a result, the operator has been re‐inducted in the Ground Disturbance Permit approval process.
Compliance and Approval
The new Environmental Manager, Bryan Williams, met with key state and federal regulators (i.e. Department of Mine and Petroleum (DMP), Department of Environment Regulation (DER), Department of Water (DOW) and the Department of Aboriginal Affairs (DAA)) during the quarter to ensure that the existing excellent working relationships between these parties and Western Areas is continued.
Approvals received from the DMP during the quarter included:
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The Cosmic Boy TSF Lift Proposal;
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Clearing permit and program‐of‐work (PoW) for exploration activities at Northern Estates near Parker Dome; and
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PoW for exploration activities at the Cosmos Mine.
Community
Cosmos
Community consultation with members of the Tjiwarl native title claimant group progressed during the quarter with several meetings taking place. Approval from the Tjiwarl claimant group for drilling at the Ulysses target was received along with positive feedback on the Company's engagement process. The Company is committed to developing and maintaining a good working relationship with the traditional owners of the land.
Figure 1: Relocated Python from Diggers water tank Figure 2: Declared Rare Flora monitoring