731c3187-a5b3-4ac6-8858-a1e93789ecb7.pdf
Activity Report
For the period ending 30 September 2015
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 approx. 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 2.6Mt at an average grade of 5.6% nickel containing 150k nickel tonnes. The total Ore Reserve Estimate at Spotted Quoll comprises 2.6 Mt at 4.1% nickel containing approximately 107k nickel tonnes.
The total Massive Sulphide Mineral Resource Estimate at Flying Fox now stands at 1.9Mt at an average grade of 5.2 % nickel containing 99k nickel tonnes. The total Ore Reserve Estimate at Flying Fox comprises 1.5Mt at an average grade of 4.2% nickel containing approximately 62k nickel tonnes.
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: 233.1m shares
Market capitalisation:
Approx A$620m @ $2.66 per share
Level 2, 2 Kings Park Road West Perth, WA 6005 www.westernareas.com.au
RECORD PRODUCTION FOR SPOTTED QUOLL AND DEBT FREE
Western Areas (WSA or the Company) is pleased to report a strong quarterly performance and start to the financial year on safety, production, costs and positive cashflow from operations despite the challenges of the low nickel price environment. 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 148,102 tonnes of ore at an average grade of 4.8% for 7,062 nickel tonnes, being the highest nickel in ore output since the December 2013 quarter. Spotted Quoll underground production was a record at 3,905 nickel tonnes. Mill production was on trend with 6,252 nickel tonnes produced. Unit cash cost of production has commenced the year well at A$2.26/lb (US$1.64/lb) which is slightly better than the lower end of FY16 guidance of A$2.30/lb to A$2.50/lb.
The Company became debt free for the first time since 2004 with the repayment of A$125m of convertible bonds on 2 July 2015. Consolidated cash at bank (which includes FinnAust Mining) was A$60.3m.
Financial results for FY15 were released on 20 August 2015 which highlighted the Company's robustness with a 37.5% increase in net profit after tax despite a reduced nickel price. A final fully franked dividend of 4 cents per share was declared and subsequently paid in October 2015.
The nickel price trended down for the quarter following weaker than anticipated Chinese trade data and stainless steel demand. Given the sustained decline in nickel price, post quarter end the Company announced various prudent actions to smooth its capital expenditure profile over the balance of FY16 and FY17. Mine plans remain unaltered with no impact on production or unit cost guidance for FY16.
September Quarter 2015 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. The Company has now operated for over 17 months without an LTI.
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Flying Fox mine production was 67,400t of ore mined at 4.7% for 3,155 nickel tonnes (7.0M lbs).
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Spotted Quoll mine production was a record at 80,702t of ore at 4.8% for 3,905 nickel tonnes (8.6M lbs).
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Mill throughput was 153,540t of ore at an average grade of 4.6% nickel with recovery of 89.2%.
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Unit cash cost of production of nickel in concentrate was A$2.26/lb.
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Pre-consolidated cash at bank (excluding FinnAust) of A$59.0m following repayment of the convertible bonds (A$125.0m) and the final interest payment (A$4.0m).
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Encouraging shallow drill results from New Morning.
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Prospective mafic intrusions have been identified from the first round of RC drilling at the Western Gawler project in South Australia.
Activity Report
For the period ending 30 September 2015
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CORPORATE AND FINANCING
Cashflow
Pre-consolidated cash at bank was A$59.0m at the end of the quarter (June quarter A$193.7m). The repayment of the final $125.0m of convertible bonds plus a further $4.0m in interest on 2 July was the primary reason for the fall in the reported cash balance for the quarter. In addition, other more material cash outflows, which were higher in this quarter, included:
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Progress payments for the long lead items for the Mill Recovery Enhancement Project of A$2.0m;
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Higher development costs at Flying Fox of approximately A$2.5m; and
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Quotational pricing adjustments from the prior financial year (A$6.1m)
The consolidated group's cash position was A$60.3m, which included the majority-owned FinnAust Mining Plc cash at bank of A$1.0m. Group cash at bank plus nickel sales receivables was A$66.7m.
The December quarter cashflow will include the following significant payments:
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The first instalment for the purchase of the Cosmos Nickel Project (A$11.5m);
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The payment of the 4 cent per share final dividend (A$9.3m);
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The final FY15 tax payment (~A$10.0m); and
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Completion of long lead items for the Mill Recovery Enhancement Project (~A$5.0m).
Following these one-off payments in the December quarter, the impact of the capital expenditure deferrals announced earlier this month will take effect given their movement from the second half of FY16 into FY17.
Dividend
Western Areas declared a fully franked final dividend of 4 cents per share (A$9.3m) on 20 August 2015. The dividend was paid to shareholders on 8 October 2015. Regular returns to shareholders remains a core value of the Company and the payment of this final dividend results in the total dividends returned to shareholders exceeding A$107m over the life of the Company to date.
Capital Management
Following repayment of the final tranche of convertible bonds, the Company is now debt free for the first time since 2004. This provides balance sheet strength and ensures flexibility in funding options for future growth opportunities whilst providing a level of resilience to unsustainably low nickel prices. The $125m ANZ loan facility remains undrawn. The facility is not due to expire until March 2017 and provides a readily available and low cost debt financing option. The Company has commenced discussions to assess the optimum flexible funding package going forward.
Hedging
When required and the pricing is supportive, the Company manages nickel sales price risk with a combination of short term quotation period (QP) hedging and a set limit of medium term nickel hedging. The policy allows the use of forward sales, bought options and collar style options:
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QP hedging is used to manage the risk of price fluctuations for nickel already shipped to offtake partners that is yet to have its nickel price finalised.
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Medium term hedging is used to manage the risk of nickel price fluctuations with a maximum 25% of expected nickel sales per month hedged out for a maximum of 12 months.
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Activity Report
For the period ending 30 September 2015
At quarter's end, the hedge book consisted of a small proportion of forecast US$ sales. Details of hedges as at 30 September 2015 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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$30,000,000
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Average US$ FX Cap
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$0.8050
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Average US$ FX Floor
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$0.7085
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MINE SAFETY AND ENVIRONMENT
Safety
There were no lost time injuries (LTI) recorded for the quarter and the LTI frequency rate remains at ZERO. This is an excellent achievement considering the Company operates a concentrator, two deep underground mines and a surface exploration program, 24 hours a day/seven days a week. At the end of the quarter, the Company had operated 546 days without an LTI and the focus on reducing injury severity is filtering across other safety measures, with only one medical treatment and one restricted duty injury during the quarter.
Our contractors, employees and Employee Health & Safety (EHS) representatives were actively involved in ensuring that workplace hazards and risks were identified and controlled through site inspections, hazard reports and safety meetings. Managers and safety representatives conducted 24 separate inspections generating over 80 corrective actions and the workforce reported over 12,000 hazards, a 20% increase over the previous quarter. This shared culture and vision continues to deliver into the exceptional safety, production and cost results.
A Memorandum of Understanding was recently signed with the Department of Fire and Emergency Services (DFES) for site operations to continue as a Volunteer Fire Brigade. Western Areas has the only Volunteer Fire Brigade in the local area with the skills and equipment for hazardous materials spills and with plans to invite surrounding brigades to attend Company training days. Other recent training has included underground and surface rope rescue scenarios and hazardous materials response.
Decontamination exercise after hazmat contact
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Activity Report
For the period ending 30 September 2015
Environment
One procedural environmental incident occurred during the quarter when an exploration vehicle entered a restricted environmentally sensitive area without the necessary authorisation. However, the vehicle remained on the existing track and caused no environmental damage to the area.
Compliance and Approval
New compliance actions undertaken during the quarter included an annual environmental and monitoring and compliance report. This was submitted in accordance with the approvals and licensing requirements of the Office of the Environmental Protection Authority (EPA), Department of Mines and Petroleum (DMP) and the Department of Environment Regulation and Department of Water.
New approvals received during the quarter included:
Community
The Company entered into a formal three year sponsorship renewal agreement with the Perth Zoo to enable the continued support of the Western Quoll enclosure at the Zoo's nocturnal house.
The Company provided sponsorship to Hyden Primary School in support of their Red-tailed Phascogale (small carnivorous marsupial) conservation initiative. This involved the construction of nest boxes to improve the breeding success of the endangered Phascogale in the local area.
Western Areas is a proud supporter of the Starlight Children's Foundation (Starlight). In July the Company entered two teams into the Great Adventure Challenge which was conducted over a weekend in Dwellingup. Through various fundraising activities conducted at site, in the Perth office, in our employees' homes and with the support of Company service providers, Western Areas raised the most funds for Starlight of any participant at just over $36,000.
Parents and children at the Hyden Primary School making Western Areas Team members at the Great Adventure Challenge Red-tailed phascogale nesting boxes
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