Microsoft Word - 1512 31 December Qtly Report Board Final.docx
Activity Report
For the period ending 31 December 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 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 2.5Mt at an average grade of 5.6% nickel containing 141kt of nickel. The total Ore Reserve Estimate at Spotted Quoll now stands at approximately 2.6Mt at 4.0% nickel containing 103kt of nickel.
The total Massive Sulphide Mineral Resource Estimate at Flying Fox now stands at approximately 1.9Mt at an average grade of 5.1% nickel containing 96kt of nickel. The total Ore Reserve Estimate at Flying Fox now stands at approximately 1.4Mt at an average grade of 4.2% nickel containing 59kt 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: 233.4m shares Market capitalisation:
Approx A$443m @ $1.90 per share
Level 2, 2 Kings Park Road West Perth, WA 6005 www.westernareas.com.au
QUARTER IN LINE WITH GUIDANCE WITH UNIT CASH COST TRENDING LOWER
Western Areas (WSA or the Company) is pleased to report that production for both the quarter and half year ended 31 December remain in line to full year guidance, with units costs trending to the low end of guidance. The Forrestania operations remained cashflow positive for the quarter. 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 157,481 tonnes of ore at an average grade of 4.4% for 6,917 nickel tonnes. The mine grade reduced from the last quarter in line with the mine schedule and plan, however as an indication of January performance, both mines are grading just shy of 5% nickel at the time of this report. Spotted Quoll ore tonnages were a record for the quarter and half year at 81,318 and 162,020 tonnes respectively. Mill production remains extremely consistent at 6,256 nickel tonnes produced, despite an unplanned outage associated with a regional bushfire interrupting power supply.
Unit cash cost of production of A$2.24/lb (US$1.61/lb) was marginally lower than the last quarter. Half year unit cash costs are A$2.25/lb which is below the lower end of FY16 guidance of A$2.30/lb to A$2.50/lb. In line with past practice, any guidance update will be provided with the half year results.
Exploration and project enhancement activities were ramped up at Cosmos following a thorough review of the extensive drill data base handed over at transaction completion (see ASX announcement on 20 January 2016).
The nickel price continues to range between US$3.75/lb and US$4.00/lb with the recent weakening of the Australian dollar below US$0.70 providing some improvement in Australian dollar terms. The Company continues to work internally and externally on various cost and capital control measures. The significant portion of full year capital expenditure program was completed in the first half, and the previously announced capital expenditure deferrals have been implemented for the second half.
December 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 20 months without an LTI.
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Flying Fox mine production was 76,163t of ore mined at 4.2% for 3,183 nickel tonnes (7.0M lbs).
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Spotted Quoll mine production was a record at 81,318t of ore at 4.6% for 3,734 nickel tonnes (8.2M lbs).
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Mill throughput was 152,435t of ore at an average grade of 4.6% nickel with recovery of 89.3% for 6,256 nickel tonnes. Half year mill production totals 12,507 nickel tonnes.
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Unit cash cost of production of nickel in concentrate was A$2.24/lb,
being a slight reduction on last quarter.
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Consolidated cash at bank was A$29.9m (see page 2).
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Encouraging resource extension results at Flying Fox including 6.3m at 8.0% nickel in the T6 area of Flying Fox
Activity Report
For the period ending 31 December 2015
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CORPORATE AND FINANCING
Cashflow
Cash at bank was A$29.9m at the end of the quarter (September quarter A$59.0m). As disclosed in the September quarterly report, the December quarter cashflow was affected by the following one off material payments totaling A$34.4m:
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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$9.6m); and
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Completion of long lead items for the Mill Recovery Enhancement Project (A$4.0m).
In addition, due to the lower realised price for nickel, quotational pricing adjustments had a A$4.5m negative impact on cashflow. Group cash at bank plus nickel sales receivables was A$38.9m.
Capital and Exploration Expenditure (Investment Activities)
In respect of the revised guidance announced on 7 October 2015, the Company provides the following updates:
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Sustaining Capex and Exploration Expenditure (including Regional and Cosmos) - first half year actual spend was A$31.7m versus the full year guidance of A$49.0m. Accordingly the current second half forecast is A$17.3m, being a reduction of A$14.4m on the first half.
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Mill Enhancement - Half year actual of A$4.0m versus the full year guidance of A$7.4m.
Consequently, of the total investment activity guidance for FY16 of A$56.4m, A$35.7m (or 63%) has been spent in the first half with a significantly lower spend in the second half of A$20.7m.
Dividend
Western Areas paid the fully franked final dividend of 4 cents per share (A$9.3m) on 8 October 2015.
Capital Management
During the quarter, the Company advised that at Western Areas' request, agreement was reached with the Australian and New Zealand Banking Group ("ANZ") to modify the corporate loan facility ("facility") in order to minimise ongoing bank fees associated with facility maintenance. Under the altered facility arrangements the available limit has been set at A$50m. A discount to the current interest rate margin, applicable on future drawn amounts (if required) has been agreed. The remaining terms and conditions are consistent with the original facility agreement. The security position held by ANZ will be maintained, providing the ability to upsize the facility quickly and efficiently should the Company identify growth opportunities that require additional capital.
The previous undrawn A$125m facility was originally established to provide a committed line of finance for the Company and ensure a repayment backup position for the convertible bond. Following full retirement of the final convertible bond from cash reserves in July 2015, this backstop was no longer required.
Maintaining committed financial flexibility is a key element of the Company's capital management plan. This forms part of the Company's ongoing focus to reduce costs and identify efficiencies across all areas of the group. The Company also continues to monitor all available sources of funding to ensure that the previously announced deferred capital and exploration programs can be quickly restarted when market conditions permit.
Hedging
When pricing is supportive, the Company manages nickel price and foreign exchange risk with a combination of short term quotation period (QP) hedging and a set limit of medium term hedging. The policy allows the use of forward sales, bought options and collar style options:
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Activity Report
For the period ending 31 December 2015
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QP hedging is used to manage the risk of price fluctuations for nickel already shipped to offtake partners that is yet to have its nickel price finalised.
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Medium term hedging is used to manage the risk of nickel price fluctuations with a maximum 25% of expected nickel sales per month hedged out for a maximum of 12 months.
At quarter's end, the hedge book consisted solely of US$ foreign exchange contracts. No nickel is currently hedged due to the current lack of price support. Details of hedges as at 31 December 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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$0.7750
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Average US$ FX Floor
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$0.6738
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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. Western Areas has now operated 645 days without an LTI and the Company is committed to ensuring that the safety culture remains robust, dynamic and embraced by all personnel, contractors and service suppliers.
In November the Forrestania Emergency Response Team (ERT) participated in the Mines Emergency Response Competition held at Langley Park in Perth. The team acquitted themselves extremely well against much larger organisations and left the competition with valuable experience. The ERT was placed second in the Fire Fighting and third in both Breathing Apparatus and ERT Readiness skills.
ERT member in fire exercise
There were a number of bushfires that were in the vicinity of operations (closest was 25km to the east) during November and December and the ERT were requested by the Department of Fire and Emergency Services (DFES) to assist with local Volunteer Fire Brigades to contain and control the bushfires. Despite the hot weather and difficult conditions over a three week period, the bushfires were managed well with no injuries or asset damage sustained to any Forrestania assets.
Environment
One minor environmental incident occurred during the quarter when a tailings surface facility (TSF) return water line developed a leak. Only a minor quantity of return water was lost with all water reporting to the retention drain. No environmental impact resulted and the pipeline has been repaired.
Bryan Williams commenced as the new Group Environmental Manager in December. Bryan brings 17 years of experience at Newmont Mining with a particular focus on Environmental Management Systems, Heritage and Mine rehabilitation.
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Activity Report
For the period ending 31 December 2015
Compliance and Approval
The 2014‐15 National Greenhouse and Energy Reporting Scheme (NGERS) report for Western Areas Ltd controlled facilities was submitted in October. Greenhouse emissions for the 2014‐15 reporting period remained similar to those for the 2013‐14 reporting period.
New approvals in process during the quarter included:
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Cosmic Boy TSF Lift Proposal currently being assessed by Department of Mines and Petroleum (DMP) with a response expected soon; and
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Clearing permit and program‐of‐work (PoW) for exploration activities at Northern Estates near Parker Dome, both currently being assessed by DMP.
Cosmos
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The Prescribed Premises Licence for Cosmos was transferred from Xstrata; and
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The annual environmental reports for Cosmos were submitted.
Community
The Company renewed a three year sponsorship agreement with the Eastern Wheatbelt Biosecurity Group Inc. to enable the continued support for their feral animal control program along the State Barrier Fence (SBF) adjacent to Forrestania operations. The SBF divides the wheatbelt agricultural area from the Great Western Woodlands with the main aim of the program being to protect livestock from wild dog attacks.
Cosmos
Community consultation with members of the Tjiwarl native title claimant group commenced during the quarter with two meetings taking place. The Tjiwarl have a registered native title claim over a large area of land that includes Cosmos and the Company is committed to developing and maintaining a good working relationship with the traditional owners of the land.
November Snake handling course
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