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TMAC Announces Q2-2019 Financial Results

TORONTO--(BUSINESS WIRE)--

TMAC Resources Inc. (TMR.TO) (“TMAC” or the “Company”) reports its second quarter 2019 financial results. All amounts are in Canadian dollars unless otherwise indicated.

Jason Neal, President and Chief Executive Officer of TMAC, stated, “The royalty transaction announced this morning strengthens the balance sheet with gross proceeds of $57 million to enable ongoing investment in growth at Hope Bay while providing a buffer against operational volatility as well as the funding support for our seasonal sealift. This transaction was determined to be the most attractive cost of capital, preserve the best participation in strengthening gold prices for our shareholders and has the benefit of maintaining both financial and strategic flexibility. TMAC reported consecutive quarters of earnings with a second quarter net profit of $0.01 per share on revenue of $66.1 million with an average realized gold price of US$1,310 per ounce. As previously reported, quarterly production has modestly declined as a result of reduced plant recovery from 84% to 80%, which in turn has contributed to an increase in AISC(1) and Cash Costs(1) to US$1,081 per ounce and US$729 per ounce, and US$1,036 per ounce and US$693 per ounce for the quarter and year to date, respectively.”

Jason Neal continued, “We continue to have strong drilling results in the growing Doris BTD Extension zone, including in one hole 110.8 grams per tonne of gold over 10.8 metres. Additionally, initial drill results in a new zone we are calling Doris Valley, as part of our Doris regional program, are intriguing and we are evaluating our follow up strategy. At Doris Valley, assays from two holes in the vicinity of good surface grab samples included promising intercepts within the first 15 metres from surface. The first encountered 9.0 grams per tonne of gold over 8.5 metres including 15.4 grams per tonne of gold over 2.3 metres and a second had 5.3 grams per tonne of gold over 4.8 metres including 12.5 grams per tonne of gold over 1.6 metres. There is obviously more work required to follow up on this initial success, but this highlights the potential to grow our mineral inventory through even modest exploration investment.”

Jason Neal concluded, “In the second quarter the Board of Directors approved the addition of two key capital investments, including additional mining equipment to begin the portal and decline at Madrid North for advanced exploration, as it is important to advance the second potential mine at Hope Bay. Our capital project to improve gravity recovery is complete but highlighted the capacity constraint of the concentrate treatment plant, and the purchase and installation of the scavenger circuit was approved to address gold in solution losses. These items together with an increase in capital for the ocean discharge project, including a scope change to add water treatment, from approximately 90% of the increase in our expansion capital guidance from $20 million to $36 million. We are also narrowing our initial production guidance from 160,000 to 180,000 ounces to now be 170,000 ounces at the top end. Cash costs and AISC guidance has been updated to reflect the change in production guidance as well as a modestly strengthening Canadian dollar and additional royalties for the second half of the year. Cash cost guidance has been narrowed within the existing range, with the low end increasing from US$625 per ounce to US$650 per ounce. AISC guidance has increased by about 5% to now be US$950 per ounce to US$1,050 per ounce.”

SECOND QUARTER 2019 FINANCIAL HIGHLIGHTS

  • Gold production and sales

38,520 ounces produced, 37,730 ounces sold

  • Gross revenues

$66.1 million

  • Average realized gold price

$1,751 per ounce (US$1,310 per ounce)

  • Cash Costs(1)

US$729 per ounce of gold sold

  • Cost of sales(2)

US$1,105 per ounce of gold sold

  • All-in Sustaining Costs (“AISC”)(1)

US$1,081 per ounce of gold sold

  • Adjusted EBITDA(1)

$24.3 million

  • Net profit

$1.2 million

  • Net profit per share

$0.01 per share on a basic and fully diluted basis

  • Cash flows from operations

$21.5 million

  • Sustaining capex(1)

$12.8 million

  • Expansion capex(1)

$11.4 million

  • Cash on hand

$45.4 million at June 30, 2019, including:
$14.6 million of unrestricted cash
$30.8 million of restricted cash

  • Principal repayments

$nil

  • Debt balance

$147.7 million (US$117.0 million)

(1) Refer to the “Non- IFRS Measures” section in the associated MD&A for a description and calculation of these measures.
(2) Includes depreciation.

BALANCE SHEET AND CASH MANAGEMENT

On August 14, 2019, TMAC entered into an amending agreement (the “Royalty Amendment”) to the existing 1% net smelter royalty (“NSR”) with Maverix Metals Inc. (“Maverix”). The Royalty Amendment provides Maverix with an additional 1.5% NSR for proceeds of US$40 million. The key terms of the Royalty Amendment are:

  • US$40 million proceeds for the Additional 1.5% NSR Royalty Amendment and US$3 million concurrent equity issuance to Maverix at a price of C$6.00 per share (US$43 million total proceeds)
  • Short term incremental 0.25% NSR until the additional 1.5% NSR is registered against the property, which is expected to occur once the Sprott debt is repaid (expected in 2021)
  • Full buyback right for the entire additional 1.5% NSR (and bonus 0.25% NSR) for US$50 million in the event of a change of control transaction that is announced before June 30, 2021
  • Partial buyback right of 0.5% of the additional 1.5% NSR for US$15 million after June 30, 2021
  • Step-down of the additional 1.5% NSR, regardless of whether the partial buyback right has been exercised, to 0.75% after three million ounces of gold have been produced at Hope Bay from the effective date.
  • Ability for TMAC to pay the quarterly additional NSR amounts with common shares at then current share prices until June 30, 2021
  • Effective date of August 1, 2019 for new NSR payments
  • The transaction is expected to close on or around August 16, 2019

Please refer to TMAC’s news release that summarizes the Royalty Amendment, issued on August 14, 2019 titled “TMAC Enters into a Royalty Amendment with Maverix”.

TMAC renewed the diesel fuel purchase and storage agreement with a subsidiary of Macquarie Bank Ltd (“Macquarie”) whereby Macquarie purchases and delivers diesel fuel to Hope Bay and stores fuel in TMAC’s tanks at Roberts Bay. TMAC will purchase and pay for the diesel fuel as it is consumed. The price of the diesel fuel is fixed in Canadian dollars at the time of delivery to site at the same terms as TMAC’s existing fuel supply and delivery agreement, plus a premium. This agreement provides a mechanism that enables TMAC to better manage the levels of working capital and reduce the seasonal volatility of its operating cash outflows.

SECOND QUARTER 2019 PRODUCTION HIGHLIGHTS

  • Production of 38,520 ounces of gold compared to 40,050 ounces of gold produced in the first quarter 2019.
  • Underground mine production during the second quarter of 2019 was 1,160 tonnes per day at an average grade of 11.4 grams per tonne. Included are 91,600 tonnes of ore at an average grade of 12.7 grams per tonne, produced from longhole stoping and sill development during the quarter. Sill development contributed a further 14,200 tonnes at an average grade of 3.5 grams per tonne, which is below the mining cut-off grade of 4.0 grams per tonne and is classified as incremental ore.
  • The Plant achieved throughput of 1,740 tonnes per day at an average grade of 9.5 grams per tonne and an average recovery of 80% in the second quarter 2019.

Please refer to TMAC’s news release that summarizes the second quarter 2019 operating results, issued on July 15, 2019 titled “TMAC Resources Announces Q2 2019 Production of 38,520 Ounces”.

 

2019 OUTLOOK

Description

Units

2019

Guidance

2019 Adjusted Guidance

Production

ounces

160,000 – 180,000

160,000 - 170,000

Cash Costs(1)(2)

US$/oz

625 - 700

650 - 700

AISC(1)

US$/oz

900 – 1,000

950 - 1,050

 

 

 

 

Sustaining capital(1):

 

 

 

- Underground development

$millions

36

45

- Infrastructure and equipment

$millions

12

6

- Delineation drilling

$millions

6

6

Total

$millions

54

57

 

 

 

 

Expansion capital(1)

$millions

20

36

Exploration and evaluation

$millions

25

25

(1) Refer to the definition of Cash Costs, AISC, sustaining capital and expansion capital in the Non-IFRS Measures section of the MD&A.
(2) Cash Costs includes production cost, royalties and selling expenses.

2019 production guidance has been narrowed by lowering the top end to 170,000 ounces from 180,000 ounces. Cash Costs guidance has been narrowed by increasing the low end of the range to US$650 per ounce from US$625 per ounce. The AISC range has been increased by approximately 5% to US$950 to US$1,050 per ounce. Increases to Cash Costs and AISC guidance is the result of narrowing the production range as well as modest strengthening of the Canadian dollar and the additional forecast royalty payments to Maverix.

Sustaining capital has increased slightly to $57 million, up from $54 million. Underground development guidance has increased by $9 million related to an updated mine plan to include additional development for the remainder of 2019 to develop mining faces required for 2020 mining. To offset this increase, sustaining capital for infrastructure and equipment decreased by $6 million due to deferral of projects.

Expansion capital increased $16 million over the previous guidance. Approximately $9 million of this increase is for two capital projects that were Board-approved in the second quarter and added to the budget and forecast guidance. The first is the purchase of equipment to commence the underground portal and ramp at Madrid for advanced exploration, and the second is the engineering, procurement and installation of the scavenger columns being added to treat the solutions tails from the concentrate treatment plant. Approximately $5 million of the increase relates to additional costs for the marine outfall pipeline, including a scope change to include a filtration station to remove suspended solids prior to discharge. The remaining $2 million relates to an increase in capital for the gravity concentrator project, which concluded at the end of the quarter, and an increase to the budget for infrastructure development costs related to the Naartok East crown pillar recovery.

2019 guidance for exploration and evaluation remains unchanged at $25 million.

UPDATE ON MINING

Stope production from Doris Connector and Doris BTD were delayed in the second quarter of 2019 due to issues with blasting stopes containing waste blocks and a lack of working faces being available due to development being behind plan. Doris Connector and Doris BTD will be mined throughout the second half of the year and ore production from sill development from Doris Central is scheduled to commence at the end of 2019. Development towards the Doris Central orebody in 2019 is mainly focused on decline and waste development and initial testing of the ore in late 2019. Development is focused on preparing for stope production in 2020.

Work has started on surface mining of the Madrid Naartok East crown pillar. Surface infrastructure was essentially completed, and mining commenced with overburden removal progressing as per plan and with the first blast in ore planned for August 2019. Metallurgical testing of the Naartok East ore has been completed to determine the most efficient blending strategies with the Doris ore. Due to the delays experienced at the Doris underground operations discussed above, starting in August, Naartok East ore will be processed throughout the remainder of the year. Mining of the crown pillar is estimated to produce 132,300 tonnes of ore at a grade of 5.6 grams per tonne during the last five months of 2019, or approximately 880 tonnes per day over a five-month period commencing in August 2019. The remainder will be mined in the first half of 2020.

Mine development productivity improved to 20.2 metres per day during the second quarter of 2019, and expected to further improve in the third quarter, compared to 18.4 metres per day in the first quarter of 2019, however, development was lower than what was required to open up sufficient mining faces. Productivity was impacted by blasting delays caused by ventilation and water management issues. The mine operations continue to focus on increasing development productivity with part of the additional development work in the second quarter of 2019 related to underground infrastructure and ventilation upgrades required to support increasing the development metres per day.

UPDATE ON PLANT THROUGHPUT AND RECOVERIES

The design, procurement, and installation of the additional gravity concentrators was completed in December 2018, with commissioning continuing through the first and second quarters of 2019. Installation of the first surge bin between the crushing and grinding circuits was completed during the first quarter and commissioned in April. The second surge bin was installed in the second quarter and became operational on July 1, 2019. The surge bins, once commissioned, have been successful in improving stability in the flotation circuit and have also resulted in the Plant achieving increased throughput. The Plant processed an average of 1,940 tonnes per day in May and June combined, including a 21-day period that averaged more than 2,000 tonnes per day.

The availability of the gravity concentrators in the second quarter of 2019 was low, with 0% utilization of one C2000, 10% utilization of the second C2000, and 62% utilization of the SB1350s during the quarter. The commissioning of the two SB1350s and the two C2000s units was impacted by enhanced water rates experienced at transition sections of piping within the batch gravity circuit, which transpired into pumping issues requiring reconfiguring of the pumping and piping systems. Excessive replacement time by the manufacturer to replenish key components in the pumping systems kept the concentrators from being operational resulting in the SB400s being used as the primary backups to the system. Management believes it has technically resolved the challenges and expects improved operating statistics once all changes have been made early in the third quarter of 2019.

In the second quarter of 2019, the low availability of the gravity concentrators put more pressure on resin performance in the concentrate treatment plant by delivering higher grade concentrates, in which the resin could not absorb as much of the gold in solution tails, resulting in an overall decrease in recoveries to 80%. During the second quarter, recovery losses of 20% (i.e., 100% less 80%) consisted of flotation tails of 8%, detox solid tails of 3%, and solution tails of 9%, compared with the first quarter where recovery losses of 16% (i.e., 100% less 84%) consisted of flotation tails of 10%, detox solid tails of 2%, and solution tails of 4%. The reduction in flotation tails is due to the installation of the gravity concentrators. The scavenger columns, which are expected to be installed at the end of the third quarter of 2019, with commissioning in the fourth quarter of 2019, are targeting recovering gold from the concentrate treatment plant solution tails which are expected to improve recoveries.

EXPLORATION

A total of 9,446 metres of underground diamond drilling were completed during the second quarter of 2019 and included 980 metres on Doris BTD, 6,475 metres on Doris Connector, and 1,991 metres on the Doris North Zone. In the second quarter, underground diamond drilling on the Doris North BTD Extension continued to expand the high-grade mineralization to the north a further 60 metres from previous results. Drilling from surface at Doris has intersected significant mineralization, a further 325-375 metres to the north of the established resources. At Madrid North Suluk, ore grade intercepts of minable width were drilled at the 660 metre level which highlights the potential for significant expansion at depth. Please refer to TMAC’s news release that summarizes the second quarter 2019 drill results, issued on July 15, 2019 titled TMAC Resources' Second Quarter Exploration Results Include High-Grade Intercepts at Doris and Madrid North.

Subsequent to the July 15, 2019 second quarter exploration news release, surface exploration drilling has continued at Doris. To date five holes have intersected the Doris deposit stratigraphy, with mineralized quartz veins at the Fe-Ti Tholeiite – Mg Tholeiite contact, suggesting the Doris BTD stratigraphy continues at least 375 metres along strike to the north. Additional drilling is required to determine the relationship to the known Doris Deposit, and if this a continuation of Doris North BTD Extension, fault offset block, or a new mineralized zone. These results represent significant step from the currently defined mineral resources and increases our confidence in the long-term sustainability of Doris operations. Please refer to TMAC’s news release that summarizes the exploration update, issued on August 14, 2019 titled “TMAC Announces Growth of Doris BTD Extension Zone and First Results from Doris Regional Program”.

SECOND QUARTER 2019 CONFERENCE CALL AND WEBCAST

Senior management will host a conference call and webcast to discuss these results on Thursday, August 15, 2019 at 10:00 a.m. (ET).

Conference call and webcast details:

Thursday, August 15, 2019 at 10:00 a.m. ET

Webcast

www.tmacresources.com

Toll Free (North America)

1-800-319-4610

Toronto

416-915-3239

International

604-638-5340

An archive of the webcast will be available on the Company’s website.

SUMMARY OF FINANCIAL RESULTS

 

 

 

Three months ended

Six months ended

 

Units

June 30, 2019

June 30, 2018

June 30, 2019

June 30, 2018

P&L Summary:

 

 

 

 

 

Revenue

ounces

37,730

25,760

76,930

45,300

Revenue

$millions

66.1

43.3

134.0

76.3

Cost of sales(1)

$millions

55.9

42.3

106.0

77.9

Profit (loss) from mining operations

$millions

10.2

1.0

28.0

(1.6)

General and administrative

$millions

4.8

4.4

9.8

8.6

Financing costs, net

$millions

4.9

5.0

9.4

9.7

Foreign exchange gain (loss)

$millions

3.3

(4.1)

6.5

(9.9)

Net profit (loss)

$millions

1.2

(10.3)

8.4

(25.3)

Per share

$/share

0.01

(0.11)

0.07

(0.27)

EBITDA(2)

$millions

26.2

4.9

58.1

1.4

Adjusted EBITDA(2)

$millions

24.3

8.0

52.9

10.8

 

 

 

 

 

 

Unit Costs:

 

 

 

 

 

Cost of sales(1)

$/oz

1,482

1,642

1,378

1,720

Cost of sales(3)

US$/oz

1,105

1,273

1,032

1,344

Cash Costs(3)

US$/oz

729

928

693

980

Sustaining capex

US$/oz

254

299

244

333

Other sustaining costs

US$/oz

98

136

99

155

AISC(2)(3)(4)

US$/oz

1,081

1,363

1,036

1,468

 

 

 

 

 

 

Cash Flow Summary:

 

 

 

 

 

Cash from operating activities

$millions

21.5

14.6

56.9

25.5

Cash used in investing activities

$millions

(32.6)

(27.0)

(56.1)

(44.2)

Cash from financing activities

$millions

0.6

0.7

(10.0)

0.8

Net increase/(decrease) in cash

$millions

(11.0)

(11.5)

(10.2)

(17.8)

Cash at end of period

$millions

14.6

24.2

14.6

24.2

 

 

 

 

 

 

USD Results:

 

 

 

 

 

Average exchange rate

CAD/USD

1.34

1.29

1.33

1.28

Revenue

US$ millions

49.4

33.5

100.5

59.5

Average realized sales price

US$/oz

1,310

1,300

1,306

1,313

Average spot price of gold – London PM Fix

US$/oz

1,309

1,306

1,307

1,318

 

 

 

 

 

 

CAPEX Summary:

 

 

 

 

 

Sustaining(4)

$millions

12.8

10.1

25.1

19.5

Expansion(4)

$millions

11.4

12.4

17.2

20.3

Exploration and evaluation

$millions

4.4

4.6

9.0

6.1

(1) Includes depreciation.
(2) Refer to the definitions of EBITDA, Adjusted EBITDA, Cash Costs, AISC, Sustaining capex and Expansion capex in the associated MD&A.
(3) Translated using exchange rates at the time of incurring the expenditure.
(4) AISC is calculated using the updated guidance from the World Gold Council, issued in November 2018, and certain projects previously classified as sustaining capex have been reclassified as expansion capital.

SUMMARY OF OPERATING RESULTS

 

 

Three months ended

Six months ended

 

 

Units

June 30,

2019

June 30,

2018

June 30, 2019

June 30,

2018

Mining:

 

 

 

 

 

Ore(1)

tonnes

91,600

68,900

223,300

151,500

Average grade

g/t

12.7

9.8

11.6

9.1

Contained gold

ounces

37,300

21,700

83,200

44,300

 

 

 

 

 

 

Incremental Ore(2)

tonnes

14,200

2,500

26,500

8,600

Average grade

g/t

3.5

3.7

3.3

3.3

Contained gold

ounces

1,600

300

2,800

900

 

 

 

 

 

 

Total ore

tonnes

105,800

71,400

249,800

160,100

Average grade

g/t

11.4

9.6

10.7

8.8

Contained gold

ounces

38,900

22,000

86,000

45,200

Mining rate

tpd

1,160

790

1,380

880

 

 

 

 

 

 

Waste(3)

tonnes

92,300

78,100

187,200

144,300

 

 

 

 

 

 

Total tonnes

tonnes

198,100

149,500

437,000

304,400

Development

metres

1,840

1,670

3,500

3,040

 

 

 

 

 

 

Processing:

 

 

 

 

 

Processing rate

tpd

1,740

970

1,680

950

Ore processed

tonnes

158,300

88,300

303,300

171,900

Average grade

g/t

9.5

10.0

9.9

10.4

Contained gold

ounces

48,520

28,300

96,400

57,520

Recovery

%

80

82

82

76

Gold produced

ounces

38,520

23,140

78,570

43,790

Gold in process change

ounces

460

(2,830)

3,330

(1,050)

Gold poured

ounces

38,060

25,970

75,240

44,840

Gold sold

ounces

37,730

25,760

76,930

45,300

 

 

 

 

 

 

Stockpiles:

 

 

 

 

 

Primary stockpile:

 

 

 

 

 

Ore on surface(1)

tonnes

12,200

68,300

12,200

68,300

Average grade

g/t

11.2

10.1

11.2

10.1

Contained gold

ounces

4,400

22,200

4,400

22,200

 

 

 

 

 

 

Secondary stockpile:

 

 

 

 

 

Ore on surface(2)

tonnes

55,000

29,200

55,000

29,200

Average grade

g/t

3.4

3.4

3.4

3.4

Contained gold

ounces

6,100

3,200

6,100

3,200

(1) Includes material from mining that is above the mining cut-off grade of 4.0 g/t. The three-month period ended December 31, 2018 includes ore mined from the surface crown pillar recovery at Doris.
(2) Includes material from sill development that is below the mining cut-off grade of 4.0 g/t.
(3) Adjusted comparative period for the Incremental Ore that was previously classified as waste.

ABOUT TMAC RESOURCES INC.

TMAC Resources operates Hope Bay located in Nunavut, Canada. The property and operations are remote but not isolated, serviced by both a port and airstrip. Hope Bay is an 80 km by 20 km Archean greenstone belt that has been explored by BHP, Miramar, Newmont and TMAC over a period spanning more than 30 years. In that time, more than $1.5 billion of sunk expenditures have been spent in exploration and evaluation, surface infrastructure, and mine and process plant development. TMAC began producing gold in early 2017 from Doris, its first mine at Hope Bay, and processed gold at the Doris Plant which originally had nameplate capacity of 1,000 tonnes per day and expanded to 2,000 tonnes per day midway through 2018. Hope Bay has 4.8 million ounces of measured and indicated resources at Doris, Madrid and Boston deposits, largely within 350 metres of surface. There is potential to grow these established deposits considerably at depth, and then grow resources further through the prioritized exploration of the more than 90 other identified regional targets. TMAC is now permitted to produce from both Madrid and Boston.

FORWARD-LOOKING INFORMATION

This release contains “forward-looking information” within the meaning of applicable securities laws that is intended to be covered by the safe harbours created by those laws. “Forward-looking information” includes statements that use forward-looking terminology such as “may”, “will”, “expect”, “anticipate”, “believe”, “continue”, “potential” or the negative thereof or other variations or comparable terminology.

“Forward-looking information” is not a guarantee of future performance and management bases forward-looking statements on a number of estimates and assumptions at the date the statements are made. Furthermore, such “forward-looking information” involves a variety of known and unknown risks, uncertainties and other factors, which may cause the actual plans, intentions, activities, results, performance or achievements expressed or implied. See “Risk Factors” in the Company’s Annual Information Form dated March 11, 2019 filed on SEDAR at www.sedar.com for a discussion of these risks.

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