(All dollar amounts are in U.S. dollars unless otherwise indicated. This release should be read in conjunction with the Company’s audited Financial Statements for the quarter ended March 31, 2016 and the Management’s Discussion and Analysis report found on the Company’s website or on SEDAR).
TORONTO, ON–(Marketwired – April 26, 2016) – LeadFX Inc. (the “Company” or “LeadFX“) (TSX: LFX) today reported results for the three months ended March 31, 2016. In the first quarter, we realized a net loss of $4.1 million or $0.11 per share compared to a net loss of $2.4 million or $0.22 per share for the first quarter of 2015. The net loss of $4.1 million was primarily due to care and maintenance costs of $1.0 million, general and administration costs of $1.4 million and foreign exchange losses of $0.9 million.
FIRST QUARTER HIGHLIGHTS
We are currently in discussions with a number of interested parties regarding potential financing options for the Company, including funding for a potential restart of the Paroo Station mine. The Paroo Station mine is on full care and maintenance and as a result additional financing will be required to meet our commitments to our lenders, meet the ongoing costs of care and maintenance, meet the costs of any potential future restart of the Paroo Station mine and meet the costs of any potential development of the Chief Consolidated Mining Company (“Chief”) properties and North 67 Inc. (“North 67”) properties. For further information on Chief and North 67, see the Company’s Annual Information Form dated March 8, 2015 (“2015 AIF”).
On April 22, 2016, Sentient Executive GP IV, Limited (for Sentient Global Resources Fund IV, L.P) (“Sentient IV”) advanced LeadFX US$1,000,000 pursuant to an unsecured promissory grid note dated April 22, 2016 issued by LeadFX to Sentient IV (the “Promissory Note”). LeadFX is entitled to draw down up to US$2,500,000 under the Promissory Note. No interest is payable on the principal amount of the Promissory Note, which must be repaid on June 30, 2017.
Preliminary planning has commenced in relation to the requirements for a potential restart of operations at the Paroo Station mine. Any decision to restart the Paroo Station mine will be dependent on a sustained improvement in LME lead prices supported by positive market fundamentals, favourable foreign exchange rates and treatment charges as well as securing the necessary financing to restart operations. Given the Company’s current debt obligations and an estimated mine life of approximately four years based on current Mineral Reserves, management continues to focus not only on funding requirements but on an overall strategic review of the Paroo Station mine and its operations in light of the foregoing factors. A small restart team has been retained to allow a rapid restart of operations if the decision to proceed is taken.
Price of Lead
During the first quarter of 2016, the LME Cash Settlement Lead Price averaged $1,744 per tonne compared to $1,806 per tonne in the same period in 2015. The LME lead price continues to be impacted by soft demand for lead in Europe and China and weak market fundamentals affecting commodities in general.
FINANCIAL AND OPERATING HIGHLIGHTS
|Summary financial and operating highlights:|
|Three months ended March 31|
|(in thousands of United States dollars, except per share amounts)||$||$|
|Gross (loss) profit||(1,004||)||(1,674||)|
|Net loss and comprehensive loss||(4,074||)||(2,392||)|
|Basic and diluted loss per share||(0.11||)||(0.22||)|
|Cash flow (used in) provided by operating activities||(842||)||1,641|
|March 31, 2016||December 31, 2015|
|(1)||During the first quarter of 2015, the Paroo Station mine transitioned to care and maintenance due to depressed London Metal Exchange (“LME”) lead prices and increased treatment charges. Mining operations ceased in January and milling operations ceased in early February. Final shipments of lead concentrate left the Fremantle port in March 2015.|
LIQUIDITY AND FINANCIAL CONDITION
|Statement of Cash Flows|
|Three months ended March 31|
|(in thousands of United States dollars)||2016||2015|
|Cash (used in) provided by operating activities||(842||)||1,641|
|Cash provided by (used in) investing activities||–||(487||)|
|Cash provided (used in) by financing activities||(23||)||(719||)|
|Effect of exchange rate changes on cash and cash equivalents||8||(211||)|
|Net change in cash and cash equivalents||(857||)||224|
Cash used in operating activities was $0.8 million for the first quarter of 2016 compared to $1.6 million provided by operating activities for the same period in 2015. Operations were cash flow negative in 2016 due to the costs incurred while the Paroo Station mine is on care and maintenance.
There have been no investing activities during the quarter while the Paroo Station mine has been in care and maintenance. Investing activities in the same period in 2015 primarily relate to additions to property, plant and equipment.
Financing activities in the current period relate to finance lease payments. In the same period in 2015, we met our scheduled principal repayment of C$0.8 million per month on January 31, 2015 under the C$20 million Secured loan facility the Company entered into with Sprott Resource Lending Partnership (“Sprott”). On February 12, 2015 we reached agreement with Sprott on a five-month forbearance on principal repayments ending on June 30, 2015. On June 17, 2015 Sprott agreed to a further extension of the forbearance period until November 15, 2015. In consideration, we repaid $3.8 million of the balance owing to Sprott resulting in loan repayments of $4.5 million in total for the year ended December 31, 2015. This cash outflow was partially offset by the receipt of a $1.8 million advance from the Enirgi Group during the fourth quarter in connection with the Merger and Debt Conversion (defined below), resulting in a net cash outflow of $3.1 million for the year and a net cash inflow of $1.5 million for the fourth quarter.
On November 13, 2015, the Company (i) merged with Geo Zone Exploration Limited and acquired 100% of its outstanding common shares by issuing 209 million LeadFX common shares to the former Geo Zone shareholders and (ii) converted approximately C$12.64 million ($9.4m) of outstanding debt owed by the Company to Enirgi Group into 6.6 million common shares (collectively the “Merger and Debt Conversion”).
Capital Resources, Liquidity and Working Capital Requirements
On December 18, 2015, Enirgi Group, Sprott and the Company entered into an agreement pursuant to which Enirgi Group paid Sprott the outstanding balance owed by the Company to Sprott under the Sprott Facility resulting in the Company owing Enirgi Group C$9.6 million ($7.0 million) (the “Enirgi Group Bridging Facility”). As at March 31, 2016, the Company has a working capital deficit of $13.7 million which includes $7.7 million (C$10.0 million) owing to Enirgi Group under the Enirgi Group Bridging Facility which has a maturity date of July 31, 2016. Neither the Paroo Station mine, the Chief properties nor the North 67 properties are operational or generating revenue.
The Company’s ability to continue as a going concern is dependent on a number of factors including but not limited to the Company’s ability to either (i) refinance the Enirgi Group Bridging Facility, (ii) raise additional funds to meet its debts and obligations as they fall due, or (iii) undertake further transactions which may realize the value of the Company and its assets. The Company will need to undertake at least one of these aforementioned actions in order to service its working capital deficiency, meet its commitments to lenders, meet the costs of care and maintenance, meet the costs of any potential future restart of the Paroo Station mine and meet the costs of bringing the Company’s mineral projects into production. The amount of any funding requirement will be contingent on several factors including, but not limited to, the nature of any refinancing of the Enirgi Group Bridging Facility, the nature of any additional transactions undertaken by the Company, the outcome of further negotiations with the Company’s lenders, the costs and duration of care and maintenance, the timing and cost of any potential future restart of operations at the Paroo Station mine and the cost of bringing the Company’s mineral projects into production.
There is no guarantee or assurance that the Company will be able to (i) refinance the Enirgi Group Bridging Facility, (ii) be able to secure sufficient financing to fund its commitments to its lenders, the costs of ongoing care and maintenance, the costs of any potential future restart of operations or the costs of bringing its mineral projects into production or (iii) complete any further transactions. If the Company is unable to obtain sufficient funds or repay debts from either one or more of these actions, it could affect its ability to continue as a going concern. A decision to restart the Paroo Station mine will be contingent on several factors including, but not limited to, a sustained recovery in the LME lead price, a reduction in treatment charges and a favorable USD:AUD foreign exchange rate. A decision to commence development of the Company’s mineral projects will be contingent on several factors including, but not limited to, commodity prices, the projected cost to develop these projects and obtaining funding to finance these costs.
These material uncertainties create significant doubt as to the Company’s ability to continue as a going concern. As at March 31, 2016 the consolidated financial statements do not reflect any adjustments to carrying values of assets and liabilities and the reported expenses and balance sheet classifications that would be necessary should the going concern assumption be inappropriate.
On April 22, 2016, Sentient IV advanced LeadFX US$1,000,000 pursuant to the Promissory Note. LeadFX is entitled to draw down up to US$2,500,000 under the Promissory Note. No interest is payable on the principal amount of the Promissory Note, which must be repaid on June 30, 2017.
Shares issued and outstanding
As of the date hereof, there were approximately 38.3 million common shares of LeadFX issued and outstanding. In addition, options exercisable for a maximum aggregate of approximately 0.2 million common shares were outstanding.
RELATED PARTY TRANSACTIONS
Enirgi Group, its subsidiaries and joint ventures are each a “related party” to LeadFX by virtue of Enirgi Group and LeadFX being owned by the same parent. As at March 31, 2016, The Sentient Group of Global Resource Funds (“Sentient”) held 85.1% of the issued and outstanding shares of LeadFX. Previously, Enirgi Group Corporation (“Enirgi Group”), a wholly owned subsidiary of Sentient, owned 85.1% of the issued and oustanding shares of LeadFX. On March 24, 2016, shares of LeadFX held by Enirgi Group were transferred to Sentient.
Management’s Discussion and Analysis and Consolidated Financial Statements
LeadFX’s audited financial statements and MD&A for the three months ending March 31, 2016 will be filed today and will be available on SEDAR at www.sedar.com and on the Company’s website at www.leadfxinc.com.
LeadFX is a Canadian-based mining company focused on the development of lead-silver projects located in stable jurisdictions. Our current portfolio includes a restart-ready lead operation in Western Australia and a development project in Utah, USA. The Company is developing opportunities at its new properties in North America to underpin future cash flow and growth. LeadFX trades under the symbol “LFX” on the Toronto Stock Exchange.
Certain statements contained in this news release are forward-looking information within the meaning of applicable securities laws. All statements included herein (other than statements of historical facts) which address activities, events or developments that management anticipates will or may occur in the future are forward-looking statements, including statements as to the following: the timing and length of care and maintenance at the Paroo Station mine and future sales, future targets and estimates for production and sales, the receipt of required additional financing to restart and operate the Paroo Station mine, statements relating to the business and future activities of, and developments related to LeadFX and its subsidiaries, including the development of water, lead, silver, industrial minerals and aggregates assets, future business acquisitions, future lead production, the Company’s ability to meet its working capital needs and debt repayments in the near term, the circumstances or timing and costs surrounding a restart of the Paroo Station mine, forbearance by Enirgi Group pursuant to the Enirgi Group Bridging Facility, projections with respect to cash flows and working capital, the cost and timing for completion of capital projects necessary for any future operations, the Company’s ability to comply with the transportation and operating conditions for the Paroo Station mine, capital expenditures, operating costs, cash costs, Mineral Resources, Mineral Reserves, life of mine, recovery rates, grades and prices, business strategies and measures to implement such strategies, competitive strengths, estimated goals and plans for LeadFX’s future business operations, commodity prices outlook and other such matters. Forward-looking statements are often, but not always, identified by the use of words such as “seek”, “anticipate”, “contemplate”, “target”, “believe”, “plan”, “estimate”, “expect”, and “intend” and statements that an event or result “may”, “will”, “can”, “should”, “could” or “might” occur or be achieved and other similar expressions. These statements are based upon certain reasonable factors, assumptions and analyses made by management in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors management believes are appropriate in the circumstances. However, whether actual results and developments will conform with management’s expectations is subject to a number of risks and uncertainties, including factors underlying management’s assumptions, such as, expected concentrate sales when in operations, the costs and other capital expenditures required to maintain operations and transportation, the timing, need and ability to raise any additional financing and the risks relating to ramping up mining and milling throughput and operations, funding requirements, operations being placed on care and maintenance, the restart of mining and milling operations, matters relating to regulatory compliance and approvals, shareholder dilution, matters relating to public opinion, presence of a majority shareholder and management services agreements with Enirgi Group , matters related to the Esperance settlement and shipments through the Port of Fremantle, regulatory proceedings and litigation and general operating risks such as metal price volatility, lead carbonate concentrate treatment charges, exchange rates, the fact that the Company has a single producing mineral property, health and safety, environmental factors, mining risks, metallurgy, labour and employment regulations, government regulations, insurance, dependence on key personnel, constraints on cash distribution from the Paroo Station mine, the nature of mineral exploration and development and common share price volatility.
Additional factors and considerations are discussed in the Company’s 2015 AIF and elsewhere in other documents filed from time to time by LeadFX with Canadian securities regulatory authorities and available on SEDAR at www.sedar.com. While LeadFX considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. While LeadFX considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. These factors may cause the actual results of the Company to differ materially from those discussed in the forward-looking statements, and there can be no assurance that the actual results or developments anticipated by management will be realized or, even if substantially realized, that they will have the expected results on the Company. Undue importance should not be placed on forward-looking information nor should reliance be placed upon this information as of any other date. Except as required by law, while it may elect to, LeadFX is under no obligation and does not undertake to update this information at any particular time.