Sprott Resource Holdings Inc. Announces 2019 First Quarter Results
Sprott Resource Holdings Inc. Announces 2019 First Quarter Results
(all amounts expressed in US dollars)
TORONTO, May 09, 2019 -- Sprott Resource Holdings Inc. (" SRHI" or the " Company") today announced its financial results
for the three months ended March 31, 2019. The Company's principal operating business is its 70% equity interest in the
Chilean producing copper mine Minera Tres Valles (" MTV"). The Company's financial statements and management's
discussion and analysis (" MD&A") are available at www.sprottresource.com and www.sedar.com.
The Company today reported a quarterly net loss of $4.1 million or $(0.12) per share. This result includes a net loss from
discontinued operations of $1.5 million and an unrealized gain on portfolio investments of $1.7 million. Adjusted EBITDA (see
Non-IFRS Financial Measures) from continuing operations for the quarter was negative $2.0 million or $(0.06) per share. In the
first quarter of 2018, the Company reported a net loss of $8.7 million or $(0.26) per share.
In the first quarter of 2019, cash used by operating activities was $4.5 million ($1.9 million before changes in non-cash
components of working capital), as compared with the first quarter of 2018 when cash used by operating activities was $4.1
million (cash provided of $0.3 million before changes in non-cash components of working capital).
The decrease in net loss for the period was a result of increased copper cathodes produced. Cost per pound produced
decreased to $2.27 compared to $2.43 for the comparable period of last year as the fixed cost component of MTV’s operations
was allocated across increased production. The gross loss for the three months ended March 31, 2019 of $1.6 million is
largely due to an increase in depreciation expense resulting primarily from pre-strip at the Don Gabriel open pit (" Don
Gabriel ").
"This year is important for MTV as we undertake projects to grow copper production to match our plant capacity of 40 million
pounds of copper cathodes per year. Our operations team is focused on implementing the expansion as detailed in our filed
Technical Reports," said Michael Harrison, Interim President and CEO of SRHI. "MTV management expects to commence the
addition of salt to the crushed ore earlier than planned, improving production and project economics, and drawing down the
copper in-process inventory."
"We increased crushing throughput this quarter, and we continue to ramp-up waste mining activity for future phases of the Don
Gabriel open pit," continued Mr. Harrison. "Copper cathode production has steadily increased quarter-over-quarter and we look
forward to seeing our operations team continue production growth and unit cost reductions in 2019."
First quarter highlights include:
• Increased quarterly production - Produced 4.0 million pounds of 99.99% pure copper cathodes at a cash cost of
$2.27 per pound of copper produced (see Non-IFRS Financial Measures) and sold 2.9 million pounds at an average
sales price of $2.81 per pound of copper.
• Quarterly revenue in line with expectations - Revenue of $8.6 million generated from the sale of copper cathodes
and tolling charges for mineralized material supplied by ENAMI continue to track expectations with over $2 million of
finished goods inventory at March 31, 2019.
• Increased waste and pre-stripping - 1.5 million tonnes moved, primarily for future phases of mining at the Don
Gabriel.
• Total capital expenditures of $2.3 million - primarily waste stripping at Don Gabriel
• Cash and cash equivalents of $10.2 million included working capital of $16.0 million
Growth Initiatives
On November 2, 2018, the Company announced the results of a NI 43-101 technical report (the "Technical Report ") by Wood
plc detailing the basis for the Company's expansion plans of MTV.
Total material crushed in the first quarter increased to 311 thousand tonnes as a result of increased open pit operations,
primarily from Don Gabriel, Cumbre and the newly opened Rajo Norte mine. This compares to 139 thousand tonnes in the prior
year's two-month period.
Don Gabriel is the largest contributor of ore to MTV and the unit costs have decreased approximately 50% from early 2018,
reducing the cutoff grade and increasing copper production. The Rajo Norte and Cumbre open pit mines are two of the ancillary
deposits that contribute to copper production as shown in the PEA case of the Technical Report and demonstrates the
flexibility in MTV’s operations.
Ore production from the Papomono underground mine remained stable, extracting ore from resource blocks adjacent to the
Papomono Massive deposit in advance of future block caving efforts. A large component of ore production growth in 2020 will
come from the higher-grade Papomono Massive deposit. MTV plans to extract ore using the incline block caving method,
which is expected to reduce unit-mining costs from current levels by approximately 50%. The Company and MTV have spent
considerable time investigating and analyzing caving methods as part of trade-off analysis, using well-known global experts in
caving.
Following our pre-feasibility level estimates in the Technical Report, detailed engineering is underway, and MTV is selecting
the underground development contractor. Final approval for the required permits is expected in the third quarter of 2019 and
once long-term financing is in place, MTV will start the development of access levels and draw points. Initial development is
expected to take 10 months, prior to commencement of extraction. Over time, production from Papomono Massive is
expected to ramp up to 2,000 tonnes per day, compared to the current production levels of 500 tonnes per day.
Mineralized material supplied by ENAMI and local miners increased in concert with higher copper prices. The processing of
non-MTV mineralized material has good margins, utilizes excess capacity, requires no capital spend and benefits local
community members.
The Salt Leach project at MTV involves adding rock salt (NaCl) in the agglomeration stage of the crushing plant and allowing
the mixed sulphide and oxide material to rest on the heap 30 days before application of sulphuric acid. The oxidation of
sulphide material in the heaps is expected to improve copper recoveries by 8%, reduce acid consumption, and decrease the
leach time by 40%. These changes are expected to reduce cash costs and improve MTV’s working capital. MTV is expected
to commence adding salt in the third quarter while adding lined pumps to resist corrosion in the key equipment. The lined
pumps are temporary and will be replaced by titanium pumps and valves that were subject to manufacturing delays
subsequent to when the order was placed. Construction of additional cleaning tanks for the Salt Leach is on track and
approximately 50% of the actual and committed expenditures for the Salt Leach remain. Despite the additional cost of the
lined pumps, we expect the total cost of the Salt Leach project to be in line with the original pre-feasibility Technical Report
estimate of $7.1 million.
Cash Position
Cash and cash equivalents decreased to $10.2 million at March 31, 2019 from $13.5 million at December 31, 2018 as the
Company continues to support the operations at MTV that have resulted in an inventory build of $4.1 million and capital
expenditures of $2.3 million in the quarter. The outstanding balance on MTV's $15 million capacity revolving credit facility
remained at $14.3 million at March 31, 2019.
SRHI and MTV continue to advance discussions to secure long-term debt and offtake financing to fund the growth initiatives.
Capital Expenditures
Capital expenditures for the three months ended March 31, 2019 were primarily pre-stripping waste rock at Don Gabriel in
preparation of its new mining phases.
Investment Portfolio Divestment
The Company continues to work on divestment strategies for the non-core assets. No dispositions have been made to date but
management expects that some, if not all, of the non-core investments or businesses will be divested during the remainder of
2019.
Operating and Financial Results Summary
The following operating and financial highlights are for the three months ended March 31, 2019 and two months ended March
31, 2018.
Three months
ended
Two months
ended
Operating information Mar. 31, 2019 Mar. 31, 2018
Copper (MTV Operations)
Total ore mined (thousands of tonnes) 264 90
Total waste mined (thousands of tonnes) 1,499 90
Ore Processed (thousands of tonnes)
311
139
Grade (% Cu)
0.61% 0.91%
Cu Production (tonnes)
1,793
922
Cu Production (thousands of pounds)
3,953
2,033
Cash cost of copper produced 1 (USD per pound) $ 2.27 2.43
Realized copper price (USD per pound) $ 2.81 3.14
1 See Non-IFRS Performance Measures
Three months ended
Financial information (in thousands) Mar. 31, 2019 Mar. 31, 2018
Revenue 1 $ 8,608 $ 5,963
Gross profit (loss) 1 $ (1,560) $ 254
Net loss from continuing operations $ (2,622) $ (7,971)
Net loss from discontinued operations 1 $ (1,517) $ (736)
Net loss for the period $ (4,139) $ (8,707)
Adjusted EBITDA from continuing operations 2 $ (1,959) $ (1,040)
Unrealized gain (loss) on portfolio investments $ 1,662 $ (6,392)
Cash provided by (used in) operating activities before working capital changes $ (1,893) $ 340
1 Comparative figures are for the period February 1, 2018 to March 31, 2018
2 See Non-IFRS Financial Measures
Outlook
Guidance for 2019 remains unchanged with copper production to accelerate in the second half of 2019 with the implementation
of the Salt Leach and increased mining rates at Don Gabriel and other ancillary deposits. Cash cost per pound produced was
at the low end of the 2019 guidance and as copper production is expected to increase quarter-over-quarter, this unit cost is
expected to reduce accordingly. Capital expenditures are in line with expectations and represent development costs,
capitalized stripping costs and purchases of equipment. As the implementation of the Salt Leach is expected to be completed
during the second quarter of 2019, the capital expenditure program will accelerate and continue into the second half of the year
when the Papomono underground development and expansion is scheduled. Securing long-term growth capital will be
necessary for the Papomono underground development and expansion.
Full year 2019 Q1-2019
Cu production (tonnes) 8,250 - 8,750 1,793
Cu production (millions of pounds) 18.2 - 19.3 4.0
Cash cost per pound produced 1 $2.20 - $2.50 $2.27
Capital expenditures ($ millions) $25 - $30 $2.3
1 See Non-IFRS Performance Measures
Conference Call and Webcast Details
SRHI will hold a conference call and webcast to review its results for the three months ended March 31, 2019 on Thursday,
May 9, 2019 at 10:00am Toronto time. To listen to the call, please dial (855) 458.4215 ten minutes prior to the scheduled start
of the call and provide conference ID:2488677. A taped replay of the conference call will be available until Thursday May 16,
2019 by calling (855) 859.2056. The conference call will be webcast at www.sprottresource.com and https://edge.media-
server.com/m6/p/cvgtk4ra
Qualified Persons
Scientific or technical information in this press release relating to MTV is based on information prepared by Dr Antonio
Luraschi, RM CMC, Manager of Metallurgic Development and Senior Financial Analyst, Wood; Mr Sergio Navarrete, RM CMC,
Mining Engineer, Wood; Mr Alfonso Ovalle, RM CMC, Mining Engineer, Wood; Mr Michael G. Hester, FAusIMM, Vice
President and Principal Mining Engineer, Independent Mining Consultants, Inc.; Mr Enrique Quiroga, RM CMC, Mining
Engineer, Q&Q Ltda; Mr Gabriel Vera, RM CMC, Metallurgical Process Consultant, GVMetallurgy; and Mr Sergio Alvarado,
RM CMC, Consultant Geologist, General Manager and Partner, Geoinvestment Sergio Alvarado Casas E.I.R.L., all of whom
are independent “Qualified Persons” as such term is defined in National Instrument 43-101 – Standards of Disclosure for
Mineral Projects. The Technical Report was filed by SRHI on SEDAR on December 14, 2018. Readers are encouraged to read
the Technical Report in its entirety.
Notes on Preliminary Economic Assessments
Please note that the PEA Case is preliminary in nature, that it includes inferred mineral resources that are considered too
speculative geologically to have the economic considerations applied to them that would enable them to be categorized as
mineral reserves, and there is no certainty that the PEA Case will be realized. Mineral resources that are not mineral reserves
do not have demonstrated economic viability.
About MTV
MTV is a fully permitted operating mining complex located nine kilometers from Salamanca in Region IV of Chile. MTV
comprises two main deposits: Papomono (underground) and Don Gabriel (open pit). The mine is currently operating and
producing high grade copper cathode. The mine has significant infrastructure in place with a crushing and processing plant
with nameplate capacity of 7,000 and 6,000 tonnes per day, respectively. The plant is designed to produce up to 18,500
tonnes per annum of copper cathodes. For more information about MTV, please visit http://www.mineratresvalles.com.
About Sprott Resource Holdings Inc.
SRHI acquires and grows a portfolio of cash-flowing businesses and businesses expected to cash flow in the natural resource
sector. Based in Toronto, SRHI is part of the Sprott Group of Companies and seeks to deploy capital to provide our investors
with exposure to attractive commodities. For more information about SRHI, please visit www.sprottresource.com.
Non-IFRS Financial Measures
"Cash costs", "Adjusted EBITDA" and "Working Capital" are non-IFRS financial performance measures. Further details on non
-IFRS measures are provided in the MD&A accompanying SRHI financial statements filed from time-to-time on SEDAR at
www.sedar.com.
Cautionary Statement Regarding Forward-Looking Information
Certain statements in this news release, contain forward-looking information (collectively referred to herein as the " Forward-
Looking Statements ") within the meaning of applicable Canadian securities laws. The use of any of the words "expect",
"anticipate", "continue", "estimate", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are
intended to identify Forward-Looking Statements. In particular, but without limiting the foregoing, this news release contains
Forward-Looking Statements pertaining to: expectations regarding production growth; expectations regarding the MTV mine
expansion, including the anticipated expansion methods, costs, timing and the benefits derived from the expansion;
expectations regarding the construction, costs, timing and benefits of the Salt Leach; continued ramp up of waste mining
activity; unit cost reductions; growth initiatives; future block caving efforts and the expected benefits therefrom; expectations
regarding the timing of permit approvals; securing long-term debt and offtake financing to fund growth initiatives; expectations
regarding the investment portfolio divestment; the Company's outlook, including its 2019 guidance for MTV; the capital
expenditure program for MTV; mineral resource and mineral reserve estimates; the Technical Report; and general business
and economic conditions.
Although SRHI believes that the Forward-Looking Statements are reasonable, they are not guarantees of future results,
performance or achievements. A number of factors or assumptions have been used to develop the Forward-Looking
Statements, including: there being no significant disruptions affecting the development and operation of MTV; the availability of
certain consumables and services and the prices for power and other key supplies being approximately consistent with
assumptions in the Technical Studies; labour and materials costs being approximately consistent with assumptions in the
Technical Studies; fixed operating costs being approximately consistent with assumptions in the Technical Studies; permitting
and arrangements with stakeholders being consistent with current expectations as outlined in the Technical Studies; certain
tax rates, including the allocation of certain tax attributes, being applicable to MTV; the availability of financing for MTV’s
planned development activities; assumptions made in mineral resource and mineral reserve estimates and the financial
analysis based on the mineral reserve estimate and in the case of the PEA, the mineral resource estimate, including (as
applicable), but not limited to, geological interpretation, grades, commodity price assumptions, metallurgical performance,
extraction and mining recovery rates, hydrological and hydrogeological assumptions, capital and operating cost estimates,
and general marketing, political, business and economic conditions. Actual results, performance or achievements could vary
materially from those expressed or implied by the Forward-Looking Statements should assumptions underlying the Forward-
Looking Statements prove incorrect or should one or more risks or other factors materialize, including: (i) possible variations in
grade or recovery rates; (ii) copper price fluctuations and uncertainties; (iii) delays in obtaining governmental approvals or
financing; (iv) risks associated with the mining industry in general (e.g., operational risks in development, exploration and
production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the
uncertainty of estimates and projections relating to mineral reserves, production, costs and expenses; and labour, health,
safety and environmental risks) and risks associated with the other portfolio companies' industries; (v) performance of the
counterparty to the ENAMI Tolling Contract; (vi) risks associated with investments in emerging markets; (vii) general
economic, market and business conditions; (viii) market volatility that would affect the ability to enter or exit investments; (ix)
failure to secure financing in the future on terms acceptable to the Company, if at all; (x) commodity price fluctuations and
uncertainties; (xi) those risks disclosed under the heading "Risk Management" in SRHI’s Management’s Discussion and
Analysis for the three-months ended March 31, 2019; and (xii) those risks disclosed under the heading "Risk Factors" or
incorporated by reference into SRHI’s Annual Information Form dated March 6, 2019. See also the cautionary language under
“Notes on Preliminary Economic Assessments” above. The Forward-Looking Statements speak only as of the date hereof,
unless otherwise specifically noted, and SRHI does not assume any obligation to publicly update any Forward-Looking
Statements, whether as a result of new information, future events or otherwise, except as may be expressly required by
applicable Canadian securities laws.
Cautionary Note to United States Investors Concerning Estimates of measured, indicated and inferred mineral
resources
This news release may use the terms "measured", "indicated" and "inferred" mineral resources. United States investors are
advised that while such terms are recognized and required by Canadian regulations, the United States Securities and
Exchange Commission does not recognize them. "Inferred mineral resources" have a great amount of uncertainty as to their
existence, and as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral
resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not
form the basis of feasibility or other economic studies. United States investors are cautioned not to assume that all or any part
of measured or indicated mineral resources will ever be converted into mineral reserves. United States investors are also
cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable.
For further information:
Glen Williams
Director of Communications
T: (416) 943-4394
Source: Sprott Resource Holdings Inc.