| | Three months ended June 30 | Six months ended June 30 |
| (in thousands of United States dollars) | 2015 | 2014 | 2015 | 2014 |
| Cash (used in) provided by operating activities | (1,254) | 4,831 | 387 | 6,034 |
| Cash provided by (used in) investing activities | 3,866 | (587) | 3,379 | (944) |
| Cash (used in) provided by financing activities | (3,860) | 3,758 | (4,579) | 3,724 |
| Effect of exchange rate changes on cash and cash equivalents | (27) | (33) | (238) | 133 |
| Net change in cash and cash equivalents | (1,275) | 7,969 | (1,051) | 8,947 |
| | | | | |
Operating activities
Cash used in operating activities was $1.3 million for the second quarter of 2015 compared to cash provided by operations of $4.8 million for the same period in 2014. Operations were cash flow negative primarily due to the decision to place the Mine on care and maintenance. Cash provided by operating activities was $0.4 million for the first sixth months of 2015 compared $6.0 million for the same period in 2014.
Operations were cash flow positive for the six months of 2015 due to a focused effort to conserve cash and maintain cash flow flexibility. During 2015, we milled high grade inventory on hand and collected outstanding receivables as at December 31, 2014 to generate positive cash inflow to fund remaining milling and mining activities as well as the upfront and on-going costs of care and maintenance. We ceased mining operations in January and milling operations in February to minimize on-going costs and conserve cash. We obtained suspensions on making interest payments due to Sprott and Enirgi Group and on making payments to Enirgi Group and EMG under the Management Services Agreements.
Financing activities
We met our scheduled Sprott Facility (defined below) principal repayment of C$0.8 million per month on January 31, 2015. 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 the forbearance period was extended to the earlier of (i) November 15, 2015; (ii) the date a Transaction is completed; or (iii) for a Transaction where negotiations have commenced and in principle agreement is reached, the date on which the Transaction is reasonably determined to have been terminated. See “Sprott Facility – 2013”. In consideration, we repaid $3.8 million of the balance owing to Sprott resulting in $4.6 million of cash being used in financing activities for the six months ending June 30, 2015.
On January 29, 2013, the Company entered into a C$20 million secured loan facility (the “Sprott Facility”) with Sprott. The Sprott Facility bears interest at a rate of 12% per annum, compounded monthly, which is payable at the end of each month. The Sprott Facility is secured by the Mine and all of its assets.
As a result of the decision to place the Mine on care and maintenance, the Company triggered events of default under the Sprott Facility. If an event of default is triggered and called by Sprott, then Sprott has certain rights and remedies including rights to accelerate payment of principal and/or realize on its security. Following negotiations between the Special Committee and Sprott, pursuant to a letter dated February 12, 2015 (the “Sprott Forbearance Letter”), Sprott acknowledged that recent events in the commodity markets caused the Company to place the Mine into care and maintenance, resulting in negative cash flow and an expected working capital ratio to be below the required ratio in the Sprott Facility (collectively, the “Existing Defaults”). Pursuant to the Sprott Forbearance Letter, Sprott agreed (i) that it will not exercise its rights under the Sprott Facility with respect to the Existing Defaults, subject to certain exceptions, until June 30, 2015 (the “Forbearance Date”), and (ii) to suspend the requirement for payments of principal and interest instalments to Sprott under the Sprott Facility until the Forbearance Date (with such interest accruing and being treated as unpaid interest under the Credit Agreement). In consideration for providing the Sprott Forbearance Letter, the Company agreed to pay Sprott a forbearance fee of C$150,000 with such fee payable on the maturity date of the Sprott Facility and secured by the Sprott Facility.
On June 17, 2015, the Company and Sprott entered into a forbearance extension agreement pursuant to which Sprott has agreed that it would not exercise its rights under the Sprott Facility until the earlier of (i) November 15, 2015; (ii) the date a Transaction is completed; or (iii) for a Transaction where negotiations have commenced and in principle agreement is reached, the date on which the Transaction is reasonably determined to have been terminated. In consideration, the Company repaid C$4.75 million ($3.8 million) of the balance owing to Sprott representing the proceeds of the refund of the transportation bond. During the forbearance period, Sprott retains the right to terminate the forbearance extension should certain limited events of default occur, including but not limited to, the Company becoming insolvent or bankrupt or there being a further unfavorable material change in the financial condition of the Company.
The forbearance extension agreement allows Sprott, at its option, to demand repayment of the balance owing to them under the Sprott Facility at the end of the Sprott Forbearance Period. Unless terminated earlier, the balance owing to Sprott on November 15, 2015 will be approximately C$9.7 million ($7.8 million). The maturity date under the Sprott Facility has been brought forward to the end of the Sprott Forbearance Period. All other terms and conditions of the Sprott Facility, will remain the same.
An event of default under the Sprott Facility or the Enirgi Facility that triggers early repayment of the outstanding indebtedness would have a material adverse impact on our financial condition forcing the Company to seek additional future funding. See “Risk Factors – Funding Requirements” in the 2014 AIF.
A copy of the Credit Agreement has been filed on SEDAR at www.sedar.com.
Enirgi Facility – 2012
On June 29, 2012, the Company obtained a C$6 million (“Principal Sum”) secured loan facility from its majority shareholder, Enirgi Group (the “Enirgi Facility”). Amounts drawn down on the Enirgi Facility bear interest at an annual simple rate of 8.3%, with interest payable in arrears.
Pursuant to a letter dated February 13, 2015 (“Enirgi Forbearance Letter"), Enirgi Group has agreed to: (a) forbear from exercising any of Enirgi Group's rights or remedies arising from any event of default under the Enirgi Facility that has occurred as of February 13, 2015 or that may occur prior to the Forbearance Date (as defined above); (b) suspend the payment of interest payable by Ivernia to Enirgi Group under the Enirgi Facility until the Forbearance Date (with interest accruing and being treated as unpaid interest under the Enirgi Facility); (c) confirm the suspension of the re-payment of principal to Enirgi Group under the Enirgi Facility until the Sprott Facility is repaid in full; (d) confirm the suspension of the payment of interest under the Enirgi Facility while there is an event of default under the Sprott Facility; and (e) suspend payments by Ivernia and its subsidiaries to Enirgi Group under the management services agreements with Ivernia and Rosslyn Hill for services performed with respect to the period between February 13, 2015 and the Forbearance Date.
Concurrently with the extension of the forbearance period of the Sprott Facility, Enirgi Group has agreed to extend the terms granted to the Company until the end of the Sprott Forbearance Period. Subject to the foregoing, interest under the Enirgi Facility will become payable in accordance with the terms of the Enirgi Facility at the end of the Sprott Forbearance Period. All other terms and conditions of the Enirgi Facility, including the maturity date of June 30, 2016, will remain the same.
Capital Resources, Liquidity and Working Capital Requirements
During the first quarter of 2015, the Company completed the transition of the Mine’s operations to care and maintenance. As of June 30, 2015, the Company had approximately $4.4 of million in cash and cash equivalents and a working capital deficit of $14.5 million. During the first six months of 2015 we incurred significant cash outflows associated with employee redundancies, contract terminations, contract suspensions, demobilization, and preparation of the site to function in a care and maintenance state. The majority of these costs have been paid however several costs are accrued as liabilities as at June 30, 2015 and are unpaid. We have concluded negotiations relating to the suspension or termination of the majority our contractual commitments. Negotiations continue with one key supplier. While we have made our best estimate of the likely cost to be incurred in relation to the suspension or termination of this contract, the actual cost incurred may be different to this estimate and the difference may be material which may affect available cash. We expect these negotiations to be concluded during the third quarter of 2015 and, once negotiations relating to contract suspensions and terminations are complete and any associated costs finalized, we expect the ongoing care and maintenance activities and costs of the Mine to stabilize. As a result of care and maintenance, the Company expects to have an ongoing working capital deficiency until such time as either a Transaction takes place, an appropriate financing solution is secured or both occur.
Management and the Board have been focused on managing the Company’s working capital requirements in light of the fact that the Mine is on care and maintenance. In quarter one, the Finance Committee of the Board of Directors was re-constituted into a Special Committee of independent directors tasked with undertaking a review of strategic alternatives for the Company. The Special Committee has been able to secure forbearances on making principal and interest payments under the Sprott Facility and Enirgi Facility and forbearances on making payments under the Management Services Agreements as an interim step, which will provide temporary relief from making principal and interest payments to Sprott and paying for ongoing management services provided by Enirgi Group and EMG. In addition, the Special Committee has recommended that the Company seek to complete a Transaction which may include, but is not limited to, a merger, sale of the Mine, restructuring or any other potential Transaction which realizes the value of the Company and its assets.
The Company’s ability to continue as a going concern is dependent on raising additional funds to meet its debts and obligations as they fall due through either through completing a Transaction, obtaining additional funding or both. On a historic basis, the Company’s major sources of funding have been the issuance of equity and debt for cash. The Special Committee and management are currently examining potential transactions and various financing alternatives to address future funding requirements. The Company will need to either undertake a Transaction, obtain additional financing or undertake both to service its working capital deficiency of $14.5 million, meet its commitments to lenders, meet the costs of care and maintenance and any potential future restart of the Mine. The amount of this funding requirement will be contingent on several factors including, but not limited to, the nature of any Transaction undertaken, the outcome of further negotiations with the Company’s lenders, the costs and duration of care and maintenance and the timing and cost of any potential future restart of mining and milling operations.
There can be no assurance that the Company will either be able to complete a Transaction or be able to secure sufficient financing to fund its commitments to lenders, the costs of ongoing care and maintenance or the costs of any potential future restart of operations. If the Company is unable to complete a Transaction or secure additional financing, the Company may be unable to meet its commitments to lenders, keep the Mine on care and maintenance or restart the Mine which could affect its ability to continue as a going concern. A decision to restart the 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.
These material uncertainties create significant doubt as to the Company’s ability to continue as a going concern and accordingly, the use of accounting principles applicable as a going concern. The condensed interim 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.
Management’s Discussion and Analysis and Consolidated Financial Statements
Ivernia’s unaudited financial statements and management's discussion and analysis for the three and six months ended June 30, 2015 will be filed today and will be available on the Ivernia website at www.ivernia.com or SEDAR at www.sedar.com
About Ivernia
Ivernia is an international lead metal mining company and the owner of the Paroo Station Mine, located in Western Australia. Ivernia trades under the symbol “IVW” on the Toronto Stock Exchange. Ivernia and the Mine operate under a management services arrangement with Enirgi Group Corporation, Ivernia’s majority shareholder. On January 16, 2015 the Mine was placed on care and maintenance amid difficult market conditions.
Additional information on Ivernia is available on the Company's website at www.ivernia.com and at SEDAR at www.sedar.com.
For further information please contact:
Ivernia Inc.
Jessica Helm
VP, Corporate Communications
Suite 3001, 1 Adelaide Street East
Toronto, Ontario M5C 2V9
(416) 867 9298
Email: investor@ivernia.ca
Forward-Looking Statements
Certain statements contained in this news release are forward-looking information within the meaning of 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 and future sales, any results or outcomes of the strategic review including the completion of a Transaction, future targets and estimates for production and sales, 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 Mine, projections with respect to cash flows and working capital, forbearance by our lenders pursuant to the Sprott Forbearance Extension Agreement and Enirgi Group Corporation’s extension of the Enirgi Forbearance Letter, the receipt of required additional financing requirements to operate and restart the Mine, 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 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 Ivernia’s future business operations, lead market 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 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, matters related to the Esperance settlement and shipments through the Fremantle port, 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 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 Mine, the nature of mineral exploration and development and common share price volatility.
Additional factors and considerations are discussed in the Company’s annual information form dated March 10, 2015 and elsewhere in other documents filed from time to time by Ivernia with Canadian securities regulatory authorities. While Ivernia 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, Ivernia is under no obligation and does not undertake to update this information at any particular time.