MAWSON WEST LTD MANAGEMENT'S DISCUSSION AND ANALYSIS
For the three and nine months ended September 30, 2015 INTRODUCTIONThis management's discussion and analysis ('MD&A') of the consolidated financial position and results of operations of Mawson West Limited and its subsidiary companies (collectively, 'Mawson West' or the 'Company') constitutes management's review of the factors that affected the Company's financial and operating performance for the three month period ended September 30, 2015 (the 'Quarter'), and nine month period ended September 30, 2015 (the 'year to date'). This isin comparison to the three month period ended September 30, 2014 (the 'Comparable Quarter') and nine month period ended September 30, 2014 (the 'comparable year to date').This MD&A is dated November 13, 2015 and has been prepared with information available as of November 13, 2015.
This MD&A should be read in conjunction with the Company's unauditedconsolidated interim financial report for the three month period ended September 30, 2015 and the related notes thereto ('Financial Statements'), the Company's audited consolidated financial report for the financial yearended December 31, 2014, and the Company's Annual Information Form for the financial year ended December 31, 2014, which have been filed electronically through the System for Electronic Document Analysis and Retrieval ('SEDAR') and are available online at www.sedar.com. The Financial Statements and the financial information contained in this MD&A have been prepared in accordance with International Financial Reporting Standards ('IFRS') in compliance with IFRS as issued by the International Accounting Standards Board. The functional and presentation currency of the Company is US Dollars and all amounts in this MD&A are expressed in US Dollars unless otherwise identified.
This MD&A contains forward-looking information, such as statements regarding potential mineralisation, Mineral Resources, Mineral Reserves and operational and exploration results and future plans and objectives of the Company, that is subject to various risks and uncertainties, including those set forth in 'Forward-Looking Statements' and 'Risk Factors'. There can be no assurance that such information will prove to be accurate, and actual results and future events could differ materially from those anticipated in such information. Readers are cautioned not to place undue reliance on this forward-looking information.
The Quarter was marked by the commencement of commercial production of the Company's Kapuloproject on July 1, 2015. As a result operating costs and revenues will no longer be capitalized to the Balance Sheet and therefore our Income Statement reflects a full three months of commercial activity. During the Quarter,4,691 tonnes of copper in concentrate was produced at Kapulo and 3,490 tonnes of copper in concentrate were sold.
The Company's Dikulushi project remained on care and maintenance ('C&M').
Revenue
Revenue for the Quarter amounted to $11.6 million, an increase of $8.2 million when compared to the Comparable Quarter, reflecting the commencement of commercial production at Kapulo. Dikulushi remained on C&M. Sales of copper and silver for theQuarterto date totalled 3,490 tonnes and 5,740 ounces respectively. The average copper price received was $5,283 per tonne ($2.40 per pound) and average silver price received was $14.87 per ounce. This compares with copper sales of 476 tonnes and silver sales of 28,369 ounces arising from Dikulushi underground in the Comparable Quarter, with realised prices of $6,944 per tonne of copper ($3.15 per pound) and $21.71 per ounce of silver, resulting in net revenue of $3.3 million.
Revenue for the year to dateamounted to $12.7 million, a decrease of $1.8 million when compared to the comparable year to date,mainly driven by higher commercial sales of copper (6,442 tonnes versus 2,288 tonnes for the comparable period)offset by lower sales of silver (28,505 ounces versus 112,261 ounces for the comparable period) and lower realised copper and silver prices ($5,468 per tonne versus
$6,828 per tonne, and $14.87 per ounce versus $16.78 per ounce respectively). When including preproduction sales, sales of copper and silver year to date generatednetrevenue of $22.2 million, $9.5 million of which was capitalized under Mine Development Assets.
Grossprofit/ (loss)
Gross profitfor the Quarter totalled $0.3 million, compared with $8.4 milliongross loss for the Comparable Quarter.Kapulo achieved commercial production at the beginning of the Quarter which contributed to the Gross Profit for the period through the recognition of revenue in the Statement of Comprehensive Income. The Gross Profit generated by Kapulo during the Quarter was mainly driven by the increased copper tonnes sold (3,490 tonnes) versus the 476 tonnes sold from Dikulushi in the Comparable Quarter.
Gross loss for the year to date totalled $0.8 million, compared with $16.4 million gross loss for the comparable year to date. The lower year to date gross losswas driven by Kapulo achieving commercial
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production on July 1, 2015 as well as the increased copper tonnes sold in the current year to date (6,442 tonnes) compared to 2,288 tonnes in the comparable year to date.
Impairment
No impairment charge was charged against the carrying value of the Kapuloproject assetsor any other assets of the Group during the Quarter.
On a year to date basis, an impairment charge of $24.7 million was booked against the carrying value of the Kapulo project assets, compared to an impairment charge against the same projectof $65.0 millionduring the comparable year to date. Bothnon-cash chargesresulted from a review of operating assumptions in conjunction with deteriorating copper price.
Loss Per Share
Loss per share attributable to Mawson West for the Quarter was 0.9 cents, largely a reflection of Kapulo achieving commercial production,compared to a loss per share of 7.1 cents for the Comparable Quarter whichincluded a large impairment charge in addition to unprofitable Dikulushi underground operations. A significant increase in the weighted average number of shares in issue compared to the comparable Quarter also impacted the comparison.
Loss per share attributable to Mawson West for the year to date was 11.5 cents, largely a reflection of impairment charges, compared to a loss per share of 51.7 cents for the comparable year to date also reflecting a large impairment charge in addition to unprofitable Dikulushi underground operations. A significant increase in the weighted average number of shares also impacted the comparison.
Cashflow
Operational cash outflow for the Quarter totalled $0.7 million compared with a cash outflow of $18.3 million for the Comparable Quarter. The major factor impacting the reduced cash outflow was higher revenues from an increased volume of copper sales. In addition, the Comparable Quarter was negatively impacted by higher underground operating costs and a tax payment of $3.5 million.
Operational cash outflow for the year to date totalled $28.1 million compared with a cash outflow of
$35.8 million for the comparable year to date. The major factors driving the year to date outflow include:
Proceeds from copper sales were not included in operating cash flow for the six months ended June 30, 2015, since they were capitalized to Mine Development Assets. Commercial production was achieved on July 1, 2015; as a result of this, cash receipts from sales and cash costs are now included in operating cash flow;
Costs of approximately $8.0 million incurred as a result of placing Dikulushi on C&M earlier in the year, restructuring measures implemented at the Kapulo project and the Perth corporate office, as well as $2.8 million of financial interest.
Net cash and cash equivalents at the end of the Quarter totalled $3.1 million in overdraft, compared with
$16.0 million as at December 31, 2014. The year to date cash movements were characterised by spending of $27.4 million and $17.7 million for operations and Kapulo development respectively, partially offset by the proceeds from the following financings:
On March 2, 2015 the Company announced the closing of a Backstop Equity Financing with Galena Private Equity Resources Fund LP ('Galena') for gross proceeds of C$21.6 million. Completion of the Backstop Equity Financing followed shareholder approval obtained at the Company's General Meeting ('GM') held on February 25, 2015. Part of the proceeds was used to fully repay the outstanding Galena Bridge Loan for $5 million, and the remainder was used for general working capital purposes.
On May 1, 2015 the Company announced that it had obtained a $15 million unsecured loanfrom Galena ('Unsecured Loan'), which was then fully drawn down. The Unsecured Loan has a maturity date of April 30, 2016 and bears interest at a rate of 12% per annum. As part of this transaction, Galena was issued 367,500,000 ordinary share purchase warrants. Subsequent to September 30, 2015, shareholders approved the issuance of 367,500,000 ordinary shares at a price of C$0.05 per share and the proceeds have been applied against the
$15 million unsecured loan. Refer to Subsequent Events for more information.
OPERATIONS, DEVELOPMENT,EXPLORATIONAND CORPORATE
OperationsDikulushi was placed on C&M in January 2015 and ongoing C&M activities continue to focus on general security of the site. A study to determine the future strategy for the mine has been concluded and management has decided to maintain the C&M activities for the foreseeable future. There was no production or sales of metal for the Quarter.Production for the year to date totalled 256 tonnes of copper in concentrate and 10,929 ounces of silver in concentrate. 15,780 tonnes of ore were processed at a head grade of 1.8% copper and 27g/t silver.
The Kapulo project achieved commercial production on July 1, 2015.The production statistics for the Quarterand year to dateare as follows:
A total of 152,978 tonnes of ore was hauled during the Quarter at an average grade of 4.18% copper. Total mine movement was 1,622,868 tonnes of material.
Ore processed during the Quarter totalled 133,013tonnes at an average head grade of 4.3% copper and copper recoveries of 82.4%.
A total of 429,963 tonnes of ore was hauled during the year to date at an average grade of 3.97% copper. Total mine movement was 3,630,771 tonnes of material.
Ore processed during the year to date totalled 283,910 tonnes at an average head grade of 4.4% copper and copper recoveries of 71.7%.
Total production for the year to date totalled 9,047 tonnes of copper in concentrate (including pre- production).
Pre-production for the year to date totalled 150,897 tonnes of ore which was processed at a head grade of 4.6% copper and copper recoveries of 63.0%.4,356 tonnes of copper in concentrate was produced.
C11costs were $1.82 per pound of copper in concentrate produced ($1.82 excluding silver credits) during the Quarter.
Exploration and Resource DefinitionExploration activities during the Quarter remained subdued in line with the Groups view to preserving cash. A total of $0.01 million was spent on exploration and resource definition during the Quarter.
CorporateOn April 8, 2015, the Company announced it had entered into an amendment with Trafigura Pte Ltd ('Trafigura') with regard to the existing prepayment facility between the Company and Trafigura in relation to the offtake agreement between the Company and Trafigura, deferring repayments by 12 months and extending the maturity date from June 30, 2017 to June 30, 2018. No other changes have been made under the Prepayment Agreement and the principal amount owing under the facility of $50 million remains fully repayable by the revised maturity date of June 30, 2018.
On May 1, 2015, the Company announced it had finalised the $15 million Unsecured Loan from Galena, which has been fully drawn down. The Unsecured Loanhas a maturity date of April 30, 2016 and bears interest at a rate of 12% per annum. As part of this transaction, Galena was issued 367,500,000 ordinary share purchase warrants. Subsequent to September 30, 2015, shareholders approved the issuance of 367,500,000 ordinary shares at a price of C$0.05 per share and the proceeds have been applied against the $15 million unsecured loan. Refer to Subsequent Events for more information.
The Company commenced commercial production at its Kapulo project on July 1, 2015.
On July 1, 2015, Dennis Wilkins was appointed as a non-executive Director of the Company.
On July 31, 2015 Galena and Trafigura respectively provided the Company with a letter of comfort and a letter of acknowledgement stating their willingness to provide the Company with financial support in the form of additional working capital through debt or equity and/or debt repayment deferrals to enable the Company to continue to meet its financial obligations as and when they fall due.
Should Galena and Trafigura withdraw their financial support and the Directors not be able to secure alternative funding, there is significant uncertainty as to whether the Group would be able to meet its financial obligations as and when they fall due and thus continue as a going concern
On September 1, 2015, the technical and administrative support office in Johannesburg, South Africa was opened. The office is designed to better align the Company's technical, administrative and site operational functions as well as reduce overhead support costs.
Mawson West will continue to maintain a corporate office function in Perth. On September 1, 2015, the Company's corporate office relocated from Level 1, 1 Walker Avenue, West Perth to the Ground Floor, 20 Kings Park Road, West Perth.
On September 9, 2015, the Company announced that it has executed an equity line subscription agreement with Galena providing for possible additional equity investments in the Company by Galena in an amount up to C$18,000,000.
3The term 'C1 cost' is a non-IFRS financial performance measure reported in this MD&A. See 'Non-IFRS Financial Measures'.
SUBSEQUENT EVENTSOn November 11, 2015, the Company announced that on October 26, 2015 shareholders approved the issuance of 367,500,000 ordinary shares, at a price of C$0.05 per share for gross proceeds of C$18,375,000 ('Proceeds'), to Galena upon exercise of share purchase warrants held by Galena.
The shares were issued to Galena on November 9, 2015 and the Proceeds have been applied against the US$15,000,000 unsecured loan ('Loan') from Galena to Mawson entered into on April 30, 2015.
The Proceeds reduced the balance of the Loan to US$1,192,516, for which Mawson has entered into a Promissory Note ('Note') on November 9, 2015. The Note will bear an interest rate of 12.0% per annum, payable in arrears, and will be repayable in twelve equal installments subject to a final repayment on October 31, 2016.
In addition, at a General Meeting held on October 26, 2015, shareholders approved for the Company to potentially issue toGalena a maximum of 600,000,000 ordinary shares in the Company at a minimum issue price of C$0.03 per pursuant to a subscription 'equity line' agreement, representing a value of C$18,000,000.
OUTLOOKThe Company's near term outlook is as follows:
The Company expects to produce 4,000 to 5,000 tonnes of copper during the last Quarter of 2015. Further debottlenecking ofboth the plant and shipping logisticsand optimization work is planned for the last Quarter of 2015 as well as the first half of 2016.
The Dikulushi study has concluded that the mine will move to temporary closure for the foreseeable future.
The Company continues to seek to optimize its working capital and drive operational efficiencies in light of prevailing low copper prices and challenging market conditions.
BUSINESSMawson West is an Australian-based copper producer, developer and explorer. The ordinary shares of the Company are listed on the Toronto Stock Exchange ('TSX') under the symbol 'MWE'.
Mawson West's focus is on the Democratic Republic of Congo ('DRC') and its major asset is its ownership of the tenements which are governed by the Dikulushi Mining Convention and held by its 90% owned subsidiary Anvil Mining Congo SA ('AMC'). The tenements cover a land package of approximately 7,300 km2 and encompass the Company's two main projects, the Dikulushi copper-silver mine ('Dikulushi Mine') and the Kapulo copper exploration and development project ('Kapulo Project'), as well as multiple exploration targets. The Dikulushi Mining Convention is a mining concession granted by the Government of the DRC on January 31, 1998 and ratified by Presidential Decree issued on February 27, 1998, which sets out the regulatory and fiscal regime applicable to these tenements. Under the Dikulushi Mining Convention, AMC is guaranteed sole and exclusive rights for exploitation of projects governed by the Dikulushi Mining Convention.
Mawson West commenced its activities in the DRC in April 2006 when it entered into a farm-in agreement on the Kapulo Project with Anvil Mining Ltd ('Anvil'), the previous owner of AMC, which gave Mawson West the right to earn a 65% interest in the Kapulo Project by spending $4.0 million on exploration within 4 years. The Company's subsequent exploration work on the Kapulo Project in 2006, 2007 and the first half of 2008 resulted in Mawson West defining over 200,000 tonnes of contained copper. By October 2008 the Company had completed its required expenditure and earned a 65% interest in the Kapulo Project.
In April 2010 the Company acquired Anvil's 90% interest in AMC, being the registered owner of the tenements governed by the Dikulushi Mining Convention, as well as 100% of Anvil Mining Zambia Ltd (now renamed CMCZ Ltd). As AMC is also the owner of the Kapulo Project, the acquisition of AMC also resulted in Mawson West increasing its interest in the Kapulo Project from 65% to 90%. Throughout this period, the Company continued with exploration on the Kapulo Project, including infill, metallurgical, hydrogeological and geotechnical drilling, analysis and test work, and regional exploration.
Following its acquisition of AMC, Mawson West began refurbishing the Dikulushi Mine processing plant and commenced treating the low-grade (1.2% copper) stockpile located at the Dikulushi Mine in July 2010. The processing was commenced on a trial basis to ensure that the plant was fully operational before a contemplated transfer of the plant to the Kapulo Project, and to test whether processing of the low-grade stockpile could be profitable. Profitability of the processing was confirmed taking into account the then current commodity prices. Processing of the low-grade stockpile was completed in February 2012.
Following some exploration success at various satellite deposits around Dikulushi and determining potentially viable options for further production from the Dikulushi deposit, a decision was made to continue to operate the Dikulushi Mine and to establish a new plant at Kapulo.
In July 2011, the Company committed to the development of the Kapulo Project and commenced site earthworks and camp construction at Kapulo shortly thereafter. During Q4 2014, the Company commenced commissioning the Kapulo Project, an open pit mine. In December 2014, the Company issued a Mineral Reserve update for the Kapulo Project. According to the 2014 Technical Report relating to the Kapulo Project, Proved and Probable Mineral Reserves at Kapulo are now 3.942 million tonnes at 3.65% copper, supporting a 6.3 year mine life with approximately 122,000 tonnes total recovered copper in concentrate. The average annual production from current Mineral Reserves is expected to be around of 19,400 tonnes of copper in concentrate.
Following positive feasibility study results on the cutback expansion of the Dikulushi Mine, the Company committed to the development of the Dikulushi open pit in August 2011. Proved and Probable Mineral Reserves at Dikulushi as at September 2011 were 539,000 tonnes at 6.1% copper and 182 grams per tonne silver. The Company completed mining the Dikulushi open pit in July 2013 and approximately 85% of the Mineral Reserve was mined through open pit mining methods.
In July 2013, the Company was granted an exploitation permit in relation to the Kazumbula and Kabusanje deposits, located approximately 15 kilometers from the Dikulushi Mine. In June 2014, the Company announced total Measured and Indicated Mineral Resources at Kazumbula and Kabusanje of 551,000 tonnes at 1.74% copper and 45.7 grams per tonne silver, above 1% copper cut-off grade to 80 meters below surface. Preliminary economic evaluations of the Kazumbula and Kabusanje deposits indicate that the economics are not compelling at prevailing metal prices.
In November 2013, the Company made a decision to commence underground mining at the Dikulushi Mine and announced underground Mineral Reserves of 173,000 tonnes at 5.2% copper and 127 grams per tonne silver. Production from Dikulushi underground operations commenced in February 2014.
Following a review of its Dikulushi and Kapulo operations in January 2015, the Company placed the Dikulushi Mine on C&M. The Dikulushi Mineral Reserve, having been based on modifying factors (e.g. ore recovery and dilution factors) that have now been demonstrated to not be applicable, was written down to nil. No production or sales are expected from Dikulushi in the immediate future.
Commissioning of the Kapulo Project commenced during the fourthQuarter of 2014 with the Company completing the sale of its first pre-production shipment of copper concentrate in April 2015. Ramping up the plant continued until commercial production commencedon July 1, 2015.
On September 1, 2015, the technical and administrative support office in Johannesburg, South Africa became operational and the corporate office in Perth, Australia was scaled down.The South African office is designed to better align the Company's technical, administrative and site operational functions. It is anticipated that amongst other benefits, the establishment of the Johannesburg office will reduce the Company's overhead support costs.
OPERATIONS, DEVELOPMENT AND EXPLORATION
OperationsDikulushi
The following table sets forth production statistics for the Company's processing of material from Dikulushi on a Quarterly basis for the last 8 Quarters.
Dikulushi
Units
2015
2015
2015
2014
2014
2014
2014
2013
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Q4
Ore processed
dmt
-
-
15,780
33,118
32,603
36,425
51,191
87,646
Mill feed grade copper
%
-
-
1.8
1.8
3
2.7
2.2
5.5
Mill feed grade silver
g/t
-
-
27.20
33.53
49.78
68.11
49.48
164.62
Copper produced in concentrate
t
-
-
256
552
852
744
878
4,556
Copper concentrate grade
%
-
-
48.75
51.7
50
45.9
44.7
59.2
Copper recovery
%
-
-
91.3
91.5
87.8
75.4
77
93.9
Silver produced in concentrate
oz
-
-
10,929
32,220
44,954
65,474
65,863
428,437
Silver recovery
%
-
-
79.2
90.2
86.2
82.1
80.9
92.4
Copper sales
t
-
-
388
909
476
674
1,138
4,263
Silver sales
oz
-
-
18,829
42,790
28,369
44,445
39,446
375,888
No ore was processed during the Quarterreflecting the outcome of a business performance review in January 2015 resulting in the placement of the Dikulushi Mine on C&M. This compares to 32,603tonnes of ore processed at a head grade of 3.0% in the Comparable Quarter. The average process plant recoveries achieved were 87.8% copper and 91.9% silver in the Comparable Quarter.
During the Quarter, no copper and silver in concentrate were produced, compared to 852tonnes of copper in concentrate and 44,954ounces of silver in concentrate produced in the Comparable Quarter.
Kapulo
The following table sets forth production statistics for the Company's processing of material from Kapulo on a quarterly basis. Commercial production was achieved on July 1,2015, therefore the statistics for Quarters 1 and 2 represent pre-production statistics.
Kapulo
Units
2015
2015
2015
Q3
Q2
Q1
Ore processed
dmt
133,013
103,706
47,191
Mill feed grade copper
%
4.3
5.0
3.7
Mill feed grade silver
g/t
6.99
7.19
2.06
Copper produced in concentrate
t
4,691
3,628
728
Copper concentrate grade
%
32.49
32.20
26.34
Copper recovery
%
82.4
70.1
41.9
Silver produced in concentrate
oz
22,981
17,566
1,278
Silver recovery
%
76.9
73.3
40.8
Copper sales
t
3,490
2,564
-
Silver sales
oz
5,740
3,936
-
A total of133,013tonnes of ore was processed at a head grade of 4.3% copper in the Quarter. The average process plant recoveries achieved were 82.4% copper and 76.9% silver.
During the Quarter, 4,691 tonnes of copper in concentrate and 22,981 ounces of silver in concentrate were produced.
Exploration and Resource DefinitionDuring the Quarter, a total of $0.01 million was spent on exploration and resource definition, with the Company's exploration program being significantly reduced with a view to preserving cash.
FINANCIAL PERFORMANCE AND POSITIONThe selected financial information set forth below includes information which has been extracted from, and should be read in conjunction with, the Financial Statements and the audited consolidated financial statements of the Company for the year ended December 31,2014and the related notes thereto.
Results of Operations(in thousands of dollars except as otherwise noted)
Three months ended
September 30
Nine months ended
September 30
2015
2014
2015
2014
Revenue
11,554
3,331
12,655
14,426
Gross profit/(loss)
279
(8,403)
(791)
(16,407)
General, corporate and marketing
(2,035)
(3,249)
(7,515)
(9,627)
Share-based payments
(150)
-
545
-
Exploration expenses
(13)
(632)
(420)
(1,334)
Impairment loss
-
-
(27,678)
(65,000)
Profit / (loss) on derivative instruments
407
-
996
637
Other
(2,761)
(437)
(11,333)
(1,790)
Income tax (expense)/benefit
11
940
-
2,451
Profit/(Loss) after income tax
(4,261)
(11,781)
(46,196)
(91,070)
Earnings (Loss) per Share (basic) (cents) 1
(0.9)
(7.1)
(11.5)
(51.7)
Earnings (Loss) per Share (diluted) (cents) 1
(0.9)
(7.1)
(11.5)
(51.7)
Realised copper price ($/tonne)
5,283
6,944
5,620
6,828
Copper sales (tonnes)
3,490
476
6,422
2,288
C1 cost per pound ($)
1.82
5.38
1.95
4.71
Note 1: Basic and diluted earnings per share are based on the net result attributable to owners of the parent.
Three months ended September 30, 2015 compared to the three months ended September 30, 2014
Major items affecting the financial results of the Company for the Quarter included the following:
Revenue
Revenue for the Quarter amounted to $11.6 million, an increase of $8.2 million when compared to the Comparable Quarter, mainly reflecting the commencement of commercial production at Kapulo. The increased revenue from Kapulo was, however,offset by the revenue lost as a result of Dikulushi being placed on C&M. Sales of copper and silver for theQuarterto date totalled 3,490 tonnes and 5,740 ounces respectively. The average realised copper price received was $5,283 per tonne ($2.40 per pound) and average silver price received was $14.87 per ounce. This compares with copper sales of 476 tonnes and silver sales of 28,369 ounces in the Comparable Quarter, with realised prices of $6,944 per tonne of copper ($3.15 per pound) and $21.71 per ounce of silver, resulting in net revenue of $3.3 million.
Gross profit / (loss)
Gross profitfor the Quarter totalled $0.3 million, compared with $8.4 million gross loss for the Comparable Quarter thanks to Kapulo achieving commercial production at the beginning of the Quarter. Depreciation of $2.8 million relating to Kapulo was included in the gross profit for the Quarter.
C1costs for the Quarter was $1.82 ($1.82 excluding silver credits)compared with C1 costs of $5.38 ($5.69excluding silver credits) per pound of copper in concentrate produced during the Comparable Quarter.The reduction in C1 cost is driven by the low grade, high cost production at Dikulushi being placed on C&M and production at Kapulo coming on line during the Quarter.
General, corporate and marketing
Costs during the Quarter were $1.2 millionlower than the costs in the Comparable Quarter and included redundancy costsof $0.8 millionwhile the Comparable Quarter was higher primarily as a result of expenditure associated with financing arrangements as well as higher administrative overheads prior to scaling down the Perth office.
Share-based payments
The share' based costs for the Quarter represents the amortisation of the value of shares and options granted to certain Directors following approval by shareholders at the Annual General Meeting held in May 2015.
Other
Other significant items for the Quarter included net finance charges of $2.1m, C&M expenses of $0.7m at Dikulushi partly offset by a derivative gain of $0.4 million. During the Comparable Quarter significant items included exploration expenses of $0.6 million.
Profit / loss after income tax
Revenue
Revenue for the year to date amounted to $12.7 million, a decrease of $1.8 million when compared to the comparable year to date, mainly driven by higher commercial sales of copper (6,442 tonnes versus 2,288 tonnes for the comparable period) offset by lower sales of silver (28,505 ounces versus 112,261 ounces for the comparable period) and lower realised copper and silver prices ($5,468 per tonne versus
$6,828 per tonne, and $14.87 per ounce versus $16.78 per ounce respectively). When including preproduction sales, sales of copper and silver year to date generated net revenue of $22.2 million, $9.5 million of which was capitalized under Mine Development Assets.
Gross profit / (loss)
Gross loss for the year to date totalled $0.8 million, compared with $16.4 million gross loss for the comparable year to date. The lower year to date gross loss is driven by Kapulo achieving commercial production on 1 July 2015 as well as the capitalisation of production costs to inventory.
C1costs for the year to date was $1.95 ($1.98 excluding silver credits) compared with C1 costs of $4.71 ($5.05 excluding silver credits) per pound of copper in concentrate produced during the Comparable Quarter. The reduction in C1 cost is driven by the absence of low grade, high cost production fromDikulushi(placed on C&M in January 2015) and production at Kapulo coming on line during the Quarter.
General, corporate and marketing
Costs during the year to date were $2.1 million lower than the costs in the comparable year to date.While the Comparable year to date was higher primarily as a result of expenditure associated with financing arrangements as well as higher administrative overheads prior to scaling down the Perth office.
Share-based payments
The gain for the year to date represents the reversal of prior period expenses following the forfeiture of employee options relating to employees terminated during the period. The comparable years to date results represent the revaluation of the value of shares and options.
Impairment charges
The non-cash expense for the year to date represents the impairment in relation to the Company's Kapulo Project ($24.7 million) and follows a review of operating costs in conjunction with deteriorating copper price and a better understanding of the metallurgical domain assumptions and recoveries for the project following a few months of ramp-up, as well as $2.8 million relating to the recoverability of certain receivables. In the comparable year to date, an impairment charge of $65 million was booked against the Kapulo Project.
Other
Other significant items for the year to date included C&M costs at Dikulushi of $8.0 million and a derivative gain of $1.0 million offset by accretion expense relating to the expected timing of collection of outstanding taxation receivables. During the comparable year to date significant items included a derivative gain of $0.6 million on the copper hedging transaction entered into during 2013 and exploration expenses of $1.3 million.
Loss after income tax
In April 2014, the Company announced that it had entered into an offtake agreement, through its 90% owned subsidiary AMC, with Trafigura to sell 100% of the copper concentrate produced at the Dikulushi and Kapulo mines for a period up to 48 months from the commencement of commercial production at Kapulo. As part of the offtake arrangements, Trafigura provided a prepayment facility of $50.0 million, which has been fully drawn down. On April 8, 2015, the Company announced it had entered into an amendment with Trafigura with regard to the existing pre-payment facility in relation to the offtake agreement, deferring repayments by 12 months and extending the maturity date from June 30, 2017 to June 30, 2018. No other changes have been made under the prepayment facility and the principal amount owing under the facility of $50.0 million remains fully repayable by the revised maturity date of June 30, 2018.
On May 1, 2015 the Company announced that it had obtained the $15.0 million Unsecured Loan from Galena, which was then fully drawn down. The Unsecured Loan has a maturity date of April 30, 2016 and bears interest at a rate of 12% per annum. As part of this transaction, Galena was issued 367,500,000 ordinary share purchase warrants. Subsequent to September 30, 2015, shareholders approved the issuance of 367,500,000 ordinary shares at a price of C$0.05 per share and the proceeds have been applied against the $15 million unsecured loan. Refer to Subsequent Events for more information.
The Company has access to a $5.0 million overdraft facility from Banque Commerciale du Congo, of which $4.5 million was utilized at the end of the Quarter. Interest is payable at the rate of 8.5% per annum. This facility is available for renewal on November 30, 2015.
Loss after income tax of $4.3millionwas mainly driven byoverhead costs and finance expenses, compared to a loss after income tax of $11.8 millionfor the Comparable Quarter which was mainly driven by a gross loss of $8.4m driven by the decline in production at Dikulushi.
Nine months ended September 30, 2015 compared to the nine months ended September 30, 2014
Major items affecting the financial results of the Company for the year to dateincluded the following:
Loss after income tax of $46.2 million, mainly driven bya gross loss of $0.8 million, C&M costs of $8.0 million and a non cash impairment charge of $27.7 million compared to a loss after income tax of $91.1 millionfor the comparable year to date which comprised of a non-cash impairment charge of $65.0 million and a gross loss of $16.4 million.
Financial Position(in thousands of dollars except as otherwise noted) | As at September 30, 2015 | As at December 31, 2014 |
Cash and short term deposits | 1,392 | 21,095 |
Trade and other receivables | 8,666 | 8,790 |
Inventories | 19,626 | 3,082 |
Mining Development Assets | - | 82,830 |
Mine properties | 16,864 | - |
Property, Plant and Equipment | 70,414 | 3,554 |
Advanced tax receivable | 1,487 | 4,627 |
Other assets | 7,467 | 2,192 |
Total assets | 107,565 | 126,170 |
Trade and other payables | 12,422 | 13,720 |
Derivative financial instruments | 142 | 1,138 |
Loans and borrowings | 81,813 | 68,267 |
Provisions | 6,054 | 6,555 |
Total liabilities | 100,431 | 89,680 |
Shareholders' equity | 7,136 | 36,490 |
A summary of significant balance sheet items is described below:
Cash and short term deposits
Cash and short term deposits have decreased mainly as a result of finalising the Kapulo project and normal operating activities which utilised $18.4 million and $28.1 million respectively.
Partially offsetting these cash outflows werethe proceeds of theBackstop Equity Financing from Galena of $17.5 million at the beginning of March and the issue of the $15.0 million Unsecured Loan from Galena during May which was then fully drawn down.
Trade and other receivables
Trade and other receivables is represented by the outstanding balance of copper and silver in concentrate sales invoiced in conjunction with VAT input credits receivable and DRC provisional tax payments on forecast 2014 taxable earnings discounted over the anticipated collection period.
Inventories
Inventories have increased by $16.5million; this increase is driven by a build-up of copper concentrate not yet sold at the end of the Quarter ($8.5million) as well as the ore stockpiles ($4.7million) which are recocognisedseparately on the balance sheet since Kapulo achieved commercial production.Spares and consumables have increased by $4.1m, mainly due to a build-up of critical spares levels on site.
Mine Development Assets
Following the declaration of commercial production of the Kapulo project, Mine Development Assets were reallocated to Property, Plant & Equipment and Mine Properties.
Other assets
Other assets is represented by mining rehabilitation deposits in conjunction with DRC provisional tax payments on forecast 2014 taxable earnings discounted over the anticipated collection period.
Trade and other payables
Trade and other payables decreased by $0.3 million during the year to date.
Loans and borrowings
Loans and borrowings increased due to the issue of the $15.0 million Unsecured Loan from Galena during May which was then fully drawn down offset by the repayment of the previous $5.0 million bridge loan from Galena.
Other liabilities
Provisions have decreased as a result of employee provisions paid out as part of redundancy packages for corporate, Kapulo and Dikulushi employees.
Summary of Quarterly ResultsThe following table sets out a summary of the quarterly results for the Company for the last 8 quarters.
(in thousands of dollars except as otherwise noted) | 2015 | 2014 | 2013 | |||||
Q3 | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | Q4 | |
Realised copper price ($/tonne) | 5,283 | 6,041 | 5,870 | 6,664 | 6,944 | 6,469 | 6,993 | 7,001 |
Revenue ($ 000s) | 11,554 | (954) | 2,055 | 5,282 | 3,331 | 4,285 | 6,810 | 34,179 |
Gross profit/(loss) ($ 000s) | 279 | - 954.12 | (6,510) | (7,151) | (8,402) | (6,934) | (1,070) | 5,002 |
Consolidated Net Profit/(Loss) | (4,261) | (32,000) | (9,935) | (43,286) | (11,781) | (74,527) | (4,762) | (391) |
Net Profit/(Loss) attributable to Maw son West ($ 000s) | (3,778) | (28,695) | (9,020) | (39,425) | (11,354) | (67,256) | (4,621) | (391) |
Basic (loss)/earnings per share attributable to | ||||||||
Maw son West (based on reconstructed share | (0.9) | (7.1) | (3.2) | (23.7) | (7.1) | (41.8) | (2.9) | (0.3) |
capital amounts) (cents) | ||||||||
Diluted (loss)/earnings per share attributable to | ||||||||
Maw son West (based on reconstructed share | (0.9) | (7.1) | (3.2) | (23.7) | (7.1) | (41.8) | (2.9) | (0.3) |
capital amounts) (cents) | ||||||||
Total Assets ($ 000s) | 107,565 | 105,438 | 119,068 | 126,170 | 136,864 | 148,558 | 175,961 | 194,926 |
Further details regarding the Company's results for the Quarter are discussed throughout this MD&A. Further information on Mawson West's quarterly results can be found in the respective quarterly financial statements and related management discussion and analysis of the Company filed on SEDAR atwww.sedar.com.
As at September 30, 2015, the Company had net cash and cash equivalents of $3.1 million, in overdraft, compared with $16.0 million as at December 31, 2014, reflecting current working capital challenges.
Current loans and borrowings outstanding are the result of:
On July 31, 2015 Galena and Trafigura respectively provided the Company with a letter of comfort and a letter of acknowledgement stating their willingness to provide the Company with financial support in the form of additional working capital through debt or equity and/or debt repayment deferrals to enable the Company to continue to meet its financial obligations as and when they fall due.
Should Galena and Trafigura withdraw their financial support and the Company not be able to secure alternative funding, there is uncertainty as to whether the Company would be able to meet its financial obligations as and when they fall due and thus continue as a going concern.
Subsequent to the end of the Quarter:
On November 11, 2015, the Company announced that on October 26, 2015 shareholders approved the issuance of 367,500,000 ordinary shares, at a price of C$0.05 per share for gross proceeds of C$18,375,000 ('Proceeds'), to Galena upon exercise of share purchase warrants held by Galena.
The shares were issued to Galena on November 9, 2015 and the Proceeds have been applied against the US$15,000,000 unsecured loan ('Loan') from Galena to Mawson entered into on April 30, 2015.
The Proceeds reduced the balance of the Loan to US$1,192,516, for which Mawson has entered into a Promissory Note ('Note') on November 9, 2015. The Note will bear an interest rate of 12.0% per annum, payable in arrears, and will be repayable in twelve equal installments subject to a final repayment on October 31, 2016.
In addition, at a General Meeting held on October 26, 2015, shareholders approved the Company to issue toGalena a maximum of 600,000,000 ordinary shares in the Company at a minimum issue price of C$0.03 per pursuant to a subscription 'equity line' agreement, representing a value of C$18,000,000.
(in thousands of dollars except as otherwise noted) | Three months ended September 30 | Nine months ended September 30 | ||
2015 | 2014 | 2015 | 2014 | |
Net cash from/(used in) operating activities (i) | (646) | (18,309) | (28,056) | (35,777) |
Net cash from/(used in) investing activities (ii) | (746) | (13,224) | (18,412) | (32,740) |
Net cash from/(used in) financing activities (iii) | - | (254) | 27,387 | 40,703 |
Three months ended September 30, 2015 compared to the three months ended September 30, 2014
Operational cash outflow for the Quarter totalled $0.7 million compared with a cash outflow of $18.3 million for the Comparable Quarter. The major factors impacting this much reduced cash outflow, included higher revenues from an increased volume of copper sales. In addition the Comparable Quarter was negatively impacted by higher underground operating costs and a tax payment of $3.5 million.
Cash outflow from investing activities was $0.8million for the Quarter, compared to cash outflow of $13.2 million for the Comparable Quarter. This outflow of cash during the Quarter relates to final expenditure the Kapulo project which achieved commercial production on July 1, 2015. The Comparable Quarter included expenditure related to the investment in the Dikulushi underground mining and the investment in long lead items for the Kapulo Project.
Cash inflow from financing activities was nil for the Quarter, compared to cash outflow of $0.2 million for the Comparable Quarter.
Nine months ended September 30, 2015 compared to the nine months ended September 30, 2014
Operational cash outflow for the year to date totalled $28.1 million compared with a cash outflow of
$35.8 million for the comparable year to date. Proceeds from concentrate sales were not included in operating cash flow for the six months ended June 30, 2015, since it was capitalized to Mine Development Assets. Commercial production was achieved on July 1, 2015, as a result of this cash receipts from sales is now included in operating cash flow. Costs of approximately $8.0 million incurred as a result of placing Dikulushi on C&M, and restructuring measures implemented at the Kapulo project and the Perth corporate office as well as $2.8 million of financial interest.
Cash outflow from investing activities was $18.4 million for the year to date, compared to cash outflow of
$32.7 million for the comparable year to date. This outflow of cash during the period is mainly the result of the development of the Kapulo Project. The comparable year to date results included expenditure related to the investment in the Dikulushi underground mining and the investment in long lead items for the Kapulo Project.
Cash inflow from financing activities was $27.4million for the year to date, compared to cash inflow of
$41.0 million for the comparable year to date. The inflow of cash is the result of the drawdown of the
$15.0 million Unsecured Loan from Galena and the Equity Backstop Financing from Galena at the beginning of March of $17.4 million, compared with the drawdown of the $50.0 million Trafigura prepayment facility partially offset by the $7.5 million final repayment of RMB loan facility during the comparable period.
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