MAWSON WEST LTD MANAGEMENT'S DISCUSSION AND ANALYSIS
For the three and twelve months ended December 31, 2015INTRODUCTION
This 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 December 31, 2015 (the "Quarter"), and twelve month period ended December 31, 2015 (the "year to date"). This is in comparison to the three month period ended December 31, 2014 (the "Comparable Quarter") and twelve month period ended December 31, 2014 (the "comparable year to date"). This MD&A is dated March 28, 2016 and has been prepared with information available as of March 28, 2016.
This MD&A should be read in conjunction with the Company's audited consolidated financial report for the financial year ended December 31, 2015 and the related notes thereto ("Financial Statements"), the Company's audited consolidated financial report for the financial year ended December 31, 2014, and the Company's Annual Information Form for the financial year ended December 31, 2015, 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.
KEY MATTERS
The increasing weakness of copper prices during the second half of 2015 resulted in unprofitable and unsustainable mining operations at Kapulo at current volumes produced despite the implementation of aggressive cost cutting measures and restructuring plans. This in turn contributed to a deterioration in the Company's financial position, such that it is currently having difficulties satisfying its current liabilities in a timely manner. The Company announced on March 2, 2016, the decision to place Kapulo on care and maintenance ("C&M") with a view to preserve the value of the Kapulo resource. The decision to place Kapulo on C&M triggered an additional impairment of $35.1 million (before tax) against the carrying value of the Kapulo assets in the Quarter.
In order to fund the Kapulo C&M plan, the Company's majority shareholder, Galena Private Equity Resources Fund LP ("Galena"), has agreed to provide Mawson West's subsidiary, Anvil Mining Congo SA ("AMC"), with an interest free, secured loan for these purposes in an amount up to US$20.0 million. In partial consideration for the loan, the Company has issued Galena warrants exercisable to acquire up to 2,744,200,000 ordinary shares of the Company at an exercise price of C$0.01 per share until 31 December 2017.
The Company's Dikulushi project remains on C&M.
Overall unprofitable operations and impairment charges were the main contributors to the generation of a loss after income tax for the year of $101.7 million, compared to a loss after income tax of $134.4 million for the twelve months ended 31 December 2014.
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FINANCIAL
Revenue
Revenue for the Quarter amounted to $14.4 million, an increase of $9.1 million versus the Comparable Quarter, reflecting the commencement of commercial production at Kapulo on July 1st. Dikulushi remained on C&M. Sales of copper and silver for the Quarter totalled 5,288 tonnes and 11,740 ounces respectively. The average copper price received was $5,077 per tonne ($2.30 per pound) and average silver price received was $18.52 per ounce after some accounting adjustments made in the Quarter. This compares with copper sales of 909 tonnes and silver sales of 42,790 ounces arising from Dikulushi underground in the Comparable Quarter, with realised prices of $6,664 per tonne of copper ($3.02 per pound) and $16.21 per ounce of silver, to generate net revenue of $5.3 million.
Revenue for the year to date amounted to $27.1 million, an increase of $7.4 million when compared to the comparable year to date, mainly driven by higher commercial sales of copper (9,165 tonnes versus 3,189 tonnes for the comparable period) but partially offset by lower sales of silver (36,309 ounces versus 155,050 ounces for the comparable period) and lower realised copper and silver prices ($5,814 per tonne versus $6,798 per tonne, and $15.87 per ounce versus $16.62 per ounce respectively). Pre-commercial production sales of 2,565 tonnes of copper and 3,936 ounces of silver generating additional revenue of $9.5 million, was capitalized under Mine Development Assets.
Gross profit/ (loss)
Gross loss for the Quarter totalled $7.5 million, compared with $7.2 million gross loss for the Comparable Quarter. Higher volumes produced and sold were unable to offset the copper price decrease.
Gross loss for the year to date totalled $8.3 million, compared with $23.6 million gross loss for the comparable year to date. The lower year to date gross loss was mainly driven by the increased copper tonnes sold in the current year to date (9,165 tonnes) compared to 3,189 tonnes in the comparable year to date due to Kapulo achieving commercial production during the year. In addition, cost of sales decreased in the current financial year versus prior year.
Impairment
At the end of the Quarter, an impairment of $35.1 million (before tax) was charged against the carrying value of the Kapulo assets. This impairment was triggered by the results of an operational review which resulted in the decision to place Kapulo on C&M subsequent to year-end.
On a year to date basis, total impairment charges of $59.8 million (before tax) were booked against the carrying value of the Kapulo assets, compared to an impairment charge against the same project of $65.0 million (before tax) during the comparable year to date. The comparable year to date also included an impairment charge of $29.4 million (before tax) booked against the carrying value of the Dikulushi assets, taking the total comparable year to date impairment to $94. 4 million (before tax).
Earnings / (Loss) Per Share
Loss per share attributable to Mawson West for the Quarter was reduced to 8.2 cents, compared to a loss per share of 23.7 cents for the Comparable Quarter impacted by a large impairment charge in addition to unprofitable Dikulushi underground operations. An 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 21.5 cents, largely a reflection of impairment charges, compared to a loss per share of 75.5 cents for the comparable year to date also reflecting a large impairment charge in addition to unprofitable Dikulushi underground operations. An increase in the weighted average number of shares also impacted the comparison.
Cash flow
Operational cash outflow for the Quarter totalled $5.8 million compared with a cash outflow of $3.3 million for the Comparable Quarter. The decline in operating cash flows was driven essentially by lower commodity prices and unprofitable operations over the Quarter.
Operational cash outflow for the year to date totalled $33.8 million compared with a cash outflow of $39.1 million for the comparable year to date. The major factors driving the year to date outflow include unprofitable operations, restructuring costs of $7.9 million and $5.0 million of financial interest.
Net cash and cash equivalents at the end of the Quarter totalled $3.3 million in overdraft, compared with $16.0 million as at December 31, 2014. The year to date cash balances include the effect of various funding actions described in the Corporate section.
OPERATIONS, DEVELOPMENT, EXPLORATION AND CORPORATE
Operations
Dikulushi was placed on C&M end of 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 was concluded in the third quarter and management decided to maintain the C&M activities for the foreseeable future. There was no production or sales of metal since the first 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.
Kapulo achieved commercial production on July 1, 2015. The production statistics for the Quarter and year to date are as follows:
A total of 86,290 tonnes of ore was hauled during the Quarter at an average grade of 5.6% copper. Total mine movement was 1,793,001 tonnes of material.
Ore processed during the Quarter totalled 129,613 at an average head grade of 4.24% copper and copper recoveries of 86.4%.
A total of 516,513 tonnes of ore was hauled during the year to date at an average grade of 4.24% copper. Total mine movement was 5,420,860 tonnes of material.
Ore processed during the twelve months totalled 413,523 tonnes at an average head grade of 4.4% copper and copper recoveries of 76.2%.
Total production for the twelve months totalled 13,789 tonnes of copper in concentrate (including pre-production of 4,356 tonnes).
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.
C11 costs were $2.35 per pound of copper in concentrate produced ($2.38 excluding silver credits) during the Quarter.
Exploration and Resource Definition
Exploration activities during the Quarter remained subdued in line with the Groups view to preserving cash with only $0.4 million spent on exploration.
Corporate
On April 8, 2015, the Company announced it had entered into an amendment with Trafigura Pte Ltd ("Trafigura") with regard to the existing pre-payment 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. 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 finalized the $15 million unsecured loan from Galena, which has been 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 partial consideration for providing the loan facility, the Company issued 367,500,000 ordinary share purchase warrants to Galena, with an exercise price of C$0.05 per share on April 30, 2015. The warrants were exercised on November 9, 2015 and the proceeds were used to partially repay the loan facility. The remaining balance of the loan facility was US$1.2 million. The balance of the loan facility bears an interest rate of 12.0% per annum, payable in arrears, and is payable in twelve equal monthly instalments with a final repayment on October 31, 2016.
On July 1, 2015, Dennis Wilkins was appointed as a non-executive Director of the Company. The Company achieved commercial production at Kapulo on July 1, 2015 following consistent production performance experienced during June 2015.
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 million. At 31 December 2015, no funds have been drawn against this equity line.
On December 28, 2015, the pre-payment agreement was further amended; deferring the interest payment due on December 31, 2015 to be paid on January 31, 2016 and February 29, 2016 in two equal instalments. In addition to the deferral of interest payments, principal repayments were deferred by an additional 3 months and the maturity date was extended from June 30, 2018 to September 30, 2018.
SUBSEQUENT EVENTS
On March 2, 2016 the Group announced that it has decided to place its Kapulo mine on C&M. The Company projects to cease mining at the end of March, while processing operations will continue into April. The Company has made this decision due to continued weakness in the price of copper, which has resulted in unprofitable and unsustainable mining operations. These circumstances have also contributed to a rapid deterioration in the Company's financial position, such that it is currently having difficulties satisfying its current liabilities in a timely manner.
3 The term "C1 cost" is a non-IFRS financial performance measure reported in this MD&A. See "Non-IFRS Financial Measures".
Mawson West Ltd. issued this content on 01 April 2016 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 01 April 2016 10:23:17 UTC
Original Document: http://www.mawsonwest.com.au/IRM/PDF/1262/Q4MDA2015
