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Revett Minerals Inc (NYSEMKT:RVM)

2012 Earnings Call

March 12, 2013 11:30 am ET

Executives

Kenneth S. Eickerman - Chief Financial Officer, Principal Accounting Officer and Controller

John G. Shanahan - Chief Executive Officer, President, Non Independent Director, Member of Environmental Committee and Member of Safety Committee

Douglas Paul Miller - Vice President of Operations

Analysts

Jeffrey Wright - Global Hunter Securities, LLC, Research Division

Christos Doulis - Stonecap Securities Inc., Research Division

Annie Zhang - Octagon Capital Corporation, Research Division

Operator

Good morning, my name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Revett Minerals Inc. TSX NYSE MKT Q4 2012 Conference. [Operator Instructions] I would now like to turn the call over to Ms. Ken -- sorry, Mr. Ken Eickerman, Chief Financial Officer. Please go ahead, sir.

Kenneth S. Eickerman

Thank you, Michelle, and good day to everyone, and thanks for joining our 2012 year-end financial and operations conference call. I'm Ken Eickerman, the CFO. And joining me today is our President and CEO, John Shanahan; and Doug Miller, our Vice President of Operations.

Before we begin, I would like to note that this call contains forward-looking statements that are made pursuant to the Safe Harbor provision of the Federal Securities Laws. These statements involve risks, uncertainties and assumptions that may cause actual results to differ materially from those anticipated.

Listeners to the call are advised to review our risk factors contained in our most recent annual report on Form 10-K for descriptions of risks, uncertainties and assumptions related to forward-looking statements. Please note this call is intended for investors and may not be reproduced by media, in whole or in part, without prior consent.

At this time, I'll turn the call over to our President and CEO, John Shanahan, who will recap the highlights for the year ended December 31, 2012. Following his remarks, Doug Miller will provide an update of our operations, and then I'll walk through our financials. And then John will wrap up with our outlook before we finish with your questions. John?

John G. Shanahan

Thank you, Ken. Welcome, everybody. I think if we look at 2012 in isolation, I think we could say that we had a reasonably good or a decent year. We did continue to put cash in our balance sheet. We were able to upgrade our equipment fleet at Troy and do some of the development work that we need to do to extend mine life at Troy. We did progress, perhaps not at the speed we would like, with permitting at Rock Creek. There's a number of studies and reports that go into this supplemental EIS, which we have seen completed. It's a matter, of course, putting it all together and getting it out for public comment.

But of course, at year's end, we ran into some difficult operating conditions at the Troy Mine and we're still working through them. We don't doubt our ability to resume operations safely, it's a matter of taking each task step-by-step, which at times, in itself, is a time-consuming process. But despite these current difficulties, we really remain focused on what we have to do with the company. I think for our shareholders, we've been very clear that we have one objective, and that's to be the best operator we can be at Troy, which in turn, gets us to where we want to be or where we can be to finalize permitting and bring Rock Creek into production. It's all doable.

So as we face our challenges today, and perhaps, Doug Miller, our VP of Ops, will talk a little bit more about it. We can't lose sight of this overriding objective. We have the experienced professionals, crews in place to make this transition, to bring Rock Creek into fruition. But of course, to do so, we need to get back into production as quickly as it's feasible for us to do so.

Lastly, I'd like to address just our liquidity and capital needs. Firstly, I think it's important to note by everybody that the work we are doing at Troy is being done by our crews. So apart from some of equipment and supplies, such as some steel sets and consumer builds, drill bits and diesel, biofuel, we have a relatively fixed cost, while we get ourselves back into production. We may be looking at an additional $100,000, $150,000, perhaps $200,000 in additional supplies and equipment. But it really is our own crew who's doing the work, it's not a big capital need for refurbishing or getting us to a position where we need to go back into production. We did finish 2012 with just over $28 million in cash. And while it takes a little while to slow down the flow as we pay for inventories coming through and, perhaps, some accrued taxes, mining taxes to the state owed, but we are getting our burn rate and we have got our burn rate down to just over $2 million a month. So it's pretty clear, I think, that we're able to get through this current situation. And if we're able to get back into production in the next couple of months, we'll be able to weather the storm.

We did enter into a credit facility with Societe Generale in late 2011. And the purpose of that credit facility was really threefold. It was to have the cash available -- availability in our back pocket, really, as an operator, should a good opportunity come along. We also -- it gave us the ability for some long day-to-day hedging facilities, should we see silver and copper prices return to those high levels, neither of those first 2 occurred. But I think most importantly, the reason -- the real reason we had the facility in place is as we came along the Phase 1 development at Rock Creek, we wanted to make sure that we had the financial resources to complete Phase 1 and not necessarily have to go back to the market.

Now because we're not in operation in this first quarter of 2013, we will back up -- bump up again some of the covenants. And so sitting down with Soc Gen, we decided that we would suspend the facility for an initial 6-month period, really because we don't need it. And secondly, it's because if we did need to draw down on it, we probably would've reached covenants anyhow. The most important thing for us with this facility is to have it back up and running as we focus on Phase 1 at Rock Creek. And I think we can firmly do that. Obviously, in order to do that, we need to be operating at Troy.

It's also important for us all to note that we have no outstanding market contractual arrangements at the moment, so let's just concentrate deliveries. We did fulfill our 2012 concentrate obligations. Nor do we have any outstanding hedges. Last shipment that we sent out was in December, it arrives in January, it gets February pricing, and that's where we apply the last of our $4 copper hedges. So we are clean in respect to any of those contractual obligations that often accompany -- when it does have a downtime in production, is dangerous to it. So we do have the financial ability to get through this, and hopefully, as we start to rebuild cash as we get back into production.

I would like to pass the call along to Doug Miller, our VP of Operations, for an update on 2012 operations. Thanks, Doug.

Douglas Paul Miller

Thank you, John. And I understand this is for the 2012 operations, and I think that's fairly well summarized, John has summarized that, and it was a decent year up until December of 2012 where we ceased operations. I think I want to discuss more of what's happened since that shutdown, so everybody in on the happenings there, and not to dwell too much on -- from the first couple of months, which basically was the ground fall located at the default, which blocked our haulage access into the A Beds and C Beds.

Since then, we were able to do some modifications to the K Order, which we're under, right now, through MSHA to access the lower main haulage. We completed that drift a couple of weeks ago. We did find groundfall in the B Fault again, but not nearly severe. We believe we'll be able to stand steel sets and additional support and get through that area. And we also have another area in the deep cross cut that we can do the same, which going through the B Fault, and there's no groundfall in that area. We're going to go through both of those areas simultaneously.

Right now, we're waiting for approval from our consultant on the mining methods and ground support as per the K Order modification from MSHA, requesting the consultant approval prior to doing any mining.

During that same timeframe, we've been able to -- through the South Adit, access our East Ore Body, and have found that the East Ore Body is in the same condition as it was when we left a couple -- 3 months ago. Which is very encouraging that the activity that we've had, perhaps is more isolated into our North Ore Body and we think that we can again access -- get access into our Lower Quartzite area, we can access our A Beds and C Beds again.

That's kind of the wrap up of where we are today. So I'll turn the call back over to John. Thank you.

Kenneth S. Eickerman

This is Ken. I'll just step in and discuss a bit about the 2012 year financials. We did have net income of $4.1 million for the year or about $0.12 a share on revenues of $59.2 million, and that's compared to net income of $13.5 million or $0.36 per share on revenues -- excuse me, $70.1 million for the year ended 2011. The decrease in revenues was primarily is due to overall lower silver and copper production. And as John mentioned earlier, the most significant events that caused this lower production was the limited access to our main producing areas in the first quarter due to high or unusually high spring runoff, and then of course, the suspension of mining activities late in the fourth quarter at the mine.

Our cost of sales basically remained the same as the prior year, as we saw just a 1% increase in our total spending, nothing really significant there. One area that we did step up in 2012, as compared to 2011, was our exploration and development spending. We spent close to $4 million during 2012, which was about 123% increase from 2011. Now this extra spending was expected and planned. One of the areas that we're trying to come straight on is the Rock Creek SEIS and of course the cost of the -- additional cost of contractors has increased that spending significantly. And the planned exploration, in and around the Troy Mine, we're doing all we can to increase our reserves, which we did, so our reserves are looking good.

As John mentioned earlier, our balance sheet continues to get stronger, and we've improved our cash and short-term investment position to $28.3 million, which is a slight improvement since 2011. Keep in mind, this also includes capital spending for mine development and mine equipment of over $9 million in 2012. So we did spend some cash in the capital area. At the end of the year, we finished with working capital of about $28.5 million.

With that, I'll turn the call back over to John for some final comments.

John G. Shanahan

Well, thanks again, Ken. I think my final comments are very simple. We have some work to do, both in the short term and in the long-term, and it's one step at a time. It's important for us that we hit the ground running once we are back into operating capabilities at Troy. It's not that we don't focus on today, and we certainly do. But it's also important that we take a good hard look at where we need to be at the end of the year. And of course, at the end of 2013, we want to see Troy back up and running as we used to, and we want to be gearing up for Rock Creek.

So with that, I'll pass this call back to Michelle, and perhaps, happy to take some questions, if anybody has any. Michelle?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Jeff Wright from Global Hunter Securities.

Jeffrey Wright - Global Hunter Securities, LLC, Research Division

So if I'm looking at a timeline back to production, it looks to me that best case is late April or May, am I right on that timeline? Or am I off a little bit?

John G. Shanahan

I think that's reasonable. I'd like to think earlier, but what we do know is, sometimes, these approval processes take a little bit longer. So I think if we're looking April or May, that's reasonable within the side of things. I think it's in -- it's good for us to know today what we need to do. I think the guessing game has come to an end for us. But it's just how long is some of these approval process is going to take place, Jeff. But I think your timeline is reasonable.

Jeffrey Wright - Global Hunter Securities, LLC, Research Division

Okay. So if we assume -- just for -- hypothetically, a May 1, returning to mining, what would need to be accomplished at the mill or what do you think is needed be accomplished at the mill to go back producing concentrate? And what timeline will we be looking at there? I'm thinking you don't just flip the switch, but at the same, it's not that long of a wag either.

John G. Shanahan

That's right, it's not a matter of flipping the switch. The mill has gone a lot of tender loving and care over these last few months. There's been a lot of maintenance, a lot of painting. It's really in good shape. So it's not a difficult process for us to turn that back on, Jeff. It's a matter of just having the flow coming through the crusher and through the secondary and tertiary bins. But we don't anticipate problems starting that mill up. It's -- one of the great things about the Troy Mine, of course, is that mill. It has been there, it is rock solid. And we don't anticipate any problems there. It's our short course is getting the feed to the mill, not restarting.

Jeffrey Wright - Global Hunter Securities, LLC, Research Division

So on the hypothetical question of a May 1 restart, we'd be seeing the mill processing and producing concentrates within 1 to 2 weeks?

John G. Shanahan

Probably a little bit longer, probably 2 to 4, depending on -- I mean, we're going to sort of start building a little bit of inventory. But it's probably late on that hypothetical, late May, we'll probably start seeing some con [ph] coming out.

Jeffrey Wright - Global Hunter Securities, LLC, Research Division

And last question, it was alluded to that last spring, there was a fair amount of snow melt and runoff that was impactful on operations. Is this something that we should be concerned about again this season? How with the snow still on the ground? So I'm assuming it's -- the runoff has not began quite yet.

John G. Shanahan

That's right. When you're driving in Northwest Montana, you're going to see that it was a relatively low snow melt or a snowpack season. But as you drive up to the Troy Mine, you're always surprised that there's probably 8 or 10 feet of snow there. What I'll do, though, is I'm going to ask -- Jeff, I'm going to ask Doug to answer that question. Because as I say, as I -- as you see in Northwest Montana, you'll see that it has not been a heavy snow season, but we still have a fair amount of snow up at the mine. Doug, perhaps you could chime in there if you wouldn't mind.

Douglas Paul Miller

Actually, we had a normal year of snowpacks. The issue is how fast it comes off, how fast it warms up, and does it warm up and start raining. And how soon we can get to our areas to get pumps pumping. I guess, we're hoping that we can get to the A Beds and C Beds prior to the heavy spring runoffs and get the pumps starting.

Jeffrey Wright - Global Hunter Securities, LLC, Research Division

Okay. If you're not able to get the pumps started, is there any concern of floating those spaces? Or would MSHA -- I would think MSHA would see the light, at least turn the pumps on.

Douglas Paul Miller

Yes. It won't be necessarily MSHA, it'll be the access into the A Beds and C Beds. We should be there. I would guess, that we're not going to have major issues there.

John G. Shanahan

Okay. Jeff, last spring was unseasonally high. I don't have the statistics in front of me, but it was way off the chart in terms of the amount of rain that came through. So those -- we can't control those weather conditions. If it is, once again, a 50-year high. Yes, we're probably going to have some additional challenges.

Operator

[Operator Instructions] Your next question comes from Christos Doulis from Stonecap.

Christos Doulis - Stonecap Securities Inc., Research Division

John, just wanted to get an update in terms of what it's costing you while Troy is not producing here, is it $2 million a month? Is that the right kind of number?

John G. Shanahan

Yes, $2 million, just over $2 million a month is our all-in cash burn, Christos. And I think I may have said, you look at it in January and it's a little bit higher because you've got that flow-through of your paying bills for inventory that you had coming through. There is some timing on taxes that we have to pay. But we get down now, sort of to that $2 million level cash burn going forward.

Operator

[Operator Instructions] Your next question comes from Annie Zhang from Octagon Capital.

Annie Zhang - Octagon Capital Corporation, Research Division

John or Doug, could you just clarify from where the drift is to the A, C Bed? Do you have to do any lateral development or just a matter of slowly clean out and getting access to that A, C Bed?

John G. Shanahan

Doug, I'll you answer, if that's okay?

Douglas Paul Miller

Yes, it is. Annie, if I understand your question, it isn't just packing [ph] the loose material out. We're going to have some additional ground support in there including some steel sets and structures that -- long bolts, and so on for shock reading.

Operator

[Operator Instructions] I have no further questions in queue. I'll turn the call back over to the presenters.

John G. Shanahan

Thank you, Michelle, and we appreciate everybody taking an interest. Please, if there are some questions, always happy to take them. And we hope at the end of -- next time we have this call for our first quarter, we'll be back in production, I would hope, and heading back on the path that we need to get to. So thank you, everybody. Thanks, Michelle.

Operator

You're welcome. This concludes today's conference call. You may now disconnect.

John G. Shanahan

Okay. Thanks, everybody.

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