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Revett Minerals Inc (NYSEMKT:RVM)

Q2 2013 Earnings Call

August 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

Spencer Lehman

Paul Renken - VSA Capital Limited, Research Division

Annie Zhang - Octagon Capital Corporation, Research Division

Operator

Good morning, my name is Matthew, and I will be your conference operator today. At this time, I would like to welcome everyone to the Revett Minerals' Q2 2013 conference call. [Operator Instructions] Thank you.

Ken Eickerman, you may begin your conference.

Kenneth S. Eickerman

Okay, thank you, Matthew. And good day to everyone, and thanks for joining our second quarter 2013 financial and operational conference call. I'm Ken Eickerman, the CFO. And joining me today is our President and CEO, John Shanahan; along with 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 Safe Harbor provisions 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 the risk factors contained in our most recent annual report on Form 10-K for descriptions of risks, uncertainties and assumptions related to the 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 results for the second quarter 2013. Following his remarks, Doug will provide an operations update, and then I'll walk through the financials. And then John will wrap up with an outlook before we finish with your questions. John?

John G. Shanahan

Well, thanks, Ken. The second quarter of 2013 was a very quiet period for us. We continued with our efforts to reaccess our mining areas at the Troy Mine. In May, we did discover further ground fall along what we had -- what we term as the A Drive and our efforts to get to the Lower Quartzite haulage route, which was disappointing and it did require us to change our focus to the D Drive, which we are in the final stages of completing. We're currently dewatering and once the drawdown is below a certain point, we'll able to break through on the D Drive, and then commence our inspections to see whether that route is indeed a viable access point and route for us to return to production.

Following discovery of the ground fall through the A Drive, we did significantly reduce our manpower in late May. Should this route back through the D Drive prove successful, which we remain hopeful, we will be looking to get back into commercial production into the fourth quarter. But I do caution, again, whilst we remain hopeful and we certainly wouldn't be doing all this work if we didn't believe that it was a viable route, we categorically can't be sure until we're able to break through and do those inspections.

The reductions in May, of course, and our continued efforts to reduce our cash burn brings us down to a burn rate of just over $1 million, somewhere between $1 million and $1.25 million per month. So we have the financial resources, still we're mindful of our cash burn rate though. And of course, that includes not just only our expenses at site, G&A, and work that we do on Rock Creek. So the quicker that we're able to get back into production, of course, the better off we are. In the larger scheme of things being an operator at Troy is what we do. It's how we develop the company, and of course, it becomes our bridge to eventually get into Rock Creek.

And then, finally, of course, Rock Creek permitting, the supplemental EIS continues. I do believe we are nearing the development or the issuance of a draft SEIS, that will go out for cooperating agencies for review. So that's really where we were in the second quarter.

I'd like to pass the call to Doug Miller, our VP of operations to give a little bit more detail on those efforts to reaccess the mining areas. Thank you. Doug?

Douglas Paul Miller

Thank you, John. I would like to emphasize the importance of safety again. And during this period that we have been -- have to reduce workforce and undertaking a lot of different jobs around the operation, we haven't had any lost time accidents. And next month, we'll be -- barring no lost time accident this month, we'll be 1 year without lost time accident at the operation.

As John pointed out, we were disappointed in the lower main haulage A Drive. When we got through the B Fault, we did find that there were some additional ground failure on the other side of that, preventing us to go that direction. But we did have the alternative route in the D Drive. We have been drifting on the D Drive. It's near completion. We have just a couple of short rounds to complete that. But right now, we're pumping water to get the water down on the other side of the D Drive, south of the D Drive prior to break through. That's kind of about all where we're at. And as John says, we are hopeful that we can advance south. Once we break through the D Drive, we'll have to continue to pump and as we pump and the water goes down, we'll evaluate what we have to the south, hopefully, getting down into the D [ph] Bed declined access and back into production by fourth quarter of this year.

Thank you. And I'll turn it back over to Ken now.

Kenneth S. Eickerman

Well, thanks, Doug. As I mentioned, we didn't have any revenues to offset our spending, but the spending that we did incur, the $3.9 million at the Troy Mine was all related to getting the operations back up and running. So we continued our best efforts there. And so, we're still spending the dollars and still trying to get back to mining, hopefully within sometime during the fourth quarter.

The other types of spending that -- we're still spending about $300,000 a quarter on the Rock Creek SEIS, and that's primarily with contractors that are working on the document and then the support for that main contractor. So we're still continuing to give our best efforts in getting the SEIS completed. And hopefully, that will be done soon.

We did a little bit of exploration in and around the mine, not a whole lot, but we still continued to drill a little bit. I guess, the other -- the important piece is that at the quarter end, we still ended up with over $15 million in cash and short-term investments. And we had about $17 million in our working capital position. So we should be in fairly good shape for the next year or so.

With that, I'll turn it back over to John for final comments and we'd be happy to answer any questions.

John G. Shanahan

Sorry, Ken. I had the mute button on. In terms of outlook, it's -- there are very simple steps that we need to take as a company and we're very focused on them. Getting back into production. There are still some unknowns there, we've still got work to do, but it's our priority at the moment. Once back into production, we got to look at ways to develop the I Beds and further to the JF Property. And just need to remind everybody, when you have an operation like Troy, we have a fully functioning, well-working mill, a permitted operation, equipment, an experienced workforce, our job and value creation for our shareholders and communities where we live, and employees is to be a safe and reliable operator. And there is life at Troy. We'll get through these current issues. And when we do, we're looking to further develop the I Beds, the JF Properties, and as I said, there's potentially 15 maybe more years of operations there. So that's our outlook, that's our focus. Getting back to being a safe and reliable operator, further developing Troy, and of course, being in position to operate, to develop Rock Creek, get that through those final permitting stages, that has not being an easy process, but we're not taking our foot off the accelerator there. But we are in position to be that operator and to be that operator that we want to be.

So with that, we'll open it up for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Spencer Lehman with Financial West.

Spencer Lehman

Just looking ahead again toward Rock Creek. I mean, fortunately, you had a pile of cash there that's been able to get you through this Troy problem, but unfortunately, you were sort of hoping that, that was going to be used to get Rock Creek started. Assuming that there won't be, say, too much left when it's time to start up on Rock Creek, does that sort of figure that you may need a partner or even a major coming in to take over the situation? And if so -- now, you've developed a pretty good relationship there with the powers that be and -- over the years, and if a bigger firm came in, would they have the same kind of relationship? Could they -- or would it even be better -- would they be more likely to develop Rock Creek faster?

John G. Shanahan

Yes. I don't think -- well, I'll just -- I will answer the last question first, Spencer, if that's okay. In terms of developing it faster, the answer is no. I mean, the process that we're going through, the forest service at the moment as lead agency is the development of a supplemental EIS. It's taken longer than we would expected, but then again, the agencies are very clear. This is a project that they want, this is a project that they want to make sure is comprehensive and complete. And so, the supplemental EIS is addressing the questions that were asked in the federal court and making sure that it is, to use a word, legally defensible. So that's why it's taking longer than expected, but we appreciate the efforts of the agencies for that. So in terms of speeding up Rock Creek, it's not a matter of resources at the moment, it's -- financial resources, it's simply a matter of going through the process. So some of the federal agencies are under a lot of pressure with sequestering and projects everywhere. So they're doing their very best to make all this work.

Now, getting to Rock Creek, the first phase is somewhere between a $25 million and $30 million program for Phase 1 development, the evaluation added. 12 months ago, I would've told you, we were sitting pretty, we were sitting there with close to $30 million of cash and a $30 million credit facility. And the credit facility was really in our back pocket for Rock Creek, but it's predicated and based upon Troy as an operation. So what I am going to tell you, the most important thing for us to be able to do is to have a long life at Troy and be operating Troy, that will enable us to leverage off Troy operations to get to Rock Creek. So in terms of do we need a joint venture partner? Or what's the best combination to move Rock Creek along? We're not really there to make that assessment, but our minds are very open because once we've got the green light at Rock Creek, the last thing we're going to do is sit back and say, "Wow, we just have to wait a couple of year because, because, because." That's not going to be the case. We are going to make sure that Rock Creek is developed as an efficient operation. As I said, we hit the ground running. We have the experience, we have a knowledge in the Revett Formation that no one else has. We have experienced labor pool, we understand the ground. So we would be able to hit the ground running if it means that we're leveraging in there with a partner, so be it. But one thing we're determined to do and one thing we're committed to do is develop Rock Creek responsibly. And I think any partner that we would ever look towards would have to be a responsible operator as well. So I think those critical social responsibilities are etched in stone. And most important for us, I think, as a company, in developing Rock Creek is to have those options, Spencer. As I said, we're not going to be silly about it, we're just going to look at the circumstances at the time when we are ready to go. We've got to do it most efficiently. And there is really nothing, nothing closed in our mind other than we got to meet the requirements for it to be developed responsibly.

Operator

Your next question comes from the line of Paul Renken with VSA Capital.

Paul Renken - VSA Capital Limited, Research Division

I have several questions for you and the deal with how you're handling the current period of non-operations at Troy. First of all, are you holding any metal inventories in concentrates or in Door A [ph] ?

John G. Shanahan

I'll answer them one at a time, Paul. Yes, we do have 1 railcar. I think the approximate value is around $400,000, maybe $425,000. That has actually just been shipped to a smelter. So that is the only inventory that we do have and that's gone out in the last couple of days.

Paul Renken - VSA Capital Limited, Research Division

Okay. And have you taken or have you arranged deferred deliveries on your consumables like fuel and things like that?

John G. Shanahan

We've been running hand-to-mouth. One of the good things on both sides of the equation is that we aren't locked into any purchasing contracts nor we have completed our concentrate delivery contracts at 2012. Obviously, we haven't entered into one for 2013, nor our hedge arrangements where we had $4 copper. That was expired or that would have been in the money anyhow. But that expired with the last shipments that went out in January. So we don't have any commitments. So everything that we're doing on consumables at the moment is just hand-to-mouth.

Paul Renken - VSA Capital Limited, Research Division

And what kind of state or company support is being provided for furloughed employees at this time?

John G. Shanahan

Well, we have approximately 75 employees, both salaried and hourly up at the Troy Mine, which are doing the development work and care and maintenance on the mill and tailings facility in other areas. In May, we laid just on 100 people off. There was a little bit of support with health care and a couple of other small things over a 3-month period. So when we do return to production in the fourth quarter, we hope that we'll get most people back. Obviously, some people leave the area, some people found other jobs that we won't get everybody back, I'm not sure if we'll need everybody initially, anyhow. But there is no furloughing in that respect. It's just -- it was a clean break and we're just hoping that people are available when we need to call people back.

Paul Renken - VSA Capital Limited, Research Division

And my final question is if you can address the question as to whether your position concerning write-downs on either resources or development costs at Troy?

John G. Shanahan

Yes. In terms of resources, we still believe that we, either through this D Drive or if it's an alternative route, we are still going to be able to access our reserves in both the A and C Beds and eventually, the reserves that are in the I Beds and resources that are currently in the JF. So we have not written down our reserves. In terms of development cost at Troy, Ken, I'm not sure how we account for that, it's certainly not capitalized. I don't believe. If you'd like to comment?

Kenneth S. Eickerman

Well, the money that we're spending this last 6 months has all been expensed. So we're not capitalizing any of that. Basically, just considering it a repair of our haulage way. And then of course, we did take a look at our life of mine to make sure with our new plant, and then the existing reserves that the cash that is generated by the mine, the Troy mine well exceeds our cost basis in the assets. So anyhow, we had to take a look at that, our auditors made us look there and came out looking really, really good. So we just need to get back at mining and we'll be okay.

Operator

[Operator Instructions] Your next question comes from the line of Annie Zhang with Octagon Capital.

Annie Zhang - Octagon Capital Corporation, Research Division

Maybe John or Doug could comment on the -- what level that you have seen so far at the D Drive? And then maybe based on whether you have seen, could you forecast how long it would take to dewater when you get to that A, C Beds?

John G. Shanahan

Certainly. I'll pass that to Doug, if you wouldn't mind?

Douglas Paul Miller

Yes. Once we break through, and again, it depends on how fast we can pump it out -- the pumping availability or the pump curve. We're estimating to get to the top of the C Bed, it's about 35 to 45 days.

Annie Zhang - Octagon Capital Corporation, Research Division

Okay. So back to the timeline that you right now forecasting by -- within Q4, you will be able to resume the operations. That's still depending on dewater completion and you submit our plan for operations, and again, approval from MSHA?

John G. Shanahan

Yes, that's true.

Annie Zhang - Octagon Capital Corporation, Research Division

Okay. In the worst scenario, if when you get to that A, C Bed, if you see any structural damage, what would be the -- what would happen? Would you just stop there and go back to review other options?

Douglas Paul Miller

There are other options. The other option would be is a new development drift into the I Beds, which you could access the A beds and C Beds off of that. And again, it would depend on what type of structural damage we encountered. If it's something that's beyond repair, I guess, that's the option, would be a development drift.

Annie Zhang - Octagon Capital Corporation, Research Division

Probably it will be just another longer drive development from the I Bed?

Douglas Paul Miller

Yes.

Annie Zhang - Octagon Capital Corporation, Research Division

Okay. My last question probably is for Ken. Ken, could you give me some color on that $1.1 million on your income statement loss on available-for-sale securities? What is it?

Kenneth S. Eickerman

We've purchased some securities. We've held them for over a year and the price -- the market value of those securities has decreased. For the first, I want to say 1 year since when we owned them, we either run the gains through other comprehensive income or if we have losses, we'd run it through the other comprehensive income. But at quarter end, at June 30, we've determined that we felt that the share price of these particular securities, were not going to rebound to what we had originally purchased them for. So we took a -- basically a $1 million write-down of those securities. So that's kind of the story behind that. And then, of course, we'll continue to -- we still hold the securities, we'll continue to market the market. So next quarter, we may have a gain in that particular line of the income statement. So that's kind of where we're going with that.

Annie Zhang - Octagon Capital Corporation, Research Division

Okay. Because I was looking at the notes. I didn't see the -- would you be able to tell me the book value right now? And what stocks are you holding?

Kenneth S. Eickerman

Well, we market to market value. Book value would be -- it should be in the notes, shouldn't it? Our cost basis is about $1.5 million, but the market value at June 30 was $530,000.

Annie Zhang - Octagon Capital Corporation, Research Division

And would you be able to tell me what stocks are you holding?

Kenneth S. Eickerman

I prefer not to at this time.

Operator

[Operator Instructions] Your next question comes from the line of Spencer Lehman with Financial West.

Spencer Lehman

John, do you know what your approximate NOL is to date?

John G. Shanahan

Ken, do you have that there in front of you?

Kenneth S. Eickerman

Yes, it's...

John G. Shanahan

I know it's about $0.24 share...

Spencer Lehman

Ballpark or...

Kenneth S. Eickerman

Yes. It's about $18 million for the Federal, about $10 million for the state of Montana, and about $10.5 million for the Canadian tax office. So we would expect -- and that was at December 31. So that $18 million that I was telling you, it has grown substantially since then. So I would say a minimum of $24 million in NOL.

Operator

We have no further questions at this time. I'll turn the call back over to our presenters for any closing remarks.

John G. Shanahan

Well, thank you. I'll take the closing remarks. Just appreciate everyone's interest and patience. This has been a very, very difficult 9 months for us. But it doesn't mean that we're not focused and it doesn't mean that we're not determined to deliver the company to where we want it to be, which as I'll say, time and time again, to be a responsible and safe operator both at Troy and developing Rock Creek. We believe we can do it and we're determined to do it. And were going to focus on those 2 aspects over the next couple of years. And I appreciate, as I said, everyone's interest. Always happy to chat. If you have questions, and we're going to continue to move along here. So I thank everybody and we'll be doing this again for our third quarter results. Thank you very much.

Operator

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

John G. Shanahan

Thank you. Cheers, everyone.

Kenneth S. Eickerman

Cheers.

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