Mr. Jean Martineau reports
DYNACOR ENDS 2017 SURPASSING US $100 M IN SALES AND REPORTS A NET INCOME OF US$ 3.8 M
Dynacor Gold Mines Inc. has released its audited consolidated financial statements and the management's discussion and analysis (MD&A) for the year ended Dec. 31, 2017.
These documents have been filed electronically with SEDAR and will be available on the corporation's website.
All figures in this press release are in millions of U.S. dollars unless stated otherwise. Earnings per share and cash flow per share are in U.S. dollars. All variance percentages are calculated from rounded figures. Some additions might be incorrect due to rounding.
The corporation ended the year with strength, totalling sales of over $100-million and its seventh consecutive year of profits. Dynacor recorded a net income of $3.8-million (10 cents per share) in 2017 compared with $3.3-million (nine cents per share) in 2016, an increase of 15.2 per cent.
2017 highlights
Strategic
Dynacor completed its first full year of processing activities at the Veta Dorada plant without any operation issues. The long-term senior secured credit facility was completely repaid in December, 2017, 13 months prior to contractual maturity. Dynacor is now debt free.
Operational
Gold production of 79,897 ounces in 2017, an increase of 8.7 per cent, including an historical quarterly high of 24,066 ounces in Q4 2017; Dynacor started the dismantling of the Huanca Metalex plant in Q4 2017.
Financial
Sales of $101.7-million in 2017, an increase of 11.4 per cent compared with 2016; Gross operating margin of $13.4-million (13.2 per cent) in 2017, an increase of 10.7 per cent compared with 2016; Net income of $3.8-million in 2017 (10 cents per share), an increase of 15.2 per cent compared with 2016; EBITDA (earnings before interest, taxes, depreciation and amortization) (1) of $11.2-million, an increase of 24.4 per cent compared with 2016; Cash flow from operating activities before change in working capital items of $8.6-million (22 cents per share (2)), an increase of 38.7 per cent compared with 2016.
(1) EBITDA is a non-IFRS (international financial reporting standards) financial performance measure with no standard definition under IFRS. It is therefore possible that this measure could not be comparable with a similar measure of another corporation. The corporation uses this non-IFRS measure as an indicator of the cash generated by the operations and allows investors to compare the profitability of the corporation with others by cancelling effects of different assets bases, effects due to different tax structures as well as the effects of different capital structures.
(2) Cash flow per share is a non-IFRS financial performance measure with no standard definition under IFRS. It is therefore possible that this measure could not be comparable with a similar measure of another corporation. The corporation uses this non-IFRS measure which can also be helpful to investors as it provides a result which can be compared with the corporation market share price.
2017 overview
In 2017, despite extreme climate events that affected Peru and impacted the ore supply, the corporation's monthly production constantly improved. For its first full year of operations, Dynacor's new Veta Dorada plant (Chala) achieved a record yearly production of 79,897 ounces of gold (compared with 73,476 ounces in 2016) including a monthly record high of 8,908 ounces in December. Total sales for the year amounted to $101.7-million.
The corporation's daily ore processing rate increased steadily throughout 2017 reaching a 300-tonne-per-day average in December, 2017. The daily average rate was 226 tpd in 2017 compared with 204 tpd in 2016.
Finally, after having kept the Huanca Metalex plant in care and maintenance mode for over a year and considering the current ore market conditions in Peru and the ability for Dynacor to increase its processing capacity at its new plant, the corporation has taken the decision in late 2017 to definitively close its Huanca Metalex plant and initiate decommissioning and site restoration.
Results from operations
FINANCIAL STATEMENTS HIGHLIGHTS For the years ended Dec. 31(in thousands of dollars)2017 2016 Sales$101,695$91,299 Cost of sales (88,282) (79,225)Gross operating margin 13,413 12,074 General and administrative expenses(3,855)(4,122)Transition, maintenance and other expenses (1,118)(303)Selling expenses(12)(815)Operating income8,4286,834 Net income and comprehensive income 3,8413,289 Earnings per share Basic $0.10$0.09 Diluted $0.10$0.08
In 2017, total sales amounted to $101.7-million compared with $91.3-million in 2016, a year-over-year increase of 11.4 per cent. The net income was $3.8-million in 2017 compared with $3.3-million in 2016, an increase of 15.2 per cent compared with 2016.
The 2017 net income includes elements such as the transition and maintenance expenses related to the transfer of the company's ore processing operations from the Huanca Metalex plant to the Veta Dorada (Chala) plant and all provisions regarding the Huanca Metalex site closure and restoration, which amounted to $1.1-million, as well as interest expenses of $600,000 paid on the long-term debt which was repaid in full in December, 2017. Those expenses will be considerably reduced in 2018. In 2017, the foreign exchange loss amounted to $100,000 compared with $500,000 in 2016.
Fourth quarter results
During the fourth quarter ended Dec. 31, 2017, the corporation recorded a net income of $1.4-million (four cents per share) compared with $200,000 (one cent per share) in the comparative period of 2016. The increase of $1.2-million is mainly due to the increase in the gross operating margin ($1.8-million). This was partially offset by the increase in the income tax expense as well as a $200,000 write-off of asset in Q4 2017. Q4 2016 was negatively affected by the first quarter of operations at the Veta Dorada plant.
Cash flow from operating, investing and financing activities and liquidity
Operating activities
For the year ended Dec. 31, 2017, total cash generated from operating activities amounted to $7.4-million (19 cents per share), compared with $3.3-million (nine cents per share) in 2016. The cash flow from operating activities before change in working capital items amounted to $8.6-million (22 cents per share), compared with $6.2-million (16 cents per share) in 2016. Changes in working capital items decreased by $1.2-million (decrease of $2.9-million in the comparative period) mainly relating to an increase in trade and other receivables.
Investing activities
During the year ended Dec. 31, 2017, the corporation invested $700,000 ($8.8-million for the year ended Dec. 31, 2016) for the acquisition of property, plant and equipment, mainly relating to additions to the Chala plant.
Additions to exploration and evaluation assets during the year amounted to $600,000 ($1.3-million in 2016).
Financing activities
On Jan. 14, 2016, the corporation entered into senior secured credit facilities in the aggregate amount of up to $10-million with third party lenders. The facility consisted of a $7-million drawdown term loan facility and a $3-million revolving facility, and was secured against the assets of the corporation, including the Veta Dorada plant. The term facility had a term of up to 36 months and bore interest at a rate of 10 per cent per annum. The revolver had a term of 12 months, which was extended for an additional period of 12 months and bore interest at a rate of 8.5 per cent or prime rate plus 6 per cent per annum, whichever is greater.
In December, 2017, 13 months prior to contractual maturity, the corporation completed the debt reimbursement and is now debt free. During 2017, Dynacor made repayments of $6.3-million.
Liquidity
As at Dec. 31, 2017, the corporation's working capital amounted to $16.0-million, including $4.8-million in cash ($15.8-million, including $6.2-million in cash at Dec. 31, 2016).
Outlook 2018
Ore processing
Dynacor expects 2018 to be its best year ever with a gold production estimated between 90,000 and 94,000 ounces. The gold production target for 2018 is based on the current price of gold and current operating conditions. The corporation expects to return its production to its full 300 tpd capacity soon after the rainy season and plans to expand the capacity to 360 tpd by the end of the year.
The dismantling of the Huanca Metalex plant is completed and the site restoration is well under way and should be completed in the second quarter of 2018.
The corporation is also looking at other opportunities in other jurisdictions.
Exploration
Following a new agreement with one the two local communities, the corporation will begin in 2018 a stage surface drilling program on the disseminated gold zone. The drilling targets have been defined based on all the available geological data, geochemical sampling data, reinterpretation of the geophysical data and the recommendations of independent experts (in disseminated gold deposits) whom visited the property last fall.
The drilling program will begin after the rainy season upon reception of the exploration permit and will target the disseminated gold zone, the Sumac breccia zone and targeting extensions of the Manto Dorado to the west. The approved budget is $2.4-million over the next 24 months.
About Dynacor Gold Mines Inc.
Dynacor Gold Mines is a gold production corporation headquartered in Montreal, Canada. The corporation is engaged in production through its government-approved ore processing operations. At present, Dynacor produces and explores in Peru where its management team has decades of experience and expertise. In 2017, Dynacor produced 79,897 ounces of gold, an 8.7-per-cent increase as compared with 2016 (73,476 ounces).
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