Itafos reported its Q3 2020 financial results and operational highlights. The Company’s financial statements and management’s discussion and analysis for the three and nine months ended September 30, 2020 are available under the Company’s profile at www.sedar.com and on the Company’s website at www.itafos.com. All dollar values are in thousands of US Dollars except as otherwise noted.
“Q3 2020 was dominated by a significant disruption in sulfuric acid supply at Conda from our primary supplier. Our team did an outstanding job to mitigate the impact by procuring additional sulfuric acid volumes from other third party suppliers and opportunistically conducting certain maintenance activities during times of lower throughput. These efforts, in addition to the continued advancement of our cost savings initiatives and an improving outlook on phosphate fertilizer prices have allowed us to increase the lower end of our 2020 guidance for adjusted EBITDA by $5 million,” said Dr. Mhamed Ibnabdeljalil, CEO of Itafos.
Overall Highlights
For the three months ended September 30, 2020, the Company’s financial highlights were as follows:
- generated adjusted EBITDA of $(292) [Q3 2019: $(95)], representing largely consistent performance year-over-year primarily due to a disruption in sulfuric acid supply from its primary supplier at Conda, which was largely offset by cost savings following the idling of Arraias and implementation of aggressive corporate wide cost savings and deferral of spending initiatives;
- incurred net loss of $(13,788) [Q3 2019: $(20,778)], representing a 34% decrease year-over-year primarily due to higher gross margin at Conda and Arraias and lower corporate-wide selling, general and administrative expenses due to implementation of aggressive corporate wide cost savings and deferral of spending initiatives;
- closed a $20,000 secured working capital facility at Conda with JPMorgan Chase Bank, N.A. (the “Revolving Facility”), which refinanced the $20,000 secured working capital facility at Conda with Gavilon Fertilizer, LLC (the “Gavilon Facility”);
- repaid the Gavilon Facility in full in connection with closing the Revolving Facility;
- drew an additional $5,300 under the Company’s unsecured and subordinated promissory note (the “CLF Promissory Note”) with an additional $5,400 remaining available to be drawn by the Company at its sole discretion; and
- advanced aggressive corporate wide cost savings and deferral of spending initiatives.
For the three months ended September 30, 2020, the Company’s business highlights were as follows:
- continued corporate-wide risk mitigation measures to address potential impacts to employees, contractors and operations as a result of the coronavirus disease 2019 (“COVID-19”) pandemic resulting in no material impact to operations;
- demonstrated sustained environmental, health and safety excellence at Conda and Arraias, including no environmental releases and one recordable injury and achievement of a notable milestone at Arraias by exceeding one year without a recordable injury;
- completed a reduced scope plant turnaround at Conda during July 2020 as part of its risk mitigation measures during the COVID-19 pandemic with no environmental releases or recordable injuries;
- experienced a significant disruption in sulfuric acid supply at Conda from its primary supplier and advanced efforts to mitigate potential adverse effects of the disruption, including procuring additional sulfuric acid volumes from other third party suppliers and opportunistically conducting certain maintenance activities during times of lower throughput;
- produced total production volumes at Conda of 97,547t [Q3 2019: 144,586t], representing a 33% decrease year-over-year primarily due to a disruption in sulfuric acid supply from its primary supplier;
- generated adjusted EBITDA at Conda of $4,259 [Q3 2019: $8,821], representing a 52% decrease year-over-year primarily due to a disruption in sulfuric acid supply from its primary supplier;
- incurred net loss at Conda of $(1,757) [Q3 2019: $(2,478)], representing a 29% decrease year-over-year primarily due to higher gross margin due to lower depreciation and depletion, which was partially offset by a disruption in sulfuric acid supply from its primarily supplier;
- advanced activities related to extending Conda’s mine life through permitting and development of Husky 1/North Dry Ridge (“H1/NDR”), including advancing reclamation cap and cover alternatives analysis and updates to the Groundwater Fate and Transport Model associated with Environmental Impact Statement (“EIS”) requirements;
- advanced activities related to optimizing Conda’s EBITDA generation capability, including:
– entered into a third party tolling agreement for a proprietary micronutrient enhanced dry product as an additional product in the new line of micronutrient enhanced dry products and completing an initial production run,
– advanced formulation development of MAP enhanced with zinc as an additional product in the new line of micronutrient enhanced dry products,
– advanced test work on magnesium oxide (“MgO”) reduction with the use of enhanced grinding attrition scrubbing and flotation,
– advanced operations and cost to serve initiatives, including advancing freight cost reduction opportunities, implementing SPA rail car fleet optimization strategy and renegotiating pricing on key raw materials,
– launched pilot plant testing and a front-end engineering and design (“FEED”) study related to anhydrous hydrogen fluoride and precipitated silica (“AHF/PS”) by-product recovery,
– launched a feasibility study related to on-site ammonia production and
– launched a pre-feasibility study related to sulfuric acid plant expansion and cogeneration;
- maintained the idling of Arraias following best practices; and
- advanced the stage-gate restart program at Arraias, including advancing a test work campaign aimed at the metallurgical characterization of the Domingos ore as well as a detailed in-fill drilling program;
For the three months ended September 30, 2020, the Company’s other highlights were as follows:
- maintained Farim at construction ready state while optimizing costs; and
- advanced the development of Farim, including advancing project financing, related permitting and offtake initiatives;
- advanced the wind down of Paris Hills, including issuing mineral lease termination letters to land owners, following the Company’s decision to wind down the concession following completion of the Conda Technical Report, which defined H1/NDR as the Company’s path forward for mine life extension at Conda;
- advanced corporate streamlining initiatives resulting in dissolution of one unutilized legacy entity;
- cash settled 27,154 restricted share units (“RSUs”) for $6 under the company’s restricted share unit plan (the “RSU Plan”); and
- amended the Company’s RSU Plan to increase the maximum number of shares which may be reserved for issuance under the Company’s RSU Plan from 14,207,030 to 18,546,282.
Subsequent Events
Subsequent to September 30, 2020, the Company received a request from the third party provider of surety bonds that guarantee Conda’s obligations under its existing operating and environmental permits to post collateral to cover 20% of the bonded exposure in the form of letter of credit, cash and/or indemnity. As at September 30, 2020, the bonded exposure was $39,757. The Company is currently working with the third party provider and its stakeholders to implement the requested collateral.
Financial Highlights
For the three months ended September 30, 2020 and 2019, the Company’s financial highlights were as follows:
(unaudited in thousands of US Dollars |
For the three months ended September 30, |
|
For the nine months ended September 30, |
|
except for per share amounts) |
2020 |
|
2019 |
|
2020 |
|
2019 |
|
Revenues |
$ |
47,638 |
|
$ |
81,749 |
|
$ |
185,110 |
|
$ |
257,999 |
|
Gross margin |
|
(1,701 |
) |
|
(6,416 |
) |
|
(14,434 |
) |
|
(13,528 |
) |
Adjusted EBITDA |
|
(292 |
) |
|
(95 |
) |
|
10,244 |
|
|
(295 |
) |
Net loss |
|
(13,788 |
) |
|
(20,778 |
) |
|
(52,891 |
) |
|
(55,706 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Maintenance capex |
$ |
2,719 |
|
$ |
2,109 |
|
$ |
6,220 |
|
$ |
19,156 |
|
Growth capex |
|
2,158 |
|
|
9,327 |
|
|
5,027 |
|
|
15,507 |
|
Total Capex |
$ |
4,877 |
|
$ |
11,436 |
|
$ |
11,247 |
|
$ |
34,663 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share |
$ |
(0.07 |
) |
$ |
(0.15 |
) |
$ |
(0.29 |
) |
$ |
(0.40 |
) |
Fully diluted loss per share |
$ |
(0.07 |
) |
$ |
(0.15 |
) |
$ |
(0.29 |
) |
$ |
(0.40 |
) |
For the three months ended September 30, 2020 and 2019, the Company’s financial highlights were explained as follows:
- revenues were down year-over-year primarily due to lower production and sales volumes due to a disruption in sulfuric acid supply from its primary supplier at Conda and the idling of Arraias;
- adjusted EBITDA was largely consistent year-over-year primarily due to a disruption in sulfuric acid supply from its primary supplier at Conda, which was largely offset by cost savings following the idling of Arraias and implementation of aggressive corporate wide cost savings and deferral of spending initiatives;
- net loss was down year-over-year primarily due to higher gross margin at Conda and Arraias and lower corporate-wide selling, general and administrative expenses due to implementation of aggressive corporate wide cost savings and deferral of spending initiatives;
- maintenance capex was up year-over-year primarily due to timing of maintenance activities following the Company’s decision to conduct a reduced scope plant turnaround at Conda during July 2020 as part of its risk mitigation measures during the COVID-19 pandemic; and
- growth capex was down year-over-year primarily due to timing of activities related to extending Conda’s mine life through permitting and development of H1/NDR, reduced spend at Farim upon reaching construction ready state and idling of Arraias.
As at September 30, 2020 and December 31, 2019, the Company’s financial highlights were as follows:
unaudited in thousands of US Dollars) |
September 30, 2020 |
|
December 31, 2019 |
|
Total assets |
$ |
454,135 |
|
$ |
510,764 |
|
Total liabilities |
|
362,297 |
|
|
368,505 |
|
Net debt |
|
228,936 |
|
|
187,319 |
|
Adjusted net debt |
|
163,159 |
|
|
136,900 |
|
Total equity |
|
91,838 |
|
|
142,259 |
|
As at September 30, 2020 and December 31, 2019, the Company’s financial highlights were explained as follows:
- total assets were down period-over-period primarily due to lower inventory at Conda and Arraias and depreciation and depletion at Conda, which was partially offset by fixed assets additions primarily at Conda;
- total liabilities were down period-over-period primarily due to lower trade and taxes payable at Conda;
- net debt was up period-over-period primarily due to lower cash and cash equivalents and additional debt resulting from paid-in-kind interest related to the Facility and draw under the CLF Promissory Note;
- adjusted net debt was up period-over-period primarily due to lower cash and cash equivalents and additional debt resulting from paid-in-kind interest related to the Facility; and
- total equity was down period-over-period primarily due to net loss recorded during the period.
Conda Highlights
COVID-19 Risk Mitigation Measures
The Company is closely monitoring potential risks to Conda’s employees, contractors and operations as a result of the COVID-19 pandemic. Conda has been deemed an essential business as part of the fertilizer and agriculture sector and therefore has not been forced to shut down operations on account of the COVID-19 pandemic. The Company is not currently projecting any material impact on Conda’s operations as a result of the COVID-19 pandemic.
In response to the COVID-19 pandemic, the Company has implemented and continued risk mitigation measures at Conda to address potential impacts to its employees, contractors and operations as follows:
- adopted temporary travel restrictions;
- established a daily COVID-19 emergency operations center to track and respond in real-time to regional and local developments;
- implemented measures to reduce on site presence and interaction of staff;
- increased cleaning and disinfecting measures;
- adopted new policies related to sick leave and isolation in case of symptoms;
- established ongoing dialogue with key business partners (customers, logistics providers, mining contractor, health insurance provider) to continually monitor the situation;
- requalified supervisors and staff on applicable critical operations in the event of an outbreak; and
- assessed business relief options.
As at September 30, 2020, there have been a number of confirmed cases of COVID-19 amongst employees and contractors at Conda. Following such confirmed cases, Conda implemented stringent quarantine and sanitation efforts to isolate such incidents and prevent further spread.
EHS Highlights
For the nine months ended September 30, 2020, Conda continued its strong track record of environmental, health, and safety excellence with no environmental releases and two recordable injuries.
Plant Turnaround
On July 10, 2020, the Company announced its decision to conduct a reduced scope plant turnaround at Conda during July 2020 as part of its risk mitigation measures during the COVID-19 pandemic. On August 20, 2020, the Company announced that Conda completed the reduced scope plant turnaround with no environmental releases or recordable injuries.
Sulfuric Acid Disruption
On August 20, 2020, the Company announced that Conda had been experiencing a significant disruption in sulfuric acid supply from Rio Tinto’s Kennecott mine. Conda fulfills approximately 40% of its sulfuric acid requirements from volumes produced internally and approximately 60% from a combination of volumes received from Rio Tinto’s Kennecott mine under a long-term supply agreement and volumes procured from other third party suppliers. On August 18, 2020, Rio Tinto announced that its Kennecott mine in Utah had experienced delays to the restart of the smelter. According to Rio Tinto’s announcement, such delays to the restart of the smelter were due to unexpected issues that appeared following planned maintenance. Rio Tinto further announced that they were working closely with their customers to limit any disruptions and expected to have the smelter fully operational in two months. The Company has been taking measures to mitigate potential adverse effects of the disruption in sulfuric acid supply to Conda from Rio Tinto’s Kennecott mine, including procuring additional sulfuric acid volumes from other third party suppliers and opportunistically conducting certain maintenance activities during times of lower throughput.
For further information, please contact:
Itafos Investor Relations
investor@itafos.com
www.itafos.com