Itafos (TSXV:IFOS.VN) (the "Company") reported today its Q2 2020 financial results and operational highlights. The Company's financial statements and management's discussion and analysis for the three and six months ended June 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.
"We delivered strong financial and operational performance during Q2 2020, demonstrated by our adjusted EBITDA for the quarter improving $14 million year-over-year. Our focus on improving margins and corporate-wide cost savings initiatives, in addition to a disciplined approach to capital allocation and efforts to mitigate sulfuric acid supply disruptions all contributed to these results," said Dr. Mhamed Ibnabdeljalil, CEO of Itafos. "Looking forward, we are maintaining our original guidance for full year 2020 adjusted EBITDA and we are continuing to make progress on extending Itafos Conda's mine life, optimizing Itafos Conda's EBITDA generation capability and advancing our newly launched stage-gate restart program for Itafos Arraias."
Overall Highlights
For the three months ended June 30, 2020, the Company's financial highlights were as follows:
For the three months ended June 30, 2020, the Company's business highlights were as follows:
For the three months ended June 30, 2020, the Company's other highlights included issuance of 11,347 shares (net of 3,653 shares withheld to pay applicable taxes) due to vesting under the Company's restricted share unit plan (the "RSU Plan").
Subsequent to the three months ended June 30, 2020, the Company's overall highlights were as follows:
Financial Highlights
For the three months ended June 30, 2020 and 2019, the Company's financial highlights were as follows:
(unaudited in thousands of US Dollars For the three months ended June 30, For the six months ended June 30, except for per share amounts) 2020 2019 2020 2019 Revenues $ 62,111 $ 103,072 $ 137,472 $ 176,250 Operating loss (10,576 ) (14,079 ) (22,819 ) (20,089 ) Adjusted EBITDA 11,324 (2,347 ) 10,536 (200 ) Net loss (20,814 ) (21,597 ) (39,103 ) (34,928 ) Maintenance capex $ 1,582 $ 11,861 $ 3,501 $ 17,047 Growth capex 1,463 3,164 2,869 6,180 Basic loss per share $ (0.11 ) $ (0.15 ) $ (0.21 ) $ (0.25 ) Fully diluted loss per share $ (0.11 ) $ (0.15 ) $ (0.21 ) $ (0.25 )
For the three months ended June 30, 2020 and 2019, the Company's financial highlights were explained as follows:
As at June 30, 2020 and December 31, 2019, the Company's financial highlights were as follows:
(unaudited in thousands of US Dollars) June 30, December 31, 2020 2019 Total assets $ 450,713 $ 510,764 Total liabilities 345,087 368,505 Net debt 212,135 187,319 Adjusted net debt 153,469 136,900 Total equity 105,626 142,259
As at June 30, 2020 and December 31, 2019, the Company's financial highlights were explained as follows:
Itafos Conda Highlights
The Company is closely monitoring potential risks to Itafos Conda's employees, contractors and operations as a result of COVID-19. Itafos 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 COVID-19. The Company is not currently projecting any material impact on Itafos Conda's operations as a result of COVID-19.
In response to COVID-19, the Company has implemented and continued risk mitigation measures at Itafos Conda to address potential impacts to its employees, contractors and operations as follows:
To date, there has been one confirmed case of COVID-19 amongst employees and two confirmed cases amongst contractors at Itafos Conda. Following such confirmed cases, Itafos Conda implemented stringent quarantine and sanitation efforts to isolate such incidents and prevent further spread.
For the three and six months ended June 30, 2020, Itafos Conda continued its strong track record of environmental, health, and safety excellence with no environmental releases and one recordable injury.
For the three months ended June 30, 2020, Itafos Conda experienced lower MAP and APP production resulting from a disruption in sulfuric acid from its primary supplier, while SPA production remained largely consistent. Margins improved due to lower input costs from improved mining rates and lower raw materials costs, which were partially offset by lower realized prices.
For the six months ended June 30, 2020, Itafos Conda achieved higher SPA throughput from improved production efficiencies and higher railcar availability, which resulted in lower MAP and APP production. The lower MAP and APP production was also impacted by a disruption in sulfuric acid from its primary supplier. Itafos Conda also completed a second successful production run of its new line of micronutrient enhanced products, MAP+. Margins were largely consistent year-over-year as lower input costs from improved mining rates and lower raw materials costs were mostly offset by lower realized prices and higher depreciation and depletion.
For the three and six months ended June 30, 2020, overall fertilizer market prices remained depressed, particularly granular products, after a sharp decline since Q1 2019 due to lower consumption resulting from unusually wet weather conditions in North America.
For the six months ended June 30, 2020, the Company advanced activities related to extending Itafos Conda's mine life through permitting and development of H1/NDR, including securing support from the Idaho legislature via House Joint Memorial #11, which passed unanimously as well as numerous letters of support from local and state officials and preparing and submitting an updated Mine and Reclamation Plan to the BLM as part of the NEPA permitting process.
For the six months ended June 30, 2020, the Company advanced activities related to optimizing Itafos Conda's EBITDA generation capability, including completing the micronutrient addition to granulation project to support its new line of micronutrient enhanced products, advancing development of MAP enhanced with zinc as an additional product in the new line of micronutrient enhanced products and evaluating proposals received for pilot testing and a FEED study related to AHF/PS by-product recovery and a feasibility study related to on-site ammonia production.
On July 10, 2020, the Company announced its decision to conduct a reduced scope plant turnaround at Itafos Conda during July 2020 as part of its risk mitigation measures during the COVID-19 pandemic. On August 20, 2020, the Company announced that Itafos Conda completed the reduced scope plant turnaround with no environmental releases or recordable injuries.
On August 20, 2020, the Company announced that Itafos Conda has been experiencing a significant disruption in sulfuric acid supply from Rio Tinto's Kennecott mine. Itafos 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 has experienced delays to the restart of the smelter. According to Rio Tinto's announcement, such delays to the restart of the smelter are due to unexpected issues that appeared following planned maintenance. Rio Tinto further announced that they are working closely with their customers to limit any disruptions and expect to have the smelter fully operational in two months. The Company has been and will continue working to mitigate potential adverse effects of the disruption in sulfuric acid supply to Itafos Conda from Rio Tinto's Kennecott mine.
On August 10, 2020, Itafos Conda closed the Revolving Facility, which refinanced the Gavilon Facility. The Revolving Facility considers a commitment to loan up to $20,000, of which $10,000 was drawn at closing. The proceeds of the Revolving Facility were initially used to repay the Gavilon Facility and thereafter will be used for working capital and general purposes. At closing, an additional 10,000 remained available to be drawn by Itafos Conda subject to certain terms and conditions.
For the three months ended June 30, 2020 and 2019, Itafos Conda's business highlights were as follows:
(unaudited in thousands of US Dollars For the three months ended June 30, For the six months ended June 30, except for volumes and prices) 2020 2019 2020 2019 Production volumes (t) MAP 85,018 92,248 175,566 191,003 MAP+ 1,538 -- 6,813 -- SPA 37,173 36,998 77,438 72,531 MGA 120 581 703 611 APP 10,542 21,107 12,767 26,534 Total production volumes 134,391 150,934 273,287 290,679 Sales volumes (t) MAP 70,812 121,886 178,584 198,763 MAP+ 3,811 -- 6,464 -- SPA 33,388 34,195 72,619 67,639 MGA 190 1,231 703 1,261 APP 11,967 18,900 13,614 21,348 Total sales volumes 120,168 176,212 271,984 289,011 Realized price ($/t) MAP $ 316 $ 394 $ 303 $ 415 MAP+ $ 360 $ -- $ 362 $ -- SPA $ 975 $ 997 $ 957 $ 1,001 MGA $ 1,026 $ 555 $ 967 $ 565 APP $ 456 $ 472 $ 456 $ 472 Revenues ($) MAP $ 22,364 $ 48,067 $ 54,196 $ 82,553 MAP+ $ 1,371 $ -- $ 2,337 $ -- SPA $ 32,558 $ 34,082 $ 69,464 $ 67,715 MGA $ 195 $ 683 $ 680 $ 712 APP $ 5,460 $ 8,925 $ 6,203 $ 10,082 Total revenues $ 61,948 $ 91,757 $ 132,880 $ 161,062 Revenues per tonne P2O5 $ 816 $ 872 $ 767 $ 897 Cash costs per tonne P2O5 $ 638 $ 774 $ 635 $ 768 Adjusted EBITDA $ 14,458 $ 11,283 $ 22,753 $ 22,739 Maintenance capex $ 1,582 $ 11,272 $ 3,501 $ 13,845 Growth capex $ 1,229 $ 1,323 $ 3,153 $ 1,811
For the three months ended June 30, 2020 and 2019, Itafos Conda's business highlights were explained as follows:
Itafos Arraias Highlights
The Company continues to monitor potential risks to Itafos Arraias' employees, contractors and operations as a result of COVID-19. Itafos Arraias has been deemed an essential business as part of the fertilizer and agriculture sector and therefore has not been forced to shut down operations or care and maintenance activities on account of COVID-19. The Company is not currently projecting any material impact on Itafos Arraias' operations or care and maintenance activities because of COVID-19. Notwithstanding, the Company is improving the measures to mitigate the risk of contractors and employees during the in-fill drilling program expected to take place during H2 2020.
In response to COVID-19, the Company has implemented and continued risk mitigation measures at Itafos Arraias to address potential impacts to its employees, contractors and operations as follows:
Currently, there are no confirmed cases of COVID-19 amongst employees or contractors at Itafos Arraias.
For the three and six months ended June 30, 2020, Itafos Arraias continued its strong track record of environmental, health, and safety excellence with no environmental releases or recordable injuries.
On November 21, 2019, the Company announced its decision to idle Itafos Arraias and suspend the previously announced repurpose plan at Itafos Arraias as part of a disciplined approach to capital allocation considering the continued downward pressure on global fertilizer prices and the additional capital requirements to complete the Repurpose Plan.
For the three and six months ended June 30, 2020, the Company safely completed and maintained the idling of Itafos Arraias following best practices to protect and preserve the value of the underlying assets. Following receipt of approval from the labor union, the Company completed the employee layoffs and contractor terminations at Itafos Arraias associated with the idling. Notwithstanding the idling of Itafos Arraias, the Company will continue to employ personnel that are necessary for the care and maintenance of the assets and will continue to maintain all licenses and permits in good standing and compliance with existing regulations. In addition, the Company successfully monetized inventory and raw materials at Itafos Arraias to partially offset costs.
In parallel with its decision to idle Itafos Arraias, the Company engaged the services of Golder Associates Inc. ("Golder") and Jesa Technologies LLC ("Jesa") to conduct third party reports on Itafos Arraias' mine and beneficiation plant, respectively. The third party reports, which were completed in January 2020, confirm that restarting Itafos Arraias' mine and beneficiation plant is feasible and outline the respective timing and capex requirements.
For the three months ended June 30, 2020, the Company launched a stage-gate restart program for Itafos Arraias. Each stage-gate must be cleared before progressing to the next stage of the program, thereby limiting exposure, and managing the risk. The first stage-gate is the development of a revised geological model and long-term mine plan of the Domingos pit. Accordingly, the Company designed a test work campaign aimed at the metallurgical characterization of the Domingos ore as well as a detailed in-fill drilling program. The revised long-term mine plan will be developed to verify ability to deliver constant ore grade to the beneficiation process, while the beneficiation plant process design will be revised to match the geometallurgical characterization of the ore. As part of this stage-gate, the Company engaged Jesa in June 2020 to conduct the metallurgical test work that will form the basis of the revised beneficiation process. The metallurgical test work being conducted by Jesa is expected to be completed in approximately nine-months.
In February 2020, Itafos Arraias secured important long-term tax incentives. As Itafos Arraias is domiciled in Brazil, the business is subject to a federal tax rate of 34%, composed of a federal corporate income tax of 25% and other taxes of 9%. The location of Itafos Arraias' assets makes it eligible to participate in a regional development program administered by the Superintendencia do Desenvolvimento da Amazonia ("SUDAM"). Created in 1966 to promote development of the Amazon region in Brazil, SUDAM offers tax incentives that allow eligible companies to reduce the federal tax rate of 34% to 15.25% by means of a 75% discount to the federal corporate income tax of 25%. In February 2020, SUDAM accepted Itafos Arraias' application, granting Itafos Arraias the tax incentives for a period of ten years with an opportunity to extend thereafter.
For the three months ended June 30, 2020 and 2019, Itafos Arraias' business highlights were as follows:
(unaudited in thousands of US Dollars For the three months ended June 30, For the six months ended June 30, except for volumes and prices) 2020 2019 2020 2019 Production volumes (t) SSP -- 19,948 3,879 26,511 SSP+ -- 32,055 1,113 40,646 PK compounds -- -- -- -- Total production volumes -- 52,003 4,992 67,157 Excess sulfuric acid production volumes (t) -- 10,600 -- 19,394 Sales volumes (t) SSP 1,886 14,917 27,315 22,050 SSP+ -- 27,310 2,459 33,213 PK compounds -- -- -- -- Total sales volumes 1,886 42,227 29,774 55,263 Excess sulfuric acid sales volumes (t) -- 10,600 5,213 19,394 Realized price ($/t) SSP $ 86 $ 220 $ 134 $ 202 SSP+ $ -- $ 250 $ 184 $ 246 PK compounds $ -- $ -- $ -- $ -- Excess sulfuric acid $ -- $ 113 $ 90 $ 131 Revenues ($) SSP, net $ 163 $ 3,290 $ 3,671 $ 4,464 SSP+, net $ -- $ 6,825 $ 453 $ 8,176 PK compounds $ -- $ -- $ -- $ -- Total revenues $ 163 $ 10,115 $ 4,124 $ 12,640 Excess sulfuric acid revenues ($) $ -- $ 1,200 $ 468 $ 2,548 Revenues per tonne P2O5 $ 508 $ 1,379 $ 919 $ 1,324 Cash costs per tonne P2O5 $ 2,240 $ 1,654 $ 2,163 $ 2,532 Adjusted EBITDA $ (1,078 ) $ (8,965 ) $ (6,601 ) $ (15,382 ) Maintenance capex $ -- $ 567 $ -- $ 3,169 Growth capex $ -- $ 416 $ -- $ 1,003
For the three and six months ended June 30, 2020, and 2019, Itafos Arraias' business highlights were as follows:
Financial Outlook
The Company is closely monitoring potential risks to its operations as a result of COVID-19, including factors that could impact production or demand for its products. Despite near-term uncertainties, the Company is not currently projecting any material impact on its operations or financial outlook as a result of COVID-19. In response to COVID-19, the Company has implemented working practices at its businesses and projects to address potential impacts to its employees, contractors and operations and will take further measures in the future, if required.
The Company provides guidance on certain non-IFRS measures that management considers to evaluate the Company's operational and financial performance. Management believes that the non-IFRS measures provide useful supplemental information to investors, analysts, lenders and others.
The Company has revised its original guidance for 2020 as follows:
revised original (in thousands of US Dollars) Low High Low High Adjusted EBITDA $ 10,000 $ 20,000 $ 10,000 $ 20,000 Maintenance capex 5,000 10,000 15,000 25,000 Growth capex 8,000 13,000 5,000 10,000 Adjusted net debt 170,000 180,000 170,000 180,000