The 300 Club

Claude Resources earns $6-million in Q1 2016

2016-05-05 10:33 ET - News Release

Mr. Brian Skanderbeg reports

CLAUDE GENERATES ADJUSTED NET EARNINGS OF $9.1 MILLION IN Q1

Claude Resources Inc. had first quarter adjusted net earnings of $9.1-million (five cents per share) before a non-cash deferred income tax expense of $1.9-million and $1.2-million of transaction costs related to the proposed acquisition of Claude by Silver Standard Resources Inc., representing a 78-per-cent improvement from the first quarter of 2015 (first quarter of 2015: $5.1-million, or three cents per share). The strong operating and financial performance in the first quarter increased the company's cash and bullion position by $5.5-million to $45.3-million over the prior quarter. The significant improvement in financial performance relates to an increase in gold sales volumes, higher-margin ore from the Santoy Gap deposit and higher Canadian-dollar gold prices.

Highlights:

• Seabee gold operation awarded the John T. Ryan safety award for 2015;
• Gold production of 20,672 ounces, the second highest quarterly production in company history;
• All-in sustaining cost per ounce of gold sold of $1,328 ($967 (U.S.));
• Adjusted earnings of $9.1-million, or five cents per share, before a non-cash deferred income tax expense of $1.9-million and $1.2-million of transaction costs related to the Silver Standard acquisition;
• Cash and bullion position of approximately $45.3-million, an increase of over $5.5-million during the quarter;
• Continued exploration and underground drilling success at the Santoy mine complex;
• On March 7, 2016, announced the proposed acquisition of Claude Resources by Silver Standard.

"In the first quarter, we increased our cash and bullion position to over $45-million, paid down debt, and funded the majority of our annual capital and winter resupply costs from robust margins," stated Brian Skanderbeg, president and chief executive officer. "Our strong first quarter results were led by the increase in Santoy Gap tonnes milled, grades continuing to reconcile above schedule and improved Canadian-dollar gold prices. We continued to make progress in advancing the Santoy Gap deposit and expect throughput to average 700 tonnes per day in 2016. The increased throughput and transition to more long-hole production ore versus development ore will positively impact production and, more importantly, margins as unit costs are expected to decline.

"I would like to take the opportunity to acknowledge our operating team and their success in the area of safety. Our team at the Seabee gold operation was awarded the prestigious John T. Ryan safety trophy in the metal mine category for the Prairie provinces and territories. The award recognizes outstanding safety performance, and I am justifiably very proud of our team for this achievement."

Financial review

First quarter gold revenue of $34-million was 30 per cent higher than the $26.2-million reported in the first quarter of 2015. The increase in gold revenue period over period was attributable to a 21-per-cent increase in gold sales volume (first quarter of 2016: 21,030; first quarter of 2015: 17,326 ounces) and a 7-per-cent increase in Canadian-dollar gold prices realized (first quarter of 2016: $1,618 ($1,178 (U.S.); first quarter of 2015: $1,511 ($1,218 (U.S.)).

During the first quarter, higher gold sales volume period over period (which resulted in increased stockpile and in-circuit inventoried costs being expensed) contributed to a $3.4-million increase in production costs (first quarter of 2016: $14.1-million; first quarter of 2015: $10.7-million). Slightly higher maintenance, mill and infill drilling costs offset by lower mine costs due to increased throughput from the higher-margin Santoy Gap deposit also contributed to this variance. During the quarter, total cash cost per ounce of gold sold increased by 6 per cent to $715 ($521 (U.S.)) and all-in sustaining cost per ounce of gold sold decreased by 3 per cent to $1,328 ($967 (U.S.)) from $1,374 ($1,107 (U.S.)) in the first quarter of 2015. All-in sustaining costs per ounce of gold were budgeted to be higher in the first quarter as the majority of the annual property, plant and equipment budget, $5.7-million of the $8.8-million, was incurred.

Cash flow from operations before net changes in non-cash operating working capital of $14.3-million (seven cents per share) was up 55 per cent from the $9.3-million (five cents per share) reported in the first quarter of 2015. The significant improvement was mainly related to higher revenues from increased ounces sold at slightly higher gold prices, a result of the weakening Canadian-dollar/U.S.-dollar exchange rate.

During the quarter, the company generated strong free cash flows that resulted in a $5.5-million increase in cash and bullion to $45.3-million at March 31, 2016. In addition to the increase in cash and bullion, the company decreased its long-term debt by $1.25-million during the quarter and financed a large part of the company's capital outlay on the winter ice resupply program.

                     FINANCIAL HIGHLIGHTS    
                                            Q1 2016      Q1 2015

Revenue (000s)                              $34,027      $26,183
Production costs (000s)                     $14,094      $10,730
Cash flow from operations (i) (000s)        $14,335       $9,268
Cash flow from operations (i) 
per share                                     $0.07        $0.05
Net earnings (000s)                          $6,009       $5,122
Earnings per share (basic and diluted)        $0.03        $0.03
Adjusted net earnings (000s)                 $9,102       $5,122
Adjusted earnings per share 
(basic and diluted)                           $0.05        $0.03
Average realized price per ounce             $1,618       $1,511
Average realized price per ounce
(U.S. dollars)                               $1,178       $1,218
Total cash cost per ounce                      $715         $675
Total cash cost per ounce (U.S. dollars)       $521         $544
All-in sustaining cost per ounce             $1,328       $1,374
All-in sustaining cost per 
ounce (U.S. dollars)                           $967       $1,107

(i) Cash flow from operations before net changes in 
    non-cash operating working capital.

Operations review

During the first quarter, the Santoy Gap deposit represented 72 per cent of total gold production, averaging 589 tonnes per day at a head grade of 9.04 grams of gold per tonne to produce 15,042 ounces of gold. The 51-per-cent increase in gold production from the Santoy Gap deposit from the first quarter of 2015 was due to a 38-per-cent increase in tonnes milled and a 9-per-cent increase in grade. During the quarter, the company continued to advance development and complete infrastructure upgrades, including the commissioning of an underground cemented rock fill plant, to further increase the production rate to approximately 700 tonnes per day in 2016. At the Seabee mine, gold production was 5,630 ounces from milling 20,610 tonnes at 8.84 grams of gold per tonne. The decrease in ounces produced from the Seabee mine is a result of planned mine sequencing, which focused on ramp-up of production from the Santoy Gap deposit.

In 2016, the company has outlined an aggressive drilling program that will include 18,000 metres of surface drilling and 65,000 metres of underground drilling. The surface and underground programs began in the first quarter and had success particularly at the Santoy mine complex (see March 16, 2016, news release). The initial results from the program demonstrate the potential for reserve and resource expansion from the consistent high-grade and economic vein widths demonstrated within and outside the resource.

                    PRODUCTION HIGHLIGHTS                       
                                            Q1 2016      Q1 2015
Santoy mine complex
Tonnes milled                                53,569       38,897
Head grade (grams of gold per tonne)           9.04         8.33
Ounces produced                              15,042        9,982
Seabee gold mine
Tonnes milled                                20,610       28,352
Head grade (grams of gold per
tonne)                                         8.84        12.70
Ounces produced                               5,630       11,085
                                             ------       ------
Total tonnes milled                          74,179       67,249
Average head grade 
(grams of gold per tonne)                      8.99        10.17
Recovery (%)                                   96.5         95.8
Total gold produced (ounces)                 20,672       21,067
Total gold sold (ounces)                     21,030       17,326

Outlook

In 2016, the Seabee gold operation is expected to produce between 65,000 ounces and 72,000 ounces of gold. The majority of tonnes and ounces in the 2016 business plan are expected to be sourced from the Santoy Gap deposit as it ramps up to an average of approximately 700 tonnes per day. The company remains confident that it will continue to generate strong earnings and free cash flow during 2016, with unit cash costs and all-in sustaining costs expected to be consistent with those from 2015.

                                    2016 FORECAST  

Gold production (ounces)                                     65,000 to 72,000
Total cash cost per ounce                                        $700 to $775
Total cash cost per ounce (U.S. dollars)                         $530 to $585
All-in sustaining cost per ounce                             $1,125 to $1,245
All-in sustaining cost per ounce (U.S. dollars)                  $850 to $935

Silver Standard acquisition of Claude Resources

On March 7, 2016, Claude and Silver Standard entered into a definitive agreement, whereby Silver Standard will acquire all of the outstanding common shares of Claude pursuant to a plan of arrangement.

Under the terms of the agreement, all of the Claude issued and outstanding common shares will be exchanged on the basis of 0.185 of a Silver Standard common share and 0.1 cent in cash per Claude share. Upon completion of the transaction, existing Silver Standard and Claude shareholders will own approximately 69 per cent and 31 per cent of the combined company, respectively.

The transaction will be carried out by way of a court-approved plan of arrangement and will require the approval of both Claude and Silver Standard shareholders at a special meeting. Completion of the transaction is subject to regulatory approvals and other customary closing conditions. Full details of the transaction are included in the management information circulars of both Silver Standard and Claude, which were mailed to shareholders on April 7, 2016. The special shareholder meetings of both companies are to be held May 18, 2016. Upon completion of the transaction, one Claude director will be appointed to the board of directors of Silver Standard.

Benefits to Claude shareholders

• Meaningful ownership in an intermediate precious metals producer with assets in the Americas;
• Provides exposure to Silver Standard's diversified project portfolio and reduces operating risk;
• Significantly enhances financial strength and free cash flow generation;
• Provides equity participation for exposure to future value creation and growth;
• Increases trading liquidity and capital markets exposure;
• Presents financial and tax synergies only realized through the combination;
• Maintains exposure to Claude's operating and exploration portfolio