Victory Nickel Inc. reported financial results for the year ended Dec. 31, 2014. Effective Oct. 1, 2014, the company changed its functional currency and presentation currency to the United States dollar from the Canadian dollar.
The company reported:
- Gross margin of $580,000 or $13.03 per ton.
- Produced 47,515 tons of frac sand.
- Sold 44,529 tons of frac sand at an average price of $161.78.
- Completed the upgrade and construction of the 500,000-tpy 7P Plant.
- Completed the start-up and commissioning stage of the 7P Plant.
- Optioned the Bear Coulee frac sand property in Wisconsin.
- Gross margin of $1,122,000 or $12.62 per ton.
- Produced 109,155 tons of frac sand at the 7P Plant.
- Sold 88,891 tons of frac sand at an average price of $157.23 per ton.
- Cost of goods sold of $12,854,000 or $144.60 per ton.
- Secured a second Wisconsin-based supplier of washed concentrated Northern White frac sand.
- In early 2015, completed a 43-101 report outlining a frac sand resource of approximately 11 million tons of Wisconsin Northern White frac sand on the Bear Coulee property.
- Contracted a second transload facility in St. Paul, Minn., in early 2015.
"As previously reported, the startup of the 7P Plant was somewhat disappointing and highlighted several weaknesses which are being addressed," said Ken Murdock, CEO of Victory Silica. "Our attempts to meet demand showed that it was premature to force production prior to having properly-trained staff in place, having fully-tested our service suppliers and having understood the performance limits of our equipment. Following the end of the year we not only entered the typically slow period during spring break-up but also felt the effect of the drop in the price of oil. We are using this slow period to complete maintenance and implement small improvements.”
Commissioning of the company's dry frac sand processing plant in Seven Persons, Alberta, located approximately 18 km southwest of Medicine Hat, was completed in August 2014. The 7P Plant operated at less than its 500,000 tpy nameplate capacity throughout the period.
As previously discussed, the company has experienced a decline in product demand, and downward pressure on product pricing since the start of 2015. This is due to the combined impact of lower crude oil prices on the market and the annual slowdown due to spring break-up in Alberta (the period when road bans restrict the movement of heavy equipment on to well pads resulting in less drilling and therefore lower frac sand demand).
While this has impacted sales in the first quarter, it has allowed the company the opportunity to build-up finished frac sand inventories at the 7P Plant. By having significant frac sand inventory on hand at the 7P Plant, the company said it is better positioned to take advantage of opportunities to meet customer needs when demand returns.
"We cannot change the market. All we can do is work with it and within it," said Victory Nickel CEO René Galipeau. "The rig count in western Canada has declined due to the drop in oil price, however the trend toward re-fracking of wells, increasing frac sand mass per stage, more stages per horizontal well and a rising inventory of wells that have been drilled by not yet fracked point to pent-up demand for proppant that will hasten a frac sand market recovery with any significant oil or gas price improvement. We are working with our customers to help them lower their costs and improve our sales. The company focus is now on managing its liquidity until markets improve. We are faced with customers trying to extend their credit terms while suppliers are requiring near prompt payment. This increases the working capital requirement. In the near term, the company will only incur costs associated with buying and delivering sand to its 7P Plant when existing inventories get below working levels."