BUILDING OUR HIGH GRADE FUTURE
Terry MacGibbon,
Chairman and CEO
FNX Mining Company Inc.
Fiscal 2008 will be remembered for the rapid deterioration in the global economy, the crisis in world credit markets and the precipitous drop in commodity prices. This was an unprecedented alignment of circumstances, even for the mining sector with its long history of cyclical downturns. The speed and savagery of the price declines were breathtaking. Capital markets quickly closed all access to
capital. During the year, resource companies went from boom to survival mode.
In spite of these unprecedented challenges, FNX has several advantages which will help it survive the downturn and be well positioned to thrive in the eventual recovery. Firstly, the Company has a strong balance sheet with zero debt and approximately $130 million in cash as at December 31, 2008. This financial strength resulted in part from the completion of the Gold Wheaton transaction in July 2008, which provided FNX with $175 million in cash and a significant share position in Gold Wheaton (360 million shares or approximately a 38% interest). The Gold Wheaton share position is the major portion of the Company’s $146 million share portfolio.
Secondly, FNX does not have any production delivery commitments under the terms of its off-take or its Gold Wheaton agreements, therefore the Company can increase or decrease production levels based solely on the economic viability of each operation. FNX does not own processing facilities or have other large fixed costs to support. The Company has the flexibility to move quickly to suspend uneconomic operations and adjust staffing levels, which we regrettably had to do in December.
Thirdly, the Sudbury mining camp has several features which are unique and advantageous. Sudbury hosts distinct nickel-copper and copper-precious metal deposit types, both of which often occur within a single mine infrastructure. This allows FNX to switch production focus from one ore type to the other. Finally, the fact that many mines in Sudbury share common infrastructure and can be suspended or restarted quickly and at a low cost is another distinct advantage. Our 2009 production plan utilizes these advantages by focusing on copper-precious metal production and suspending all nickel production.
FNX discovered the high grade Levack Footwall Deposit “LFD”) in 2005 and has rapidly progressed through the advanced exploration phase and into full development. Early in 2008, a 15,027 ton bulk sample was removed from the LFD and an initial resource estimate was made from a small slice of the full deposit. Both results were very encouraging and confirmed the Company’s positive view of this asset and its future impact on FNX. Development of the LFD remains FNX’s first priority throughout 2009, including the planned removal of 50,000 tons of pre-production development ore late in 2009.
Capital expenditures planned for 2009 total $64.2 million and are being tightly controlled to focus on the development of the LFD at a cost of $38.9 million and completion of the initial development of the Podolsky Mine for $11.3 million. This level of capex represents a significant reduction from the approximately $168 million spent on capex in 2008 and should allow FNX to exit 2009 with a strong cash balance.
Total ore shipped during 2008 from the Company’s Sudbury operations was a record 1.25 million tons, producing payable metal of 13.1 million pounds of nickel, 35.2 million pounds of copper and 52,034 ounces of platinum, palladium and gold. Importantly, 2008 production was achieved together with lowering our lost time injury frequency and total medical injury frequency rates. Based on FNX’s current strategy to tightly control cash expenditures and only operate cash positive deposits, the Company’s 2009 production forecast calls for shipping 679,000 tons of footwall ore from McCreedy West’s PM and 700 deposits, the Levack Rob’s Deposit and Podolsky’s 2000 Deposit. Payable metals for 2009 are forecast at 3.7 million pounds of nickel, 35.2 million pounds of copper and 58,000 ounces of platinum, palladium and gold.
FNX’s strong and experienced management team is capable of making the hard decisions necessary to ensure that the Company weathers the current economic challenges and is prepared to thrive when recovery occurs. The management team is supported and advised by our directors. We thank them for their practical advice and dedication. Finally, I want to acknowledge the support and understanding of our shareholders through these challenging times.
FNX’s strong balance sheet, controlled spending and focus on development of the high grade LFD should sustain the Company through the downturn and position FNX to take advantage of the future commodity price recovery.
Terry MacGibbon
April 3, 2009