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RVM > SEC Filings for RVM > Form 10-Q on 9-May-2013All Recent SEC Filings

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Form 10-Q for REVETT MINERALS INC.


9-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations as at May 9, 2013

This Management's Discussion and Analysis ("MD&A") of the financial results of Revett Minerals Inc. ("Revett Minerals" or the "Company") for the three month period ended March 31, 2013 should be read in conjunction with the unaudited interim financial statements and notes as at and for the three months ended March 31, 2013 which form part of this report. In addition, this MD&A and related financial statements should be read in conjunction with the 2012 audited consolidated financial statements, the related Management's Discussion and Analysis, and the Form 10-K filed in Canada on SEDAR or on file in the United States with the Securities and Exchange Commission ("SEC") or on EDGAR. These financial statements are expressed in United States dollars, unless otherwise stated, and they are prepared in accordance with United States generally accepted accounting principles ("GAAP").

These unaudited interim consolidated financial statements have been prepared by management in accordance with generally accepted accounting principles used in the United States of America (U.S. GAAP) and are presented in U.S. dollars.

Some of the statements in this MD&A are forward looking statements that are subject to risk factors set out in the cautionary note contained in this MD&A.

Overview and Important Factors Influencing Results for the Three Months Ended March 31, 2013

As at May 9, 2013, the Company owns a 100% interest in Revett Silver Company ("Revett Silver"), which in turn owns 100% of Troy Mine Inc., RC Resources Inc., Revett Exploration Inc. and Revett Holdings Inc. (Both Revett Exploration Inc. and Revett Holdings Inc. were created in 2012.) Rock Creek is a development stage silver and copper property located in northwest Montana. Troy is an operating silver and copper mine also located in northwest Montana.

In mid-December 2012, the Company suspended underground mining operations at Troy because of unstable and unsafe ground conditions in the mine. The Company has installed seismic monitoring devices (geophones) and is working with Mine Safety and Health Administration ("MSHA") to inspect the mine and develop alternate travel and haulage routes that bypass the affected areas. Current underground operations include development activities which are designed to re-establish access to the recent producing areas of the ore body. The life-of-mine, based on reported resevres, is estimated to be 8 years. The Company expects to resume operations in the second quarter of 2013.

Overall Performance

As at March 31, 2013 the Company has cash and short-term investments on hand of $21.0 million. Due to the suspension of mining operations during the first quarter of 2013 we were unable to generate production revenues, which resulted in a net loss. For the three month period ended March 31, 2013, the Company reported a net loss after taxes of $4.1 million or $0.12 a share compared to net income after taxes of $3.7 million or $0.11 per share for the three months ended March 31, 2012.


Results of Operations for the Three Months Ended March 31, 2013 compared to the same period in 2012.

Operating Results:

The table below illustrates certain key operating statistics for Troy for the
three months ended March 31, 2013, with a comparison to the same three month
period in 2012

                      Three Months Ended March 31, Three Months Ended March 31,
                                  2013                         2012
Tons milled                        -                         331,523
Tons milled per day                -                           3,684
Copper grade (%)                   -                            0.40
Silver grade (opt)                 -                            1.12
Copper recovery (%)                -                            86.0
Silver recovery (%)                -                            87.0
Copper produced (lbs)              -                       2,249,111
Silver produced (ozs)              -                         324,375

In mid-December 2012, we suspended underground mining operations at Troy because of unstable and unsafe ground conditions in the mine. We have since installed seismic monitoring devices (geophones) and are working with MSHA to inspect the mine and develop alternate travel and haulage routes that bypass the affected areas. Because of this, we did not mine or process any ore in the first quarter of 2013.

During the first quarter of 2013 the Troy Mine developed plans to access certain unaffected areas in the mine and have submitted these plans to MSHA for approval. These plans include new haulage access, dewatering, ventilation and placement of electrical utilities In addition to underground activities, preventive maintenance and re[pairs of related mining and milling equipment has continued in preparation to resume operations. We expect to resume mining activities in the second quarter of 2013.

Financial Results:

a) Revenue: Revenue for the first quarter of 2013 reflects the settlement of some outstanding invoices and the mark to market adjustment from December 31, 2012. There was no invoicing for concentrate sales during the first quarter of 2013 due to the suspension of mining activities described above. During the quarter ended March 31, 2012, the LME price of copper and silver averaged $3.77 per pound and $32.65 per ounce, respectively. Metal sales during the first quarter of 2012 were 2.2 million pounds of copper and 296,755 ounces of silver.

b) Cost of Sales: The cost of sales associated with the first quarter 2013 was $4.4 million, a decrease of 63% when compared to the first quarter of 2012. The 2013 spending reflects the efforts to design a plan to resume mining operations and to maintain our staffing levels as we did not layoff any employees during the first quarter of 2013.

c) Depreciation and depletion: For the first quarter of 2013, these non-cash charges are significantly lower than the first quarter of 2012. The majority of the plant and equipment at Troy is depreciated using the units-of-production method and the effect of the suspension of mining operations resulted in no depreciation expense for the Troy Mine.


d) Exploration and development: This expense includes $0.05 million for exploration spending around the Troy Mine and $0.3 million spending for Rock Creek. The spending in 2013 is much lower than 2012 ($0.8 million) due to efforts to conserve cash during the first quarter of 2013.

e) General and administration costs: The decrease in the corporate administration costs during the first quarter of 2013 is a result of efforts to conserve cash due to suspension of mining activities at the Troy Mine.

f) Net loss: The net loss for the first quarter 2013 reflects the suspension of mining activities at the Troy Mine.

Summarized Financial Results by Quarter

                   2011     2011     2011     2012     2012     2012     2012     2013
                    Q2       Q3       Q4       Q1       2Q       3Q       4Q       1Q
Cu Production      3.0      3.3      2.4      2.2      1.9      2.4      1.0       -
(million lbs)
Ag Production      343      403      300      292      278      348      161       -
(000's ozs)
Total Sales       $18.8    $16.7    $21.9    $19.2    $13.5    $19.4     $7.2     $0.2
(millions)
Cash Flow from
Operations
before changes     $7.4     $8.3     $9.1     $7.5     $3.5     $7.5    $(0.2)   $(4.7)
in working
capital (1)
(millions)
Net Income
(loss)             $7.9     $2.9     $5.6     $3.7    $(2.2)    $4.4    $(1.8)   ($4.1)
(millions)
EPS- Basic        $0.23    $0.08    $0.17    $0.11    $(0.7)   $0.13   $(0.05)  $(0.12)
EPS- Fully        $0.16    $0.07    $0.16    $0.10    $(0.7)   $0.12   $(0.05)  $(0.12)
diluted
Cash and Cash
Equivalents &
Short term        $14.7    $19.9    $25.2    $28.7    $30.0    $32.6    $28.3    $21.0
Investments
(millions)
Total Assets
ending            $92.1    $96.7    $103.4   $109.9   $108.6   $115.6   $108.0   $100.2
(millions)
Total
liabilities       $18.4    $20.3    $21.1    $24.1    $22.4    $24.7    $19.2    $15.1
(millions)
Total Equity      $73.7    $76.4    $82.3    $85.8    $86.2    $90.9    $88.8    $85.1
(millions)

(1) This is a non-GAAP measurement. These amounts reflect the net cash flow from the Troy Mine before capital spending, equipment payments and changes in working capital.


Financing Activities

During the first quarter of 2013, the Company did not enter into any new capital
leases or notes payable. The Company has the following contractual financial
obligations (in thousands of USD):

                                             Current       1 to 3       3 to 5     5 years or
Contractual obligation            Total      portion        years        years           more

Capital lease and note       $    2,128   $      777   $    1,351            -              -
payable obligations
Long term reclamation Costs      10,750            -            -            -   $     10,750
Total contractual            $   12,878   $      777   $    1,351            -   $     10,750
obligations

Revett Silver has also entered into a number of operating leases relating to the production and transportation of the copper concentrate produced at Troy. All such leases expire in 2013 and many may be renewed annually. The obligations in 2013 under the terms of these leases are $0.4 million.

Liquidity and Capital Resources

The Company's liquidity position is directly related to the level of concentrate production, cost of this production and the provisional and final prices received for the copper and silver in the concentrate that is sold. At March 31, 2013, working capital was $22.5 million, including cash and short-term investments of $21.0 million. At March 31, 2013, concentrate receivable and other receivables was $0.2 million compared to $0.4 million at December 31, 2012 and copper concentrate inventory was $1.0 million compared to $0.7 million at December 31, 2012.

Declines in copper and silver prices along with delays in production may erode the Company's cash and working capital position.

Off Balance Sheet Arrangements

Royal Gold, Inc. holds a 3% gross smelter royalty on a defined area of production from Troy Mine and a 1% net smelter royalty on production from Rock Creek pursuant to the terms of an amended royalty agreement dated October 13, 2009.

Related Party Transactions

Trafigura AG is the sole purchaser of the silver and copper concentrate we produce at Troy. It is also the beneficial owner of more than five percent of our outstanding common shares, and is therefore a related party. During the three months ended March 31, 2013 and 2012, Trafigura AG paid us $0.0 million and $19.2 million for our concentrate, respectively. We believe the terms and conditions of these sales are neither more favorable nor less favorable to us than the terms and conditions we could have obtained from concentrate purchasers who are not also related parties.

Proposed Transactions

There were no proposed transactions during the first three months of 2013.

Principal Risks and Uncertainties

Revett Minerals is a speculative investment, for many reasons, and the following risk factors should be carefully considered in evaluating it. In addition, this report contains forward-looking statements that involve known and unknown risks and uncertainties. These forward-looking statements include statements of our plans, objectives, expectations and intentions. Actual results could differ from those discussed in the forward-looking statements as a result of certain factors, including those set forth below. You should carefully consider the risks and uncertainties described below and the other information in this report before investing.


Operations at Troy are currently suspended. In mid-December 2012, we suspended underground mining operations at Troy because of unstable and unsafe ground conditions in the mine. We have installed seismic monitoring devices (geophones) and are working with MSHA to inspect the mine and develop alternate travel and haulage routes that bypass the affected areas. We expect to resume operations in the second quarter of 2013. If we are not able to resume operations, we will necessarily have to consider other alternatives. This could have a material and adverse effect on our business and financial condition.

Copper and silver prices fluctuate markedly. Our operations are significantly influenced by the price of copper and silver. Copper and silver prices fluctuate widely and are affected by numerous factors that are beyond our control, such as the strength of the United States dollar, global and regional industrial demand, and the political and economic conditions of major producing countries throughout the world. Since 1990, world average copper prices have fluctuated from a low of $0.71 per pound in 2002 to a high of $4.00 per pound in 2011, and world average annual silver prices have fluctuated from a low of $3.95 per ounce in 1992 to a high of $35.11 per ounce in 2011.

There are other formidable risks to mining. We are subject to all of the risks inherent in the mining industry, including industrial accidents, labor disputes, environmental related issues, unusual or unexpected geologic formations, cave-ins, surface subsidence, flooding, power disruptions and periodic interruptions due to inclement weather. These risks could result in damage to or destruction of our mineral properties and production facilities, personal injury, environmental damage, delays, monetary losses and legal liability. In addition, we are subject to competition for new minerals properties, management and skilled miners from other mining companies, many of which have significantly greater resources than we do. We also have no control over changes in governmental regulation of mining activities, the speculative nature of mineral exploration and development, operating hazards, fluctuating metal prices and inflation and other economic conditions.

Legal challenges could prevent us from ever developing Rock Creek. Our proposed development of Rock Creek has been challenged by several regional and national conservation groups at various times subsequent to the Forest Service's initial issuance of a Record of Decision approving our plan of operation in 2003. Some of these challenges have alleged violations of a variety of federal and state laws and regulations pertaining to our permitting activities at Rock Creek, including the Endangered Species Act, the National Environmental Policy Act, the 1872 Mining Law, the Federal Land Policy Management Act, the Wilderness Act, the National Forest Management Act, the Clean Water Act, the Clean Air Act, the Forest Service Organic Act of 1897 and the Administrative Procedural Act. Although we have generally successfully addressed these challenges, we were directed by a Federal District Court in May 2010 to produce a Supplemental EIS to address NEPA procedural deficiencies identified by the court. We cannot predict with any degree of certainty how possible future challenges will be resolved. Rock Creek is potentially the more significant of our two mining assets. New court challenges to the Supplemental EIS and Record of Decision may delay us from proceeding with our planned development at Rock Creek. If we are successful in completing the supplemental EIS and defending any challenges, we still must comply with a number of requirements and conditions as development progresses, failing which we could be denied the ability to continue with our proposed activities at Rock Creek.


Our reclamation liability at Troy Mine could be substantial. Our financial obligations with respect to the reclamation, restoration and closure of Troy are presently covered by a $12.9 million surety bond which includes $6.5 million in a restricted cash account. In late 2012, DEQ and the Forest Service issued a new EIS and Record of Decision pertaining to the Troy Mine reclamation. We do not presently know whether the revised reclamation plan will increase our bonding costs. Laws governing the closure of mining operations in Montana have become more stringent since Troy was first placed into production. These factors could result in the imposition of a higher performance bond. Our reclamation liability at Troy Mine is not limited by the amount of the performance bond itself, the bond serves only as security for the payment of these obligations. We would necessarily have to pay for any substantial increase in actual costs over and above the maximum allowed under the bond.

We presently do not have the financial resources to develop Rock Creek. We may not have sufficient cash to allow us to develop a mine or begin mining operations at Rock Creek should it prove feasible to do so.

The Rock Creek mineral resources are not equivalent to reserves. This report includes information concerning the estimated size of our mineral resource at Rock Creek. Since no ore has been produced from Rock Creek, these estimates are preliminary in nature. This report also includes information concerning mineral resources at Troy Mine. Although we believe these amounts are significant, it does not mean the mineral resource can be economically mined. A mineral resource is not equivalent to a commercially mineable ore body or "proven reserves" or "probable reserves" under standards promulgated by the U. S. Securities and Exchange Commission ("SEC"), principally because they are less certain and not necessarily amenable to economic development. We will not be able to determine whether Rock Creek contains a commercially mineable ore body until our evaluation program has been completed and we have obtained a final, economic and technical feasibility study that will include an analysis of the amount of ore that can be economically produced under then-prevailing market conditions. United States investors are cautioned that the terms "measured mineral resources", "indicated mineral resources" and "inferred mineral resources" are not recognized by the SEC. The estimation of mineral resources involves greater uncertainty as to their existence and economic feasibility than the estimation of proven and probable reserves. United States investors are cautioned not to assume that mineral resources will ever be converted into reserves.

Future accounting changes

There were no new pronouncements issued by the FASB that may materially impact the Company's consolidated financial statements for future periods.


Financial Instruments, Hedging Activities and Other Instruments

The largest market risk the Company is exposed to is changes in the prices of copper and silver will have a significant effect on revenue, cash flow and the value of concentrate receivables or payables because a significant portion of the Company's sales are subject to a future pricing mechanism and changes in metal prices will change both revenue and the value of concentrate receivables or payables. The Company does have a hedging policy which permits the Company to fix the sales price of copper and silver in concentrate to be produced in the future or for which concentrate has been sold and for which final settlement has not occurred.

For financial statement purposes, the Company records at fair value the amount of silver and copper in concentrate sold to its customer for which final prices have not yet been determined. At each month-end, the Company adjusts its revenue to account for expected future prices and the corresponding expected future revenue and cash flow. In order to do this, the Company must make estimates of the future prices expected to prevail when final settlement occurs. The Company uses published forward prices for the period of expected settlement to estimate these expected prices.

As at March 31, 2013, the Company had no contracts outstanding to sell silver or copper

Forward Looking Statements

Cautionary "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995. With the exception of historical matters, the matters discussed in this report are forward- looking statements that involve risk and uncertainties that could cause actual results to differ materially from projections or estimates contained herein. The words "believe", "estimate", "anticipate', "expect", and "project" and similar expressions are included to identify forward-looking statements. Such forward looking-statements include statements regarding future production levels and operating costs at the Troy mine, future levels of capital expenditures at both Troy and Rock Creek, the reserve and resource estimates at both Troy and Rock Creek, the adequacy of the financial resources and funds to cover operating and exploration costs at Troy and the cost of exploration at Rock Creek, the timing of certain litigation activities which have delayed exploration activities at Rock Creek, the adequacy of third party financing to complete certain corporate development activities, and the expectation that the Troy mine will be able to generate positive cash flow in future periods. Factors that could cause actual results to differ materially from these forward looking statements include, among others:

changes in copper and silver prices;
the operating performance of the Troy mine;
geological conditions at the Troy mine;
the need for copper concentrate by copper smelters and the costs associated with selling such concentrate to the smelters;
the ability of the Company to complete exploration activities at the Rock Creek project;
activities of certain environmental groups opposed to the Company's activities in the United States;
changes in the planned Rock Creek project parameters;
changes in estimates of the reserves and resources at all the properties owned or controlled by the Company;
economic and market conditions;



future financial needs and the Company's ability to secure such financing under reasonable terms and conditions;
changes in federal or state legislation and regulations governing our operations and projects;
risks of future unknown lawsuits respecting future planned activities on our projects or past activities by the Company.

As well as other factors described elsewhere in our annual Form 10-K and the various regulatory filings with United States and Canadian and provincial regulatory bodies which are available in Canada at www.sedar.com or in the United States on EDGAR. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements. Most of these factors are beyond our ability to predict or control. Future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward looking statements. We disclaim any obligation to update any forward-looking statement made here-in except as required by law. Readers are cautioned not to put undue reliance on forward looking statements.

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