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MBAC reports Q2 2014 results and operations update

TSX: MBC
OTCQX: MBCFF
Shares Outstanding: 181,607,492
Fully Diluted: 230,015,572

TORONTO, Aug. 12, 2014 /CNW/ - MBAC Fertilizer Corp. ("MBAC" or the "Company") (TSX:MBC and OTCQX:MBCFF) announced today its financial results for the three and six-month periods ended June 30, 2014, and provided a general corporate and operational update on its Itafós Arraias Single Super Phosphate ("SSP") Operations ("Itafós" or the "Itafós Operations"). MBAC's Financial Statements and Management Discussion and Analysis ("MD&A") for the quarter ended June 30, 2014 are available on www.sedar.com and on the company's website, www.mbacfert.com.

Q2 2014 HIGHLIGHTS:

  • Produced over 42,500 tonnes of SSP, MBAC's highest quarterly production to date;
  • Completed a bought deal public equity offering, which included significant management and insider participation, for net proceeds of C$19.2 million;
  • Continued to make progress on efforts to strengthen the Company's working capital position and extend the senior debt maturities;
  • Completed the securitization of the outstanding balance of the CELTINS receivable receiving total net cash proceeds equivalent to approximately US$6.7 million;
  • Increased firm purchase commitments for FY2014 to approximately 139,000 tonnes of SSP; and
  • Commenced initiatives aimed at increasing operating margin, being the sale of one tonne "big bags" and the addition of micronutrients to SSP based on customer orders.

HIGLIGHTS SUBSEQUENT TO QUARTER END

  • The Company is very pleased to announce it completed negotiations and obtained final approval from a major lender in Brazil for a new credit facility of R$40 million (equivalent of approximately US$18.2 million), which is expected to be partially disbursed within the next several days (the "Working Capital Facility"); and
  • Received a proposal from its senior lenders for a debt extension agreement (the "Senior Lenders' Proposal") which has been approved by the majority of the Senior Lenders.  The Senior Lenders' Proposal includes deferral of payments of the Company's senior debt. The debt was originally incurred to build and fund the Itafós Operations. The Senior Lenders' Proposal remains subject to final approvals and negotiation of definitive documentation and conditions.

ITAFÓS OPERATIONS UPDATE
For the quarter, total production reached over 42,500 tonnes of SSP, which represents the highest quarterly production since operations began.  During Q2 2014, the Company had lower than expected levels of working capital. These financial constraints affected the Company in purchasing consumables, as well as impacted the purchase of spare parts causing interruptions, delays, leading to operational inefficiencies, which resulted in a slower than expected ramp-up and reduced production output. Hence, the Company did not achieve commercial production during Q2 2014 as previously planned. With the improved financial position expected as a result of the Working Capital Facility and Senior Lenders' Proposal, the Company will be resuming an accelerated ramp-up and expects to declare commercial production by the end of 2014. While the Company continues to expect promising results from its operations, until the Company is able to complete its ramp up, it will continue to pursue alternatives to further strengthen its financial position.

The table below summarizes the operational performance for the Itafós Operations during the three and six months ended June 30, 2014:

(in tonnes unless otherwise stated)

Three months ended

June 30, 2014

Six months ended

June 30, 2014

Ore extracted

156,847

227,676

P2O5 grade (%)

7.0

7.1

SSP pre-commercial production

42,521

56,129

SSP pre-commercial sales on deliveries

37,939

41,976

Pre-commercial net revenue (thousands)

US$6,896

US$7,605

Given the slower than expected ramp-up of operations, MBAC has revised its previously disclosed guidance of the expected production and sales at the Itafós Operations for FY2014. MBAC now expects the following for FY2014:

(in thousands of tonnes)

FY2014

SSP


Production

160 - 190

Sales

160 - 190



Sulphuric acid available for sale



Production

27 - 37    


Sales

17 - 27    

MBAC continues to expect that, over the longer term, its future sales growth will be supported by strong fertilizer market fundamentals and demand trends in Brazil. Fertilizer consumption has continued to be strong, driven by increased intensity of fertilizer application and increased planting area.  In the first six months of 2014, fertilizer consumption was up 6.9% in Brazil and 16% in the Itafós' region of influence compared to the same period last year according to ANDA (the National Fertilizer Association of Brazil). ANDA has forecasted record fertilizer consumption of 32.1 million tonnes and a decrease of SSP fertilizer imports to 400,000 tonnes for 2014 in Brazil.

For the year 2014, MBAC has received orders for approximately 139,000 tonnes of SSP, of which approximately 81,000 tonnes have been paid for in advance.

Q2 2014 FINANCIAL RESULTS
Prior to reaching commercial production, MBAC capitalizes all costs related to Itafós to property, plant and equipment. Revenues during this period are offset against capitalized costs. MBAC was a pre-commercial stage company in Q2 2014.  

MBAC incurred a net loss of US$7.0 million or US$0.04 basic and diluted net loss per share during Q2 2014 and a net loss of US$1.0 million or US$0.01 basic and diluted net loss per share for the six months ended June 30, 2014.  Adjusted net loss[1] for Q2 2014 was US$8.0 million or US$0.05 adjusted basic and diluted net loss per share and US$13.4 million or US$0.08 adjusted basic and diluted net loss per share for the six months ended June 30, 2014, which was primarily comprised of general and administrative expenses, foreign exchange loss and finance expenses.

UPDATE ON FINANCING INITIATIVES AND LIQUIDITY
The Company is very pleased to announce that subsequent to quarter end,  it completed negotiations and obtained final approval from a major lender in Brazil for a new credit facility of R$40 million (equivalent of approximately US$18.2 million), which is expected to be partially disbursed within the next several days.

The Company also received the Senior Lenders' Proposal on the terms of the debt extension, which has been approved by the majority of its Senior Lenders and includes deferral of payments of the Company's senior debt. The proposal remains subject to final approvals and other terms being negotiated as part of the definitive documentation.

In addition, until the Company is able to complete its ramp up, it will continue to pursue financing alternatives to improve its working capital cushion.

OUTLOOK
"The new working capital facility and the new debt extension agreement are key components of the strategic plan we announced at the beginning of the year," said Mr. Cristiano Melcher, MBAC's President and CEO.  "Their expected completion in the near term will represent a significant milestone for the Company and demonstrate the continued support and commitment of our financial partners.  Once the financial restructuring is completed, it will pave the way for everyone at the Company to focus on optimizing operations, ramping up production, reducing costs and maximizing sales.  With a strong competitive cost advantage due to our proximity to markets and a premium quality SSP product, MBAC is well positioned to re-build momentum and capitalize on Brazil's strong agriculture fundamentals through 2014 and beyond."

Commenting on the strength of the sector in Brazil, Mr. Melcher also stated: "The attractiveness of the fertilizer sector is clearly increasing, as can be seen by recent M&A activity in Brazil. Fertilizers are a fundamental element in the growth of the Brazilian agriculture, and different players as grain traders, fertilizer distributors and blenders as well as large farmers are increasingly recognizing this strategic importance."

MANAGEMENT UPDATE
Mr. Steve Burleton, resigned as Vice President, Corporate Development of the Company for personal reasons effective July 31, 2014.  Steve had been with the Company since July 1, 2009 and played an important role over the last five years as the Company transitioned from a private exploration company to a publicly traded producer of phosphate fertilizer.

Cristiano Melcher, President and CEO of MBAC stated: "On behalf of MBAC and all of its stakeholders, I want to sincerely thank Steve for his contributions and wish him every success in his future endeavors."

CONFERENCE CALL
The Company will hold a conference call to discuss its Q2 2014 financial results on Wednesday, August 13, 2014 at 9:00 am EDT.  All interested parties can join the conference call by dialing 1-888-231-8191 or 647-427-7450. Please dial in 15 minutes prior to the start of the call to secure a line.

The corporate presentation and audio of the conference call will be available via webcast at: http://event.on24.com/r.htm?e=833812&s=1&k=C50A933CD4DF30EA88BD5BE41C187493

Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast.  An archived replay of the webcast will be available through the Company's website, www.mbacfert.com.

1Adjusted for the exclusion of certain non-cash and non-recurring items. Please refer to the Q2 2014 MD&A filed on www.sedar.com for a full reconciliation of the Non-IFRS measures.

About MBAC
MBAC is focused on becoming a significant integrated producer of phosphate fertilizer and related products in the Brazilian market. MBAC has an experienced team with significant experience in the business of fertilizer operations, management, marketing and finance within Brazil. MBAC owns and operates the Itafós Arraias SSP Operations which consists of an integrated fertilizer producing facility comprised of a phosphate mine, a beneficiation plant, a sulphuric acid plant, an SSP acidulation plant and a granulation plant and related infrastructure located in central Brazil ("Itafós Operations"). The Itafós Operations are estimated to have production capacity of approximately 500,000 tonnes of SSP per annum. MBAC's exploration portfolio includes a number of additional exciting projects, which are also located in Brazil. The Santana Phosphate Project is a high grade phosphate deposit located in close proximity to the largest fertilizer market of Mato Grosso State and animal feed market of Pará State. Further information on MBAC can be found on the Company's website at www.mbacfert.com and on SEDAR at www.sedar.com.

FORWARD LOOKING STATEMENTS
This press release contains "forward-looking statements" within the meaning of applicable Canadian securities legislation. Forward-looking statements include, but are not limited to, statements related to activities, events or developments that the Company expects or anticipates will or may occur in the future, including, without limitation, statements related to the Company's business strategy, objectives and goals; the expectation of Itafós Operations becoming a significant integrated producer of phosphate fertilizers and related products in the Brazilian and Latin American markets and the expectation that Itafós will have a production capacity of approximately 500,000 tonnes of SSP per annum, the closing of the Working Capital Facility, the completion of the re-profiling of the Company's debt based on the Senior Lenders' Proposal, the expected improved financial position of the Company, the resumption of an accelerated ramp-up, the expectation that the Company will be in a position to declare commercial production by the end of 2014, the Company's forecasts on Brazilian agriculture and fertilizers' markets and the Company's guidance on sales and production, the expectation that the Company will be able to strengthen its financial position or improve its working capital cushion. Forward-looking statements are often identified by the use of words such as "plans", "planning", "planned", "expects" or "looking forward", "does not expect", "continues", "scheduled", "estimates", "forecasts", "intends", "potential", "anticipates", "does not anticipate", or "belief", or describes a "goal", or variation of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Forward-looking statements are based on a number of factors and assumptions made by management and considered reasonable at the time such statements are made, and forward-looking statements involve known and unknown risks, uncertainties and other factors may cause the actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements. Such risk factors include, among others, the Company not being successful at becoming a significant integrated producer of phosphate fertilizers and related products in the Brazilian and Latin American markets, the risk that Itafós will not be able to produce 500,000 tonnes of SSP per annum, the risk of not closing the Working Capital Facility, the risk of not completing the re-profiling of the Company's debt as indicated in the Senior Lenders' Proposal, the risk that the financial position will not be improved, the risk of not resuming an accelerated ramp-up, the risk of not being able to declare commercial production by the end of 2014, the risk that the Company's forecasts on Brazilian agriculture and fertilizers' markets do not materialize, the risk that the Company is not able to perform adequately and does not meet its guidance on sales and production, the risk  that the Company will not be able to strengthen its financial position or improve its working capital cushion and those factors disclosed in the Company's current Annual Information Form, Management's Discussion and Analysis, as well as other public disclosure documents, available on SEDAR at www.sedar.com. Although MBAC has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate. The forward-looking statements contained herein are presented for the purposes of assisting investors in understanding the Company's plan, objectives and goals and may not be appropriate for other purposes. Accordingly, readers should not place undue reliance on forward-looking statements.

SOURCE MBAC Fertilizer Corp.

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