Inmet successful in Cayeli bidding (August 02, 2004)

Inmet Mining (IMN-T) moved a step closer to consolidating ownership in its wheelhorse Cayeli copper-zinc mine in eastern Turkey, emerging as the preferred bidder in a tender process by the Turkish government.

Inmet, which owns 55% of the mine, submitted a bid of US$49.25 million on July 23 based on specifications the government’s Privatization Agency had announced a month before. The minority interest is currently held by Turkish state agency Eti Maden Isletmeleri as a 45% shareholding in Cayeli’s operating company.

The tender still has to be approved by two government agencies, the Competition Authority and the Privatization High Council. Those approvals are expected before the end of the third quarter.

In recent years, Cayeli has emerged as a major asset for Inmet, providing 41% of operating earnings in the second quarter of 2004 on 27% of revenues. The mine produced 8,100 tonnes copper and 10,000 tonnes zinc in the second quarter of the year, bringing its total for the first half of the year to 17,600 tonnes copper and 19,700 tonnes zinc.

The half-year figures are a 26% increase in copper production and a 49% increase in zinc production over 2003, mainly because of higher zinc grades and significant improvements in recoveries in the mill. Copper recovery increased to 91% in the first half of 2004, against 88% in the first half of 2003; in the same period, the mill recovered 73% of the ore’s zinc, up from 70% in 2003.

Nevertheless, the Cayeli mill is still not operating up to capacity, because too little ore is being hoisted to make the operation’s target of 1.25 million tonnes per year. A recent review of production bottlenecks underground concluded the mine does not have enough working areas to ensure smooth production, and also found that equipment had too low a rate of availability and that road conditions in the main haulageway were slowing down delivery of ore to the mill.

To fix the problems, Inmet has bought three new haul trucks, plus one load-haul-dump machine and a drill, and plans to engage a mining contractor to open up more stopes. A 10-day shutdown in the second half will allow miners to pour a concrete roadway in the main haulage ramp.

Cayeli’s production cost in the first half of the year was US55 per lb. copper (US$1,210 per tonne), about 20% higher than in the comparable period of 2003. The operation spent more on ground support in the 2004 period, following caving during late 2003, and Turkish lira-based costs rose substantially (Turkey had an 8.9% inflation rate in the twelve months ended June 30).

At the end of 2003, Cayeli’s proven and probable reserves stood at 15.9 million tonnes grading, on average, 3.6% copper and 5.6% zinc, plus 0.6 gram gold and 44 grams silver per tonne. Additional resources, all inferred, amounted to 3.2 million tonnes at 3.8% copper and 5.9% zinc.

Inmet’s Pyhasalmi mine in northern Finland also came through with a healthy quarter, with greater mill throughput and a 37% increase in copper production. Lower zinc grades and recoveries, and the increase in the exchange rate of the euro, offset some of the gains. After zinc and sulphuric acid credits, Pyhasalmi produced copper at US17 per lb. (US$375 per tonne), posting an operating profit of $10 million in the second quarter. Inmet earned $16.7 million, or 39 per share, on revenue of $102.5 million in the second quarter of 2004. In the second quarter of 2003, the company earned $5 million (10 per share) on revenue of $57.1 million.

At the halfway mark of the year, Inmet is showing net income of $39.7 million (94 per share) on revenue of $227.9 million. After the first six months of 2003, the company had $11.4 million in earnings on $101.9 million in revenue. Increased metal prices accounted for virtually all the year-over-year increase in earnings.