Inmet weathers tough quarter

The second quarter wasn’t the smoothest for Inmet Mining (IMN-T) but the company is confident that it has some of its key issues worked out and is on the right path.

Thanks to foreign exchange losses, a mine closure and technical problems at one of its mills, the Toronto-based copper, gold and zinc miner reported a hefty fall in earnings per share (EPS) to 86¢ from the $1.37 level it achieved a year previous.

And while such a drop may sound alarming at first, when it is considered that the bulk of it was due to losses on foreign exchange and that changes in the international financing reporting regulations will dampen such losses in the future, the picture is not nearly as bleak as it may seem at first glance.

The damage came thanks to a swing of $40 million from a gain to a loss in forex. More precisely the second quarter 2009 gain of $18.2 million in forex moved over into $21 million loss for this quarter.

The reason for the change was that last year Inmet benefited from a revaluation of its US dollar denominated debt at its Las Cruces mine in Spain. This quarter, however, the company felt the impact of repatriation of earnings from its Cayeli mine in Turkey and its Pyhasalmi mine in Finland.

“We expect less of an impact in the future as we repaid our US denominated debt in 2009 and under (new reporting regulations) only dividends representing a return of capital, as opposed to a repatriation of income, require recognition of previously deferred forex gains or losses,” James Slattery, Inmet’s CFO, said via a conference call.

The forex loss was a key contributor to second-quarter profits dropping by 27% to $48.4-million despite the higher metal prices it received for its products.

Also weighing in on second quarter profits was the winding down of its Troilus open pit gold and copper mine in northwestern Quebec.

As planned, the company finished closed its milling operations there at the end of June and has begun dismantling the facility and restoring the land. The mine did yield hither gold grades then expected as it wound down.

Production levels at its Ok Tedi copper and gold mine in Papua New Guinea were also down because of a 17-day strike in April.

Inmet has an 18% stake in the mine and it cautioned that issues there may not be over as the labour contract expires at the end of August and the recent strike has brought some uncertainty into how things will ultimately play out.

Another key issue in the quarter was its operational problems at La Cruces.

Inmet missed its production targets at the mine due to equipment failures and other problems related to the mine. The result was production of 6,600 tonnes of copper cathode during the quarter – well short of its target of 12,400 tonnes.

The company says it now has a handle on the key issues at the mine.

“We believe we have identified the key bottlenecks to production and we continue to take steps to significantly increase our operating reliability,” Inmet said in a statement. “We will continue with the rigorous implementation of the ramp up plan to achieve our goal of full production by the end of the year.”

Outside of the forex issues, mine closures and operational difficulties, good news could be gleaned from sales revenue which was up slightly to $215.1 million from $213 million the year previous.

That gain was thanks to an increase in copper sales of 18% to 43,400 tonnes during the first half of this year and an increase in zinc sales of 11% to 37,800 tonnes.

Staying with the positive, Inmet says its copper sales will increase 33% by year end as Las Cruces ramps up toward full production.

It also said zinc production will rise as it begins to mine higher zinc grades at the Pyhasalmi mine this year and processing charges fall.

In Toronto on July 28 Inmet shares were up 37¢ to $49.25 on 192,000 shares traded.