Imperial taps debt markets for final Red Chris funds

VANCOUVER — With three new funding sources arranged, Imperial Metals (TSX: III; US-OTC: IPMLF) can see the finish line at Red Chris, the under-construction copper–gold project in northwest B.C. that will be Imperial’s fourth mine.

Imperial expected to spend $500 million building the open-pit mine and a 30,000-tonne-per-day mill and flotation facility at Red Chris, which is home to a porphyry deposit offering 301 million proven and probable reserve tonnes grading 0.359% copper and 0.274 gram gold per tonne. But costs have climbed  to $540 million.

By the end of 2013 the company had already spent $439 million at the site. The money came from cash flow from its other operations, a $150-million bank credit facility and a loan from major shareholder Murray Edwards’ Edco Capital. The loan initially maxed out at $130 million but was increased several times to $250 million.

Imperial is fully drawn on both lines of credit, but finishing Red Chris could cost another $90 million. The bank facility would have also expired at the end of 2013 had Imperial not negotiated an extension. Clearly, new funding was needed.

That new funding is now arranged. Imperial just launched a US$325-million offering of unsecured senior notes maturing in 2019. The terms of the notes, including interest rates, are yet to be determined. 

In contrast with shares — which bestow ownership of a fraction of a company on the holder — notes simply represent a debt owed. Imperial will be in debt to its noteholders, who will buy the notes in exchange for a good yield upon debt repayment.

“We are doing the note offering to put long-term debt financing in place,” said Steve Robertson, vice-president of corporate affairs, noting that Imperial’s debt sits in short-term facilities. “And we’re doing it now because conditions are good in the high-yield market. Also the drop in the Canadian dollar allows us to borrow US$325 million to get C$350 million.”

In addition to the notes, Imperial is negotiating a new credit facility with a syndicate of banks. The facility, which will not be finalized until the note offering is completed, will comprise a $50-million tranche available for general corporate needs and a $150-million tranche for Red Chris costs. 

Thirdly, Imperial has arranged a $75-million credit facility with Edco Capital, intended to serve as a backstop in case of project cost overruns. 

Imperial will use the new monies to repay all of its outstanding debts and get Red Chris up and running. The goal is to start commissioning in June, and the project itself looks certain to be ready before then. The rush will be around finishing the power lines.

Red Chris will be the first mine served by the new Northwest Transmission Line (NTL), a 344 km power line being built by BC Hydro to carry 287 kV grid power, initially as far north as Bob Quinn Lake. The B.C. government also committed to a second NTL phase that will extend the line another 100 km to Iskut, a small First Nations community.

The Iskut extension would have brought power almost to Red Chris’ doorstep, but there is no timeline for the project. So Imperial approached BC Hydro and inked a deal to build the Iskut extension itself, a project expected to cost $82 million. Once Imperial builds the line, BC Hydro will buy it back from the company for $52 million. 

Both projects are underway. The main NTL to Bob Quinn should be finished by May. Imperial is aiming to finish the Iskut extension a month later. By then, Imperial expects Red Chris to power up and start commissioning. 

“The power line is the critical path for us now, but our understanding from BC Hydro is that the NTL is on schedule,” Robertson said. “I toured our transmission line [in late February] and it looks good.”

Imperial operates three other mines. Mount Polley is a copper–gold mine, Huckleberry is a copper–molybdenum–silver mine that Imperial owns jointly with three Japanese companies, and Sterling is a small underground gold operation. The three mines produced 59.1 million lb. copper, 54,456 oz. gold and 243,013 oz. silver for Imperial last year.

Sterling is in Nevada, and Mount Polley and Huckleberry are in central and northern B.C. As such, Imperial’s three big open-pit copper operations are all within a few hundred kilometres of each other. 

On news of the three financings Imperial’s share price was little changed, losing 5¢ to close at $17.80. However, Imperial shares have surged as Red Chris progressed, rising more than 75% since an August low of $10.01. Imperial has 75 million shares outstanding.