Imperial Metals posts $28.6M loss in Q3

Imperial Metals (TSX: III) recorded a net loss in the third quarter of $28.6 million compared to a net loss of $1.6 million in the same quarter a year ago, with the increase primarily due to reduced income from mine operations and lower foreign exchange gains on debt, the company’s chief financial officer, Andrew Deepwell, explained on a conference call.

Lower year-on-year shipment volumes from its Red Chris and Mount Polley mines sent revenues down from $90.2 million in the third quarter of 2017 to this year’s $70.5 million, Deepwell said.

Shipments from Red Chris in the three months ended Sept. 30 came in at 2.7 compared to the year-earlier quarter’s 3.5 shipments, while Mount Polley made 0.5 shipments compared to 0.8 in the same quarter of 2017.

Cash costs per pound of copper at Red Chris fell from US$3.14 per lb. in Q2 to US$2.68 per lb. in Q3, while at Mount Polley, cash costs increased from US$1.25 per lb. in Q2 to US$3.01 per lb. in Q3.

The company explained that higher costs at Mount Polley were due to higher operating expenses, lower quantities of copper produced and lower gold by-product revenues.

Red Chris produced 13.55 million pounds of copper and 8,741 ounces of gold, an increase of 18% and 1%, from 11.51 million pounds of copper and 8,614 ounces of gold in the second quarter.

Mount Polley produced 2.60 million pounds of copper and 7,748 ounces of gold, a decrease of 32% and 15%, from the 3.82 million pounds of copper and 9,110 ounces of gold produced in the second quarter. (Production for the quarter was impacted by a strike that lasted from May 23 to Aug. 2.)

Capital expenditures rose to $37.5 million versus $22.3 million in the year-earlier period. The capex included $21.1 million for mobile equipment and $15.3 million for tailings dam construction. The addition of a new $50 million shovel for the Red Chris mine was financed by a long-term debt facility.

At the end of September, the company had $4.8 million in cash, $9.7 million available for future draws under a senior secured revolving credit facility and $10 million undrawn on the 2017 line of credit loan facility.

Deepwell noted that the company had a working capital deficiency of $819.7 million as of Sept. 30, primarily due to debt of $728.4 million related to the senior credit facility, the second lien credit facility and the senior unsecured notes, all of which matures in the first quarter of 2019.

“In mid-September the maturity dates of the senior credit facility and the second lien credit facility were extended to Feb. 15, 2019, to provide the special committee time to successfully complete the restructuring process,” Deepwell told analysts and investors on the conference call, adding that during 2018, “payment of interest for certain debt facilities has been paid in common shares of the company until Dec. 31, 2018, resulting in cash savings of approximately $16 million per annum.”

Brian Kynoch, Imperial’s president, said the company “continues to discuss an arrangement to joint-venture Red Chris with one party,” and confirmed during the question and answer portion of the call, that any joint-venture arrangement would be for both the open-pit operation and the underground portion of the deposit.

The company’s special committee also “continues to look at other alternatives to fix our balance sheet,” he said.

Kynoch explained that most likely there would be two phases to the restructuring. “We’re hopeful that one part of it would be before the end of the year and then probably another part of it early in the new year … by February.”

The mining executive also noted that the company has access to some better ore grades as it moves deeper into the pits at Red Chris, so the fourth quarter “for sure, will be a little bit better than the third quarter.”

In addition, the new electric shovel acquired for Red Chris wasn’t up and running until the middle of August. “It didn’t have the impact that we expected it to have in the whole year because it arrived much later,” Kynoch said. “So that’s starting to have impact now … what it’s going to impact will enable us to open up higher grade ore sooner than otherwise without it. But it will take some time to kind of dig down there and get to the point where the grades are good. But it’s certainly making it easier to meet our mining targets … You’re going to be down in an area where there is lots of good ore, all coming from depth, after about the first quarter of next year.”

Red Chris, a copper-gold-silver mine in northwestern B.C., is 80 km south of Dease Lake, and Mount Polley, a copper-gold mine in south-central B.C., is 56 km northeast of Williams Lake.

Imperial Metals’ shares closed at $1.18, down 3.3% on the day. Over the last year the company has traded within a range of 93¢ and $3.47 per share.

The company has 120.8 million shares outstanding for a market cap of $142.5 million.

Oscar Cabrera of CIBC has a 12-18 month target price on the company of 60¢ per share.

“We estimate Imperial shares trade at a 70% discount to the copper peer market cap weighted average of 0.7 times price/net asset value,” Cabrera states in a research note following the conference call. “We believe the discount is warranted given Imperials’ operating issues at Red Chris, uncertainty around its capital structure and potential liquidity issues.”