British Columbia copper mines face tough times

Deteriorating copper prices have forced 60%-owner Imperial Metals (IPM-T) to negotiate the second financial restructuring package for the Huckleberry copper mine in less than a year.

The open-pit mine, situated in west-central British Columbia, has been operating under a two-year economic relief plan sponsored by the province’s Job Protection Commission. The plan was initiated in July 1998.

In its 1998 annual report, Imperial says it became apparent by year-end that Huckleberry could not meet all its interest payment obligations on long-term debt and would be unable to satisfy its scheduled loan payment. The mine is saddled with $115 million in project financing loans, of which Imperial’s share is $68.9 million.

Negotiations were subsequently initiated on a financial restructuring package for Huckleberry, and a consensus was reached in March 1999. This arrangement remains subject to the approval of the board of directors of the Japan Group of companies, which currently owns the remaining 40% of the mine. The Japan Group is a consortium consisting of Mitsubishi Materials, Marubeni, Dowa Mining, and Furukawa.

The proposed restructuring package will result in full deferral of all principal and interest payments during 1999. For 2000 and 2001, payment of principal and interest will be dependent on available cash. Smelter charges and payment terms will also be improved, while letters of credit from acceptable financial institutions will be substituted for cash bonds, freeing up these amounts for use by the mine.

In return for the Japan Group’s support, Imperial has agreed to lend Huckleberry $2.5 million ($1.5 million from available cash resources and $1 million provided from a new short-term loan facility secured by the company’s oil and natural gas assets). The company has also agreed to sell, for a nominal value, a 10% ownership interest in Huckleberry to the Japan Group.

Rhonda Schultz, a spokesman for Imperial, says the company expects the financial restructuring package to be completed within the next few weeks.

Imperial is also the operator and 55% owner of the Mount Polley copper-gold mine, near Williams Lake in the central part of the British Columbia. The remaining 45% is owned by SC Minerals Canada, a wholly owned subsidiary of Sumitomo. Like Huckleberry, Mount Polley is operating under an economic relief plan brokered by the Job Protection Commission and is carrying a large outstanding project loan. Imperial’s share of Mount Polley’s debt is $51.8 million.

At the end of 1998, Imperial wrote down its net equity investment in both mines: $13.7 million for Huckleberry and $16.5 million for Mount Polley. This resulted in a net loss for the year of $41.5 million (or 56 cents per share), compared with $9.6 million (16 cents per share) in 1997. Sales revenue expanded to $94.7 million in 1998 from $10.6 million in 1997, reflecting the first full year of production for both Mount Polley and Huckleberry.

Operating losses were $1.8 million in 1998, compared with $7.4 million in the previous year. Operations generated a cash flow of $8.3 million (11 cents per share), versus a cash use of 5.3 million (9 cents per share) in 1997.

In 1998, Huckleberry produced 81.3 million lbs. copper and 550,000 lbs. molybdenum, while Mount Polley’s output amounted to 24 million lbs. copper and 102,000 oz. gold. Imperial’s share of production from the two mines totalled 57 million lbs. copper, 62,000 oz. gold and 330,000 lbs. molybdenum.

The Huckleberry mine was constructed at a cost of $142 million and began production in October 1997. Imperial acquired the 60% interest in the mine at the end of February 1998 through a merger with Princeton Mining.

During 1998, some 6.5 million tonnes of ore grading 0.63% copper and 0.017% molybdenum were mined, along with 7.1 million tonnes of waste rock. The average daily throughput of the mill averaged 17,945 tonnes — 9% higher than design capacity. Recoveries averaged 89.4% for copper and 24.7% for molybdenum.

In the first three months of 1999, Huckleberry produced 19.6 million lbs. copper and 283,500 lbs. moly. A total of 1.6 million tonnes grading 0.6% copper and 0.018% moly was milled at a daily throughput rate of 18,114 tonnes. Recoveries improved to 91.3% for copper and 44.8% for moly during the quarter.

Minable reserves at the end of 1998 stood at 74.7 million tonnes grading 0.51% copper and 0.014% moly, plus 0.06 gram gold and 2.82 grams silver per tonne, at a stripping ratio of 0.93-to-1. Exploration drilling last year tested the western extensions of the Main ore zone. The best results from a 7-hole program included 101 metres grading 0.5% copper in hole 245 and 23 metres of 0.42% copper in hole 243.

A geophysical survey on the Whiting Creek property, 7 km north of Huckleberry, revealed two large chargeability anomalies immediately adjacent to a known area of low-grade porphyry copper mineralization. Previous drilling in this area had returned 100-to-200-metre intersections of 0.2% to 0.26% copper. Neither of the chargeability anomalies has been drill-tested.

The Mount Polley mine was put into production in June 1997 at a cost of $115 million. The minable reserve estimate prior to beginning mining operations was 82.3 million tonnes grading 0.3% copper and 0.42 gram gold, with 25% of the copper present in oxide minerals. The waste-to-ore stripping ratio was estimated at 1.12-to-1. The reserve estimate was based on a long-term price of US$380 per oz. gold and US$1 per lb. copper. Between startup and the end of 1998, 8.3 million tonnes of ore grading 0.33% copper and 0.65 gram gold were mined.

During 1998, 12.6 million tonnes of material were mined from the Cariboo pit, including 6 million tonnes of ore. The bulk of the ore was mined from the southern end of the pit, where the ore is higher in grade. In the latter half of 1998, a decision was made to preserve some of the higher-grade material for better market conditions, and mining was subsequently shifted to the northern end of the pit, where the ore, though generally lower in grade, is conducive to better metal recoveries.

Mount Polley has also been separating out some of the lower-grade material that, at current metal prices, is no longer economic.

A total of 5.8 million tonnes of ore grading 0.36% copper and 0.77 gram gold was milled during 1998 at a daily throughput rate of 15,972 tonnes. The grinding circuit operated at 88% of design capacity for the year. Operations were affected by low, fine-ore inventories, owing to winter conditions and the failure of a ball mill motor in November. Recoveries averaged 51.4% for copper and 70.8% for gold.

During the first quarter of 1999, Mount Polley produced 7.1 million lbs. copper and 24,590 oz. gold from a milled 1.5 million tonnes grading 0.31% copper and 0.65 gram gold. Daily throughput averaged 16,736 tonnes, whereas recoveries improved to 68.6% for copper and 77.5% for gold.

Imperial recorded a net loss of $964,000 (1 cents per share) on revenue of $24 million for the first three months of 1999, compared with a loss of $2.4 million (4 cents per share) on $13.2 million in the corresponding period a year ago. The comparative quarter in 1998 included three months of operations for Mount Polley but only one month for the Huckleberry mine.

Operating profit was $359,000 for the 1999 quarter, an improvement over the operating loss of $2.1 million in the first quarter of 1998. Operations generated a cash flow of $1.1 million (1 cents per share) for the quarter, compared with a cash use of $443,000 (1 cents per share) in the first three months of 1998.

In April, Imperial optioned a 60% interest in the Silvertip property to Peruvian Gold (PVO-V). Situated 85 km southwest of Watson Lake in northern British Columbia, Silvertip is host to manto-style massive sulphide mineralization. A geological resource is estimated at 2.6 million tonnes grading 8.8% zinc, 6.4% lead and 325 grams silver.

Peruvian must spend $5 million on exploration over three field seasons, with a minimum commitment of $450,000 in 1999. Imperial
retains a 20% back-in right, which can be exercised by spending $2 million within 18 months of completion of Peruvian’s earn-in. Imperial will remain the operator throughout.

Imperial has been trading at 58-42 cents within a 52-week range of 98-30 cents. The company has 78.1 million shares outstanding.

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