Inmet triples earnings on higher metal prices

Stronger metal prices and increased copper and zinc production helped Inmet Mining (IMN-T) more than triple its earnings to $22.9 million (or 49 per fully diluted share) during the first three months of 2004.

A year earlier, the Toronto-based miner earned $6.5 million (14 a share). The jump in earnings reflects the company’s leverage to the copper price, and a change in the way it accounts for its 18% stake in the Ok Tedi mine Papua New Guinea.

During the first quarter, the proportionate consolidation of Ok Tedi (on July 1, 2003) added $10 million to net income; a year earlier, $7.9 million in dividends from the operation were recorded as a reduction in carrying value rather than as income.

Cash generated by operations swelled to $64.1 million from just $1.2 million in the corresponding period of 2003 thanks to higher metal prices and a reduction in non-cash working capital at the Cayeli, Pyhasalmi and Troilus operations.

In all, Inmet produced 17,300 tonnes of copper (compared with 15,500 tonnes a year ago), 14,300 tonnes of zinc (10,900 tonnes) and 57,500 ounces of gold (59,300 oz.) during the quarter. Total cash costs rang in at US45 per lb. of copper (US55 per lb. a year earlier), and US$268 per oz. of gold (US$248 per oz.).

Inmet’s realized copper price was 72% higher than in the first quarter of 2003 at US$1.29 per lb.; zinc was up about 40% at US50 per lb; and its realized gold price was 13% higher at US$371 per oz.

Ok Tedi chipped in cash flow of $18.6 million during the quarter, despite the failure of one of its two semi-autogenous grinding mills in January. Mill throughput was little changed form a year ago however as mill availability was hurt by a shell replacement in the other SAG mill in the first quarter of 2003. Unit costs dropped on higher gold credits.

Inmet expects performance at Ok Tedi to improve during the second quarter with both SAG up and running; daily throughput is pegged at 84,000 tonnes. Copper and gold grades are expected to slip over the balance of the year as less skarn ore is processed.

At the Cayeli copper-zinc mine in Turkey, production was little changed despite a 54% increase in mill throughput; mining stope availability and logistical challenges negatively impacted production. Operating cash flows climbed by $37 million to $31.5 million. A shaft extension is on schedule (10% complete) and budget; commissioning is slated for the first quarter of 2006.

Inmet says it plans to trim Cayeli’s targeted throughput rate to 1.1 million tonnes (from 1.25 million tonnes) for the year. Higher expected copper grades will offset the decrease, but zinc grades are expected to fall.

Inmet says contract talks continue at Cayeli.

In Finland, zinc production rose 17% to 9,000 tonnes on higher grades at Pyhasalmi; cash costs fell 70% to US8 per lb.; operating cash flow more than doubled to $11.9 million. Looking ahead, copper grades are expected to fall, as zinc grades remain unchanged.

Cash flow from the Troilus gold mine in northern Quebec nearly tripled to $10.8 million, even as production slipped 11% to 37,300 oz. on lower grades. Total cash costs increased US$20 to US$268 per oz. on the lower production rate. Inmet recently approved an $18.5 million mill expansion at Troilus. The plan envisages a 15% increase in mill throughput plus a 2% increase in recoveries. Construction will begin in late May; commissioning is expected by the end of the year.

At quarter’s end, Inmet had cash and equivalents totalling $277.8 million, up from $71.2 a year earlier; long-term debt was slightly lower at $23.4 million.