Alfio Manciagli
The following segment was excerpted from this fund letter.
Imperial Metals (OTCPK:IPMLF - stock price: - 23% in 2Q 2022)
“Copper will be the oil that drives the engine”
- Lucas White, Portfolio Manager at GMO
Imperial Metals’ recent financial results were in line with expectations. In the meantime, the Mount Polley mine has reopened with a slight delay and will show some production from June in the second quarter. The third quarter will see the first full period of Mount Polley ore production with gold being the main revenue driver for the next six months, before mining gets to the better copper grades next year.
Imperial Metals raised CAD $41m at a share price of CAD $3.04 in June. The lion’s share of the funds came from Murray Edwards who increased his ownership of the company from 42% to 45%. The capital is mostly required for the buildout of the Red Chris block cave and further exploration of the newly discovered reserves at East Ridge.
The Red Chris decline ramp did pass 1,000 meters in March. It passed 1,600 meters in early July. Once it gets to 2,000 meters, early mining of the high-grade pods might become feasible. Those pods could flush hundreds of millions of dollars into Imperial Metals within months. However, Newcrest (OTCPK:NCMGF) did not yet confirm to undertake early mining and still communicates that this option is ‘under review’ as of May.
The East Ridge exploration is one of Newcrest’s priorities. The company is about to deploy one or two underground drill rigs from the decline ramp which is a significant improvement from the previously purely surface drilling of the area.
Whether Imperial Metals will need any more capital raises before Mount Polley and/or Red Chris will begin to generate more cash than costs depends on the commodity price environment over the next year. Recession fears, rising interest rates and the strong dollar have pressured copper and gold prices recently.
CME (CME) copper futures traders turned to net short positions in May and LME copper inventories rose, while China (which is responsible for more than 50% of the world’s copper demand) is still grappling with Covid related lockdowns in various parts.
However, a longer time frame reveals that copper inventories are in years long decline. The structural headwinds remain: constrained supply after more than a decade of underinvestment meets rising demand from world-wide electrification of everything, and potentially explosive demand from further infrastructure needs of giant developing populations such as China, India, Indonesia, etc.
If copper is going to be the new oil, then Imperial Metals’ owners will be the new barons.