Imperial Metals earns $1.64-million in Q2
Imperial Metals earns $1.64-million in Q2
2015-08-13 20:23 ET - News Release
Mr. Brian Kynoch reports
IMPERIAL REPORTS 2015 SECOND QUARTER FINANCIAL RESULTS
Imperial Metals Corp. is releasing its comparative financial results for the three and six months ended June 30, 2015, and June 30, 2014, summarized in this release, and discussed in detail in the management's discussion and analysis. The company's financial results are prepared in accordance with international financial reporting standards (IFRS). The reporting currency of the company is the Canadian dollar.
HIGHLIGHTS (in thousands of dollars, except per-share amounts) Three months Six months ended June 30, ended June 30, 2015 2014 2015 2014 Revenues $ 1,726 $ 51,066 $ 3,259 $102,401 (Loss) income from mine operations (2,981) 17,451 (4,694) 33,343 Equity income in Huckleberry 626 1,390 33 82 Net income (loss) 1,644 15,213 (31,740) 21,070 Net income (loss) per share $ 0.02 $ 0.20 $ (0.42) $ 0.28 Adjusted net (loss) income (9,371) 8,899 (17,383) 15,798 Adjusted net (loss) income per share $ (0.12) $ 0.12 $ (0.23) $ 0.21 Adjusted EBITDA (7,840) 23,567 (13,985) 43,251 Cash flow 2,270 21,494 (3,791) 41,811 Cash flow per share $ 0.03 $ 0.29 $ (0.05) $ 0.56
Revenues were $1.7-million in the June, 2015, quarter, compared with $51.1-million in the 2014 comparative quarter. Revenue in the current quarter is primarily gold sales from the Sterling gold mine, compared with two shipments of concentrate from the Mount Polley mine and gold sales from the Sterling gold mine in the 2014 comparative quarter. Three shipments of concentrate totalling approximately 30,000 tonnes were made during the current quarter from Red Chris. The shipments had a value of $52.5-million, booked as an offset to the Red Chris capital and development expenditures.
The company recorded a net income of $1.6-million in the June, 2015, quarter, compared with net income of $15.2-million in the 2014 comparative quarter. The adjusted net loss in the June, 2015, quarter was $9.4-million or 12 cents per share, versus adjusted net income of $8.9-million or 12 cents per share in the 2014 comparative quarter. Adjusted net income or loss is calculated by removing the unrealized gains and losses, net of related income taxes, resulting from foreign exchange movements on non-current debt, from mark-to-market revaluation of copper, gold and foreign exchange derivative instruments, and non-recurring insurance recoveries related to the Mount Polley tailings dam breach. Adjusted net income is not a measure recognized under IFRS in Canada. It is intended to show the current period financial results excluding the effect of items not settling in the period or non-recurring in nature.
The June, 2015, quarter net income included foreign exchange gains related to changes in Canadian/U.S.-dollar exchange rates of $7.1-million, compared with foreign exchange gain of $13.2-million in the 2014 comparative quarter. The $7.1-million foreign exchange gain comprises a $6.6-million gain on the senior notes, an $800,000 gain on long-term equipment loans, and a loss of $300,000 on other debt and operational items. The average Canadian/U.S.-dollar exchange rate in the June, 2015, quarter was 1.229, compared with an average of 1.091 in the June, 2014, quarter. The Canadian/U.S.-dollar exchange rate at June 30, 2015, was 1.247, compared with 1.268 at March 31, 2015.
The company recorded $3.8-million unrealized net loss on copper, gold and foreign exchange derivatives in the June, 2015, quarter, compared with an unrealized net loss of $7.4-million in the 2014 comparative quarter. Gains of $700,000 were realized on gold derivatives in the June, 2015, quarter, compared with a small realized loss on gold derivatives in the 2014 quarter.
Cash flow was $2.3-million in the six months ended June 30, 2015, compared with cash flow of $21.5-million in the 2014 comparative quarter. The $19.2-million decrease is primarily related to the absence of revenue from Mount Polley due to the suspension of mine operations following the tailings dam breach in 2014, offset in part by $11.0-million of insurance recoveries related to the Mount Polley tailings dam breach.
Capital expenditures, inclusive of capitalized interest, decreased to $48.9-million, from $141.8-million in the 2014 comparative quarter. Expenditures in the current quarter were financed from non-current debt and from a $30.0-million line of credit facility. At June 30, 2015, the company had $17.5-million in cash.
During the June, 2015, quarter, the company did not purchase any common shares for cancellation.
Liquidity and financing
The company's interim financial statements have been prepared on a going-concern basis, which assumes the company will continue operating in the foreseeable future, and will be able to service its debt obligations, realize its assets and discharge its liabilities in the normal course as they come due.
The Aug. 4, 2014, tailings dam breach at the Mount Polley mine has resulted in the loss of production from the mine until the limited restart on Aug. 5, 2015. The Mount Polley mine was the primary source of cash flow for the company at the time the tailings dam breach occurred. In the quarter ended June 30, 2015, the company incurred $2.5-million on rehabilitation activities. To June 30, 2015, a total of $61.0-million has been spent on rehabilitation at the Mount Polley mine following the tailings dam breach. To June 30, 2015, the company had received $25.0-million of related insurance recoveries. Income and mining tax recoveries have also been recorded in connection with these costs, net of insurance recoveries. At June 30, 2015, the provision for rehabilitation costs to be incurred in the future was $6.4-million. The provision for rehabilitation contains significant estimates and judgments about the scope, timing and cost of the work that will be required. It is based on assumptions and estimates at the current date and is subject to revision in the future as further information becomes available to the company.
At June 30, 2015, the company had cash of $17.5-million and a working capital deficiency of $73.4-million. Following completion of the construction of the Red Chris mine, commissioning of the mill commenced and the first concentrate was produced in February, 2015.
On May 19, 2015, the company announced its intention to conduct a financing of approximately $80.0-million, along with a $30.0-million short-term loan facility to provide interim financing to the company while it completed the financing. The $80.0-million financing comprises three components, a rights offering to raise $44.0-million, backstopped by the company's two largest shareholders, a private placement of common shares to raise $6.0-million and a private placement of convertible debentures to raise $30.0-million. The private placement of common shares closed on Aug. 11, 2015, with the other two financings targeted to close on or about Aug. 24, 2015. A portion of these financings will be used to repay the $30.0-million short term loan facility.
The funds from the financing, projected cash flow from the Red Chris and Mount Polley mines, as well as the available credit facilities and additional sources of financing, should be sufficient to finance the remaining estimated rehabilitation cost of the tailings dam breach at the Mount Polley mine and the estimated costs associated with the Red Chris mine. However, there are inherent risks associated with the start-up of the Red Chris mine and production from the mine after start-up, as well as uncertainties related to the scope, timing and cost of the rehabilitation at the Mount Polley mine.
There can be no assurance that financing will be available on terms acceptable to the company or at all should the company require additional financial resources.
Derivative instruments
In the three-month period ending June 30, 2015, the company recorded net losses of $3.1-million on derivative instruments, comprising a $2.4-million net loss related to the Canadian/U.S. currency swap and a $700,000 net loss on gold derivatives. This compares with a net loss of $7.4-million in the June, 2014, quarter, comprising a $5.3-million loss related to the Canadian/U.S. currency swap, and a $2.1-million net loss on copper and gold derivatives. These gains and losses result from the mark-to-market valuation of the derivative instruments based on changes in the price of copper and gold, and movements in the Canadian/U.S. exchange rate. These amounts include realized gains on gold contracts of $700,000 in the June, 2015, quarter, compared with realized gains of under $100,000 on copper and gold contracts in the June, 2014, quarter. The company has not applied hedge accounting for its derivative instruments and therefore records changes in the unrealized gains or losses on these contracts at fair value on each statement of financial position date, with the adjustment resulting from the revaluation being charged to the statement of income as a gain or loss.
The company used a variety of derivative instruments, including the purchase of puts, forward sales, currency swaps and the use of min/max zero-cost collars. The company's income or loss from derivative instruments may be very volatile from period to period as a result of changes in the copper and gold prices, and Canadian/U.S. exchange rates, compared with the copper and gold prices, and Canadian/U.S. exchange rate at the time when these contracts were entered into, and the type and length of time to maturity of the contracts.
The company has no derivative instruments for copper at June 30, 2015. At June 30, 2015, the company has hedged 48,600 ounces of gold for the balance of 2015 via min/max zero-cost collars.
In the March, 2014, quarter, the company entered into a cross-currency swap to lock in the foreign exchange rate on $110.0-million (U.S.) of the $325.0-million (U.S.) principal amount of senior unsecured notes and related interest over the five-year term of the notes. The foreign exchange rate was fixed at $1.1113 (Canadian) for each $1 (U.S.). Based on the June 30, 2015, Canadian/U.S.-dollar exchange rate, the company had an unrealized gain of $13.9-million on the derivative instruments related to the swap.
Future changes in the Canadian/U.S.-dollar exchange rate could have a material impact on the valuation of the cross-currency swap, however, this gain or loss will be more than offset by the foreign exchange gain or loss on the notes.
Red Chris mine
An impact, benefit and co-management agreement with the Tahltan Nation was signed on July 27, 2015. The agreement had earlier been approved by a referendum with 87 per cent of respondents voting in favour.
Copper production for the second quarter was 12.67 million pounds, up significantly from the 4.72 million pounds produced in the March, 2015, quarter. Mill throughput for the June, 2015, quarter averaged 20,247 tonnes per day, with water supply being the largest single cause of downtime. By early July, water supply issues were resolved and, during the month, a total of 730,339 tonnes was milled, producing 7.23 million pounds copper and 3,625 ounces gold. Metallurgical performance improved in July, with a copper recovery of 80.9 per cent and gold recovery of 53.2 per cent being achieved. The current program for construction of the tailings dam is well under way, with about 57 per cent of the planned construction completed to the end of June, 2015.
Management has concluded that the Red Chris mine achieved the accounting criteria for commercial production in July, 2015. Effective July 1, 2015, the revenue from and expenses of operating the mine will be reported through the statement of income. The Red Chris mine has yet to achieve the mine completion tests under the senior credit facility. The company has until Dec. 1, 2015, to meet these tests.
RED CHRIS PRODUCTION Six months ended Three months ended Three months ended June 30, 2015 June 30, 2015 March 31, 2015 Ore milled (t) 2,667,379 1,851,608 815,771 Grade, copper (%) 0.484 0.502 0.443 Grade, gold (g/t) 0.243 0.238 0.254 Recovery, copper (%) 62.03 61.88 59.21 Recovery, gold (%) 31.87 31.94 31.63 Copper (lb) 17,397,000 12,677,000 4,720,000 Gold (oz) 6,644 4,533 2,110 Silver (oz) 25,742 18,721 7,021
Mount Polley mine
Mount Polley restarted operations on Aug. 5, 2015, following receipt of permit amendments on July 5, 2015, which allowed recommencement of the mine using a modified operation plan that includes the use of the Springer pit to contain the tailings produced. Operations commenced on a one-week-on, one-week-off basis, with ore coming from the Cariboo pit and the Boundary zone underground mine. The restart of the Mount Polley mill has progressed smoothly and, during the first week of the restarted operation, 140,790 tonnes of ore were treated and approximately 1,400 tonnes of concentrate were produced containing approximately 830,000 pounds copper and 1,300 ounces gold.
With recommenced operations, the mine currently has 183 people employed at site.
The rehabilitation of the areas affected by the Aug. 4, 2014, breach of the tailings embankment is continuing. Imperial remains committed to working with the Ministry of Environment, first nations and the local community to mitigate the effects of the breach.
Huckleberry mine
Throughput for the 2015 second quarter was 1.7 million tonnes, 24.7 per cent more than achieved in the 2014 comparative quarter. This additional throughput, along with slightly higher copper grade, resulted in copper production of 11.5 million pounds in the second quarter of 2015, up 24.9 per cent from the comparable 2014 quarter.
HUCKLEBERRY PRODUCTION Three months ended Three months ended Six months ended Six months ended June 30, 2015 June 30, 2014 June 30, 2015 June 30, 2014 Ore milled (t) 1,726,751 1,384,384 3,293,245 2,281,449 Ore milled per calendar day (t) 18,975 15,213 18,195 12,605 Grade, copper (%) 0.338 0.334 0.342 0.324 Recovery, copper (%) 89.3 90.2 89.0 90.3 Copper (lb) 11,492,864 9,197,618 22,119,948 14,700,502 Gold (oz) 866 744 1,681 1,197 Silver (oz) 57,226 50,951 111,198 81,386
Sterling mine
Underground mining operations were terminated at the end of May, 2015. The company awaits approval of the environmental assessment for the open-pit mine from the Bureau of Land Management. The heap will continue to recover gold for a few more months. The company shipped a total of 492 ounces gold from site during the June, 2015, quarter.
An exploration program that includes soil sampling and geological mapping is being conducted in an area of favourable geology, along the northern flank of Bare Mountain. Some of the staff and much of Sterling's underground mining equipment have been transferred to Mount Polley to assist in the underground mining of the Boundary zone.
Outlook
Following the signing of the impact, benefit and co-management agreement with the Tahltan Nation on July 27, 2015, the company looks forward to working together with the Tahltan Nation to make the Red Chris mine an important driver of employment and the economy in northwestern British Columbia. At the end of June, 2015, first nation employees represented over 28 per cent of the Red Chris work force. Operations at Red Chris will focus on completion of construction work at the tailings facility, and on maximizing the throughput and metallurgical performance of the processing plant.
At the Red Chris mine, the water supply issues were resolved in early July and the plant was able to run on a steadier basis. Operating time averaged 88 per cent for the month. Metallurgical results improved with steady operation of the plant and with less near-surface ore being treated. Copper and gold recoveries in July improved to 80.9 per cent and 53.2 per cent, respectively, up significantly from the June, 2015, quarter average of 61.88 per cent for copper and 31.94 per cent for gold. For July, 2015, the copper production was 7.23 million pounds and gold production was 3,625 ounces, both records for the Red Chris mine.
Mount Polley restarted operations on Aug. 5, 2015, following receipt of permit amendments on July 5, 2015, which allowed recommencement of the mine using a modified operation plan that includes the use of the Springer pit to contain the tailings produced. The permit allows for a maximum of 4.0 million tonnes of tailings to be stored in the Springer pit over a period of one year. This is approximately 50 per cent of the plant's annual capacity. The renewed operation will be conducted on a one-week-on, one-week-off basis.
Work continues on rehabilitation of the areas affected by the breach of the tailings embankment. Permitting work on both a short-term and long-term water discharge permit is under way. Obtaining these permits is required to maintain the water balance on the site. Work is also under way to design a system to store tailings in the long term, which would allow the mine to restart full-scale operations.
For information related to this news release, refer to the detailed financial information provided in the company's 2015 second quarter report, available on the company's website and on SEDAR.
An earnings conference call is scheduled for Aug. 14, 2015, 10 a.m. PDT (11 a.m. MDT) (1 p.m. EDT).
Management will discuss the second quarter 2015 financial results provided in this news release. To participate, the following are call-in numbers for the earnings conference call:
- 778-383-7413, local Vancouver;
- 416-764-8688, local Toronto;
- 587-880-2171, local Calgary;
- 888-390-0546, toll-free North America.
The conference call will be available for playback until Aug. 21, 2015, by dialling 888-390-0541 or 416-764-8677 and entering playback passcode 210598 followed by the pound key.
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