Imperial Metals Corporation (OTCPK:IPMLF) Q1 2019 Earnings Conference Call May 15, 2019 1:00 PM ET
Brian Kynoch – President
Andre Deepwell – Chief Financial Officer
Conference Call Participants
Craig Hutchison – TD Bank
Ladies and gentlemen, thank you for standing by. Welcome to the Imperial Metals Corporation First Quarter 2019 Financial Results Conference Call. Following the financial presentation by Brian Kynoch and Andre Deepwell, there'll be a question-and-answer session. [Operator Instructions] We wish to advise that certain statements during this conference call may constitute forward-looking information within the meaning of securities law. We direct you to Imperial's forward-looking statement as provided in the 2019 Q1 management's discussion and analysis which the company has filed on SEDAR. This document is also available on Imperial’s website.
I'll now turn the call over to Brian Kynoch, President, Imperial Metals Corporation. Please go ahead Mr. Kynoch.
Thank you. Welcome to the Imperial Metals conference call to review our first quarter of 2019 results. I'll start the call with brief updates on Mount Polley and a Red Chris and then I'll have Andre Deepwell, our CFO go through the highlights of the financial statements.
At Mount Polley during the first quarter 1.2 million tons of ore were milled, down from 1.6 million tons mined in the first quarter of 2018. The decrease was largely a result the long periods of severe cold temperature that made it very difficult to keep crushing operations going while treating the stockpiled ore that was being delivered to the plant.
Recoveries of both copper and gold are much lower than last year, as the low grade and more highly oxidized stockpiles of ore were being treated. Metal production for the March quarter was 2.3 million pounds of copper and 6,147 ounces of gold. Milling operation, since the weather has warmed up have gone back to normal and we're now treating more or like 18,000 tons a day through the plant, and milling operations are expected to continue until late May, probably about the 29 of May, when the mine will be put on care and maintenance. Our exploration group putting together programs for the exploration of Mount Polley falling the closure and we're hopeful that additional discoveries can be made that will enable the mine to be a stronger mine when it was reopened.
At Red Chris, during the first quarter production with 13.1 million pounds of copper and 8,300 ounces of gold. The mill averaged 26,000 tons a day, down from the 28,000 achieved in the same quarter last year. And recoveries were lower as well – copper recovery was lower while gold recovery was up during the quarter. The reduced throughput and the impact of recovery again was largely due to the very cool temperatures as the amount of reclaimed water that we had to deliver to the mill was reduced by the amount that was frozen in the pond.
Operations were sustained using the available water but at a reduced rate for about 1.5 month. Since then the warming temperatures, the ice has melted, spring run-off started and so now we have more than enough water for normal operations and we've been doing better since about the end of March.
I think with those brief summaries, I'll have I'll have Andre go through the financials, and then we'll have a question period.
Thank you, Brian. On March 10 2019, the company entered into an agreement to sell 70% interest in the Red Chris mine to Newcrest. In accordance with IFRS and notwithstanding that the company will continue to hold a 30% interest in Red Chris mine. The company has classified the Red Chris mine as a discontinued operation, effective January 1, 2019 and the assets and liabilities held for sale as of March 31, 2019.
The prior year comparative quarter consolidated statement of income has been restated accordingly. Unless otherwise as stated in this report the total will be for continuing discontinued operations as one amount for ease of comparison with the prior period.
For the accounting guidance, the label discontinued operations includes those transactions in which the company continues to have an interest such as the 30% Imperial is retaining in Red Chris. It's a bit of a misnomer, but that is the IFRS term for these kinds of transactions during this stage between the announcement of the assets held for sale and the completion of the sale transaction.
Revenues in the first quarter of 2019 were CAD 76.7 million versus CAD 117.9 million in the first quarter of 2018, the decrease was the result of lower shipment volumes on lower copper prices and slightly higher gold prices, partially offset by a positive revenue reevaluation, when compared to the first quarter of 2018. Red Chris had 2.6 concentrate shipments in the first quarter of 2019 versus 4 shipments in the first quarter of 2018. Mount Polley had 0.3 concentrate shipments in the first quarter of 2019 compared to 1 concentrate shipments in the first quarter of 2018.
Revenues in the first quarter of 2019 were increased by CAD 2.5 million, due to a positive revenue revaluation as compared to a decrease in revenues in the first quarter of 2018 by CAD 5.6 million, due to negative revenue reevaluation. Revenue reevaluations are the results of the metal prices on the settlement and/or the current period balance sheet date being higher or lower than when the revenue was initially recorded or the metal prices at the last balance sheet date and the finalization of contained metals as a result of final assays.
In the first quarter of 2019, Imperial recorded a net loss of CAD 2.3 million compared to a net loss of CAD 16 million in 2018. The decrease in net loss in 2019 from the net loss in 2018 was due to a number of factors, a CAD 20.4 million decrease in foreign exchange losses on debt, a CAD 12.9 million increase in tax recovery. These are offset in part by a CAD 2.7 million increase in loss from mine operations and a CAD 600,000 increase in interest expense.
The March 2019 quarter loss for mine operations was CAD 2.5 million compared to income of CAD 200,000 in 2018. The company has no derivative instruments for copper, gold or foreign exchange at March 31, or today. Imperial's capital expenditures were CAD 10 million in the first quarter of 2019, up slightly from CAD 9.1 million in 2018. Capital expenditures in 2019 included CAD 4.5 million for mobile equipment and CAD 4.8 million for tailings dam construction.
The company reports four non-IFRS measures: adjusted net income, adjusted EBITDA, cash flow and cost per pound of copper produced. The adjusted net income/loss removes non-recurring and unrealized items from reported net income/loss. The adjusted net loss in Q1 2019 was CAD 11.9 – sorry, CAD 11.6 million, compared to an adjusted net loss of CAD 4.8 million in Q1 2018. Adjusted EBITDA was CAD 7 million in Q1 2019 compared to CAD 36.4 million in 2018. Cash flow was CAD 10.3 million in 2018 Q1 2019 compared to cash flow of CAD 36 million in Q1 2018. The cash cost per pound of copper produced is calculated for the company's two operating mines. For 2018, these were US$2.70 per pound for the Red Chris mine and US$3.07 per pound for the Mount Polley mine, for a composite total of US$2.76 per pound.
At the Red Chris mine, the cash cost per pound of copper produced increased from US$1.74 per pound in quarter one 2018 to US$2.70 per pound in 2019, primarily due to the lower copper volumes produced and lower gold byproduct revenue in 2019 compared to 2018. The increase in the cash cost per pound of copper produced at the Mount Polley mine to US$3.07 per pound in 2019 from US$1.39 per pound in 2018 was primarily the result of lower quantities of copper produced and lower gold byproduct revenues.
At March 31, 2019, the company had cash of CAD 6 million on and a working capital deficiency of CAD 727.8 million, excluding assets and liabilities held for sale of CAD 984.9 million. The working capital deficiency is primarily due to a debt of CAD 739.5 million related to the senior credit facility, the second-lien credit facility, the senior unsecured notes, the junior credit facility and a bridge loan, all of which mature in September 2019. These loans were extended in March 2019 to September 2019 to allow the company to complete the transaction with Newcrest for the sale of a 70% interest in the Red Chris assets for US$806.5 million in cash.
The latest accounting guidance is that Imperial will record its 30% interest in the Red Chris joint venture with Newcrest on the equity basis of accounting. This would be the same method as Imperial accounted for Huckleberry prior to the acquisition in 2017 of the remaining 80 – sorry, 50% of Huckleberry that Imperial did not own.
Those are my comments, Brian. So, back to you.
Okay. Thank you, Andre. So we'll proceed to the question period.
[Operator Instructions] Your first question comes from Craig Hutchison with TD Bank.
Good morning or good afternoon. Could you guys give us some guidance on what grades are going to look like for the balance of this year at Red Chris?
Okay. They’ll be better than the first quarter. This recently, probably a week ago we got down to the 1,400 meter bench in the Main zone pit and that's the same area where in – we were in late 2017, where we went – I think with four months in a row with greater than 80% copper recovery. So we're expecting better grades in the –we're just getting into those grades right now and we expect those to get better and recovery get better as we proceed through the year.
Okay. So think about more or like closer to 80% grades and…
80% – we’re closer to 80% recovery and better grades.
More or like 0.4 instead of the 0.34 that we’re at.
Do you think there is room to bring down your unit costs, your cost tonne mills here at this point?
Yes. We need to –we are actually running I think at over 90% like last year they were 88% or 89% operating time, so far this year we're up to 90%. And so if we can get – keep above 90% operating time, for the rest of the year we shouldn't have that impact of the freezing water. I expect our unit cost both in the mill to go down and we have been doing better in the mine. We have what we call a helper track there. So Caterpillar and Finning are renting us an extra 793 while we go through these frame repairs. And we've been doing better than budget on moving rock. And so I think unit costs in both mining and milling got a chance to going down, yes.
Okay. And how about capital spending? Should we expect similar levels sort of balances here as we didn’t see in Q1 or we’re going to see higher levels just given the – you tend to have higher expenditures in the summer months related to the tailings dam?
Yes. Follow that same pattern it’ll be a little bit – it'll be higher in the summer months while we build tailings dam. We're looking to do as much of that as we can with our own equipment. As I mentioned that we're getting above what we want to do in the mine, so we're planning and moving some of our gear down below to do the bulk of the work at the tailings dam.
Okay. That's it for me guys. Thank you.
Okay. Thanks, Craig.
[Operator Instructions] And we do not have any telephone questions at this time. I'll turn the call over back to the presenters.
Okay. Thanks everyone for presenting – for being here. So thanks so much, and we’ll sign off. Thank you.
This concludes today's conference call. You may now disconnect.