Mining operations keep Inmet profitable

Buoyed by operating earnings from all three of its mines, Inmet Mining (IMN-T) closed the year with a net profit of $18.9 million (44 per share) on revenue of $106.8 million.

The figure was a substantial improvement on the company’s 2000 performance, when it made $8.4 million on revenue of $103.9 million. Part of the improvement came from a $15-million balance sheet adjustment in the provision for reclamation costs at old operations. About $41.4 million remains on the books as a reclamation liability, including accumulating amounts for closure of the Cayeli copper-zinc mine in eastern Turkey and the Troilus gold mine in north-central Quebec.

Operating performance was healthy at both Cayeli and Troilus, and the Ok Tedi mine, in which Inmet holds a minority interest, was also profitable over the year.

At Cayeli, zinc and copper production were both slightly lower for the year, the product of lower mill throughput and diminished copper grades. Cayeli turned out 33,000 tonnes copper and 25,300 tonnes zinc over the course of 2001, though a strike had kept the mine out of production until mid-March. At current production rates, Cayeli will mill more than 1 million tonnes of ore in 2002. Production costs at Cayeli rose to US$1,170 per tonne of copper, up from US$970 in 2000.

Inmet, which owns 49% of Cayeli, is closing the purchase of a further 6%, while it awaits the results of privatization initiatives by the Turkish government. Significant capital expenditures are planned for the project in 2002, including the completion of a US$5-million slurry pipeline to handle mill tailings, a US$2-to-3-million crusher circuit in the mill, and about US$5 million in underground development and sustaining spending.

In 2001, Troilus mined significantly higher gold grades than in 2000, bringing year-end production up to 162,600 oz. from 122,500 oz. Mill throughput was also greater, averaging 15,000 tonnes daily over the year.

Mining the higher-grade benches at the Troilus pit brought the year’s average cash production cost down to US$232 per oz. from US$263 in 2001. With stripping of the new J4 pit under way, capital expenditures at Troilus are being forecast to decline over the rest of the mine’s life.

Barrick Gold (ABX-T) announced it would appeal an $88-million judgment awarded to Inmet against Barrick subsidiary Homestake Mining over the cancelled purchase of the Troilus mine.

The judgment, handed down in January 2001 by the British Columbia Supreme Court, found that Homestake was in breach of contract when it refused to close its purchase of the mine from Inmet. The judge awarded the sum in lieu of ordering Homestake to complete the sale.

Homestake had argued in court that the database Inmet had provided was inadequate for assessing the resource at the gold deposit. The court found that Homestake had not relied on missing or inadequate information when it offered to buy the mine.

The case will be heard by the province’s Court of Appeal, though no date has been set for the hearing. Jo-Anne Sayers, Inmet’s chief financial officer, says the Troilus litigation had cost the company $3.1 million, and the judgment, if it is received, would be offset by available tax losses. Inmet has yet to put the amount of the judgment into revenue.

Inmet’s partner, BHP Billiton (BHP-N), has closed the transfer of its 52% interest in the Ok Tedi copper mine in Papua New Guinea to a new company, PNG Sustainable Development Program, allowing the Australian major to exit the project.

Ok Tedi Mines, the operating company, will now be owned 52% by PNG Sustainable, 18% by Inmet and 30% by the Papua New Guinean government. The new ownership structure was arranged in tandem with new environmental-protection and mine closure agreements for Ok Tedi, which has faced problems with tailings disposal in the Ok Tedi and Fly Rivers. Under the new closure plan, dredging of the rivers, previously done on a test basis, will become a permanent measure for the life of the mine. A US$150-million reclamation fund is to be built up over the remaining mine life.

A series of mine continuation agreements were reached with local landowners, providing for a compensation fund that will spend about US$47 million, mainly in the form of development activities, over the life of the mine.

Production at Ok Tedi during the final quarter of 2001 fell to 45,300 tonnes copper and 100,700 oz. gold, against 55,900 tonnes copper and 130,300 oz. gold in the corresponding quarter of 2000. Cracks in one of the plant’s two semi-autogenous grinding mills will force an early rebuild, which will not be finished until the last quarter of 2002. Inmet is expecting about US$6 million in dividends from Ok Tedi in the next quarter.