Iberian Weathers Tough Quarter

An onerous hedge book was mainly to blame for Iberian Minerals’ (IZN-V) wide swing from profitability to loss in the third quarter, but it wasn’t the only alarming news.

The company reported a net loss of $75.2 million or 22¢ per share — a long way off from the $173.3 million in net income it reported for the same period last year.

But while such a swing to the wrong side of the ledger could be a death blow to other companies, Iberian is still well positioned going forward with two significant copper mines already in production — and one of them in the midst of a production ramp-up.

Importantly, its losses for the quarter were not the result of poor economics at those mines, but rather the accounting practice of mark-to-market.

Iberian has a large hedge book and with copper and zinc prices being higher than anticipated for the quarter, it had to record an unrealized loss of $82.57 million.

The loss, however, was partially offset by a gross margin of $5.3 million at its Condestable mine in Peru, a future tax recovery of $4.11 million and a foreign exchange gain of $6.72 million.

But losses thanks to its hedge book — Iberian hedged much of its production to its largest shareholder Trafigura Group in exchange for financing — weren’t the only point of disappointment for the quarter.

Iberian also announced that its cash shortfall at its Aguas Tenidas mine in Spain (MATSA) was larger than anticipated.

The company had reported that it was expecting cash shortfalls to be in the US$20-30 million range, and arranged a bridge loan from Trafigura for $21 million to see it through.

Now, however, the company says the shortfall is in the US$40-45 million range.

The shortfall is due to a myriad of factors, including the acquisition of the underground contractor at the project, the company’s wait for a government grant and delays in production that came from the temporary shutdown of the polymetallic circuit due to metallurgical issues.

All of those factors unfolded while the company was spending capital on a ramp-up at the mine that is planned to more than double production to 2.2 million tonnes from its current level of 900,000 tonnes. The capital cost estimate for the expansion is slated at between US$13 million and US$15 million.

To meet the shortfall, the company announced on Nov. 30 that it had signed a mandate letter with BNP Paribas, Natixis and Socit Gnrale for a revolving credit facility of US$50 million. While details of the loan were not released, the company said it would involve further hedging on MATSA’s production.

Iberian said the facility would be completed by the end of January.

Thankfully for Iberian, the technical issues at MATSA were not mirrored across the ocean at its Condestable mine in Peru.

Revenues at Condestable came in at $29.3 million, from 6,051 tonnes of copper (in concentrate), 4,386 oz. gold and 61,000 oz. silver.

Such copper production came from an average head grade of 1.21% copper and a recovery rate of 91%. And operating costs, thanks in part to silver and gold credits, came in at a very low US95¢ per lb. copper.

Iberian says it expects to produce copper concentrates with gold and silver at similar levels for the balance of 2009 and 2010.

Over at MATSA, 14,480 tonnes of copper concentrate and 6,207 tonnes of zinc concentrate were produced for revenues of US$27.9 million.

MATSA — which went into commercial production this October — now has both its copper and polymetallic circuits running after one of the circuits had to be shut down over the summer for upgrades.

Iberian says processing results continue to improve.

Currently, the polymetallic circuit is producing a bulk concentrate but by the first quarter of next year, the company plans to have the copper and the lead separated out. It still needs government approval for the additional reagents the revamped system will require, however.

If it can’t get those approvals, Iberian says it will continue to produce a bulk copper and lead concentrate.

At presstime, Iberian shares traded at 48¢ apiece in a 52-week range of 25-62¢.