Cayeli, Troilus land Inmet in black (May 06, 2002)

Higher production at the Cayeli copper-zinc mine in Turkey and the Troilus gold mine in northern Quebec helped offset lower metal prices and powered Inmet Mining (IMN-T) to improved results during the three months ended March 31.

The recent quarter’s net income came to $1.4 million (or a penny per fully diluted share), compared with the year-ago period’s net loss of $2.8 million (a dime per share). Cash flow from operations was $22.8 million, an $18.3-million turnaround from the $4.5 million consumed during the corresponding period of 2001. The improved cash flow is attributed to improved earnings from Cayeli and Troilus. Also, Troilus reduced its average receivables from four months of sales to two, boosting cash flow by about $8 million.

At Cayeli, zinc and copper production were both significantly higher with improved mill throughput and grades. Cayeli churned out 9,700 tonnes copper and 9,600 tonnes zinc, well above year-ago level. Production during the first quarter of 2001 was stymied by a strike that lasted until mid-March. Cash costs at Cayeli rang in at US$1,036 per tonne of copper.

In March, Inmet boosted its stake in Cayeli to 55% by adding another 6% for $11 million.

Work to replace the tailings pipeline at Cayeli is on schedule for completion this summer. The program comes with an estimated price tag of US$4.5 million. Inmet is also in the process of awarding an engineering contract for the deepening of Cayeli’s shaft, which is slated to begin in 2003. The deepening, to be completed by mid-2004, will provide access to resources at depth.

The Troilus mine pumped out 43,300 oz. gold during the recent quarter, up from 35,000 oz. a year earlier, thanks to slightly higher gold grades. Mill throughput also edged higher. Similarly, cash costs improved, falling US$30 per oz. to US$215 per oz. on higher production volume. Better-than-expected copper byproduct credits also helped improve costs.

In February, Barrick Gold (ABX-T) announced it would appeal an $88.2-million judgment awarded to Inmet against its subsidiary, Homestake Mining, over the cancelled purchase of the Troilus mine.

For their part, Inmet has requested that the Court reopen the trial to allow it to make a claim for prejudgment interest from the date of Homestake’s breach of contract. A decision is pending.

Increased copper recovery and gold grades helped offset the effects of an 18-day maintenance shutdown of one of Ok Tedi’s two semi-autogenous grinding mills. The mill shell will be replaced in the fall of 2002.

During the quarter, OK Tedi, in Papua New Guinea, still managed to produce 54,000 tonnes copper and 119,000 oz. gold, both just slightly ahead of last year’s 53,400 tonnes and 118,500 oz., respectively. Cash costs fell to US$1,433 per tonne.

In March, Inmet received a $2.6-million dividend from Ok Tedi. It expects a similar dividend in the second quarter.

That same month, Inmet acquired the Pyhasalmi copper and zinc mine in Finland from Outokumpu for $92 million. Pyhasalmi turned out 3,200 tonnes of copper and 8,200 tonnes of zinc at US$551 per tonne copper.

On the exploration front, seven of eleven angled holes collared on the Jaguar discovery on the Teutonic Bore project in Western Australia, have returned high zinc-copper-silver grades.

Running over core lengths from 0.3 to 12 metres, copper grades run between 1.9 and 5.7%, zinc between 9.3 and 17%, and silver content between 93 and 173 grams per tonne.

So far, Inmet has outlined a strike length of more than 200 metres at Jaguar. Drilling to determine the extent of the massive sulphide zone continues.

A single hole, aimed at a geophysical anomaly 10 km to the south, failed to cut any significant mineralization.

Inmet can earn a 70% interest in the property from Australian-listed Pilbara Mines by spending A$3.5 million on base metal exploration before the end of 2004. The agreement excludes all surface resources in and around the old mine site, including tailings and stockpiles. BP Minerals ran an open-pit and underground operation at Teutonic Bore between 1980 and 1985.

Looking in the hedge book, Inmet has about 45% of Troilus’ remaining 2002 forecast production hedged at an average of US$319 per ounce. None of the company’s base metal production has been hedged.

In corporate developments, Oyvind Hushovd, former president and CEO of Falconbridge (FL-T), has been added to Inmet’s board.

At the end of March, Inmet had $62 million in cash and short-term investments. The company’s net debt was running $80.6 million.