Imperial Metals rises on solid Q3

VANCOUVER — Three months of business as usual meant $14.7 million in net income for Imperial Metals (TSX: III; US-OTC: IMPLF). And investors showed their appreciation, boosting the company’s share price by more than 6%.

Imperial shares added 91¢ after the third-quarter results were released to close at $14.31. In August Imperial’s share price had sunk as low as $10.15, which means a 41% gain in just over three months. But the company has not been active in these months, announcing neither acquisitions nor discoveries. Instead, Imperial has just worked to improve its three operating mines and finish building its fourth.

“It was a good, solid quarter,” Steve Robertson, vice-president of corporate affairs, said in an interview. “Our grades were up, our recoveries were better than they had been in the comparable quarter last year and we had good throughput, and all this going on at the same time that we’re making good progress up at Red Chris. There’s maybe a bit of that reflected in the excitement.”

Red Chris is the mine under construction — an open-pit, copper-gold operation in northwest B.C. set to be commissioned in May.

Imperial’s operating mines are Mount Polley, an open-pit copper-gold mine in south-central B.C.; Huckleberry, an open-pit copper-molybdenum mine a few hundred kilometres northwest that is a fifty-fifty joint venture with a consortium of Japanese companies; and Sterling, an underground and heap-leach gold operation in Nevada.

At Mount Polley the mine processed 2.1 million tonnes in the quarter, or 22,885 tonnes per day. On average the ore carried 0.311% copper and 0.275 gram gold per tonne, enabling production of 11 million lb. copper, 13,231 oz. gold and 33,253 oz. silver. Copper production was up 28% compared to the third quarter of 2012 because of higher grades and better recoveries, which more than offset the slightly lower throughput.

Huckleberry churned through 1.4 million tonnes in the quarter to produce 10.5 million lb. copper, 701 oz. gold and 61,323 oz. silver. As at Mount Polley, Huckleberry benefitted from higher grades and improved recoveries compared to a year ago. In Nevada, stoping operations on three levels put 63,000 tonnes containing 5,362 oz. gold onto the leach pad. 

Those operations generated $51.7 million in revenues in the third quarter, compared with $29.7 million in the third quarter of 2012. A second shipment of product made the difference: in Q3 last year Imperial only made one shipment. Those revenues translated into a net income of $14.7 million, up from $4.3 million in the 2012 quarter.

However, capital spending was also much increased, totalling $137.9 million, compared with $46.3 million last year. Much of that spending was directed at Red Chris, where engineering work is almost complete and the build three-quarters done. In the third quarter the site saw foundations poured for the transformer substation, the primary crusher and the overland conveyer towers; erection of structural steel, cladding and roofing in the process building; installation of much of the flotation system; and completion of the North Starter dam to its initial height requirement.

“It’s just unbelievable the amount of work we got completed there in the last quarter,” Robertson said. “When you look back, it seems like you’re in a headwind every day because of all the little problems that come up in the day-to-day life of building a mine, but when you look back over the 18 months since we started construction, it’s tremendous the amount of work that’s been done.”

Imperial funded construction costs at Red Chris mostly from cash flow for the first half of the two-year build. In June the company gave itself some breathing room, signing a $75-million line of credit with Edco Capital, a company controlled by Murray Edwards. Edwards is Imperial’s largest shareholder, holding 38% of the company’s outstanding count, and is a self-made billionaire who often gets quite involved with his investments.

Such is apparent in his relationship with Imperial. Edwards has loaned the company money several times to support mine builds, and since inking the latest Red Chris line of credit in June he has twice boosted the maximum amount available, which now sits at $200 million.

That should carry Imperial through the remaining work at Red Chris, where costs are expected to come in at $500 million. But Imperial also agreed to fund and build the Iskut extension.

The B.C. government’s Northwest Transmission Line, currently under construction, is bringing power to northwest B.C. The Iskut extension will stretch the grid another 93 km and connect Red Chris to the provincial grid. Once it is built, Imperial will sell the extension to B.C. Hydro for $52 million.

Imperial directed some of its capital spending to Huckleberry, which until a year ago was scheduled to run out of ore and close down this year. In 2011 Imperial embraced the search for additional ore and met with success, defining a low-grade resource adjacent to the Main zone pit. Some of the resource came from a stockpile of rock that had been classified as waste in earlier operations.

That waste-rock stockpile actually sat atop the new in-ground resource, as did the mine’s initial tailings facility. To expand the pit and access the new reserves, which total 49.9 million measured and indicated tonnes grading 0.334% copper and 0.009% molybdenum, Imperial is moving the tailings and non-mineralized waste rock. Even so, the strip ratio going forward averages 0.9 tonne of waste for each tonne of ore.

“We’ve commissioned the new tailings facility, which we call the TSF3, and we’re moving the old waste rock and tailings — we call them legacy waste and tailings — into the new facility as well as continuing to operate the mine,” Robertson said. “It’s really coming along nicely. We’ve kind of got that one over the hump — the major build is complete, so now it’s a matter of operating the mine for another few years.”

Imperial is set to produce 58.5 million lb. copper, 54,600 oz. gold and 195,000 oz. silver in 2013. It has 74 million shares outstanding.