Imperial suspends operations

The beleaguered Mount Polley mine in central British Columbia will close its doors in late September because of continuing low copper and gold prices.

Imperial Metals (IPM-T) is suspending operations, pending an improvement in metal prices. The wholly owned mine directly employs 240 people.

Situated 56 km northeast of Williams Lake, the 18,000-tonne-per-day open-pit mine-and-mill facility was brought into production in the summer of 1997 at a capital cost of $115 million. The mine has since struggled in a low metal price environment, failing to turn a profit. Copper and gold prices on the London Metal Exchange averaged US82 per lb. and US$279 per oz., respectively, in 2000, a far cry from the long-term assumptions of US$1-per-lb. copper and US$380-per-oz. gold used by Imperial when the go-ahead was given in 1996. Metal prices have fallen further this year, averaging US79 per lb. copper and US$262 per oz. gold for the first three months.

Mount Polley produced 34.2 million lbs. copper and 83,194 oz. gold in 2000, compared with 37.1 million lbs. copper and 99,585 oz. gold in 1999. For 2000, the mine processed 6.9 million tonnes of ore grading 0.32% copper and 0.49 gram gold per tonne. Recovery rates averaged 70.4% for copper and 75.5% for gold. Imperial continued to segregate and stockpile lower-grade material deemed uneconomic at current metal prices.

For the first six months of 2001, Mount Polley produced 18 million lbs. copper and 44,548 oz. gold from the milling of 3.5 million tonnes grading 0.31% copper and 0.53 gram gold. Copper recovery was 74.5%; gold, 74.2%.

Probable reserves at April 30, 2001, stood at 30.2 million tonnes grading 0.36% copper and 0.37 gram gold at a waste-to-ore stripping ratio of 1.96-to-1. The reserves were calculated based on metal prices of US$1-per-lb. copper and US$300-per-oz. gold.

At the end of 2000, Imperial acquired former partner Sumitomo’s 47.5% interest in Mount Polley for $4.5 million cash, increasing Imperial’s stake to 100%. The deal involved restructuring Mount Polley’s outstanding term debt, which was converted to a $7-million non-recourse and non-interest-bearing loan, repayable over a period of up to 10 years at a maximum rate of 10 payments of $116,667 per year. The terms were conditional on the mine’s continuing to operate.

Imperial recorded a net loss of $2.9 million (or 4 per share) on $30.8 million in revenue for the second quarter of 2001. Cash flow was $1.2 million (2 per share). For the first six months, the company lost $4.5 million (6 per share) on revenue of $66 million. Operations generated a cash flow of $6.1 million (8 per share) for the half-year period.

Imperial is also the operator and 50% owner of the Huckleberry open-pit copper-molybdenum mine, 123 km southwest of Houston in west-central British Columbia. The Japan Group, a consortium comprising Mitsubishi Materials, Dowa Mining, Furukawa and Marubeni, owns the remaining 50%.

Last year, Huckleberry produced 73.8 million lbs. copper, against 81.7 million lbs. in 1999. Despite a 3% increase in mill throughput over 1999, the average grade of copper mined fell to 0.5% in 2000 from 0.59% in 1999. A $3.4-million grinding improvement project was completed by the middle of 2000, taking mill throughput above 20,000 tonnes per day.

Molybdenum grades were also lower in 2000, but substantially improved recoveries pushed production to 1.3 million lbs., compared with 977,000 lbs. in 1999. Recovery went from 38% to 63.7%.

For the first six months of 2001, Huckleberry produced 39.2 million lbs. copper and 1.1 million lbs. molybdenum from the processing of 3.7 million tonnes of ore grading 0.52% copper and 0.017% molybdenum. Recoveries averaged 94% for copper and 76.1% for moly.

Probable reserves include 10.3 million tonnes grading 0.52% copper and 0.014% molybdenum at a stripping ratio of 0.34-to-1 in the Main zone, and 46.2 million tonnes grading 0.49% copper and 0.014% moly at 0.73-to-1 for the East zone. Copper prices of US70 per lb. were used for the Main zone, whereas US$1 per lb. was used for the East zone.

All millfeed to date has come from the Main zone, which is scheduled to be completed in the first quarter of 2002. Advanced stripping of the East zone pit is to begin near the end of this year.

A financial restructuring package, agreed upon in 1999 by Imperial and the Japan Group, continues to shield Huckleberry from payment of principle and interest on its loans to the Japan Group. These loans are non-recourse to Imperial. All amounts deferred will be repayable on Jan. 1, 2002.

In its annual report, Imperial says that as Huckleberry is unlikely to be able to generate sufficient free cash flow to make this payment, the lenders may choose to exercise their security or make a new loan-restructuring arrangement. This could result in Imperial’s forfeiting, reducing or changing its interest in the Huckleberry mine.