Imperial Metals Corp
TSX:III
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Imperial Metals Corp
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Ladies and gentlemen, thank you for standing by. Welcome to the Imperial Metals Corporation First Quarter Financial Results Conference Call. [Operator Instructions] Before we begin, let me remind you that certain statements during this conference call may constitute forward-looking information within the meaning of securities laws. For reference, please read the forward-looking statement included in the SEDAR filing, it applies to this conference call as well.I will now like to turn the call over to Brian Kynoch, President of Imperial Metals Corporation. Please go ahead, Mr. Kynoch.
Good morning and good afternoon, everyone, and I'd like to welcome you to the Imperial Metals conference call to review our first quarter 2018 results. I'll start with brief updates on our major projects and then we'll have Andre Deepwell, our CFO, go through the highlights of the financial statements. I'll start with Mount Polley and at Mount Polley during the first quarter, we milled 1.61 million tonnes, that's down slightly from 1.69 million tonnes in the first quarter of last year. The daily throughput for the first quarter was 17,917 tonnes per day compared to 19,635 in the 2017 fourth quarter and the decrease in the milling rate is due to a larger portion of harder but less oxidized ore from the lower benches of the Cariboo pit. And as result of milling a greater percentage of this less oxidized ore, the copper and gold recoveries were both up compared to the 2017 first quarter.Metal production for the quarter was 5.4 million pounds of copper, virtually the same as the 5.5 million produced in the first quarter of 2017 and this was largely due to an increase in the copper recovery rate, offsetting reduction in throughput and grade.Gold production was down 12,280 versus 13,800 in the first quarter of '17 on lower grades and throughput.So the mining from the bottom benches of the Cariboo pit is expected to continue until about the end of June and then after that time in our mine plan, we're going to be milling low grade stockpiles until the Springer pit is available for mining. And then to get ready for that milling of the low grade stockpiles, we completed a trial run of the high oxide material in early part of April and obtained metallurgical results that are in line with our expectations for this highly oxidized material.The dredging of the tailings from the Springer pit began in the first quarter, and we still expect to have the tailings removed from the Springer pit by about the end of 2018. One item of note at Mount Polley is our collective agreement with our unionized workforce at Mount Polley expired on the end of last year. And since that time, the company has been negotiating a new contract.On May 7, we served the Union with 72-hour lockout notice but we continue to hope that we can reach an agreement without any disruption to the operations. Move on to Red Chris. So metal production at Red Chris for the March 2018 quarter was 19.7 million pounds of copper and 12,215 ounces of gold, up substantially 21% and 110% from the 2017 comparable quarter on higher grades and higher throughput.Copper recoveries were lower for the March 2018 quarter than we got in the last quarter of 2017 as we found more high clay ore in mineralized fault in the lower benches of the Phase 3 pushback. Diagnostic and modeling work is underway to identify the expense of this zone and whether special processing of these high clay zones may yield better recovery. The gold recovery improved significantly, about 26% on higher gold grade.We moved the 5 haul trucks from the Huckleberry mine and they are now all in operation at Red Chris and there's a new electric shovel in transit expected to arrive on site around June and hopefully we'll have it operational in early July. This additional equipment will enable us to increase the mining rate and more quickly access the deeper higher grade ores.Mining in the Phase 3 pushback of the Main zone pit was completed right around the end of March, and so feed for the remainder of the year will come from the Phase 4 pushback in the Main zone.A cycloned sand plant has been commissioned at Red Chris and has been operating for a couple of months with the sand being placed on the upstream side of the north dam. Now that the weather is warming up, we've begun a test of the method that we plan to use on the downstream side of the dam to build the buttress for the structure and this test -- initial results from this test show that we've been successful in meeting the required specifications for the sand.With those brief summaries, now I'll pass it onto Andre and he'll go through the financials and then we'll have a question period after he is finished. Andre?
Thank you, Brian. Revenues in the March 2018 quarter were $117.9 million versus $115.7 million in the comparative 2017 quarter. The increase was a result of higher shipment volumes and copper prices in 2017. Red Chris had 4 concentrate shipments in 2018 versus 3 in 2017. Mount Polley had 1 concentrate shipment in the March 2018 quarter compared to about 1.7 shipments in the 2017 quarter. In the March 2018 quarter, imperial recorded a net loss of $16.2 million, a slight decrease from the net loss of $18.8 million in the 2017 quarter. The decrease in net loss was due to significantly higher income from mine operations partially offset by higher unrealized foreign exchange losses on debt. In a March 2018 quarter, income from mine operations was $17.6 million compared to a loss of $5.7 million in the comparative 2017 quarter.Revenue in the March 2018 quarter was decreased by a $5.6 million negative revenue revaluation compared to a positive revenue revaluation of $5.1 million in the 2017 quarter. The company has no derivative instruments for copper, gold or foreign exchange at March 31 or to date.Imperial's capital expenditures were $9.1 million in the March 2018 quarter, down from $24 million in the comparative 2017 quarter. Capital expenditures in the March 2018 quarter included $1.8 million for tailings dam construction and $5 million for mobile equipment. Expenditures on a number of capital projects budgeted for the first quarter of 2018 have been delayed to the second and third quarters, with the primary one being the new shovel for the Red Chris mine.The company reports 4 non-IFRS measures: Adjusted net income, adjusted EBITDA, cash flow and cost per pound of copper produced. The adjusted net income loss removes nonrecurring and unrealized items from the reported net income or loss. The adjusted net loss in the March 2018 quarter was $4.8 million compared to an adjusted net loss of $22.3 million in the comparative 2017 quarter.Adjusted EBITDA was $36.4 million in the March 2018 quarter compared to $15.2 million in the comparative 2017 quarter.Cash flow was $36 million in the March 2018 quarter compared to cash flow of $15.1 million in the 2017 comparative quarter.The cash cost per pound of copper produced is calculated for the company's 2 operating mines. For the March 2018 quarter, these were USD 1.74 per pound for the Red Chris mine and USD 1.39 per pound for the Mount Polley mine, for a composite total of USD 1.66 per pound.At the Red Chris mine, the cash cost per pound of copper produced increased from the USD 1.53 per pound in December of 2017 quarter due to decreased copper production volumes, lower by-product revenue from lower gold production and partially offset by a lower U.S. dollar exchange rate. The large decline in the cash cost per pound of copper produced at the Mount Polley mine from the USD 4.74 per pound in the December 2017 quarter was primarily the result of significantly higher quantities of copper produced along with higher gold by-product revenues, partially offset by a lower Canadian U.S. dollar exchange rate.At March 31, 2018, the company had cash of $6.5 million, available capacity of $36 million for future drawouts under the senior secured revolving credit facility and $10 million of undrawn on the 2017 LOC loan facility.The company has a working capital deficiency of $74.3 million (sic) [ $743,096,000 ] at March 31, 2018. The working capital deficiency is primarily due to debt of $696.6 million related to the senior credit facility and second lien credit facility, which mature in the fourth quarter of 2018 and the senior unsecured notes, which mature in March 2019.During 2018, payment of interest for certain debt facilities is being paid in common shares of the company until December 31, 2018, resulting in cash savings of approximately $16 million per annum.Those are my comments. Turning it back over to you, Brian.
Okay. And we're ready to answer some questions if we have some.
[Operator Instructions] Your first question is from Brett Levy with Seelaus & Company.
It seems like you made a lot of progress on the adjusted EBITDA front and I want to get a sense as to whether or not that is going to be a continuing dynamic. I know that you guys don't typically give guidance, but can you talk directionally about what 2Q and 3Q demand and thoughts are as you -- I mean we're most of the way into the next quarter anyway. Just tell us a little bit about kind of the upward or downward dynamic.
Sure. I'll talk about it from the production and where we are in the pit at Red Chris, which is probably the biggest factor on how much copper we're going to produce in the quarter. So in this year, the best quarters will be -- likely be the first and the fourth. In the middle of the year, as I said in my notes, we just finished the bottom of a Phase 3 pushback. So in the first quarter of the year, a lot of the material was coming from lower benches in the Main zone. At very near the end of the quarter, that part was finished, and we moved back up. And so all of the ore for the next 2 quarters is going to come from higher benches as we work our way down and will be lower grade than the average for the year. By the time we get to the fourth quarter, we should be back down fairly deep into the deposit and the grade should be picking up. So that's kind of the way it will go. At Mount Polley, once June is over, our copper production is going to go down, but our costs are going to go down, operating cost are going to go down quite a bit. We're going to rely on -- we're not going to be mining, we're not going to be drilling or blasting, we're going to haul material from a stockpile. And probably in the back half of the year, the majority of the revenue at Mount Polley will actually come from gold, because the gold recovery is not as impacted by the level of oxidization as the copper is. So we'll make less copper in the back half of the year from Mount Polley, probably a similar amount of gold and our cost will be -- our operating costs should be drastically lower in the mine. So I think that gives you some idea of the direction.
All right. And then in terms of like the Red Chris clay issue and all that other good stuff, at some point, you get to the good copper.
Yes certainly, at depth--somewhere down there, there should be -- now, that is one thing I would say we were a bit surprised about is there's actually a fault that is quite a bit wider than it was higher up. Near the bottom of the Phase 3 pit. I'd say that surprised us a bit that the -- the part of the bottom bench was oxidized material. And so that's why I'd say we're doing a fair amount of work trying to identify exactly, which clay -- whether it's which clays or how much clay it causes trouble in the mill and we've been doing some -- the geologists are out there and we're going to try to map out that fault so we can know in the future when we're going to hit that or if we're going to hit that at depth.
And last question because I think I've gotten beyond my 2 now at this point. At what point do you think you'd figure this out? It's like Red Chris is the future of the company and when it really starts to work, everything else really starts to work. And the big bondholder will put all the money in and the big stockholder will put all their money in. They're going to be rewarded for this. But I think from a standpoint of everybody else, they need to know when is this going to work.
Right. Well, it's what I would say to you is you got to remember, this is a huge ore body and we're still -- I know it's kind of like we say, "Well, it's oxidized at the top," but we really are still like at the -- the ore body is more than a kilometer in depth and we're down about 100 meters. So like we're kind of 10% into the ore body and virtually all of our ore data is coming within the first hundred meters, there's 900 meters more of it below, and we do know that as you get deeper, there's less and less problem and not in this mine plant we have now, but in the very -- in that deep ore that we found below where we're planning to mine now, I mean, some of that basically have arguably near perfect metallurgy where we're going to get in the 90s on both copper and gold. So at any rate, I guess, I'd say "I don't know exactly when that tipping point will come," but we're still near the top of the ore body and there's a lot more ahead of us.
Your next question comes from Nick Jarmoszuk with Stifel.
I wanted to -- I think I'm a little confused in terms of the Phase 3 ore versus Phase 4 ore. The ore that's going through the mill today, that's still from Phase 3, is that correct? But you finished mining in Phase 3 in March? Is that correct?
So the way I would describe it, there are a bunch of nested cones. And so Phase 3, imagine a cone going down to a certain depths at 45 degrees and you hit a bottom bench. Phase 3 is actually completed. So all of the ore from Phase 3 in the Main zone pit, we mined it all. So once you get down to the bottom, meanwhile, you're busy stripping the sides to come down to go back down to the bottom and that's what I'm saying, the Phase 3 cone was finished at about the end of March. And now all the ore is coming from -- back up on the shoulder of that pit as we've bring the Phase 4 down to the bottom. So right now, we have all the ore for the remainder of the year. We never get into -- all the ore for the remainder of the year comes from Phase 4 as it goes back down and gets -- it'll go to the bottom of where Phase 3 was then continue beyond that to depth.
Okay. And then, in 2Q, 3Q, the grades are going to be lower than in 4Q?
That's right, because we're back up at the top and we're headed down and the grades are better the deeper you get.
Can you talk about how the clay issue has progressed from say January, February, March to present? Are things looking -- is the clay issue becoming less of an issue? Are the milling and refining cost coming down? What the -- Directionally, how is the ore body trending?
I'd say we now have kind of a -- I think we're working on mapping it, but we pretty much know where in these faulted zones where we're going to hit the clay and we're trying to think that and put that in our model for the future to know when we’re going to hit it. And maybe we can segregate that ore and treat it differently. When we're out of the way from the clay zone, I don't know what to call it -- but like normal ore or regular not clay ore. We get pretty close to the feasibility of the levels recovery. We have had days where we've got the levels of recovery that we want, and so we'll be able to know when we're going to hit it and know where we're not going to hit it and maybe be able to react to it. But we still will -- there still are days where we get clay ore right now. And because we're going back to the top -- at the bottom, it's focused in the fault zones; when you're at the top, it kind of gets a little bit more spread out from the fault zones. So yes, we still have, at times, clay problems in the mill. And one of the things we're doing there is when it is really clay, we can do more tonnes through the mill. It's already fine. It can go through the mill faster. So we're going to try in the future when we hit those clay zones to mill it faster. We've tried quite a few things in the mill. And we haven't been able to have a magic reagent that offsets the clay at a reasonable cost. So maybe the best way is just push it through and live with the recovery. In that light, one of things that we're doing when the high clay ores are there, there are times when we -- and when we're looking at that, maybe we need to put one more cleaning cell in and we could get a little bit better recovery on the clay ores. If we can kind of move all that clay into the cleaning side and be able to handle it and separate the copper from the clays on the cleaning side of the circuit. But I'd say, yes, we're making progress. When we get good ore, I know that we don't have a chart here, but on the same ore from 2015 to 2016 to 2017 and now, the same material, we keep getting a little bit better at treating any individual ore. So the plant is doing a better job than it would have in 2015 on the same ores.
Okay. A couple of quarters ago, you guys mentioned you were going to potentially open up a data room for the block cave opportunity. Can you update us any progress there in terms of exploiting the deep ore resource?
There's not -- there's not really any progress on that front. We haven't done that. We're internally looking at maybe drilling 1 or 2 holes that -- by the end of this year, we're actually starting to strip Phase 5 and we'll be moving back over towards the East zone pit. And there's a couple of geotechnical holes in the East zone pit that should be drilled before we're over there mining. These are kilometer long holes and take more than a month to drill. So it's not really a good thing to be doing in the middle of an active pit. So there are a couple of holes over there we would like to drill in, and they're important to assessing the value of the Deep East zone. So we'd like to get those done before we do any more work on the block cave.
Okay. And then, the last question regarding 2018 CapEx. Can you give us an indication as to what the gross figure could be on the mix between growth and sustainings?
Andre, I'll let you...
Okay. So the total for the year is around $9 million and we've incurred about $9 million to date in the first quarter. There's the excavator that Brian talked about. That's about $15 million and then the other large item there is the dredging of the Mount Polley Springer pit, that's about $15 million as well. So that covers roughly 1/3 of it. Most of these items are kind of sustaining CapEx and that's kind of the profile for the year.
Your next question comes from [ Ron Fishner ] with [ Fishner Holdings.]
It's nice to see some progress occurring. It's just at a macro level, I guess the question becomes one of, with throughput, essentially, at design capacity and recovery rates sort of near target percentages and copper and gold prices well up over the past quarters. The company continues to report losses and I'm just wondering what the plans are to achieve positive earnings and when you might expect that to occur. And then a follow-up question, just sort of related probably to that is, do you have a line of sight with respect to resolving the excessive corporate debt load and if so, what are the plans and expected timing regarding that?
With respect to when we will be -- when the mine turns from being a loss to a profit, as I -- I think I alluded to earlier, we're still very high up in deposits. The best part of the Main zone is still below us and, by far, the best part of the East zone is still way below us. So we're up in the top where the grades aren't that good and we're -- that's part of the reason for bringing those extra trucks and extra shovel in is so that we can dig our way down to the good ore sooner rather than later. I don't know if you -- I can't remember, Andre, but -- like the best period of the mine is like 2024 to 2030. When we're down on the lower benches, we'll have cleaner, higher grade ore and more ore from the East zone. So we have to work our way through the top to get to the bottom where the -- and I don't even mean the Deep East zone where the block caves at, that's even better ore, but even in the existing pits, the best is always -- it's still a fair ways ahead of us in both the East zone and the Main zone.
And maybe you can talk about the refinancing of debt?
So in terms of the debt, we obviously really couldn't do anything with it prior to getting these quarterly financial statements out for the first quarter and now we've got some time to address that. We have been in discussions with our major shareholders in terms of trying to determine what the way forward is with addressing the debt and the maturities and how we're going to deal with that. So that's kind of the next major project here in the next little bit.
I look forward to seeing -- to following what the outcomes will be.
[Operator Instructions] Our next question is from Howard Goldberg with Janney Montgomery.
I guess, just as a follow-on from the last question. Can you help me with what gave rise to your decision to pay down some of the bank debt that was outstanding, $31 million? And what was the thought process or what prodded you to move in that direction?
We did a rights offering in late 2017, basically in the last week of the year and raised $43 million. And so it is a revolving credit facility, the senior credit facility. So in order to basically save interest, we paid down the 30-some -- we actually paid down more than that, $40-some million dollars. And then we just borrow it back as we need it. We don't really need the cash on the balance sheet if we've got the available credit facility and it reduces our overall interest cost.
Okay. So you've got the cushion then of that borrowing capacity available to you. I'm sure you're better aware than anybody you've got an October 1 maturity of your bank facility and several issues behind that. I wonder if you see -- if you have any concerns about your ability to make that deadline. Do you see that deadline as flexible? Or is it a line in the sand, so to speak? Or is it a wall that you are facing on October 1?
I would say this that both the senior credit facility and the high yield notes and the junior credit facility we're all put in place at once back in 2014, March of 2014, and they were put together as a package. And I think we probably need to address -- well, we do need to address all 3 of them as 1 package again. So it's with that in mind that we've got to focus on the high yield notes almost in some ways as a bit of a priority to the senior credit facility because the banks would like to see that sorted out in terms of when -- what we're going to do with that before they will think about extending the senior credit facility, which we have extended a number of times in the past 5 years.
Sure. All right. So then if I could just hone in on that because you do have, from October 1 to March 15 on the high-yield bond, so that's roughly, let's call it 5 months. Is that not a time frame, which you could work with the banks to once again push back maturities? Or do you think you need to take the high-yield debt out before the banks all push back maturities again?
I would say we probably need to address the high-yield notes first or as part of the package, let's say, because that's obviously the priority. The one thing to note on the high-yield notes is that a big chunk of them, some 60% or so are owned by our 2 major shareholders and, hence, we need to have those discussions, which we started with them to address that.
There are no further questions at this time. I will turn the call back over to the presenters.
Okay. Well, that concludes our presentation, and thank you so much for participating.
This concludes today's conference call. You may now disconnect.