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Edited Transcript of III.TO earnings conference call or presentation 1-Apr-19 3:00pm GMT

Full Year 2018 Imperial Metals Corp Earnings Call

VANCOUVER Apr 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Imperial Metals Corp earnings conference call or presentation Monday, April 1, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andre Henry Deepwell

Imperial Metals Corporation - CFO & Corporate Secretary

* J. Brian Kynoch

Imperial Metals Corporation - President & Director

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Conference Call Participants

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* Craig Hutchison

TD Securities Equity Research - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to the Imperial Metals Corporation 2018 Financial Results Conference Call. (Operator Instructions)

We wish to advise that certain statements during this conference call may constitute forward-looking information within the meanings of securities law. We direct you to Imperial's forward-looking statement as provided in the management's discussion and analysis of the 2018 annual report, which the company has filed on SEDAR. This document is also available on Imperial's website.

I would now turn the call over to Brian Kynoch, President, Imperial Metals. Please go ahead, Mr. Kynoch.

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J. Brian Kynoch, Imperial Metals Corporation - President & Director [2]

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Yes. Thank you, and welcome to our conference call. So this is our conference call to review our 2018 results, and I'll start with brief updates on Mount Polley and Red Chris, and then I'll have Andre Deepwell, our CFO, go through the highlights of the financial statements.

During 2018, Mount Polley mine treated 6.2 million tonnes of material through the mill, down from 6.7 million in 2017. Metal production was also down 14.9 million pounds of copper and 37,000 ounces of gold versus 19 million pounds of copper and 48,000 ounces of gold in 2017. The metal production was impacted by a labor dispute with our unionized staff and by lower grades and higher levels of oxide copper in the stockpiles that made up a large amount of our feed in 2018.

At Mount Polley, we've completed extensive rehabilitation work on the areas affected by the breach and successfully reintroduced trout into the upper section of Hazeltine Creek this year. All the excess site water is being treated and discharged via waterline from the water treatment plant to diffusers deep in Quesnel Lake.

During the suspension of mill operations, which we expect to happen around the end of May this year, we plan to complete the rehabilitation work that we've undertaken at Mount Polley. And we also plan to conduct an exploration program at Mount Polley during the suspension.

The mineralization that is underneath the Saddle Zone separating the Cariboo and Springer Phase 6 pits represents an ideal opportunity to find some additional low-stripping ratio reserves for when we start up. And that would be a primary target of an exploration program.

At Red Chris, metal production was 60.3 million pounds of copper and 41,900 ounces of gold in 2018 compared to 2017's production of 74 million pounds of copper and about 33,000 ounces of gold. Copper was down on grade and recovery, while gold was up on the same factors, and that's basically where we were mining in the pit. The grades that came out of the pit were -- we were in an area of some higher-grade gold.

The faulted areas of the deposit with high clay content continue to impact recoveries, and we've done some work on that. And one of the things we're trying now and we did for the first time in January is we've set mines separately, all the high-clay ores in the pit, stockpiled that. And in January, we did our first run through the plant of high clay ore, I think it was for 5 days, which it was treated as a batch. And we had some success in recoveries treating that clay ore separately. So we plan to continue this plant-scale trials of separate treatment and see if we can get better copper recovery from the clay ores that way.

It's interesting to note that the gold recoveries are not seemingly as impacted by this high clay, and we often exceed our target gold recoveries even in these high-clay areas.

In 2018, the mill achieved an average throughput of 29,228 tonnes per calendar day, basically achieving our 30,000-ton-a-day design capacity. And that was up from 28,000 -- about 28,500 tonnes in 2017.

Work on the primary crusher circuit to increase its availability has had an effect, and we see that as not impacting the availability of the plant anymore. And now our focus will be on increasing the concentrator circuit to achieve the 93% availability. And if we can achieve a 93% availability in the plant, it will be exceeding its design throughput.

At Red Chris, our current areas of focus are reducing cost site-wide; increasing the operating time, as I just said, in the mill and the copper recovery in the mill; and getting ready to run a cycle in sand plant and switch from using excavated sand and gravel to build a buttress on the north dam and try to switch that over and begin to use sand this year.

Looking to the future, Red Chris, we are looking forward to working with Newcrest to develop a plan to mine the deep resource beneath the current open pits. And with their expertise in block caving and the knowledge and insight they've gained by mining Cadia this way, Cadia is a look-alike to Red Chris, we look forward to developing a very competitive underground mine to exploit the high grades in the deep East zone at Red Chris. We also look forward to further exploration of the site as we believe more exploration will extend the already large copper and gold resource at the site.

With those brief summaries, I'll have Andre go through the financials, and then we'll have a question period. Andre?

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Andre Henry Deepwell, Imperial Metals Corporation - CFO & Corporate Secretary [3]

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Thank you, Brian. Revenues in 2018 were $360.2 million versus $453.1 million in 2017. The decrease was the result of lower shipment volumes on marginally higher metal prices compared to 2017. Red Chris had 12 concentrate shipments in 2018 versus 15 shipments in 2017. Mount Polley had 3.0 concentrate shipments in 2018 compared to 4.7 shipments in 2017.

Revenues in 2018 were reduced by $19 million due to negative revenue revaluation as compared to an increase in revenues in 2017 by $15.2 million due to positive revenue revaluation. Revenue revaluations are the result of metal prices on the settlement and/or the current period balance sheet date being higher or lower than when the revenue was initially recorded or the metal prices at the last balance sheet date and the finalization of contained metals as the result of final assays.

In 2018, Imperial recorded a net loss of $125.6 million compared to a net income of $77.1 million in 2017. The change from the net income in 2017 to the net loss in 2018 was due to a number of factors: a $52.5 million reduction in income from mine operations; a $67.1 million increase in foreign exchange losses on debt; a $109 million noncash impairment of mineral properties at Mount Polley; a $106 million gain on settlement relating to the 2014 tailings dam breach at Mount Polley; and the absence of the 2017 $109 million bargain purchase of Huckleberry recorded in 2017 as well as $27.5 million in higher income tax recoveries. The 2018 loss from mine operations was $33 million compared to income of $19.5 million in 2017. The company has no derivative instruments for copper, gold or foreign exchange at December 31, 2018 or today.

Imperial's capital expenditures were $77 million in 2018, down from $92.9 million in 2017. Capital expenditures in 2018 included $33.7 million for mobile equipment and $28.8 million for tailings dam construction and $14.5 million for other capital. The addition of a new $50 million shovel for the Red Chris mine was financed by long-term debt.

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 reported net income/loss. The adjusted net loss in 2018 was $84.8 million compared to an adjusted net loss of $62.6 million in 2017. Adjusted EBITDA was $33.3 million in 2018 compared to $88.5 million in 2017. Cash flow was $143.4 million in 2018 compared to cash flow of $88.4 million in 2017. The cash cost per pound of copper produced is calculated for the company's 2 operating mines. For 2018, these were USD 2.34 per pound for the Red Chris mine and USD 1.94 per pound for the Mount Polley mine, for a composite total of USD 2.36 per pound.

At the Red Chris mine, the cash cost per pound of copper produced increased from USD 1.93 per pound in 2017 to USD 2.34 per pound in 2018 primarily due to the lower copper volumes produced in 2018 compared to 2017. The decrease in the cash cost per pound of copper produced at the Mount Polley mine to USD 1.94 per pound in 2018 from USD 2.32 per pound in 2017 was primarily the result of lower quantities of copper produced and lower gold by-product revenues.

In the fourth quarter of 2018, the company recorded a net loss of $44.3 million compared to a net loss of $2.1 million in the fourth quarter of 2017. In the fourth quarter of 2018, the company received cash of $106.2 million for the settlement related to the 2014 tailings dam breach at Mount Polley.

The company also took a $109.2 million noncash impairment charge on the Mount Polley assets due to a decrease in the commercial viability of the mine. The 2017 quarter -- fourth quarter included $35 million of net income related to the finalization of the gain on the bargain purchase of Huckleberry and the revaluation of equity investment at Huckleberry.

At December 31, 2018, the company had cash of $18.6 million, available capacity of $30.8 million for future draws under the senior secured revolving credit facility. The company had a working capital deficiency of $789.5 million at December 31, 2018. The working capital deficiency is primarily due to debt of $725.4 million related to the senior credit facility, the second lien credit facility, the senior unsecured notes, the junior credit facility and a bridge loan, which all mature in the first quarter of 2019. Subsequent to year-end in March 2019, the maturity of these 5 loans was extended to September 2019 to allow the company to complete the transaction with Newcrest announced on March 10, 2019, for the sale of a 70% interest in the Red Chris assets for USD 806.5 million in cash.

Those are my comments, Brian. I turn it back to you.

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J. Brian Kynoch, Imperial Metals Corporation - President & Director [4]

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Okay. Thank you, Andre. And we'll proceed to the question period.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Craig Hutchison of TD Securities.

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Craig Hutchison, TD Securities Equity Research - Research Analyst [2]

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Now that you got the announced Newcrest joint venture with Red Chris, are there plans to release an updated technical report? I'm certainly looking at the valuation here for the open pit and trying to understand what the profile will look like for the next sort of 5 to 10 years, ahead of the block cave?

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J. Brian Kynoch, Imperial Metals Corporation - President & Director [3]

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Yes, I would say we are focused on closing the deal and getting the Newcrest folks involved. And I would fully expect them -- 2 things. One, to look at doing some exploration almost immediately after the close, and then we also expect them to look at our mine plan and how it would work into what they want to do. So I would think maybe we wouldn't do it, but Newcrest would do something like that fairly soon after they take control of the operation.

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Craig Hutchison, TD Securities Equity Research - Research Analyst [4]

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Okay. So probably nothing publicly released for a couple of quarters anyway?

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J. Brian Kynoch, Imperial Metals Corporation - President & Director [5]

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I would think so. But we're still in the middle of closing this deal and getting -- and having meetings to kind of figure out how we're going to integrate the organizations and pass the baton, as it were, to them at Red Chris. So maybe we'll get through that first and then see what we're going to do.

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Craig Hutchison, TD Securities Equity Research - Research Analyst [6]

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Does your view of Mount Polley change post this deal? Obviously, you should end the Q3 in a net cash position. You have a lot more, obviously, firepower to do more exploration and maybe possibly restart Mount Polley sooner. Has that changed sort of post the announcement of the JV?

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J. Brian Kynoch, Imperial Metals Corporation - President & Director [7]

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If you mean change in the way that you think that we would extend the operations, I don't think so. We'll suspend operations. But we've been keen to do exploration at Mount Polley, and I think I've said it 3 or 4 times, especially in that area between the 2 pits, which I think could -- with success there, could really change the Mount Polley mine plan. So yes, I think this summer, we should look at exploring at Mount Polley and come up with a longer-life, better mine plan for reopening.

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Craig Hutchison, TD Securities Equity Research - Research Analyst [8]

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Okay. And maybe just one last question from me, an accounting question. Can I assume that post the close of the joint venture arrangement at Red Chris, that you guys will move to equity accounting for Red Chris, i.e. you won't be reporting direct revenues on your income statement?

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Andre Henry Deepwell, Imperial Metals Corporation - CFO & Corporate Secretary [9]

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Well, it's going to be a joint venture arrangement, so we report our 30% of the revenues, expenses, et cetera. It won't be an equity arrangement, equity reporting.

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Craig Hutchison, TD Securities Equity Research - Research Analyst [10]

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So it won't be similar to what you did at Huckleberry?

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Andre Henry Deepwell, Imperial Metals Corporation - CFO & Corporate Secretary [11]

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Well, no, it won't be. It will be proportionate. Essentially, we'll pick up our line item times 30% of each item.

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Operator [12]

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(Operator Instructions) There are no further questions at this time. I would like to turn the call back over to Brian Kynoch for closing remarks.

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J. Brian Kynoch, Imperial Metals Corporation - President & Director [13]

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Well, thank you, everybody, for participating, and hope you have a great day. Thanks again. Bye.

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Operator [14]

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This concludes today's conference call. You may now disconnect.