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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, thank you for standing by. Welcome to the Imperial Metals Corporation Third Quarter Financial Results Conference Call. [Operator Instructions]We wish to advise that certain statements during this conference call may constitute forward-looking information within the meaning of securities laws. We direct you to the forward-looking statement contained within the third quarter report filed on SEDAR, and available on the company's website as it applies to this conference call as well.I will now turn the call over to Brian Kynoch, President, Imperial Metals Corporation. Please go ahead, Mr. Kynoch.
Thank you. Welcome to the Imperial Metals conference call to review our third quarter results. I'll start the call with updates on our major projects, and then I'll have Andre Deepwell, our CFO, go through the highlights of the financial statements.So I'll start with the Mount Polley. At Mount Polley, during the third quarter, 1.3 million -- 1.39 million tonnes were milled down from the 1.58 million tonnes milled in the second quarter of 2018. The production for the quarter was impacted by a strike that lasted from May 23 to August 2 and the time it took to return to full staffing levels. And that took us to about the end of August to get back to full staffing levels. As discussed during our previous update, during the strike, milling operations were continued to the extent possible, with staff operating the plant but at lower throughput rate and with some breaks in to allow for rest and to complete the required maintenance as we had much less maintenance staff, had to plan in breaks.Metal production for the third quarter was 2.6 million pounds of copper, down from the 3.8 million produced in the second quarter. The daily throughput in the third quarter was 15,000, just over 15,000 tonnes a day compared to 17,300 in the second quarter. Grades were lower as all material mined during the strike was from the low-grade stockpiles, with some of the ore from the Cariboo pit starting to be delivered at about the beginning of September, right when we got our full crews back. Recoveries were lower with the lower grades being treated and as a result of the low-grade stockpile material, much of the low-grade stockpile material being delivered to the plant in the quarter came from a highly oxidized stockpile and when the copper minerals are -- oxidized, they won't float and as a result we get much less copper recovery.Mining in the Cariboo pit is targeted for completion by the end of November, sometime in the -- probably the 3rd week of November, we'll have -- we'll process all the feed from the Cariboo pit. And for remainder of the year, we'll feed low grade from stockpiles. We're at -- with respect to Mount Polley, we're continuing to pursue both our insurer and engineers for recovery of the losses we incurred as a result of the breach at the tailings dam at Mount Polley, and we are confident of a recovery with respect to these losses over time.For Red Chris. Red Chris metal production for the quarter, September quarter was 13.55 million pounds of copper and 8,741 ounces of gold, both up from the previous quarter when 11.5 million pounds of copper and 8,600 ounces of gold were produced. This is largely as we're -- we're moving down, we're getting a little bit higher grades since we moved down in the phase 4 pit, and I expect the grades in the last quarter of the year to be -- especially for copper to be up from where they were in the third quarter. Grade was up slightly averaging 0.292% compared to 2 -- 0.283%. Copper recoveries were 74.96%, up from the 72.96% achieved in the second quarter. However, gold grades were slightly lower in this quarter than last, but gold recovery continued to climb and we achieved 45.65% versus the 43.94% in the previous quarter.Throughput was up at 2.81 million tonnes compared to 2.52 million in the second quarter and the mill throughput in this quarter averaged 30,544 tonnes per day. We have added an engineering group working with us to improve operations, and we're beginning to see the fruits of that work. The primary crusher is working better and with more reliability and the crusher has not been an impediment to throughput as we have implemented many of the changes recommended in the review. So now the primary crusher doesn't impact mill throughput. We have a full course or pile virtually all the time.A second review of mill operations, and these reviews are focused on reliability, has been completed. We expect to see higher operating time in the mill as we implement the recommendations of this study with respect to maintenance and operating procedures. With -- the decline in the Canadian dollar is helping offset the impact of the lower -- of lower copper prices than we budgeted for in 2018. And we continue to discuss an arrangement to JV, the Red Chris party with one party -- Red Chris project with one party and the special committee continues to look at other alternatives to fix our balance sheet.With those brief remarks, I'll pass it onto Andre and then we'll have a question period after. Thanks. Andre?
Thank you, Brian. Revenues in the September 2018 quarter were $70.5 million versus $90.2 million in the comparative 2017 quarter. The decrease was a result of lower shipment volumes on similar metal prices compared to 2017. Red Chris had 2.7 concentrate shipments in 2018 versus 3.5 shipments in 2017. Mount Polley had 0.5 concentrate shipments in the 2018 quarter compared to 0.8 shipments in 2017.Revenues in the September 2018 quarter were reduced by $5.1 million due to negative revenue revaluation as compared to an increase in revenues in the September 2017 quarter by $5.9 million due to positive revenue revaluation. Revenue revaluations are the result of metal prices on the settlement and our current balance -- 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 a result of final assays.In the September 2018 quarter, Imperial recorded a net loss of $28.6 million compared to a net loss of $1.6 million in the previous quarter. The increase in net loss was primarily due to reduced income from mine operations and lower foreign exchange gains on debt in the current quarter compared to the 2017 quarter.The September 2018 quarter loss from mine operations was $15.4 million compared to a loss of $5.9 million in the comparative 2017 quarter. Revenue in the June quarter was -- June -- sorry, in the September '18 quarter decreased by $5.9 million negative revaluation compared to a negative revenue revaluation of $0.5 million in 2017. The company has no derivative instruments for copper, gold or foreign exchange at September 30 or today.Imperial's capital expenditures were $37.5 million in the September 2018 quarter, down -- sorry, up from $22.3 million in the comparative 2017 quarter. Capital expenditures in the September 2018 quarter included $21.1 million for mobile equipment and $15.3 million for tailings dam construction and additional amounts for the other expenditures. The addition of the new $50 million shovel for the Red Chris mine was financed by a long-term debt in the current quarter.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 September 2018 quarter was $37.1 million compared to an adjusted net loss of $18.1 million in the comparative 2017 quarter. The adjusted EBITDA was negative $13.3 million in the September 2018 quarter compared to a positive $18 million in the comparative 2017 quarter. Cash flow was negative $11.8 million in the September 2018 quarter compared to positive cash flow of $18 million in the 2017 quarter.The cash cost per pound of copper produced is calculated for the company's 2 operating mines. For the September 2018 quarter, these were USD 2.68 per pound for the Red Chris mine and USD 3.01 for the Mount Polley mine, for a composite total of USD 2.73 per pound. At the Red Chris mine, the cash cost per pound of copper produced decreased from USD 3.14 per pound in the June 2018 quarter to USD 2.68 per pound in the September quarter, primarily due to the increased copper volume produced in the September quarter compared to the June quarter. The increase in the cash cost per pound of copper produced at the Mount Polley mine from the USD 1.25 per pound in the June 2018 quarter to the USD 3.01 per pound in the September quarter was a result of higher operating expenses, lower quantities of copper produced and lower gold by-product revenues.In mid-September, the company sold 0.5% net smelter return royalty interest on the Red Chris project for USD 17 million, that's CAD 22.2 million. The company has the option to buy back this royalty in full for a period of up to 4 years and thus, be able to recapture the upside potential for the benefit of our shareholders.At September 30, 2018, the company had cash of $4.8 million, available capacity of $9.7 million for future draws under the senior secured revolving credit facility and $10 million undrawn on the 2017 line of credit loan facility. The company had a working capital deficiency of $819.7 million at September 30, 2018. The working capital deficiency is primarily due to debt of $728.4 million related to the senior credit facility, the second lien credit facility and the senior unsecured notes, which mature -- which all matures in the first quarter of 2019. In mid-September, the maturity dates of the senior credit facility and the second lien credit facility were extended to February the 15, 2019, to provide the special committee time to successfully complete the restructuring process. During 2018, payment of interest for certain debt facilities has been 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.
Thanks, Andre. So we will move on to the question period now.
[Operator Instructions] Our first question comes from Nick Jarmoszuk with Stifel.
First one, you mentioned a JV partner for Red Chris, can you confirm that that's for the underground ore body? Or is that -- would that include some of the open pit as well?
It will likely -- yes, it's Red Chris in its entirety, I would say. Not just the open pit, not just the underground.
Okay. And then in terms of those discussions in the quarter regarding the restructuring that's ongoing. Is the restructuring predicated on how this JV is structured?
I don't know about predicated on, I think it's -- the JV that we've been discussing is one of the alternatives for restructuring, and so parallel with that, the special committee is looking at other alternatives. So there's kind of 2 alternatives, not one predicated on the other.
Okay. Given that first quarter '19 is coming up rather quickly, can you give us a sense of what sort of restructuring time lines we should be thinking about? And whether -- just what mile marker we should be thinking?
We think there might be kind of 2 phases to it. So we're hopeful, one part of it would be before the end of the year and then probably another part of it early in the next year. We'll have to be early -- by February.
Okay. And then in terms of the various parties that need to be dealt with from -- you have 2 major investors, you've got bondholders as well. Are -- is everybody organized? Is there a bondholder committee or is there a committee for the converts to represent everyone's interests?
Not at this time, no.
Okay. And a question for you on Red Chris, you discussed that the open pit grades are improving. Can you talk about the direction of grade as you're getting into the first quarter?
Well, this -- the fourth quarter, I think, have better. We're moving down further in the phase 4 pit, but we're also beginning work on the phase 5 pit. So yes, fourth quarter, for sure, will be a little bit better than the third quarter. We're still working a bit on our budgets and -- exactly how we're going to take the mine plan next year. So I don't want to kind of speculate on next year. But we are moving deeper in the phase 4. So we do have access to some better ore as we move deeper.
Okay. And does the mine plan -- is anything in the mine plan a function of what happens with the balance sheet restructuring as well?
I would say that is unlikely to change. But -- I would say that everything's possible but that's unlikely to change the mine plan. We're going to come up with the best possible mine plan and it's unlikely that the restructuring would change how you do the mine plan.
Our next question comes from [ Daryl Strasburg ], a private investor.
I just have one question. The year-over-year throughput at Red Chris did not increase significantly. And my question is, has the new shovel not had the impact that you were expecting for it?
Yes, the new shovel certainly is helping us. But remember, it -- I think it was middle of August by the time we got it, right? End of -- middle, end of August by the time we got it running, so it hasn't had -- it didn't have the impact that we expected to have in the whole year because it arrived much later. So that's starting to have impact now. And I think you need to give that some time to actually -- what it's going to impact is enable us to open up higher-grade ore sooner than otherwise without it. But it will take some time to kind of dig down there and get to the point where the grades are good. But it's certainly making it easier to meet our mining targets.
Our next question comes from [ Tom Ludke ] with Citadel.
Brian, you had indicated that the second and third quarter of this year would -- for Red Chris, would be lighter production due to the pushback and the benefit falling in the fourth quarter. Further, with the second shovel purchased and the mine plan changed to focus on the high grade of only the Main zone, when do you see the mine having the physical attributes of having one shovel in the high grade permanently or reasonably permanently? Or will we have an oscillation between high and low-grade ores in the quarters of 2019 also?
I would say there's still going to be some oscillation. But beginning, probably, in the -- after the first quarter in 2019, the phase 4 pit will be developed down to the point where there's hardly any stripping remaining for it. And so it's kind of down in the part where it's straight ore. And we'd be able to -- but remembering that we're going to have to rely on that for some time till we get the stripping in the phase 5 done, but you're going to be down in an area where there is lots of good ore, all coming from depth, after about the first quarter of next year.
Okay. So just to coordinate that with the Saddle zone. How much of the Saddle zone has been removed?
We're -- I think -- we're right now -- we're in about the 1,460 bench. 1,460 meter. I think that had ore starting, say, from the 1,480 meter and that Saddle zone goes down all the way to 1,300 meters. So the majority of the Saddle zone is still there, it goes right down to 1,300 meters.
Okay. So the only way to get rid of the Saddle zone and bring in the East pit is if you start working on the East pit also, which is temporarily put on hold, correct?
Right. Although, I just mentioned we have started doing some work on phase 5, with -- and phase 5 includes the East zone, the Saddle zone and the Main zone. So there has been some stripping since -- I think it started in July or August, since that new shovel's been there. We have done some phase 5 stripping.
[Operator Instructions] Our next question comes from Craig Hutchinson from TD Securities.
You mentioned your restructuring process might come in 2 parts. One's before the end of this year and one perhaps in February. Between now and then, I mean, do you have sort of a backstop for further financing? I mean, if Q4, from a cash point of view, is similar to Q3, I would suspect you're going to run out of money very shortly. Is there sort of a backstop to just kind of bridge that?
Right. That's what we're saying. That's why -- that's part of why we say it's going to be in 2 pieces. So one of the pieces will happen before the end of the year. And I guess, I'd say, I'm fairly confident that the fourth quarter at Red Chris is going to be better than the third and second quarters. I don't think it'll be quite as good production compared to the first quarter but closer to it than the other 2.
Okay. And maybe a follow-up question to the gentlemen's previous inquiry in terms of Red Chris. Do you have all the equipment you need to sort of -- to maintain the strip ratios, to kind of open up the mine or do you still need more trucks? Is the asset still kind of undercapitalized?
I'd say now we have all the shovels we need. And that's -- and I would say, when it comes to the trucks, that's part of the planning. I think we're -- right now, we're in the midst of doing some repair work on the 793s, some frame repairs on the 793s. I believe that once those frame repairs are done, we have enough trucks. So in the interim, we've moved some 785s from Huckleberry up there. I think we're all right for trucks. And I would say, I know we're all right for shovels, drills, trucks might be an issue, depending on how all those frame repairs work out.
Okay. And then maybe my last question. I know that Q3 had a lot of the highly oxidized material from Mount Polley that you fed into the mill, and I'm sure some of that material will still creep into Q4. But can you give us a sense of the ratio between sort of normal, less oxidized stockpiles versus the highly oxidized stockpiles to get a sense of what recoveries might be at Mount Polley in Q4?
Right. So when we -- recoveries have actually been quite -- they're quite good until now in this quarter. And that's largely because the majority of the feed's been coming from the Cariboo pit. And it will -- we're going to do -- actually starting right now we're going to do 1 more week of a trial on that high oxide to see if we can't try a few more things in the mill to see if we can't get a higher recovery. So it's been good to know, it'll probably be relatively good, except for this 1-week trial for November. In December, we're going to use a mix of -- rather than run the high oxide straight, we're going to mix it with a lower-oxide stockpile and we're going to run a blend. On the high oxide, we only expect to get between 15% and 25% recovery. And then I think on the medium grade one, it's in the 40s. So we're going to get relatively low copper recoveries in December, that's offset by that high ox stockpile. The reason we're putting it in the mill is because it has higher gold grades. So yes, the -- December should be more -- arguably, more value in gold than copper for Mount Polley.
There are no further questions at this time. This concludes today's conference call. You may now disconnect.