Mr. Brian Kynoch reports
IMPERIAL REPORTS 2018 FINANCIAL RESULTS
Imperial Metals Corp. has released financial results for its fiscal year ended Dec. 31, 2018.
SELECT ANNUAL FINANCIAL INFORMATION
(expressed in thousands, except per-share amounts)
Years ended Dec. 31,
2018 2017 2016
Total revenues $360,173 $453,113 $428,218
Net income (loss) (125,595) 77,113 (54,080)
Net income (loss) per share (1.06) 0.82 (0.66)
Diluted income (loss) per share (1.06) 0.82 (0.66)
Adjusted net (loss) (1) (84,763) (62,626) (56,784)
Adjusted net (loss) per share (1) (0.71) (0.66) (0.69)
Adjusted EBITDA (1) 33,268 88,457 106,624
Working capital deficiency 789,470 238,269 89,108
Total assets 1,573,903 1,723,768 1,527,778
Total debt (including current portion) 871,268 852,378 835,365
Cash flow (1) (2) 143,449 88,381 107,591
Cash flow per share (1) (2) 1.21 0.94 1.32
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(1) Refer to non-international financial reporting standard measures in
management's discussion and analysis.
(2) Cash flow is defined as the cash flow from operations before the net
change in non-cash working capital balances, income and mining taxes,
and interest paid. Cash flow per share is defined as cash flow divided
by the weighted-average number of common shares outstanding during the
Revenues decreased to $360.2-million in 2018 compared with $453.1-million in 2017, a decrease of $92.9-million or 20.5 per cent.
Revenue from the Red Chris mine in 2018 was $255.7-million compared with $289.1-million in 2017. Revenue from the Mount Polley mine in 2018 was $104.4-million compared with $163.5-million in 2017. There were 12.0 concentrate shipments in 2018 from the Red Chris mine (2017: 15.0 concentrate shipments) and 3.0 concentrate shipments from the Mount Polley mine in 2018 (2017: 4.7 concentrate shipments). Variations in revenue are impacted by the timing and quantity of concentrate shipments, metal prices and exchange rates, and by period-end revaluations of revenue attributed to concentrate shipments, where metal prices will settle at a future date.
Net loss for 2018 was $125.6-million ($1.06 per share) compared with net income of $77.1-million (82 cents per share) in 2017. The majority of decrease in net income of $202.7-million was primarily due to the following factors:
Loss from mine operations went from income of $19.5-million in 2017 to a loss of $33.0-million in 2018, an increase in net loss of $52.5-million.
Interest expense increased from $75.5-million in 2017 to $78.4-million in 2018, an increase to net loss of $2.9-million.
Foreign exchange gain on current and non-current debt went from a gain of $30.2-million in 2017 to a loss of $36.9-million in 2018, an increase in net loss of $67.1-million.
Impairment on mineral properties went from nil in 2017 to $109.2-million in 2018, an increase in net loss of $109.2-million.
A gain on bargain purchase of Huckleberry and revaluation of equity investment in Huckleberry of $109.8-million in 2017 compared with nil in 2018, an increase in net loss of $109.8-million.
Rehabilitation costs of $200,000 in 2018 compared with $5.8-million in 2017, a decrease in net loss of $5.6-million.
Other income totalled $108.1-million in 2018 largely due to the settlement of $106.2-million, net of costs pertaining to the Aug. 4, 2014, tailings dam breach at the Mount Polley mine, compared with an expense of $300,000 in 2017, a decrease in net loss of $107.8-million.
An income and mining tax recovery of $38.1-million in 2018 compared with a recovery of $10.6-million in 2017, a decrease in net loss of $27.5-million.
The 2018 net loss included foreign exchange loss related to changes in the Canadian-dollar/U.S.-dollar exchange rate of $38.4-million compared with a foreign exchange gain of $30.4-million in 2017. The $38.4-million foreign exchange loss in 2018 is composed of a $36.4-million loss on the senior notes, a $600,000 loss on short-term loans and a $1.4-million loss on operational items. The average Canadian-dollar/U.S.-dollar exchange rate in 2018 was 1.296 compared with an average of 1.298 in 2017.
Cash flow was $143.4-million in 2018 compared with cash flow of $88.4-million in 2017. Cash flow is a measure used by the company to evaluate its performance; however, it is not a term recognized under international financial reporting standards. The company believes cash flow is useful to investors, and it is one of the measures used by management to assess the financial performance of the company.
Capital expenditures were $77.0-million in 2018, down from $92.9-million in 2017. The 2018 expenditures included $34.8-million for tailings dam construction, $35.7-million on equipment and components, and $6.5-million for other capital items.
At Dec. 31, 2018, the company had $18.6-million in cash (Dec. 31, 2017: $51.9-million). The company has classified $603.6-million of its non-current debt as current at Dec. 31, 2018 (Dec. 31, 2017: $213.9-million).
Developments during 2018
Red Chris mine
Fourth quarter metal production was 15.57 million pounds copper and 12,366 ounces gold, an increase of 15 per cent and 41 per cent, respectively, from 13.55 million pounds copper and 8,741 ounces gold produced in the third quarter of 2018. Metal recoveries in the fourth quarter were 76.21 per cent copper and 50.57 per cent gold, compared with 74.92 per cent copper and 45.65 per cent gold in the third quarter of 2018. Annual recoveries for 2018 were 75.60 per cent for copper and 47.13 per cent for gold.
Annual metal production for 2018 was 60.35 million pounds copper and 41,935 ounces gold, both at 97 per cent of the revised production targets. The mill achieved 97.4 per cent of design capacity, treating an average of 29,228 tonnes per calendar day.
The five haul trucks from Huckleberry mine were fully operational within the first quarter of 2018. The newly procured electric hydraulic shovel was operational in the third quarter of 2018.
In the third and fourth quarters of 2018, the company used its own resources for the construction of the tailings impoundment area because the independent contractors constructing the tailings impoundment area were redirected to respond to the wildfires in the local region. This diversion of primary mine operations hauling units to the tailings impoundment area resulted in a lower productivity in mining operations during those periods.
MillSlicer was installed on the SAG (semi-autogenous grinding) mill in July, 2018, to improve overall control of the mill. This vibration-based signal is in addition to the electronic ear, bearing pressure and mill power used in controlling the mill fill level. Expectations from the increased response time of these new signals are improved production and mill liner life.
Work was initiated on the diagnosing of the high clay ore in the mineralized faults present in the Main zone and East zone, with results integrated into operational recovery models in advance of the 2019 production plan. Segregation of faulted material for plant-scale batch processing of fault material commenced in the fourth quarter of 2018, with the first planned plant-scale baseline run in January, 2019.
Work advanced on the underground resource conceptualization in conjunction with Golder Associates. In the second quarter of 2018, a geotechnical hole was completed to gather geotechnical information regarding the proposed block cave. Notably, this hole also intersected significant copper and gold mineralization below the East zone pit. Work on a preliminary economic assessment of the block cave potential, incorporating the information from the geotechnical drill hole, was initiated in 2018 by Golder Associates.
In third quarter 2018, the management structure at Red Chris mine was reorganized. Randall Thompson, Imperial vice-president, operations, was appointed as Red Chris mine general manager, with a mandate to direct improvements of the mine operations.
Exploration, development and capital expenditures were $62.9-million in 2018 compared with $57.8-million in 2017.
Mount Polley mine
Fourth quarter metal production was 3.18 million pounds copper and 7,983 ounces gold. Mill throughput averaged 17,467 tonnes per calendar day during fourth quarter 2018. Metal recoveries in the fourth quarter were 39.05 per cent copper and 59.71 per cent gold. The mill treated an average of 16,975 tonnes per calendar day while achieving recoveries of 52.89 per cent copper and 67.25 per cent gold.
Annual metal production for 2018 was 14.97 million pounds copper and 37,120 ounces gold, respectively, 96 per cent and 94 per cent of the revised production targets.
Milling of low-grade stockpiles is targeted to continue until May, 2019, at which time the mine will be placed on care and maintenance until the economics of mining at Mount Polley improve.
Dredging of tailings, deposited in the Springer pit in 2015 to 2016 to allow for restart of milling operations prior to repair of the tailings storage facility, commenced in early 2018. Mining operations in the Cariboo pit were completed in late 2018, and the mill relied on feed from the low-grade stockpiles since that time. Dredging work in the Springer pit was suspended for the winter.
The South Springer is an area with potential to significantly increase mineral resource estimates. The mineralization is under the saddle separating the Cariboo and Springer phase 6 pits, which presents an ideal location for additional low stripping ratio reserves, assuming planned drilling is positive. With the configuration of the Cariboo pit providing an excellent platform to conduct exploration drilling, follow-up on 2012 drilling is planned for a future date.
During the spring of 2018, a four-hole diamond drill program was completed totalling 953.12 metres. The holes were drilled in the Saddle area between the Springer and Cariboo pits to confirm mineralization in this area for future mining plans. This information has been incorporated into the mine's block model.
In early 2018, Mount Polley was in mediation with USW Local 1-2017 to renew a collective agreement, which had terminated Dec. 31, 2017. Mediation efforts proved unsuccessful, and on May 23, 2018, Mount Polley initiated a lockout of its employees, following which unionized employees began strike action. Following further negotiations, in August, 2018, unionized employees voted 79 per cent to accept a new three-year contract, effective as at Jan. 1, 2018.
In November, 2018, the legal action for damages arising from the Mount Polley breach was settled among all parties to the action, in consideration of net payments to the company totalling approximately $108-million. This settlement represents compromises of disputed claims and does not constitute an admission of liability on the part of any party to the action.
Exploration, development and capital expenditures were $13.3-million in 2018 compared with $27.7-million in 2017.
Huckleberry mine ceased mine operations in August, 2016, and remains on care and maintenance.
A preliminary plan to restart the mine has been developed, and will be under consideration for implementation, at such time when the economics of mining improve. In the interim, the company will develop exploration programs designed to expand the resource.
Ruddock Creek project
The Ruddock Creek lead-zinc project is operated by way of a joint venture with Imperial, Mitsui Mining and Smelting Co. Ltd., and Itochu Corp. Imperial operates the project through its wholly owned subsidiary Ruddock Creek Mining Corp. Japan Oil, Gas and Metals National Corp. agreed to finance Imperial's share of the 2018 drill program and, upon the completion of the program, has the assignable right to be vested in an approximately 1.57-per-cent participating interest in the joint venture. At that time, Imperial's interest will reduce to approximately 48.43 per cent.
Drill results from the first surface diamond drill hole RD-18-V41 at the Ruddock Creek project were reported in September, 2018 (of a planned three-hole program targeting the deep extension of the V zone). Results from the first surface diamond drill hole RD-18-V41 included 21.7 metres grading 16.99 per cent zinc, 3.44 per cent lead and 2.41 grams per tonne silver, which included 10.4 m grading 25.70 per cent zinc, 5.41 per cent lead and 3.44 g/t silver. The drill hole targeted the V zone mineralization 425 m below surface and about 300 m below the deepest previous mineralized intercept in the zone. Drill hole RD-18-V41 was collared near the valley floor of Oliver Creek at an elevation of approximately 1,191 m above sea level and drilled to a final depth of 828.8 m.
The V zone is located near the western edge of the Ruddock Creek massive sulphide horizons, which have an indicated strike length of about five kilometres, and is approximately two km west of the Creek zone, the nearest zone of detailed drilling. Little or no exploration drilling has been conducted along the intervening section of the horizon. The V zone strikes east-west and dips at about 70 degrees to the north. The zone had been traced with surface showings and by shallow drilling for a horizontal distance of about 700 m and, with this recent intersection, to a depth of approximately 425 m. Due to the steep terrain, long nearly flat drill holes from near the valley bottom were designed to test the zone at depth. Hole RD-18-V41 was drilled using an underground diamond drill rig bolted to a road-accessible cliff face at an azimuth of 27 degrees and a dip of plus 10 degrees. Core size was HQ to a depth of 450 m. When the core size was reduced to NQ size, the hole was drilled to a final depth of 828.8 m.
The decision to drill test the V zone at such a depth beneath the nearest intercept was supported by the highly predictable nature of the zinc-lead mineralization intercepted in the shallower helicopter-supported surface diamond drill holes, electromagnetic and magnetic geophysical anomalies, and a reinterpretation of the geology. The V zone in hole RD-18-V41, which was projected to be intersected at a depth of 750 m, was intercepted at 751.5 m, confirming the anticipated predictability of the zone at depth. The highest grades previously intersected in the V zone were in holes RD-12-V38, which intercepted 17.77 per cent zinc and 3.72 per cent lead over a true width of approximately 7.6 m, and RD-12-V40, which intercepted 10.00 per cent zinc and 1.80 per cent lead over a true width of approximately 10.9 m.
Drill hole RD-18-42, drilled at minus 10 degrees below RD-18-41 to a final depth of 1,003.9 m, targeted the mineralization 300 m below the intersection in hole RD-18-41, at an estimated in-hole depth of 834 m. Unfortunately, the hole intersected a late-stage pegmatite dike or sill from a depth of 805 to 956 m with no significant base metal mineralization intersected.
Drill hole RD-18-43, drilled at zero degree (flat) in between RD-18-41 and 42 to a final depth of 831.5 m, targeted the mineralization 120 m below the intersection in hole RD-18-41 at an estimated in-hole depth of 790 to 800 m. The favourable calc-silicate host rock was intersected from 747 to 775 m with narrow two- to 10-centimetre, stringer semi-massive sphalerite-galena mineralized bands intersected but not comparable with the intersection in hole RD-18-41. The best two intervals intersected were 6.31 per cent zinc, 0.5 per cent lead and 11.0 g/t silver over 0.5 m from 751.44 m to 751.94 m, grading 5.89 per cent zinc and 0.04 per cent lead over 0.5 m from 767.18 m to 767.68 m. The intervals are approximately true thickness.
SJ Geophysics completed an in-hole electromagnetic and magnetic survey in hole RD-18-43, but holes RD-18-41 and 42 were not able to be surveyed due to hole conditions. The survey outlined a significant off-hole EM and magnetic response for such a zinc-rich system in the area of the favourable calc-silicate host and stringer-style zinc-lead mineralization.
Jim Miller-Tait, PGeo, vice-president, exploration, is the designated qualified person as defined by National Instrument 43-101 for the exploration program, and has reviewed and approved disclosure relating to drill hole RD-18-V41. Ruddock Creek samples for the 2018 drilling reported were analyzed at Bureau Veritas Mineral Laboratories in Vancouver, B.C. A full quality assurance/quality control program using blanks, standards and duplicates was completed.
Plans for further exploration of the western edge of the massive sulphide horizons have been developed and are being discussed with the company's joint venture partners.
Fourth quarter results
Revenue in the fourth quarter of 2018 was $91.7-million compared with $140.5-million in 2017. Sales revenue is recorded when title for concentrate is transferred on shiploading. Variations in revenue are impacted by the timing and quantity of concentrate shipments, metal prices and exchange rates, and by period-end revaluations of revenue attributed to concentrate shipments where copper and gold prices will settle at a future date along with finalization of contained metals as a result of final assays.
The company recorded a net loss of $44.3-million (37 cents per share) in the fourth quarter of 2018 compared with a net loss of $2.1-million (two cents per share) in the prior-year quarter. The fourth quarter of 2017 involved $35.0-million of the net income related to the finalization of the gain on bargain purchase of Huckleberry and revaluation of equity investment in Huckleberry.
Expenditures for exploration and continuing capital projects at Mount Polley, Red Chris and Huckleberry totalled $14.2-million during the three months ended Dec. 31, 2018, compared with the expenditures for exploration and continuing capital projects at Mount Polley, Red Chris and Sterling, which totalled $17.3-million in the 2017 comparative quarter.
Corporate and operations
At Dec. 31, 2018, the company had not hedged any copper, gold or Canadian-dollar/U.S.-dollar exchange. Quarterly revenues will fluctuate depending on copper and gold prices, the Canadian-dollar/U.S.-dollar exchange rate, and the timing of concentrate sales, which are dependent on concentrate production and the availability and scheduling of transportation.
The 2018 annual base and precious metal production from the Red Chris and Mount Polley mines was 75.32 million pounds copper and 79,056 ounces gold.
On March 10, 2019, Imperial entered into an agreement to sell a 70-per-cent interest in the Red Chris mine to Newcrest for $806.5-million (U.S.) in cash. Imperial and Newcrest will form a joint venture for the operation of the Red Chris mine going forward, with Newcrest acting as operator. This joint venture partnership will enable Imperial to unlock significant value at Red Chris by leveraging Newcrest's unique technical expertise in block caving operations. With a stronger financial position and a highly actionable path to exploiting the underground mining potential of Red Chris, Imperial will be in a much stronger position to create value and opportunities for its shareholders, stakeholders and the Tahltan Nation. The closing is expected to occur in the third quarter of 2019, with an outside date for closing of Aug. 15, 2019.
Imperial announced on Jan. 7, 2019, that due to declining copper prices, Mount Polley operations would be suspended.
Imperial has interests in various other early-stage exploration properties, and sufficient work will be conducted to keep these properties in good standing.
At Mount Polley, future additional diamond drilling is planned in the vicinity of the Springer pit to infill areas where information is lacking and additional mineralization may be present. A program of ground magnetometer surveying will continue in conjunction with targeted areas of soil sampling, prospecting and geological mapping.
At Huckleberry, the company will develop exploration programs designed to expand the resource.
At Ruddock Creek, plans for further exploration of the western edge of the massive sulphide horizons have been developed and are being discussed with the company's joint venture partners.
The 2019 Red Chris production plan was developed following an in-depth review of historical data, with key assumptions being identified and validated against past performance. The plan reflects a lower mining rate as compared with 2018 (105,000 tonnes per day versus 130,000 tonnes per day). The metal for 2019 was estimated by a similar application of historical data for incorporation of mill availability, throughput (tonnes per operating hour) and recovery.
In February, 2019, extreme cold temperatures resulted in freezing of available water beyond expectations. There was sufficient free water to maintain operations, however, only at a reduced rate (24,785 tonnes per day versus 30,000 tonnes per day). The poor quality of the water available also had a negative impact on copper recoveries. Operations are returning to normal, as volumes of runoff increase and as ice thaws with the warmer early spring temperatures.
At Mount Polley, extreme cold winter temperatures impacted Mount Polley mill throughput during the latter part of January and all of February, 2019. Freezing ore in chutes and stockpiles limited the milling rates. During February, 2019, only 9,764 dry metric tonnes were treated per calendar day milled (versus 17,531 dry metric tonnes during February, 2018). Since then, warmer spring temperatures have helped to improve mill throughput; however, to achieve the production targets, throughput during April and May will need to increase.
Milling of low-grade stockpiles is targeted to continue until May, 2019, at which time the mine will be placed on care and maintenance until the economics of mining at Mount Polley improve. There will be no impact to continuing environmental monitoring and remediation programs.
At Huckleberry, a preliminary plan to restart the mine has been developed and will be under consideration for implementation, at such time when the economics of mining improve.
For detailed information, refer to Imperial's 2018 annual report available on
the Imperial Metals website
and at SEDAR.
Earnings announcement conference call: April 1, 2019, at 8 a.m. PDT or 11 a.m. EDT
Management will discuss the company's 2018 financial results. To participate in the earnings announcement conference call, dial toll-free 833-231-8250 (North America) or 647-689-5116 (international). A recording of the conference call will be available for playback until April 8, 2019, by calling 855-859-2056 (North America toll-free), playback code: 5188586.
About Imperial Metals Corp.
Imperial is a Vancouver-based exploration, mine development and operating company. The company, through its subsidiaries, owns the Red Chris, Mount Polley and Huckleberry copper mines in British Columbia. Imperial also holds a 50-per-cent interest in the Ruddock Creek lead/zinc property. Imperial recently announced an agreement with Newcrest to sell a 70-per-cent interest in Red Chris to Newcrest for $806.5-million (U.S.) while retaining a 30-per-cent interest in the mine.
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