Imperial Metals Reports Q2 2017 Financial Results; Covenant Waiver Under Senior Credit Facility
VANCOUVER, British Columbia, Aug. 14, 2017 (GLOBE NEWSWIRE) -- Imperial Metals Corporation (the “Company”) (TSX:III) reports comparative financial results for the three and six months ended June 30, 2017 and 2016, as summarized in this release and discussed in detail in the Management’s Discussion & Analysis. The Company’s financial results are prepared in accordance with International Financial Reporting Standards. The reporting currency of the Company is the Canadian (“CDN”) Dollar.
Select Quarter Financial Information
|expressed in thousands, except
share and per share amounts
Ended June 30
Ended June 30
|Net income (loss)||$||64,080||$||(4,160)||$||45,328||$||13,569|
|Net income (loss) per share||$||0.68||$||(0.05)||$||0.48||$||0.17|
|Diluted income (loss) per share||$||0.68||$||(0.05)||$||0.48||$||0.17|
|Adjusted net loss (1)||$||(22,250)||$||(1,214)||$||(44,546)||$||(15)|
|Adjusted net loss per share (1)||$||(0.24)||$||(0.01)||$||(0.48)||$||(0.00)|
|Total debt (including current portion)||$||849,917||$||835,214||$||849,917||$||835,214|
|Cash flow (1)(2)||$||12,341||$||40,327||$||27,406||$||89,752|
|Cash flow per share (1)(2)||$||0.13||$||0.49||$||0.29||$||1.10|
(1) Refer to table under heading Non-IFRS Financial Measures for further details.
(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 year.
Revenues decreased to $106.7 million in the June 2017 quarter compared to $116.2 million in the 2016 comparative quarter, a decrease of $9.5 million or 8%.
Revenue from the Red Chris mine in the June 2017 quarter was $62.3 million compared to $92.0 million in the 016 comparative quarter. This decrease was attributable to lower grade ore processed and lower recoveries in the 2017 quarter compared to the 2016 quarter.
Revenue from the Mount Polley mine in the June 2017 quarter was $44.1 million compared to $24.0 million in the 2016 comparative quarter. This increase was primarily due a higher quantity of copper sold along with an increased quantity of gold by-product sold as the mine had not returned to normal operations for the entire June 2016 quarter.
In the June 2017 quarter, there were 3.5 concentrate shipments from Red Chris mine (2016-5.0 concentrate shipments) and 1.3 concentrate shipments from Mount Polley mine (2016-1.0 concentrate shipment). Variations in revenue are impacted by the timing and quantity of concentrate shipments, metal prices and exchange rates, and period end revaluations of revenue attributed to concentrate shipments where copper and gold prices will settle at a future date.
The London Metals Exchange cash settlement copper price per pound averaged US$2.57 in the June 2017 quarter compared to US$2.14 in the 2016 comparative quarter. The London Metals Exchange cash settlement gold price per troy ounce averaged US$1,257 in the June 2017 quarter compared to US$1,259 in the June 2016 quarter. The average CDN/US$ Dollar exchange rate was 1.345 in the June 2017 quarter, 4.3% higher than the exchange rate of 1.289 in the June 2016 quarter. In CDN Dollar terms the average copper price in the June 2017 quarter was CDN$3.46 per pound compared to CDN$2.76 per pound in the 2016 comparative quarter and the average gold price in the June 2017 quarter was CDN$1,691 per ounce compared to CDN$1,623 per ounce in the 2016 comparative quarter.
Revenue in the June 2017 quarter was decreased by $0.5 million negative revenue revaluation compared to $0.3 million positive revenue revaluation in the 2016 comparative quarter. Revenue revaluations are the result of the copper price on the settlement date and/or the current period balance sheet date being higher or lower than when the revenue was initially recorded or the copper price at the last balance sheet date.
Net income for the June 2017 quarter was $64.1 million ($0.68 per share) compared to net loss of $4.2 million ($0.05 per share) in the 2016 comparative quarter. The increase in net income of $68.3 million was primarily due to the following factors:
- Income/loss from mine operations went from income of $20.2 million in June 2016 to a loss of $5.9 million in June 2017, a decrease in net income of $26.1 million.
- Foreign exchange gains/losses on current and non-current debt went from a loss of $1.6 million in June 2016 to a gain of $12.4 million in June 2017, an increase in net income of $14.0 million.
- The Company’s equity loss in Huckleberry went from loss of $1.7 million in June 2016 to income of $1.0 million in June 2017, an increase in net income of $2.7 million.
- Tax expense went from $2.5 million in June 2016 to a recovery of $3.5 million in June 2017, an increase in net income of $6.0 million.
- The Company recorded an increase in net income in the June 2017 quarter of $74.8 million as a result of the gain on bargain purchase for the additional 50% share of Huckleberry.
The June 2017 quarter net income included foreign exchange gain related to changes in CDN/US Dollar exchange rate of $12.4 million compared to foreign exchange loss of $2.1 million in the 2016 comparative quarter. The $12.4 million foreign exchange gain is comprised of a $11.1 million gain on the senior notes, a $0.3 million gain on long term equipment loans, and a $1.0 million gain on short-term debt and operational items. The average CDN/US Dollar exchange rate in the June 2017 quarter was 1.345 compared to an average of 1.289 in the 2016 comparative quarter.
Cash flow was $12.3 million in the June 2017 quarter compared to cash flow of $40.3 million in the 2016 comparative quarter. Cash flow is a measure used by the Company to evaluate its performance, however, it is not a term recognized under IFRS. 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 $28.8 million in the June 2017 quarter, up from $24.2 million in the 2016 comparative quarter. The June 2017 expenditures included $8.4 million for tailings dam construction, $10.8 million for component changes on mobile equipment, $2.8 million for mobile equipment and $6.8 million relating to non-cash consideration received by the Company in the Sterling gold mine sale in the form of a Net Smelter Royalty (“NSR”) and Net Operating Profit (“NOP”) which have been included in mineral properties for the quarter. Further discussion on the Sterling sale can be found under the heading Sterling Mine.
Liquidity & Capital Resources and Covenant Waiver
At June 30, 2017, the Company had cash of $8.7 million, $5.2 million undrawn on the senior secured revolving credit facility (“Senior Credit Facility”) and a working capital deficiency of $910.8 million, which includes $842.5 million current portion debt.
Based on the results of operations for the second quarter of 2017 the Company met three of four financial covenants contained in its Senior Credit Facility. But for the waiver referred to below, the Company would not have been in compliance with one of the financial covenants of the facility. The Senior Credit Facility matures on March 15, 2018 and has been classified as a current liability since March 15, 2017.
The Company has obtained a waiver from the Senior Credit Facility lenders such that no event of default has occurred under the facility. The waiver covers the period to September 30, 2017 and requires the Company to deliver a financing plan to the Senior Credit Facility lenders for their approval prior to September 30, 2017.
International Accounting Standard 1 requires all debt to be classified as a current liability where the Company does not have an unconditional right to defer settlement of the debt for at least twelve months after the relevant reporting period. Accordingly, even though no present event of default exists, all debt, which could, under any circumstances, be accelerated due to any potential action which could be taken by lenders prior to twelve months from June 30, 2017 must be classified as a current liability. Consequently, the second lien secured revolving credit facility, the senior unsecured notes, the convertible debentures, the junior credit facility and certain equipment loans are required to be classified as current liabilities as of June 30, 2017.
On July 31, 2017 the Company closed a $20.0 million bridge loan financing (“Bridge Loan”) with affiliates of its two major shareholders. The Bridge Loan matures on the earlier of October 15, 2017 or the date the Company secures additional financing.
The Company is reviewing its mine plans and its capital requirements as a result of lower than expected metal production in the first half of 2017. This review may require the Company to secure additional financing or request extension of the maturity dates of some of its debt. There can be no assurance that adequate additional financing will be available on terms acceptable to the Company or at all or that the holders of the Company’s debt will agree to extend maturity dates. This creates a material uncertainty that could have an adverse impact on the Company’s financial condition and results of operations, and may cast significant doubt on the Company’s ability to continue as a going concern.
Non-IFRS Financial Measures
The Company reports four non-IFRS financial measures: Adjusted net income, adjusted EBITDA, cash flow and cash cost per pound of copper produced which are described in detail below. The Company believes these measures are useful to investors because they are included in the measures that are used by management in assessing the financial performance of the Company.
Adjusted net income, adjusted EBITDA, and cash flow are not generally accepted earnings measures and should not be considered as an alternative to net income (loss) and cash flows as determined in accordance with IFRS. As there is no standardized method of calculating these measures, these measures may not be directly comparable to similarly titled measures used by other companies.
|expressed in thousands, except share and per share amounts||Three Months Ended June 30|
|Adjusted net loss||$||(22,250)||$||(1,214)|
|Adjusted net loss per share||$||(0.24)||$||(0.01)|
|Cash flow per share||$||0.13||$||0.49|
Adjusted Net Loss and Adjusted Net Loss per Share
Adjusted net loss in the June 2017 quarter was $22.3 million ($0.24 per share) compared to an adjusted net loss of $1.2 million ($0.01 per share) in the 2016 comparative quarter. Adjusted net income or loss reflects the financial results excluding the effect of items not settling in the current period and non-recurring items. Adjusted net income or loss is calculated by removing the gains or losses, resulting from mark to market revaluation of derivative instruments not related to the current period, net of tax, unrealized foreign exchange gains or losses on non-current debt, net of tax.
Adjusted EBITDA in the June 2017 quarter was $12.9 million compared to $40.5 million in the 2016 comparative quarter. We define Adjusted EBITDA as net income (loss) before interest expense, taxes, depletion and depreciation, and as adjusted for certain other items.
Cash Flow and Cash Flow Per Share
Cash flow in the June 2017 quarter was $12.3 million compared to $40.3 million in the 2016 comparative quarter. Cash flow per share was $0.13 in the June 2017 quarter compared to $0.49 in the 2016 comparative quarter.
Cash flow and cash flow per share are measures used by the Company to evaluate its performance however they are not terms recognized under IFRS. Cash flow is defined as cash flow from operations before the net change in non-cash working capital balances, income and mining taxes, and interest paid and cash flow per share is the same measure divided by the weighted average number of common shares outstanding during the year.
Cash Cost Per Pound of Copper Produced
The cash cost per pound of copper produced is a non-IFRS financial measure that does not have a standardized meaning under IFRS, and as a result may not be comparable to similar measures presented by other companies. Management uses this non-IFRS financial measure to monitor operating costs and profitability. The Company is primarily a copper producer and therefore calculates this non-IFRS financial measure individually for its three copper mines, Red Chris, Mount Polley and Huckleberry, and on a composite basis for these mines.
The cash cost per pound of copper produced is derived from the sum of cash production costs, transportation and offsite costs, treatment and refining costs, royalties, net of by-product and other revenues, divided by the number of pounds of copper produced during the period.
Variations from period to period in the cash cost per pound of copper produced are the result of many factors including: grade, metal recoveries, amount of stripping charged to operations, mine and mill operating conditions, labour and other cost inputs, transportation and warehousing costs, treatment and refining costs, the amount of by-product and other revenues, the US$ to CDN$ exchange rate and the amount of copper produced. Idle mine costs during the periods when the Huckleberry mine was not in operation have been excluded from the cash cost per pound of copper produced.
|Cash Cost Per Pound of Copper Produced
expressed in thousands, except cash cost per pound of copper produced
|Three Months Ended June 30, 2017|
|Cash cost of copper produced in US$||$||-||$||-||$||35,372||$||9,758||$||45,130|
|Copper produced – pounds||-||-||15,423||5,606||21,029|
|Cash cost per lb copper produced in US$||$||-||$||-||$||2.29||$||1.74||$||2.15|
|Three Months Ended June 30, 2016|
|Cash cost of copper produced in US$||$||14,315||$||7,157||$||23,174||$||14,548||$||44,879|
|Copper produced – pounds||7,713||3,857||26,737||5,314||35,908|
|Cash cost per lb copper produced in US$||$||1.86||$||1.86||$||0.87||$||2.74||$||1.25|
|Six Months Ended June 30, 2017|
|Cash cost of copper produced in US$||$||-||$||-||$||75,028||$||20,600||$||95,628|
|Copper produced – pounds||-||-||31,751||11,067||42,818|
|Cash cost per lb copper produced in US$||$||-||$||-||$||2.36||$||1.86||$||2.23|
|Six Months Ended June 30, 2016|
|Cash cost of copper produced in US$||$||28,939||$||14,470||$||46,476||$||23,080||$||84,026|
|Copper produced – pounds||15,991||7,995||50,242||13,493||71,730|
|Cash cost per lb copper produced in US$||$||1.81||$||1.81||$||0.93||$||1.71||$||1.17|
Due to weaker than expected results in the second quarter as previously announced, the production target for the year for the Red Chris and Mount Polley mines were adjusted to 102-107 million pounds copper compared to the initial target of 110-118 million pounds copper.
Red Chris Mine
Metal production for the June 2017 quarter was 15.4 million pounds copper and 6,159 ounces gold. These results were weaker than targeted and similar to the production levels achieved in the March 2017 quarter. Copper recovery was 75.79%, down from the 78.34% achieved in the June 2016 quarter, while treating substantially lower copper grades of 0.341% compared to 0.587% treated in the June 2016 quarter. The mill achieved average throughput of 29,707 tonnes per calendar day for the June 2017 quarter which was 99% of design and up 3% from the comparable quarter in 2016. We have continued to make progress with throughput and operating time and in July throughput averaged 32,303 tonnes per calendar day, setting a new record for monthly average mill throughput at Red Chris.
Mining the upper benches of the Phase 3 pushback is still yielding significant volumes of high clay ore. Mill throughput is being maximized, while treating this softer ore, to offset the lower recoveries achieved while treating these ores. In late May 2017 the installation of a seventh rougher cell was completed and began operation.
|Red Chris Production||Three Months Ended June 30||Six Months Ended June 30|
|Ore milled - tonnes||2,703,363||2,636,332||5,106,864||4,780,129|
|Ore milled per calendar day - tonnes||29,707||28,971||28,215||26,264|
|Grade % - copper||0.341||0.587||0.363||0.606|
|Grade g/t - gold||0.192||0.400||0.196||0.391|
|Recovery % - copper||75.79||78.34||77.64||78.78|
|Recovery % - gold||36.92||53.77||37.27||54.49|
|Copper – 000’s pounds||15,423||26,737||31,751||50,242|
|Gold – ounces||6,159||18,213||11,971||32,772|
|Silver – ounces||26,875||66,054||54,827||122,435|
Exploration, development and capital expenditures were $18.7 million in the June 2017 quarter compared to $11.0 million in the comparative 2016 quarter.
Mount Polley Mine
On July 15, 2017 Mount Polley mine operations were temporarily suspended as a result of an Evacuation Order and restrictions on highway use issued by the Cariboo Regional District for the City of Williams Lake. The mine recalled crews and restarted operations on July 31, after the Evacuation Order was downgraded to an Evacuation Alert, allowing employees to return to their homes. Some restrictions on highway use remain in place.
Metal production for the June 2017 quarter was 5.6 million pounds copper and 13,958 ounces gold, up 5% for copper and 47% for gold respectively from the June 2016 quarter metal production. Throughput was up 13% averaging 19,544 tonnes per day and the gold grade was up 20% for the June 2017 quarter compared to the June 2016 quarter. Production in the third quarter will be impacted by the two weeks of operating time lost due to the Evacuation Order.
|Mount Polley Production
Mount Polley Production
|Three Months Ended June 30||Six Months Ended June 30|
|Ore milled - tonnes||1,779,403||1,573,542||3,472,164||3,282,690|
|Ore milled per calendar day - tonnes||19,554||17,292||19,183||18,037|
|Grade % - copper||0.212||0.224||0.209||0.268|
|Grade g/t - gold||0.334||0.277||0.344||0.304|
|Recovery % - copper||67.33||68.33||69.23||69.52|
|Recovery % - gold||73.15||67.62||72.35||69.82|
|Copper – 000’s pounds||5,606||5,314||11,067||13,493|
|Gold – ounces||13,958||9,476||27,769||22,389|
|Silver – ounces||10,537||17,104||21,414||52,135|
Exploration, development and capital expenditures were $3.1 million in the June 2017 quarter compared to $13.2 million in the comparative 2016 quarter.
The 2016/2017 Martel drilling program was successful in expanding the understanding of the geology and economic potential for the Martel zone. A new resource has been completed from the drill program results as provided in the following table:
Martel Zone Resource Estimate
|Cut-off||$MHV||Tonnes||$MHV||Copper %||Gold g/t||Silver g/t|
The Company’s Qualified Person (as defined by National Instrument 43-101) for the drill program is Chris Rees, Ph.D., P.Geo., and for the resource estimate is Greg Gillstrom, P.Eng.
The Huckleberry open pit copper mine, currently on care and maintenance, is located 88 kilometres from Houston in west central British Columbia. The Huckleberry property consists of two mining leases covering 2,422 hectares and 39 mineral claims encompassing approximately 17,358 hectares.
On April 28, 2017 the Company became the sole owner of Huckleberry by virtue of Huckleberry exercising its right of first refusal to purchase for cancellation all the shares of Huckleberry held by a syndicate of Japanese companies in exchange for cash consideration of $2.0 million. Huckleberry became a wholly-owned subsidiary of the Company on that date.
The Company had a 50% interest in Huckleberry that was accounted for on the equity basis of accounting. The Company has accounted for the acquisition of the remaining 50% interest in Huckleberry as a business combination whereby the net assets acquired are recorded at fair value. The fair values disclosed at June 30, 2017 are provisional estimates because the acquisition only occurred on April 28, 2017, and due to a number of factors, including the complexity of valuing mineral property interests at various stages of development, further work will be required to confirm the final fair values. The finalization of the fair values of the assets and liabilities acquired is expected to be reported no later than the Company’s December 31, 2017 financial statements, the final fair values may be materially different than the provisional fair values outlined below.
The Company has provisionally estimated the acquisition date fair values of the acquired assets and liabilities of Huckleberry and the fair value of the Company’s previously held 50% interest in Huckleberry by reference to their pre-acquisition carrying values, a level 3 fair value measurement. These pre-acquisition carrying values had been subject to normal impairment assessment pre and post-acquisition with no impairment charges recorded.
The following table summarizes the consideration transferred to acquire 100% interest in Huckleberry and the provisional fair values of identified assets acquired and liabilities assumed at the acquisition date:
|expressed in thousands of dollars
|Accrued receivable due to the Company||$||1,009|
|Fair value of the Company’s initial 50% investment in Huckleberry||77,832|
|Identifiable Assets Acquired and Liabilities Assumed|
|Prepaid and other receivables||648|
|Trade and other payables||(1,668)|
|Deferred trade payables||(4,925)|
|Future site reclamation provisions||(45,171)|
|Gain on bargain purchase of Huckleberry||$||74,824|
From the date of acquisition on April 28, 2017 to June 30, 2017, Huckleberry incurred idle mine costs comprised of $1.0 million in operating costs and $0.9 million in depreciation expense.
Refer to Imperial’s 2017 Second Quarter Report on imperialmetals.com and sedar.com for detailed information.
Earnings Announcement Conference Call is scheduled for August 15, 2017 at 10:00am PDT | 1:00pm EDT Management will discuss the 2017 Second Quarter Report. Conference call-in numbers:
Conference call playback is available until 11:59pm August 22, 2017 by calling 888.390.0541 or
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% interest in the Ruddock Creek lead|zinc property in British Columbia.