Imperial Reports Third Quarter 2018 Financial Results

by ahnationtalk on November 10, 2018444 Views

Vancouver | November 8, 2018 | Imperial Metals Corporation (the “Company”) (TSX:III) reports financial results for the three and nine months ended September 30, 2018 and 2017, 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	Three Months Ended September 30		Nine Months Ended September 30
	2018	2017	2018	2017
Total revenues	$70,481	$90,157	$268,459	$312,647
Net income (loss)	$(28,609)	$(1,572)	$(81,330)	$79,220
Net income (loss) per share	$(0.24)	$(0.02)	$(0.69)	$0.85
Diluted income (loss) per share	$(0.24)	$(0.02)	$(0.69)	$0.85
Adjusted net loss ⁽¹⁾	$(37,099)	$(18,058)	$(69,676)	$(62,134)
Adjusted net loss per share ⁽¹⁾	$(0.31)	$(0.19)	$(0.59)	$(0.66)
Adjusted EBITDA⁽¹⁾	$(13,287)	$17,903	$20,927	$45,943
Working capital deficiency	$(819,730)	$(919,038)	$(819,730)	$(919,038)
Total assets	$1,665,647	$1,616,953	$1,665,647	$1,616,953
Total debt (including current portion)	$873,789	$858,291	$873,789	$858,291
Cash flow ⁽¹⁾⁽²⁾	$(11,766)	$17,966	$21,599	$45,372
Cash flow per share ⁽¹⁾⁽²⁾	$(0.10)	$0.19	$0.18	$0.48

(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 $70.5 million in the September 2018 quarter compared to $90.2 million in the 2017 comparative quarter, a decrease of $19.7 million or 21.8%.

Revenue from the Red Chris mine in the September 2018 quarter was $52.7 million compared to $66.0 million in the 2017 comparative quarter. This decrease was attributable to a lower quantity of copper concentrate sold along with similar copper and slightly lower gold prices and the impact of negative revenue revaluation noted below.

Revenue from the Mount Polley mine in the September 2018 quarter was $17.8 million compared to $24.1 million in the 2017 comparative quarter due to lower production and negative revenue revaluation noted below.

In the September 2018 quarter, there were 2.7 concentrate shipments from Red Chris mine (2017-3.5 concentrate shipments) and 0.5 concentrate shipments from Mount Polley mine (2017-0.8 concentrate shipments). 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$2.77 in the September 2018 quarter compared to US$2.88 in the 2017 comparative quarter. The London Metals Exchange cash settlement gold price per troy ounce averaged US$1,213 in the September 2018 quarter compared to US$1,278 in the September 2017 quarter. The average CDN/US Dollar exchange rate was 1.307 in the September 2018 quarter, 4.3% higher than the exchange rate of 1.253 in the September 2017 quarter. In CDN Dollar terms the average copper price in the September 2018 quarter was CDN$3.62 per pound compared to CDN$3.61 per pound in the 2017 comparative quarter and the average gold price in the September 2018 quarter was CDN$1,585 per ounce compared to CDN$1,601 per ounce in the 2017 comparative quarter.

Revenue in the September 2018 quarter decreased by $5.1 million due to a negative revenue revaluation as compared to a $5.9 million positive revenue revaluation in the 2017 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 and finalization of contained metal as a result of final assays.

Net loss for the September 2018 quarter was $28.6 million ($0.24 per share) compared to net loss of $1.6 million ($0.02 per share) in the 2017 comparative quarter. The increase in net loss of $27.0 million was primarily due to the following factors:

Income/loss from mine operations went from income of $3.0 million in September 2017 to a loss of $28.8 million in September 2018, an increase in net loss of $31.8 million.
Interest expense went from $19.4 million in September 2017 to $19.9 million in September 2018, an increase in net loss of $0.5 million.
Foreign exchange gains/losses on current and non-current debt went from a gain of $16.6 million in September 2017 to a gain of $7.5 million in September 2018, an increase in net loss of $9.1 million.
Idle mine costs went from $1.9 million in September 2017 to $1.3 million in September 2018, a decrease in net loss of $0.6 million.
Tax recovery went from $1.9 million in September 2017 to $14.4 million in September 2018, a decrease in net loss of $12.5 million.

The September 2018 quarter net loss included foreign exchange gain related to changes in CDN/US Dollar exchange rate of $7.5 million compared to foreign exchange gain of $16.6 million in the 2017 comparative quarter. The $7.5 million foreign exchange gain is comprised of a $7.2 million gain on the senior notes, a $0.1 million gain on long term equipment loans, and a $0.2 million gain on operational items. The average CDN/US Dollar exchange rate in the September 2018 quarter was 1.307 compared to an average of 1.253 in the 2017 comparative quarter.

Cash flow was negative $11.8 million in the September 2018 quarter compared to positive cash flow of $18.0 million in the 2017 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 $37.5 million in the September 2018 quarter, up from $22.3 million in the 2017 comparative quarter. The September 2018 expenditures included $15.3 million for tailings dam construction, $21.1 million on mobile equipment and $1.1 million for other capital items.

At September 30, 2018, the Company has not hedged any copper, gold or CDN/US Dollar exchange. Quarterly revenues will fluctuate depending on copper and gold prices, the CDN/US Dollar exchange rate, and the timing of concentrate sales, which is dependent on concentrate production and the availability and scheduling of transportation.

Liquidity & Capital Resources and Financing

At September 30, 2018, the Company had cash of $4.8 million, available capacity of $9.7 million for future draws under the Senior Credit Facility, $10.0 million undrawn on the 2017 LOC loan facility and a working capital deficiency of $819.7 million, which includes $728.4 million of current debt.

Cash balances on hand, the projected cash flow from the Red Chris and Mount Polley mines, as well as the available credit facilities are expected to be sufficient to fund the working capital deficiency and the Company’s obligations as they come due assuming the Company is able to successfully complete the restructuring process. In addition, there are inherent risks related to the operation of the Company’s mines which could require additional sources of financing. There can be no assurance that the Company will be able to successfully complete the restructuring process, which process may include sales of some of the Company’s assets, joint ventures, a recapitalization, and a sale or merger of the Company. The completion of the restructuring process 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.

Adjusted Net Loss and Adjusted Net Loss Per Share

Adjusted net loss in the September 2018 quarter was $37.1 million ($0.31 per share) compared to an adjusted net loss of $18.1 million ($0.19 per share) in the 2017 comparative quarter. Adjusted net loss reflects the financial results excluding the effect of items not settling in the current period and non-recurring items. Adjusted net loss is calculated by removing the gains or losses, resulting from mark to market revaluation of derivative instruments, net of tax, unrealized foreign exchange gains or losses on non-current debt, net of tax and other adjustments.

Adjusted EBITDA

Adjusted EBITDA in the September 2018 quarter was a loss of $13.3 million compared to income of $17.9 million in the 2017 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 September 2018 quarter was negative $11.8 million compared to positive $18.0 million in the 2017 comparative quarter. Cash flow per share was $(0.10) in the September 2018 quarter compared to $0.19 in the 2017 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.

expressed in thousands, except cash cost per pound of copper produced

	Three Months Ended September 30, 2018
	Red Chris	Mount Polley	Composite
Cash cost of copper produced in US$	$36,250	$7,816	$44,067
Copper produced – pounds	13,546	2,599	16,145
Cash cost per lb copper produced in US$	$2.68	$3.01	$2.73

	Three Months Ended September 30, 2017
	Red Chris	Mount Polley	Composite
Cash cost of copper produced in US$	$37,575	$8,737	$46,312
Copper produced – pounds	19,651	3,981	23,632
Cash cost per lb copper produced in US$	$1.91	$2.19	$1.96

	Nine Months Ended September 30, 2018
	Red Chris	Mount Polley	Composite
Cash cost of copper produced in US$	$107,808	$20,035	$127,843
Copper produced – pounds	44,781	11,790	56,571
Cash cost per lb copper produced in US$	$2.41	$1.70	$2.26

	Nine Months Ended September 30, 2017
	Red Chris	Mount Polley	Composite
Cash cost of copper produced in US$	$111,951	$29,899	$141,850
Copper produced – pounds	51,402	15,048	66,450
Cash cost per lb copper produced in US$	$2.18	$1.99	$2.13

Red Chris Mine

Red Chris metal production was 13.55 million pounds copper and 8,741 ounces gold, an increase of 18% and an increase of 1% respectively, from 11.51 million pounds copper and 8,614 ounces gold produced in the second quarter of 2018. Mill throughput averaged 30,544 tonnes per calendar day during the third quarter ended September 30, 2018. Metal recoveries were 74.92% copper and 45.65% gold, up from the 72.96% copper and 43.94% gold achieved in the second quarter of 2018. Gold recoveries and grades continue to exceed budget, while copper recoveries continued to be lower than planned.

Red Chris Production	Three Months Ended September 30		Nine Months Ended September 30
	2018	2017	2018	2017
Ore milled – tonnes	2,810,076	2,772,416	7,930,517	7,879,281
Ore milled per calendar day – tonnes	30,544	30,135	29,050	28,862
Grade % – copper	0.292	0.407	0.340	0.379
Grade g/t – gold	0.212	0.219	0.253	0.204
Recovery % – copper	74.92	78.94	75.39	78.13
Recovery % – gold	45.65	43.09	45.82	39.47
Copper – 000’s pounds	13,546	19,651	44,781	51,402
Gold – ounces	8,741	8,426	29,569	20,396
Silver – ounces	22,780	34,446	77,050	89,273

Exploration, development and capital expenditures were $32.1 million in the September 2018 quarter compared to $17.4 million in the comparative 2017 quarter.

Mount Polley Mine

Mount Polley metal production during the September 2018 quarter was 2.60 million pounds copper and 7,748 ounces gold, a decrease of 32% and 15% respectively from the 3.82 million pounds copper and 9,110 ounces gold produced in the second quarter of 2018. Mill throughput averaged 15,145 tonnes per calendar day. Metal recoveries were 38.39% copper and 65.06% gold, compared to 60.8% copper and 68.64% gold in the second quarter of 2018, copper recovery were negatively impacted, as high oxide stockpiles provided an increased portion of the mill feed this quarter.

Mount Polley Production	Three Months Ended September 30		Nine Months Ended September 30
	2018	2017	2018	2017
Ore milled – tonnes	1,393,368	1,444,625	4,588,798	4,916,789
Ore milled per calendar day – tonnes	15,145	15,702	16,809	18,010
Grade % – copper	0.220	0.203	0.199	0.207
Grade g/t – gold	0.266	0.320	0.284	0.337
Recovery % – copper	38.39	61.44	58.49	66.98
Recovery % – gold	65.06	67.22	69.66	70.92
Copper – 000’s pounds	2,599	3,981	11,790	15,048
Gold – ounces	7,748	9,989	29,138	37,758
Silver – ounces	7,684	7,324	24,181	28,738

The unionized employees at Mount Polley returned to work in August following the strike that began on May 23, 2018. Following the return to work, mining in the Cariboo pit was restarted and the mill no longer relied solely on low grade stockpiles. Mining at the Cariboo pit is anticipated to be completed by mid-November, following which the mill will process feed from the low grade stockpiles for the remainder of the year.

Exploration, development and capital expenditures were $5.1 million in the September 2018 quarter compared to $4.6 million in the comparative 2017 quarter.

Huckleberry Mine

Huckleberry continues to be on care and maintenance. For the quarter ending September 30, 2018, Huckleberry incurred idle mine costs comprised of $1.1 million in operating costs and $0.2 million in depreciation expense.

Refer to Imperial’s 2018 Third Quarter Report on imperialmetals.com and sedar.com for detailed information.

An Earnings Announcement Conference Call is scheduled for Friday November 9, 2018 at 10:00am PST \| 1:00pm ESTManagement will discuss the Company’s Third Quarter 2018 Financial Results. To participate in the earnings announcement conference call dial 833.231.8250 (North America–toll free)A recording of the conference call will be available for playback until November 19, 2018 by calling 855.859.2056 (North America-toll free) playback code 2484458

About Imperial

Imperial is a Vancouver 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.

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