Troubled junior copper producer Imperial Metals Corp. has kicked off a strategic review that may result in the sale of the company as it struggles under a mountain of debt.
In a Monday release, Imperial Metals said it will also consider selling assets piecemeal, entering into joint ventures or recapitalizing the company.
The Vancouver-based company, backed by well-known energy executive Murray Edwards, says it has taken a number of steps that give it financial breathing room in the short term. With a market capitalization of just $134-million, it has a debt load of roughly $857-million and a cash balance of $16-million as of the end of the second quarter.
Imperial Metals' financial troubles stem from cost overruns during the construction of its Red Chris copper-gold mine in British Columbia a few years ago, which was financed with debt. At the time, cash flow from another property, the Mount Polley copper-gold mine, was supposed to help offset the capital requirements of building Red Chris. But a catastrophic tailings dam failure in 2014 forced the company to suspend operations at Mount Polley for almost a year. It has also encountered various production problems at Red Chris since it started production in 2015, including persistent issues with recoveries.
In a conference call with analysts after the release of its second-quarter earnings, management said it would be difficult to achieve its copper production targets this year for Mount Polley and Red Chris.
The share price has fallen about 90 per cent since 2014.
Despite its struggles, the company is expected to attract interest from buyers – especially for Red Chris, its biggest mine, which produced more than 74,500 pounds of copper last year and has a mine life that runs to 2043.
“We view Imperial’s Red Chris mine as an attractive long life project in a good jurisdiction that could be a nice fit for another producer on a 100 per cent basis or as a joint venture arrangement,” RBC Dominion Securities Inc. analyst Sam Crittenden wrote in a note to clients.
In an interview, Dalton Baretto, an analyst at Canaccord Genuity Group Inc., said he also thinks Red Chris will generate interest among buyers considering its location, decent copper grades and huge scale.
Over time, the open pit at Red Chris is expected to be complemented by a large underground mine that will require new permits. Extracting the ore underground will require a mining technique known as block caving, which is technically demanding and capital-intensive; like open-pit mining, it involves moving rock that collapses under its own weight.
“The challenge will be the actual mining method,” Mr. Baretto said. “There’s not a lot of companies out there that will be willing to tackle that.”
Imperial Metal’s $200-million revolving credit facility, which was set to expire in a few weeks, has been extended to mid-February and is backed by Edco Capital Corp., which is controlled by Mr. Edwards. Imperial Metals has also secured extensions into next year on a second lien credit facility worth $50-million and a $26-million bridge loan. It also raised $17-million by selling a royalty on Red Chris.
Shares in Imperial Metals rose 23 per cent on Monday to close at $1.40 on the Toronto Stock Exchange.
Niall McGee