III Imperial Metals Corporation

Imperial Metals Corporation (the “Company”) (TSX:III) reports financial results for the three and six months ended June 30, 2019, 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. 

QUARTER HIGHLIGHTS

FINANCIAL

On March 10, 2019, the Company entered into an agreement to sell a 70% interest in the Red Chris mine to Newcrest. In accordance with IFRS, the Company has classified Red Chris mine as a discontinued operation effective January 1, 2019 and asset held for sale as at June 30, 2019, and the prior year comparative quarter consolidated statement of income (loss) has been restated accordingly.

Total revenue increased to $83.6 million in the June 2019 quarter compared to $80.1 million in the 2018 comparative quarter, an increase of $3.5 million or 4.4%.

Revenue from the Red Chris mine in the June 2019 quarter was $61.9 million compared to $57.3 million in the 2018 comparative quarter. This increase was attributable to a higher quantity of copper concentrate sold along with slightly higher gold prices partially offset by lower copper prices and a negative revenue revaluation.

Revenue from the Mount Polley mine in the June 2019 quarter was $21.7 million compared to $22.8 million in the 2018 comparative quarter. The decrease was attributable to lower sales volumes and metal prices.   

In the June 2019 quarter there were 3.1 concentrate shipments from the Red Chris mine (2018-2.6 concentrate shipments) and 0.7 concentrate shipments from the Mount Polley mine (2018-0.7 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$2.77 in the June 2019 quarter compared to US$3.12 in the 2018 comparative quarter. The London Metals Exchange cash settlement gold price per troy ounce averaged US$1,310 in the June 2019 quarter compared to US$1,306 in the 2018 comparative quarter. The average CDN/US Dollar exchange rate was 1.338 in the June 2019 quarter, 3.6% higher than the exchange rate of 1.291 in the June 2018 quarter. In CDN Dollar terms the average copper price in the June 2019 quarter was CDN$3.71 per pound compared to CDN$4.03 per pound in the 2018 comparative quarter, and the average gold price in the June 2019 quarter was CDN$1,752 per ounce compared to CDN$1,686 per ounce in the 2018 comparative quarter.

Revenue in the June 2019 quarter decreased by $4.8 million due to a negative revenue revaluation as compared to a $6.9 million negative revenue revaluation in the 2018 comparative quarter. Revenue revaluations are the result of the metal prices 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 metal prices at the last balance sheet date and finalization of contained metal as a result of final assays.

Net loss from continuing operations for the June 2019 quarter was $9.7 million ($0.08 per share) compared to net loss of $22.4 million ($0.19 per share) in the 2018 comparative quarter. The decrease in net loss of $12.7 million was primarily due to the following factors:

• Loss from mine operations went from a loss of $1.2 million in June 2018 to a loss of $2.2 million in June 2019, an increase in loss of $1.0 million.
• Interest expense went from $18.3 million in June 2018 to $18.1 million in June 2019, a decrease in loss of $0.2 million.
• Foreign exchange gains/losses went from a loss of $9.2 million in June 2018 to a gain of $9.1 million in June 2019, a decrease in loss of $18.3 million. The average CDN/US Dollar exchange rate in the June 2019 quarter was 1.338 compared to an average of 1.291 in the 2018 comparative quarter.
• Tax recovery went from $10.7 million in June 2018 to $4.0 million in June 2019, an increase in loss of $6.7 million.

Cash flow from continuing operations was $0.2 million in the June 2019 quarter compared to $0.8 million in the 2018 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 attributed to continuing operations was $0.6 million in the June 2019 quarter, down from $3.4 million in the 2018 comparative quarter. The reduction was due to placing Mount Polley on care and maintenance.

At June 30, 2019, 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.

OPERATIONS  

Red Chris Mine(1) 

Red Chris second quarter metal production was 17.60 million pounds copper and 7,580 ounces gold. Copper production was up from the first quarter by 26%, while gold production was down by 10%. Gold production was down on lower grade as virtually all mill feed came from the Main zone, with less feed coming from the mid pit area where gold grades are higher. Metal recoveries were 76.20% copper and 42.56% gold, compared to 73.84% copper and 48.06% gold achieved in the first quarter.

(1)  The Red Chris Mine was classified as a discontinued operation effective January 1, 2019 and the comparative period has been restated accordingly.

	Three Months Ended June 30			Six Months Ended June 30
	2019	2018		2019	2018
Ore milled - tonnes	2,694,090	2,529,951		5,062,427	5,120,442
Ore milled per calendar day – tonnes	29,605	27,802		27,969	28,290
Grade %  - copper	0.389	0.283		0.366	0.366
Grade g/t  - gold	0.206	0.241		0.216	0.276
Recovery %  - copper	76.20	72.96		75.18	75.59
Recovery %  - gold	42.56	43.94		45.27	45.89
Copper – 000’s pounds	17,599	11,510		30,700	31,235
Gold – ounces	7,580	8,614		15,897	20,829
Silver – ounces	30,427	19,388		53,054	54,270

The Company is working to obtain the necessary approvals and consents for the previously announced sale of a 70% interest in the Red Chris project to Newcrest Mining Limited.

Several factors that contributed to a strong production improvement in the quarter include:

• Improved primary haul truck fleet availability that enabled pit production targets to be met and targeted copper and gold grades were delivered.
• Unscheduled downtime was reduced substantially and a 91.6% plant availability was achieved versus the 89.6% budgeted.
• During the quarter, tonnes per operating hour (TPOH) averaged 1,348, a 12.6% increase from the prior quarter’s average of 1,197 TPOH.
• With the better availability and processing rate, 2.694 million tonnes were treated compared to 2.368 million tonnes in the previous quarter, a 14% increase.
• Copper recovery improved and averaged 76.2% versus the previous quarter’s average of 73.8%.

During the third quarter Red Chris management plans to focus on:

• Maximizing throughput through optimization of the pebble crusher and other debottlenecking initiatives to increase throughput rates. These efforts are achieving the desired result; for the first 20 days in July the plant treated an average of 1,454 TPOH, and on July 19, 2019 set a new record for daily throughput of 38,823 tonnes.
• Completion of the tailings dam construction using both Red Chris equipment and personnel, and TNDC (a Tahltan construction company).
• Confirm that installation of additional column cell residence time would improve plant recoveries by completing a program of test work using a recently installed pilot sized cleaning cell in the circuit. 

Subsequent to the quarter end, USW-Local 1937 was certified as bargaining agent for certain employees at the Red Chris mine. This certification follows the reconsideration of a previous decision by the Labour Relations Board. The company has filed a petition seeking judicial review of the Labour Relations Board's reconsideration decision.

Exploration, development and capital expenditures were $11.7 million in the June 2019 quarter compared to $12.1 million in the comparative 2018 quarter.

Mount Polley Mine

Mount Polley metal production for the two months prior to the suspension of operations in late May 2019 was 1.52 million pounds copper and 4,472 ounces gold. Mill throughput from the low grade stockpiles averaged 16,432 tonnes per calendar day for April and May, and metal recoveries were 28.92% copper and 46.60% gold as low grade, oxidized stockpiles were treated.

	Three Months Ended June 30			Six Months Ended June 30
	2019*	2018		2019*	2018
Ore milled - tonnes	1,002,352	1,582,944		2,231,119	3,195,430
Ore milled per calendar day – tonnes	16,432	17,395		14,776	17,654
Grade %  - copper	0.238	0.180		0.229	0.190
Grade g/t  - gold	0.298	0.261		0.283	0.291
Recovery %  - copper	28.92	60.80		33.96	68.69
Recovery %  - gold	46.60	68.64		52.33	71.48
Copper – 000’s pounds	1,520	3,819		3,825	9,191
Gold – ounces	4,472	9,110		10,619	21,390
Silver – ounces	4,609	7,531		11,119	16,497

*production stated for period January 1-May 26, 2019

A care and maintenance team is in place to look after the site and complete the final work on rehabilitation of Hazeltine Creek during the suspension of operations. For the quarter ended June 30, 2019, Mount Polley incurred idle mine costs comprised of $0.8 million in operating costs and $0.5 million in depreciation expense.

Exploration, development and capital expenditures were $0.7 million in the June 2019 quarter compared to $3.4 million in the comparative 2018 quarter.

Huckleberry Mine

Huckleberry continues to be on care and maintenance. For the quarter ending June 30, 2019, Huckleberry incurred idle mine costs comprised of $1.2 million in operating costs and $0.2 million in depreciation expense.

EARNINGS AND CASH FLOW

During the first quarter of 2019, the Company entered into an agreement for the sale of a 70% interest in the Red Chris mine. The sale is expected to be completed in the third quarter of 2019. As a result, this operation has been classified as a discontinued operation effective January 1, 2019 and the comparative periods have been restated.

Select Quarter Financial Information

Expressed in thousands, except share and per share amounts	Three Months Ended June 30				Six Months Ended June 30
	2019		2018		2019		2018
Continuing operations:
Total revenues	$21,673		$22,791		$35,476		$58,818
Net loss	$(9,677	)	$(22,390	)	$(12,014	)	$(53,468	)
Net loss per share	$(0.08	)	$(0.19	)	$(0.10	)	$(0.46	)
Diluted loss per share	$(0.08	)	$(0.19	)	$(0.10	)	$(0.46	)
Adjusted net loss (1)	$(18,651	)	$(13,658	)	$(30,040	)	$(33,324	)
Adjusted net loss per share (1)	$(0.15	)	$(0.12	)	$(0.23	)	$(0.28	)
Adjusted EBITDA(1)	$(16	)	$1,287		$(3,573	)	$6,367
Cash flow (1)(2)	$207		$843		$232		$5,520
Cash flow per share (1)(2)	$0.00		$0.01		$0.00		$0.04
Discontinued operations:
Total revenues	$61,945		$57,275		$124,823		$139,160
Net income (loss)	$2,227		$(14,165	)	$2,296		$747
Net income (loss per) share	$0.02		$(0.12	)	$0.02		$0.01
Diluted income (loss) per share	$0.02		$(0.12	)	$0.02		$0.01
Adjusted net income (loss) (1)	$1,968		$(14,165	)	$1,743		$747
Adjusted net income (loss) per share (1)	$0.02		$(0.12	)	$0.02		$0.00
Adjusted EBITDA(1)	$3,506		$(3,417	)	$14,059		$27,845
Cash flow (1)(2)	$3,260		$(3,436	)	$13,520		$27,845
Cash flow per share (1)(2)	$0.03		$(0.03	)	$0.11		$0.24
Working capital deficiency (3)	$744,682		$791,538		$744,682		$791,538
Total assets	$1,591,256		$1,661,947		$1,591,256		$1,661,947
Total debt (including current portion)	$887,932		$856,802		$887,932		$856,802
(1)  Refer to table under heading Non-IFRS Financial Measures in MD&A 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.
(3)  Excludes assets and liabilities held for sale.

 

Select Items Affecting Net Loss (presented on an after-tax basis)

expressed in thousands	Three Months Ended June 30						Six Months Ended June 30
		2019			2018			2019			2018
Net income (loss) before undernoted items from continuing operations	$(7,330		)	$4,582			$(14,722		)	$2,592
Interest expense		(13,184	)		(18,281	)		(26,607	)		(36,094	)
Recovery of BC Mineral taxes including interest		1,863			-			11,288			-
Gain on sale of Sterling		-			175			-			175
Foreign exchange gain (loss) on debt		8,974			(8,866	)		18,026			(20,141	)
Net loss from continuing operations	$(9,677		)	$(22,390		)	$(12,014		)	$(53,468		)

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. 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 from continuing operations in the June 2019 quarter was $16.7 million ($0.13 per share) compared to an adjusted net loss of $13.7 million ($0.12 per share) in the 2018 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 from continuing operations in the June 2019 quarter was a loss of $nil compared to a loss of $1.2 million in the 2018 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 2019 quarter from continuing operations was $0.2 million compared to $1.0 million in the 2018 comparative quarter. Cash flow per share was $0.00 in the June 2019 quarter compared to $0.01 in the 2018 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 and Mount Polley mines were 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, 2019
	Red Chris*	Mount Polley**	Composite
Cash cost of copper produced in US$	$44,772	$2,675	$47,238
Copper produced – pounds	17,599	1,520	19,119
Cash cost per lb copper produced in US$	$2.54	$1.76	$2.47

	Three Months Ended June 30, 2018
	Red Chris*	Mount Polley**	Composite
Cash cost of copper produced in US$	$36,119	$4,763	$40,882
Copper produced – pounds	11,510	3,819	15,329
Cash cost per lb copper produced in US$	$3.14	$1.25	$2.67

	Six Months Ended June 30, 2019
	Red Chris*	Mount Polley**	Composite
Cash cost of copper produced in US$	$79,942	$12,429	$92,352
Copper produced – pounds	30,700	3,825	34,525
Cash cost per lb copper produced in US$	$2.60	$3.25	$2.67

	Six Months Ended June 30, 2018
	Red Chris*	Mount Polley**	Composite
Cash cost of copper produced in US$	$70,415	$12,198	$82,614
Copper produced – pounds	31,235	9,191	40,426
Cash cost per lb copper produced in US$	$2.25	$1.33	$2.04

* The Red Chris Mine was classified as a discontinued operation effective January 1, 2019 and prior periods have been restated.** The Mount Polley Mine is a continuing operation. The mine was placed on care and maintenance on May 26, 2019.

For detailed information, refer to Imperial’s 2019 Second Quarter Report available on imperialmetals.com and sedar.com.

About Imperial

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 March 2019, Imperial announced an agreement with Newcrest Mining Limited to sell a 70% interest in Red Chris to Newcrest, for US$806.5 million, while retaining a 30% interest in the mine. The Company and Newcrest will form a joint venture for the operation of the Red Chris mine going forward, with Newcrest acting as the operator.

Company Contacts

Brian Kynoch | President | 604.669.8959Andre Deepwell | Chief Financial Officer | 604.488.2666Sabine Goetz | Shareholder Communications | 604.488.2657 | investor@imperialmetals.com

FORWARD-LOOKING STATEMENTS & RISKS NOTICE

The information in this news release provides a summary review of the Company’s operations and financial position as at and for the quarter ended June 30, 2019, and plans for the future based on facts and circumstances as of August 14, 2019. Except for statements of historical fact relating to the Company, certain information contained herein constitutes forward-looking information which are prospective in nature and reflect the current views and/or expectations of Imperial. Often, but not always, forward-looking information can be identified by the use of statements such as "plans", "expects" or "does not expect", "is expected", "scheduled", "estimates", "forecasts", "projects", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "should", "would", "might" or "will" be taken, occur or be achieved. Such information in this document includes, without limitation, statements regarding: expectations that the agreement to sell a 70% interest in the Company’s Red Chris mine to Newcrest will successfully close resulting in the joint venture between the parties for the operation of the Red Chris asset going forward, with Newcrest acting as operator and the timing thereof; expectations regarding the care and maintenance activities at Mount Polley; expectations regarding debottlenecking initiatives, tailings dam construction and test work programs at Red Chris; production and marketing; capital expenditures; adequacy of funds for projects and liabilities; the receipt of necessary regulatory permits, approvals or other consents; outcome and impact of litigation; cash flow; working capital requirements; the requirement for additional capital; results of operations, production, revenue, margins and earnings; future prices of copper and gold; future foreign currency exchange rates and impact; future accounting changes; and future prices for marketable securities. 

Forward-looking information is not based on historical facts, but rather on then current expectations, beliefs, assumptions, estimates and forecasts about the business and the industry and markets in which the Company operates, including, but not limited to, assumptions that: the agreement to sell a 70% interest in the Company’s Red Chris mine to Newcrest will successfully close within necessary time frames, enabling the Company to satisfy its debt obligations and repay its credit facilities as they become due; the Company will have access to capital as required and will be able to fulfill its funding obligations as the Red Chris minority joint venture partner; the Company will be able to advance and complete remaining planned rehabilitation activities within expected timeframes; there will be no significant delay or other material impact on the expected timeframes or costs for completion of rehabilitation of the Mount Polley mine and implementation of Mount Polley’s long term water management plan; the Company’s initial rehabilitation activities at Mount Polley will be successful in the long term; all required permits, approvals and arrangements to proceed with planned rehabilitation and Mount Polley’s long term water management plan will be obtained in a timely manner; there will be no material operational delays at the Red Chris mine; equipment will operate as expected; there will not be significant power outages; there will be no material adverse change in the market price of commodities and exchange rates; the Red Chris mine will achieve expected production outcomes (including with respect to mined grades and mill recoveries and access to water as needed). Such statements are qualified in their entirety by the inherent risks and uncertainties surrounding future expectations. We can give no assurance that the forward-looking information will prove to be accurate.

Forward-looking information involves known and unknown risks, uncertainties and other factors which may cause Imperial’s actual results, revenues, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the statements constituting forward-looking information. Important risks that could cause Imperial’s actual results, revenues, performance or achievements to differ materially from Imperial’s expectations include, among other things: the risk that the agreement to sell a 70% interest in the Company’s Red Chris mine to Newcrest will not successfully close within necessary time frames, jeopardizing the Company’s ability to satisfy its debt obligations and repay its credit facilities as they become due, and undermining the Company’s ability to continue as a going concern; the risk that the Company’s ownership of the Red Chris mine may be diluted over time should it not have access to capital as required and will not be able to meet its funding obligations as the Red Chris minority joint venture partner; that additional financing that may be required may not be available to Imperial on terms acceptable to Imperial or at all; uncertainty regarding the outcome of sample testing and analysis being conducted on the area affected by the Mount Polley Breach; risks relating to the timely receipt of necessary approvals and consents to proceed with the rehabilitation plan and Mount Polley’s long term water management plan; risks relating to the remaining costs and liabilities and any unforeseen longer-term environmental consequences arising from the Mount Polley Breach; uncertainty as to actual timing of completion of rehabilitation activities and the implementation of Mount Polley’s long term water management plan; risks relating to the impact of the Mount Polley Breach on Imperial’s reputation; the quantum of claims, fines and penalties that may become payable by Imperial and the risk that current sources of funds are insufficient to fund liabilities; risks that Imperial will be unsuccessful in defending against any legal claims or potential litigation; risks of protesting activity and other civil disobedience restricting access to the Company’s properties; failure of plant, equipment or processes to operate in accordance with specifications or expectations; cost escalation, unavailability of materials and equipment, labour unrest, power outages, and natural phenomena such as weather conditions and water shortages negatively impacting the operation of the Red Chris mine; changes in commodity and power prices; changes in market demand for our concentrate; inaccurate geological and metallurgical assumptions (including with respect to the size, grade and recoverability of mineral reserves and resources); and other hazards and risks disclosed within the MD&A for the three and six months ended June 30, 2019 and other public filings, available on Imperial’s profile at sedar.com. For the reasons set forth above, investors should not place undue reliance on forward-looking information. Imperial does not undertake to update any forward-looking information, except in accordance with applicable securities laws.