The following was in this mornings Financial Times:
B.C. Report
Producer premium gives Imperial momentum
By JOHN SCHREINER
Vancouver Bureau Chief The Financial Post
When a mining exploration company brings a mine into production, the stock often trades at a different level, attracting what is called a "producer premium."
Vancouver-based Imperial Metals Corp. may have gained as much as five months in attaining that premium after accelerating development of its Mount Polley gold-copper mine in central B.C.
Construction on the $123-million project started last May. Next week, the mine is expected to start crushing ore, and by May the company expects to begin processing ore in the plant -- a full five months ahead of schedule.
According to one estimate, the project's construction overheads run at about $300,000 a month. That means Imperial will have shaved $1.5 million from its budget.
The market has already been valuing Imperial higher this year, but more probably for its stakes in some hot junior exploration companies than in anticipation of production at Mount Polley.
The shares (IMP/TSE) have traded in a 52-week range of $2.80 to $1.16 and fell 5› yesterday to close at $2.20. This is a stock that has spent much of the past decade trading under $1.
Imperial president Pierre Lebel figures the company already is worth more than its current trading value. In a recent calculation -- and he cautions that it is not audited -- he values Imperial's assets at $229 million, or about $3.40 a share, of which Mount Polley comprises $1.48.
The company has been pursuing the Mount Polley project for about a decade and obtained its mine development certificate in 1992.
The Mount Polley deposit, originally discovered in 1964, has initial mineable reserves of 82 million tonnes, containing 1.1 million ounces of gold and 544 million pounds of copper.
After struggling to finance the project, Imperial last April attracted Sumitomo Corp. to take a 45% interest, make a project loan and market the concentrate. During Sumitomo's copper trading crisis last June, the big Japanese trading company quickly assured its Canadian partner that the Mount Polley project would still go ahead.
In the mine's first four years, planned output is 100,000 ounces of gold and 29 million pounds of copper, with cash costs of around US$180 an ounce. The current mine life is about 13 years but the property has exploration potential and there also is the possibility of other
discoveries by neighboring juniors that could look to Imperial's mill for processing.
Mine revenue will begin to impact Imperial in the second half, although the company is projecting a modest 1› a share loss this
year, compared with an estimated 11› profit last year (mostly the result of extraordinary gains on the sale of an asset). In 1998,
the company, which has 67 million shares fully diluted, forecasts it should earn about 15› a share.
Imperial has a plate full of other exploration projects in B.C, including the Midway silver-lead-zinc deposit, not far from the
Alaska Highway in northern B.C. The deposit is small (1.4 million tonnes) but so high grade that the ore has a gross value of
more than US$150 a tonne. "It's got to be our No. 1 exploration property," Lebel says.
However, the recent impetus behind the company's stock has come chiefly from its 53% ownership of Colony Pacific Explorations Ltd., a junior that last year formed a joint venture in Indonesia with Inco Ltd. to explore on the Indonesian island of Sumatra. Colony's shares (CYX/TSE) have exploded from a 52-week low of 30› to a high of $9.25, closing yesterday down 60› at $7.50. Imperial owns nine million shares and Lebel also is president of Colony. "Colony Pacific scores high on our qualitative scale," Goepel Shields & Partners analyst Rob Klassen wrote in an early February report in which he recommended the shares as a "hold-speculative buy for risk oriented investors."
Imperial also owns 40%, or 5.5 million shares, of Cathedral Gold Corp. (CAT/TSE). Those shares have a 52-week range of $3.10-$1.75 and closed yesterday unchanged at $1.85. Cathedral owns 90% of a small, high-cost Nevada gold producer (11,500 ounces last year). But the potential for the company hinges on its gold exploration programs in Guyana and Honduras.
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