Investors in Imperial Metals Corp.
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) will be keeping a close eye on Canadian oil patch billionaire Murray Edwards, as the beleaguered company moves to clean up a high profile tailings spill in British Columbia and keep a second B.C. mine on the development track.
Currently Imperial’s controlling shareholder, and a long time company financier, Edwards is stepping up for 40% of a $100 million convertible debenture financing that will be used to pay for clean-up costs at Mount Polley and help to fund cost over-runs at the company’s new Red Chris gold-copper mine.
Another 40% of the financing will come from another big investor, Miami, Florida-based Fairholme Capital Management
Edwards, who is also Chairman of Canadian Natural Resources Ltd.
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), has also committed to kicking in another $20 million to ensure that the $100 million target is reached.
That’s on top of a $75 million loan facility that Edwards agreed to provide back in March 2014.
There has been speculation that the clean-up costs at Mount Polley – where millions of cubic metres of waste water and silt spilled into nearby river systems on August 4, 2012 – could be as high as $200 million.
But Edwards’ commitment to the company is an indication of his belief that the clean-up costs will be a small fraction of that amount, a financial analyst said.
“He also appears to be betting that the company will be able to get [the potentially much larger] Red Chris mine into production on a revised schedule,’’ said Milovan Pejic, a research analyst with BMO Nesbitt Burns in Toronto.
If it can achieve that goal, it is widely thought that the company could be looking at a significant expansion at Red Chris down the road.
Still, BMO has placed an “underperform” rating on Imperial Metals after analysts from the investment firm flew over the Mount Polley site, which is now on care and maintenance.
The fly-over followed a tailings spill which prompted the B.C. government to request third-party technical evaluations for tailings impoundments to be completed at the majority of mine sites in the province (including certain inactive ones) by December 1, 2014.
BMO previously had a $21 target for Imperial Metals, which has seen its stock price tumble to $8.89 this week from $16.80 before the breach occurred, leaving the company with a market cap of $666.4 million, based on 75 million shares outstanding. The 52-week range is $18.63 and $8.65.
But that target has been withdrawn as the investment firm awaits further developments.
“A lot of uncertainty remains regarding required remediation measures, costs and timelines as the British Columbia government investigation is ongoing with no specified ‘review by’ date,” wrote BMO in a research report.
BMO’s Pejic said that in his view Mount Polley doesn’t really matter all that much [financially] to Imperial Metals.
He said Red Chris is a considerably larger mine and is much more important to the company’s future.
However, the tailings spill at Mount Polley, combined with a First Nations Blockade at Red Chris is raising concerns about how quickly production will get under way at the Red Chris, which is located 80 kilometres south of Dease Lake in northwestern B.C.
Reports say the Tahltan Central Council – a council combining the governments of the Iskut First Nation and the Tahltan First Nation -- has yet to decide if it will accept a proposal to have an independent third party conduct a review of the tailings pond design at Red Chris.
According to the Tahltan website, Tahltan members are scheduled to hold meetings on August 22, 2014, and August 23 to discuss how the recent Mount Polley “disaster” has impacted conversations about the Red Chris mine.
Meanwhile, the company has said net construction cost of the Red Chris mine is now estimated at $631 million, up from a previous estimate of $570 million, an increase that is attributed to power line construction.
BMO says that if everything goes according to plan, Red Chris will be a cash cow, generating $274 million in 2015, $206 million in 2016 and $224 million in 2017.
Those targets envisage 2015 production of 42,000 tonnes of copper and 66,000 ounces of gold.
“If they are able to stick to their schedule, Red Chris should be in production by the first quarter of 2015,’’ said Pejic.
If they don’t, he estimates that Imperial will lose $17 worth of net present value from its stock price. By comparison, Mount Polley is worth over $2.70 in net present value.
“I wouldn’t be too concerned about the company getting more money to tide them over if there is a significant delay,’’ said Pajic.
“Murray will probably provide them with whatever they need.’’