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Q3 2008 Inmet Mining Corp. Earnings Conference Call - Final.

Article Excerpt
OPERATOR: Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Inmet Mining Corporation third-quarter results conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. (Operator Instructions). I would like to remind everyone that this conference call is being recorded on Wednesday October 29, 2008 at 8:30 AM Eastern time.

I will now turn the conference over to Mr. Jochen Tilk, President and Chief Operating Officer. Please go ahead sir.

JOCHEN TILK, PRESIDENT AND COO, INMET MINING CORP.: Thank you. Good morning and welcome to Inmet's third quarter conference call. Richard has a family commitment today and will not be joining us for the call.

With me today are members of Inmet's management team. I will start with an overview of the past quarter and then Jim Slattery, our CFO, will review our financial results and financial position.

Yesterday we announced second-quarter earnings of CAD75 million, CAD1.55 per share. Earnings for this quarter compared to the same quarter in 2007 were lower due to a reduction in realized zinc and copper prices as well as a foreign exchange loss on the translation of the Las Cruces US dollar denominated credit facility.

Our operating cash flow was CAD98 million or CAD2.03 per share. Our cash balance at the end of the quarter was CAD636 million.

Zinc prices and more recently copper prices have dropped dramatically to levels where many producers face challenges to sustain production. We have seen a number of zinc mines closing down or announcing the intent to suspend operations.

We've not yet seen the same development with copper producers although a prolonged period of further depressed copper prices would be expected to ultimately lead to the closure of higher cost producers. I would like to comment on a few particular issues in the context of the current economic environment and the prospect of a potentially prolonged period of depressed metal prices.

Firstly, I would like to make a brief comment on our operations and secondly I will comment on the status of Las Cruces and Cerattepe and finally I will comment on Petaquilla and our plans going forward. First to our operations.

Our third quarter production was generally in line with our objectives for this year. We did not have major operation challenges during the quarter although we adjusted our annual objective for gold production mainly because of reduced throughput expectations at Troilus and difficulties Ok Tedi had experienced with one of its conveyor systems in the previous quarter. These issues have since been dealt with.

You may also have noticed that our zinc production at Pyhasalmi was lower which was the result of a mining (inaudible) with less zinc as was expected from Pyhasalmi's mine plan. One question that has come up frequently is in regards to pyrite.

Pyrite prices which are based on sulfur prices have quickly returned to restored levels. We will benefit from somewhat higher prices until the end of the year because our main contract is negotiated on a semi-annual basis at which time we expect revenue from pyrite to return to historic levels.

Regarding our copper production, we reduced our objective for the year as we no longer expect Las Cruces to commence production in 2008. And I will comment on this in more detail later on.

The weighted cash cost per pound of copper produced during the quarter was CAD0.60. The increase compared to the prior year's quarter is mostly the result of lower metal credits because of the drop in the zinc price and inflationary cost increases. Metal prices for the quarter averaged CAD2.66 for copper and CAD0.73 for zinc, respectively which is significantly higher than the current spot prices.

Although we expect our cash costs to increase based on current spot prices, our operations remain cost competitive and are therefore well-positioned to weather this difficult economic environment. Prudent and cost efficient management of our mines has always been a priority for us and we will continue to apply this discipline going forward.

To Las Cruces, initiating production at Las Cruces remains our highest priority. In our quarterly press release, we expressed confidence that the suspension of Las Cruces water permit may be resolved in the near future.

Our expectation is based on the fact that we have successfully implemented water purification as an additional component of the dewatering and reinjection system. We now have six temporary reverse osmosis units in place capable of purifying all of the water that we extract from the aquifer in order to keep the pit dry.

The regulator has not yet given us permission to reinject the purified water because it is awaiting a technical report from the Spanish Geological Survey. This report has now been issued and the conclusion is positive, recommending the reinjection of the purified water into the aquifer.

However, a criminal investigation was also launched concerning the events in May that lead to the suspension as a result of a complaint from a nongovernmental organization. And the judge presiding over the criminal investigation has effectively taken control over the final decision to allow the reinjection of purified water into the aquifer and the lifting of the suspension.

The judge is currently reviewing the technical report from the Spanish Geological Survey and the recommendation from the Water Authority to allow the reinjection of the purified water. We now expect the judge will make a decision based on that information.

Should Las Cruces be allowed to reinject the purified water back into the aquifer, we would anticipate that the suspension would be subsequently lifted and that Las Cruces would be allowed to resume mining of the ore body shortly thereafter. After resumption of mining activities, Las Cruces would require several weeks to build up an inventory of...