A strengthened balance sheet at Inmet Mining Corp. has given the company the power to shape the terms of a minority-stake sale in its giant copper project in Panama.
Since May, the Toronto-based copper and zinc miner has raised $1.5-billion (U.S.) in debt. Inmet president and chief executive officer Jochen Tilk said Tuesday an agreement could be reached as early as the third quarter to sell a portion or stream of future gold and silver production from the project, raising another $1-billion in project financing.
"It gives us some latitude in terms of timing and looking at selling a minority interest as an opportunity rather than having to do that from a point of financing," Mr. Tilk said during a call with analysts to discuss Inmet's second-quarter earnings. "We are looking at the possibility of selling a 10– to 20-per-cent minority interest as an opportunity of further mitigating capital risk."
Cobre Panama – Panama Copper in Spanish – will produce about 266,000 tonnes of copper per year, a large mine by global standards that will thrust it up the ranks of mid-tier copper miners. But shareholders have long been concerned about the company's ability to safely shoulder the booming costs of the venture on its own – some $6-billion at last count, or about double Inmet's market capitalization.
Inmet said this week it will commit at least $4-billion of the total project cost by the end of the year in an effort to contain further inflation. It said most of that would go to construction of a power plant and processing plant, to mining equipment and to earth-moving contracts like site preparation and road construction.
The open-pit development 120 kilometres west of Panama City and 20 kilometres from the Caribbean coast will also produce 87,000 ounces of gold, 1,545 ounces of silver and 2,900 tonnes of molybdenum per year when it starts production in early 2016.
Inmet owns 80 per cent of the project and Korea Panama Mining Corp. owns the rest, an ownership structure that makes shareholders uneasy because it forces Inmet to bear much of the risk, including sky-rocketing project costs.
"As we've seen with other projects, we won't know what the real (cost) number is until it's built and that is only going to go in one direction, which is higher," said Orest Wowkodaw, an analyst at Canaccord Genuity.
Like other global miners, Inmet is facing fast-rising costs of production, from the commodities it consumes to build the mine to labour costs. Analysts applaud its decision to sell future production from the project, but say it would not likely be enough to put the market at ease in terms of mitigating the risks it is taking on.
"That's why I think the market would like to see them sell another piece of the project just to de-risk the balance sheet," said Mr. Wowkodaw.
Mr. Tilk preferred not to give a date by which Inmet might sell a stake. He also declined to say whether Inmet is already in talks with a potential buyer. "We'll look at that more opportunistically, depending on market conditions and interest and so on, and I think our prospects of being successful may increase as the project evolves."
Cobre Panama has already been 44 years in the making, partially discovered by a United Nations development program team in 1968 in Panama's Petaquilla river region.
Inmet reported earnings from continuing operations of $1.36 (U.S.) per share, up from 83 cents in the same period last year as it sold more copper from its Las Cruces and Cayeli mines in Spain and Turkey.