In a March 12 research note, CIBC analyst Oscar Cabrera reported that Imperial Metals Corp. (III:TSX) agreed to sell 70% of its flagship Red Chris mine in British Columbia to Newcrest Mining Ltd. (NCM:ASX) for US$806.5 million. On that news, CIBC upgraded its rating to Neutral from Underperformer and more than quadrupled its target price to CA$3.50 per share from CA$0.60 on Imperial. The asset stake sale is due to close in Q3/19.
Cabrera highlighted that with this transaction, Imperial avoids a liquidity problem. The company has $718 million in debt maturities coming due in Q1/19, but with the Red Chris deal closing in Q3/19, will not have to pay them until then. In addition, cash flow over the next two years from Imperial's other mines will likely be limited. They are Mount Polley, which is going on care and maintenance in Q3/19 until Q1/22, and Huckleberry, which is planned for a restart in 2020.
Also, longer term, Imperial's shareholders should benefit from Newcrest applying its expertise with the Cadia gold-copper mine in Australia to turning around Red Chris' current operations and developing its underground resource, Cabrera indicated. "We estimate Red Chris' current open-pit mine plan (i.e.), reserves, accounts for about 27% of total Measured and Indicated resources of 5,521 thousand tons of copper equivalent, with about 30% from an underground resource that remains open in various directions, according to Imperial Metals," he added.
The one downside of the deal, noted Cabrera, is that with it, most of Red Chris' resource upside potential gets transferred to Newcrest's shareholders.[NLINSERT]
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Disclosures from CIBC, Imperial Metals Corp., March 12, 2019
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Important Disclosure Footnotes for Imperial Metals Corporation (III)
∑ CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from Imperial Metals Corporation in the next 3 months.
Newcrest Mining Ltd. (NCM-AUS): CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from this company in the next 3 months.