Inmet reassesses Ok Tedi contribution

A change in accounting method for the 18% interest in the Ok Tedi copper-gold mine in Papua New Guinea held by Toronto-based Inmet Mining Corp. lay behind a fall in September-quarter earnings for the company. Inmet recorded net earnings of C$3.0 million in the three months to September 30, 2000, compared with C$8.4 million (before non-recurring gains of C$23.4 million) in the corresponding period in 1999. Inmet changed to the cost-accounting method for Ok Tedi in the June quarter, under which earnings are only booked from this investment when a dividend distribution is made by Ok Tedi.The mine's underlying operating performance was steady in the September quarter. Throughput, at 7.4 Mt of ore (100% basis), was 2.8% higher than in the September quarter of last year, and the copper grade rose by 13%, to 0.94%, but the average recovery rate fell from 84% to 77% to leave copper output virtually unchanged at 51,500 t. Gold recovery was only fractionally lower, at 62%, and the grade also rose, by 41% to 1.00 g/t, resulting in a corresponding 41% increase in output to 144,400 oz. Cash operating costs fell to US$0.43/lb of copper, from US$0.52/lb in the September quarter of last year, and total costs were US$0.62/lb (US$0.70/lb).Meanwhile, Ok Tedi's average copper price rose by 21%, to US$0.88/lb, and the average gold price was 4.1% higher, at US$282/oz. However, Ok Tedi has not yet paid a dividend this year, owing to a rise in the operation's working capital (to US$22 million by the end of September) and to capital spending totalling US$16 million in the first nine months of the year. Ok Tedi plans capital spending of around US$30 million over the next three quarters, mainly on a major replacement programme for its mining equipment, and Inmet does not expect to receive any dividend for the balance of this year.Inmet notes the expressed intention of BHP Ltd of Australia, the 52% owner and operator of Ok Tedi, to divest its interest in the operation. BHP has presented a fiveyear closure plan for Ok Tedi, but the Papua New Guinean Government appears keen not to forgo the economic benefits of the operation (MJ, July 21, p.47). Inmet is involved in the discussions between BHP and the government regarding BHP's exit from the operation.Owing to the accounting change, Ok Tedi made no contribution to Inmet's operating earnings of C$9.1 million in the September quarter, compared with a contribution of C$2.0 million to the total of C$12.3 million in the corresponding period in 1999. The wholly-owned Troilus mine in Quebec contributed C$2.1 million, down from C$2.8 million, mainly as a result of a fall in grade to 0.82 g/t from 1.22 g/t in the September quarter of last year. The recovery rate also slipped, from 84% to 80%. Output thus fell, by 32% to 28,500 oz, and cash operating costs rose by 10%, to US$246/oz (total costs rose by 11% to US$263/oz). The low grades are the result of mining away from the core of the orebody as the final push-back of the open pit is completed. Inmet expects the stripping ratio (3:1 – waste:ore in the September quarter) to start to decrease in the December quarter, and the grades to improve next year.The bulk of Inmet's operating profit came from the 49%-owned Ã‡ayeli copper-zinc mine in Turkey (MJ, May 26, p.407), which contributed C$7.3 million compared with C$7.4 million in the September quarter of last year. The operation milled 244,000 t of ore (100% basis) for the three months, an increase of 8.4%, but grades were lower and only partially offset by slightly higher recoveries. The net result was a 3.7% increase in copper output, to 11,100 t, and a 6.4% decrease in zinc production, to 7,300 t. Cash operating costs (net of by-product revenue) rose by 20%, to US$0.42/lb of copper, largely as a result of the lower zinc production (total costs were 15% higher at US$0.46/lb). Ã‡ayeli's average copper price was 4.8% higher, at US$0.87/lb, and its zinc price was 1.9% up at US$0.54/lb.Inmet's development and exploration costs at the corporate level rose from C$1.4 million in the September quarter of last year, to C$2.6 million in the latest period, reflecting the company's growth strategy. Prominent among exploration efforts was that in the Bergslagen area of Sweden (MJ, May 5, p.350). The ability to fund such growth is strong: Inmet's cash and shortterm investments totalled C$81.5 million at September 30, against which total debt stood at C$27.7 million.

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