Canada’s Top 40: Richard Ross on Inmet’s success

CMJ: I’m so pleased to catch up to you and speak about a truly growing Canadian mineral producer, one with the strength to go global.

Ross: It is my pleasure. Although Inmet is a relatively small mining company in the base metals industry we are already very much a global company, which is one of our strengths. We have demonstrated that we can effectively do business all over the world, which also broadens our scope for further growth. It is true that “the sun never sets on an Inmet operation!”

CMJ: What role does Inmet play in the international mining scene?

Ross: Inmet occupies a niche in the international base metals industry. We are one of the few small cap companies with a significant production base as opposed to an exploration focus. For shareholders who are looking for significant upside, particularly in copper prices, the potential impact on our share price following the next recovery phase in base metals could be greater than many of the larger cap base metal stocks. However, it is important to note that even when metal prices are low, as demonstrated over the past few years, we remain profitable. We also have a solid balance sheet with very little debt and a significant amount of financial resources to execute another acquisition. Finally, as most analysts would agree, our share price is still very low in relation to their estimates of our net asset value, which in many ways is an attraction to value investors.

CMJ: Describe your offshore operations.

Ross: Cayeli is an underground copper-zinc mine, located on the Black Sea coast in Eastern Turkey. We own 55% and the government of Turkey is our partner. The story at Cayeli over the past five years since it has been in operation is one of significant growth in reserves and production. That growth has not stopped as we continue to explore the potential of this orebody, as the mineralization is open at depth. Reserves and resources are sufficient for a 20-year mine life at current production rates. We are also increasing production by 25% starting in 2003 through a very modest capital expenditure of US$3.5 million. Cayeli is a low cost copper producer and competes with much larger mines around the globe.

Ok Tedi is an open pit copper-gold mine located in the Highlands of Papua New Guinea. We own 18%, the government of PNG owns 30% and a newly-formed Sustainable Development Company owns 52%. This is a unique shareholding structure but one that makes a lot of sense for this company. Ok Tedi is one of the largest employers in PNG and contributes approximately 10% of GDP. Therefore, much of the economic benefit of this mine flows back into PNG for the benefit of the country and its people. Ok Tedi has approximately 10 years of remaining mine life and is situated around the median of international cash operating costs.

Pyhsalmi is a copper-zinc mine located in central Finland. We own 100% of this mine. Pyhsalmi ranks as one of the most efficient and productive underground mines and therefore lowest cost mines in the world. Pyhsalmi has recently invested over 60 million euros in constructing a new shaft and related infrastructure to access a newly discovered orebody at depth. Current reserves are 14 years of mine life. We also have a large exploration package at Pyhsalmi and are keen to explore the potential to grow our resources in this area over time.

CMJ: Why has Inmet put so much effort into foreign projects? Is there something about Canada that discourages development here?

Ross: Inmet was originally formed in 1987 by a German conglomerate, which vended its interests in a number of international mining operations into Inmet. Therefore, this [international aspect] has always been a characteristic of the company. Mineralization does not recognize borders and in order to increase opportunities for growth, companies have to look beyond their own backyard. That does not mean that there are not opportunities in Canada. We have an interesting development opportunity called Izok, which is a zinc-copper resource in Nunavut that could one day become a growth opportunity for us. In addition, our Troilus gold mine in Quebec is an important operation for us. We have had great success doing business in Quebec and particularly working with the local Cree, who make up approximately 25% of our work force.

However, many developing countries have based their economic growth on the exploitation of natural resources and value the contribution that this can make on their economies. If Canada is to attract further mining development it must stay competitive with the rest of the world, particularly with respect to the taxation of mining operations.

CMJ: Describe the Troilus mine.

Ross: Troilus is our wholly owned open pit gold mine located in northern Quebec. Troilus produces approximately 160,000 ounces of gold a year and had cash costs of US$215 per ounce in the first quarter of this year. Although Troilus is a low grade deposit, the operation has been successful in expanding production over the years from 10,000 tonnes per day of ore mill throughput to now over 15,000 tonnes per day. This has ensured that Troilus can continue to be a significant profit and cash flow contributor to Inmet. Unfortunately, Troilus only has five years of remaining mine life.

CMJ: In planning for the future, where are Inmet’s most exciting exploration projects?

Ross: Our exploration focus is in fact very international. The majority of our exploration spending this year will be in Australia and Sweden. We also are moving more of our exploration focus to the countries where we have mining operations, such as Turkey and Finland.

CMJ: And there is the Bergslagen project in Sweden. What attracted Inmet to participate in this project?

Ross: We had the opportunity to review the historic exploration work that had been done by Boliden in this area and were very impressed with the number of obvious exploration targets. Our exploration strength and past success has been in VMS [volcanogenic massive sulphides] and this area of Sweden is an area that historically has had large VMS mining deposits.

CMJ: Much to the credit of Inmet management, share price doubled to about Cdn$7.00 during the first half of 2002. Can you dust off your crystal ball and predict how high share prices might go by the end of the year?

Ross: Our share price hit a low of $1.60 in March 2001 and since then has traded close to $7.00. Predicting near-term share prices is next-to-impossible as there are too many factors not in management’s control. However, over the long term, we are confident that we can achieve further significant share price appreciation.

CMJ: Will current strategy change to keep Inmet growing over the longer term, maybe five to 10 years?

Ross: Our strategy remains unchanged. We established a strategy over two years ago “to grow as a base metal mining company providing superior returns to shareholders”. This strategy has paid off and we have no reason to believe that we cannot continue to be successful sticking with this strategy. We occupy a niche in the base metals industry and can provide unique attributes that we believe can result in more value creation over time.

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