Charles Needham, MD, Metorex
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Metorex in R922m equity/debt raising
Allan Seccombe
Posted: Thu, 27 Nov 2008

[miningmx.com] -- METOREX, a diversified South African mining company, is raising R922m to complete its DRC-based Ruashi copper and cobalt project, which is behind schedule and well over budget.

Costs at Ruashi near Lubumbashi had by August already risen to $290m, well above the 2004/05 pre-feasibility cost of $160m, with costing estimates based on Metorex's copper plant at Sable in Zambia. The study also came out before the massive run up in commodity and input prices. The cost of Ruashi is now $320m.

Metorex is toning down exploration in the Democratic Republic of Congo (DRC) as well as taking a far more considered approach to reviving the Kinsenda mine it acquired as part of its purchase of a majority stake in AIM-traded Copper Resources Company (CRC), CEO Charles Needham said.

It is also prepared to sell assets deemed as non-core to repay the R178m of bridging finance raised from Standard Bank. These could include its zinc assets in Zambia, a small platinum group, and Consolidated Murchison, an antimony and gold project.
some may view the re-financing terms as onerous
Needham described Ruashi and Chibuluma, a copper mine in Zambia, as absolutely core along with the Vergenoeg fluorspar mine and its controlling stake in gold producer and explorer Pan African Resources.

There is no chance of Metorex following the route of a number of its peers in suspending the project because of metal prices. “Ruashi is on the cusp of final commissioning and it cannot be shelved. It would be unforgivable not to get it to final completion and into production,” Needham said.

“We wouldn’t do that if we didn’t think it was going to contribute.”

The funding arrangement announced after the JSE closed on Thursday entails raising R744m in equity and the R198m from Standard Bank. Metorex has restructured its medium-term debt over a longer period.

Metorex will spend R700m to complete Ruashi and bring it into full production in the first quarter of 2009. The project will now cost $320m against initial expectations of up to $280m.

Metorex will issue 372 million shares at R2/share. Metorex’s shares reached a high of R3.95 on Thursday before closing at R3.81. Shareholders meet on 23 December to decide on the issue of new equity.

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“It is very, very important that this money is secure. The alternatives to this fund raising are not really wanting to be contemplated,” Needham said.

The price of the shares was set by the Metorex board after a book-building exercise amongst institutions. It represents a 48% discount to the weighted average share price Metorex traded at on 20 November, the day before the finalisation of the book-build.

“Whilst some may view the re-financing terms as onerous, the financing is recognised as an achievement considering the current global credit market conditions and the volatility and weakness of commodity prices, and places the Company in a healthy financial position in the medium-term,” Needham said.

Asked whether Metorex was compelled to hedge copper and cobalt from Ruashi, which is six months behind schedule, Needham declined any comment apart from saying such details would be included in circulars to be posted to shareholders on Monday, 1 December.

“It’s a discussion we need to have and there’s no final conclusion yet,” he told Miningmx.

These developments leave Metorex’s immediate plans for exponential growth in copper in tatters. Needham said as recently as August that there were plans to increase copper production to 140,000 tonnes by 2012 and cobalt to 8,000 tonnes in the same period.

In the 2008 financial year, Metorex produced 25,350 tonnes of copper from its projects in DRC and Zambia as well as 565 tonnes of cobalt. The growth would come from an investment of between $300m and $400m in reviving Kinsenda and developing the Musonoi exploration project.

The difficulties in raising that much money will certainly push those plans onto the backburner.

There is unpleasantness brewing within CRC because Central African Mining & Exploration Company (CAMEC), which suspended its cobalt and copper operations in the DRC because of low prices, has yet to make an offer to all shareholders to acquire the company after it passed the 30% ownership level.

Needham was tightlipped about the situation with CAMEC within CRC. The relationship with CAMEC has been uneasy right from the start, with both companies racing for control of CRC.

“If we need to say anything on that we’ll put out a release,” Needham said.

Asked where Kinsenda now fitted into Metorex’s plans, which earlier this year showed strong growth in copper production, Needham said: “without suitable financing we need to review that process.”

Metorex is maintaining a low-level of work at the mine on which it has already spent more than $20m, feeding into the capital crunch within the company. None of the money Metorex is now raising will go towards that project, Needham said.