Charles Needham, CEO, Metorex
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» There is a lack of capex control at Metorex - Adrian Saville from Canon Asset Management.
» Metorex caned for R922m funding plans
» Metorex in R922m equity/debt raising

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Metorex financial rescue approved
Brendan Ryan
Posted: Tue, 23 Dec 2008

[miningmx.com] -- METOREX shareholders today approved measures to refinance the company but CEO Charles Needham was grilled in the general meeting by a private investor over the delay in raising funds.

The cash-strapped company is raising R922m of which R700m is earmarked for completion of the Ruashi copper/cobalt project in the Democratic Republic of Congo (DRC) with the balance intended as working capital for the group.

The investor, who declined to be identified afterwards but said he owned 250,000 shares, demanded to know at what point Metorex management became aware of the problems at Ruashi.

He pointed out Needham had told investors in August – when Metorex presented its results for the year to June – that things were going well at Ruashi.

“What happened next came completely out of the blue as far as outside shareholders were concerned. If you knew you had problems coming why did you not raise the money at an earlier stage when the share price was higher and so avoid some of the dilution to shareholders?” the investor queried.

Metorex shares had tumbled over the past year from a high of R24.80 to around 400c by end November when the equity raising was announced pitched at 200c. The share currently trades around 205c.

Needham replied Metorex management had been reviewing financial options for the company since March.

He commented, “we , perhaps, went down the wrong path initially but there was nobody sleeping in the system.

“ The main problem was the delay in the ramp-up in production at Ruashi rather than cost over-runs on the plant.

Interviewed after the meeting Needham commented, “we embarked on a process from March with the aim of building up a financial war chest but it took longer to implement than originally envisaged.

“With the benefit of hindsight – which is an exact science – yes, it would have made sense to raise funds through equity issues when Metorex stock was sitting at levels above R30.

“We did not do that because we did not want to dilute the existing shareholders unnecessarily. “

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According to Ruashi project manager Trevor Faber, one of the main problems delaying the ramp up was the failure of a number of pumps in critical parts of the plant.

It was subsequently found these pumps had not been built to specification and Faber said a number of claims for damages had been lodged.

Needham told the meeting that any amount which might be claimed “would not be material” because of the terms of the contracts signed.

The contracts were signed on the basis of “engineering, procurement, construction and management” (EPCM) in which Metorex took all the financial risk.

Former executive director Edward Legg pointed out that “turnkey” contracts - in which the contractor agrees a fixed price and so carries the risk – could not be negotiated in the DRC because of the high risk profile involved in operating there.

Interviewed afterwards, Faber said the problem was that the internal pump shafts were were manufactured from mild steel instead of the specified stainless steel.

Stainless steel was required to cope with the highly corrosive nature of the slurry material being pumped.

Faber said normal testing of a pump before it was installed to ensure it was working properly would not pick up the substitution of mild steel for stainless steel internally.

“What happened then was the pump failed after about eight shifts but that shut down operations for six to eight days because of the associated logistical problems that had to be dealt with such as emptying the huge tank in which the pump had been installed.”

The fallout from all this on Metorex has been far reaching. Founder and chairman Simone Malone has resigned along with executive directors Keith Spencer and Edward Legg.

Both Legg and Spencer are staying on as “technical advisors.” Needham is to be replaced as CEO and will become group MD.

Metorex is also looking at selling “non core” assets and shutting down operations that are “cash drains” on the company.