Metorex in survival mode

Ines Schumacher | Mon, 11 May 2009 13:04

[miningmx.com] -- DIVERSIFIED South African mining group Metorex firmly believes it can rectify its liquidity problems while aggressively pursuing its copper mine Ruashi’s ramp up.

“The company will continue with its corporate strategy to ensure survival while also positioning where we’ll be in future,” Metorex CEO Terence Goodlace said in a teleconference for the company’s first quarter operational update.

Metorex is hoping for its Chibulama copper mine in Zambia to benefit from the relatively high copper price of around $4,700/tonne to contribute towards repaying its $36m long-term loan. Chibulama currently produces at around $2,800/t.

Metorex has a number of payments fulling due this year totalling more than R1.1bn.

Chibuluma’s loan repayment has been re-negotiated with Standard Chartered Bank and the first instalment has been deferred from 31 March 2009 to 30 September 2009. It is the first of nine semi-annual instalments.

Consolidated Murchinson’s gold hedging contract losses have been crystallised at R41m, down from R52m previously reported. This debt needs to be repaid on 30 November 2009.

Metorex is currently in the process of running a resource and reserve programme at Ruashi due to be completed by mid August 2009. The full cost of the entire programme is estimated at $1.88m.

“The urgency of this project is driven by a need to gain certainty in the short-term plan and to review the mine design using revised copper and cobalt consensus forecast prices to limit possible unnecessary overburden stripping,” Metorex said in the operational statement.

Metorex copper production for the March quarter increased by 0.5% to 7,316 tonnes and copper sales by 1.7% to 7,534 tonnes. Ruashi was the main driving force behind increased production offset by a reduction at Metorex's Sable plant as a direct result of a lack of third party ore.

The company has to date spent $310m on Ruashi out of an estimated total of $330m. The Ruashi acid plant worth $7.4m will be taken to the board for approval this week, Goodlace said.

The money needed to repay the debts and ramp-up at Ruashi is likely to come from internal cash generation as well as funds raised from the disposal of non-core assets like the potential sale of its wholly owned Phoenix platinum tailings treatment project to Pan African Resources.

Metorex has identified its core assets as the copper operations at Ruashi and Chibuluma, its gold investment in Pan African Resources and its Vergenoeg fluorspar mine in South Africa.

"Pan African is probably the only good value asset Metorex can sell at this point. Palabora Mining is reaching its end of life so investors are buying Metorex as a copper investment subsitute," Afrifocus analyst Richard Hart told Miningmx. He said Metorex would benefit from becoming a pure copper play. "Its gold asset is meaningless. It's not something I'm saying they could be looking at selling, it's something they should be looking at selling," Hart said. The company drew criticism from shareholders in December 2008 when it raised capital to pay back a bridging loan, put its antimony operation into mothballs and service debt.

The bulk of the R922m funding came from a rights issue priced at R2, which was around half the price the share was trading at when Metorex told the market about its capital raising plans.

Metorex had cash of R392m at the end of December 2008. Goodlace said the cash position remained tight. “I firmly believe we can rectify our liquidity challenges,” he said.