Ruashi delivers for Metorex

[] — METOREX shares were trading up to 4% higher on the JSE on Tuesday morning, following release of results for the 12 months to end-June which showed a sevenfold jump in cash mining profits to R865m.

According to CEO Terence Goodlace , Metorex is now “out of the woods’ and management’s focus has changed from “one of survival to that of sustainable growth’.

The group has changed its financial year-end to December, so these numbers constitute a second interim report and are not annual results from Metorex.

Headline earnings per share were marginally improved at 25.2c (12 months to end-June 2009 – 23.9c), mainly because of the increase in issued share capital but Metorex has made huge strides forward on both the operating and financial fronts.

Copper and cobalt production from the Ruashi mine in the Democratic Republic of Congo (DRC) are 324% and 165% up respectively on the previous 12-month levels, now that the mine and plant are operating almost at planned full output.

The Ruashi mine is expected to maintain stable monthly production levels of 2,800 tonnes to 3,000t of copper, and 300t to 350t of cobalt for the coming year.

That has had a dramatic impact on Metorex’s balance sheet, which Goodlace described as being “restored’.

He said: “The gross debt position reduced by R1bn to R1,1bn over the last 12 months and cash-on-hand amounted to R520m at end-June.

“The group’s gross debt-to-equity ratio has improved to 27% from 74% a year ago. The Ruashi project finance debt is now ring-fenced to the Ruashi investment and is now “non recourse’.

“This non-recourse event de-risked the Metorex company balance sheet and provides financial flexibility and optionality in terms of the growth projects’ funding strategy.’

The hedge put in place at a copper price of $3,900/t to cover the project finance raised for Ruashi has now fallen away.

In July, Metorex put in place new hedges to lock in the current, far more favourable copper prices to protect forecast revenues at both Ruashi and the Chibuluma mine in Zambia over the next two years.

Goodlace said: “Current copper and cobalt prices, together with the new copper hedge book, bode well for the group’s mining profit margin going forward.’

He told Miningmx: “We believe strongly in the fundamentals of the copper market, with demand growth coming from the Bric (Brazil, Russia, India, China) countries and continuing stress on the supply side.’

Metorex is now carrying out feasibility studies for its Kinsenda and Lubembe projects, but Goodlace stressed any developments here would be undertaken cautiously given the lessons learned at Ruashi.

He told Miningmx: “We are a small company and we will do these expansions in a way that does not put us at risk. They will be done sequentially and not together, and they will financed out of cash flow with a modicum of debt.’

Goodlace believed Metorex’s operations would not be affected by the bust-up between the DRC government and First Quantum over the Kolwezi copper project.

The DRC government took away First Quantum’s licence for Kolwezi following its review of mining contracts in the country, triggering a legal dispute that has gone to international arbitration.

The rights to Kolwezi have now been bought by Kazakhstan resources heavyweight ENRC, and First Quantum is considering a multi-billion dollar compensation claim against ENRC.

ENRC first moved into the DRC last year through the takeover of the former Camec – a company which was previously a joint venture partner with Metorex in Copper Resources Corporation which controls the Kinsenda project.

Metorex implemented legal action against Camec early last year, claiming ₤86m.

Goodlace said: “All our issues with Camec were subsequently settled amicably. We were also one of the first mining companies in 2008 to hold negotiations with the DRC government over the terms of the review of our mining contract.

“We are now in a position where everything has been agreed and there’s nothing outstanding. Our focus is now to ensure we operate within the terms of the agreed mining contract.’

The writer owns shares in Metorex.