Metorex not out the woods

[] — AFTER a hefty rights issue, a major debt restructuring exercise and the sale of assets – such as its controlling stake in Pan African Resources – it’s depressing to realise Metorex still faces serious liquidity problems.

The group’s net cash position fell to R42.4m at end-June from R183.6m a year previously and total debt at end-June was R2.1bn.

Financial director Maritz Smith says there’s a possibility Metorex could fall short on a payment of $25m due on the Ruashi copper/cobalt project in December this year.

Most of that debt has been incurred on ramping up production from the Ruashi mine in the Democratic Republic of Congo after major technical problems during its early commissioning stage.

Maritz was confident a solution could be found, which is why the latest numbers have been prepared on a “going concern’ basis.

Metorex was trading under a cautionary as management worked on the problem.

It seems one solution could be a corporate deal to bring a strategic investor into either the top company or directly into Ruashi.

Looking on the bright side, at least the copper price has recovered well from the depth it plumbed last year. Plus production and recoveries are now building up nicely at Ruashi.

Metorex’s price at current levels of around 365 cents/share has trebled from the low it hit of 115 cents late last year. The rights issue was held in December at 200 cents.

My approach to what happens next is a mixture of optimism and realism. Assuming Metorex manages to find a corporate solution to its woes – and that the recovery in the global economy continues – then the share is a buy.

But if you were fortunate enough to get in between 115 and 200 cents I’d take some profits at this point as an insurance policy.

Subsequent to the writing of this story for Finweek (issue dated 24 September), Metorex has told the market it is selling its 55% stake in the Vergenoeg fluorspar operation for $60m. Metorex has raised R945m from the sale of assets since 30 June 2009.

The writer holds shares in Metorex.