Metorex trends in the right direction

[] — METOREX forecast slightly lower copper production in the March quarter because of wet weather and electrical problems at its Ruashi project in the Democratic Republic of Congo (DRC), but overall the slimmed down group with a strong pipeline of copper prospects is trending in the right direction.

Metorex produced 28,840 tonnes of copper in the six months to end-December 2009, with 12,634 tonnes of that in the last quarter of the year. The outlook for the March quarter is 12,500 tonnes. Cobalt output is forecast at 750 tonnes, down from 823 tonnes in the December quarter.

In January, Metorex lost 950 tonnes of copper production because of electrical problems at the Ruashi operation. The rectifier circuit, which supports the electro-winning tank house, has been repaired and Metorex is upgrading a number of components.

Metorex, which has shed R940m worth of assets deemed non-core, is now focused on copper and cobalt production, primarily from DRC but also in Zambia, where it has the Chibuluma mine and the Sable treatment plant.

Asked if he was satisfied with the overall trend Metorex was experiencing, CEO Terence Goodlace said: “I’m more than satisfied.”

“We’ve reduced the debt quite considerably and there’ll be a further reduction with our capital raising. On the upside, the two mines, Ruashi and Chibuluma are producing well and they’re being supported by strong fundamentals around the copper and cobalt prices,” he said.

The market evidently agreed, with the share price pushing up seven percent by midday on the JSE to trade at 415 cents. A rising copper price on the back of production disruptions from Chile where there was a massive earthquake also contributed to Metorex’s increase.

The hedge book put in place for Ruashi weighed heavily on Metorex and it expires at end-June 2010. Sixty percent of Ruashi’s production was sold at a maximum $3,900/tonne, well below the spot price. September quarter output was affected by power outages linked to planned maintenance of the national power utility.

Metorex has agreed a revised hedging policy which will cover 45% of production and prices the metal at $5,972/tonne to end-June 2011. The existing hedge book based on a copper price of $7,400/tonne means Metorex has a negative mark-to-market hedge book of R540m.

Metorex has put in a new hedge at its Chibuluma copper mine to ensure the payment of $32m in debt, with repayments of $5m every six months. In the first half of this year, Metorex will sell 4,200 tonnes at $5,307/tonne. The hedge for 3,000 tonnes between July and December and a further 3,000 tonnes in the following six months has a zero-cost collar of roughly $7,000-$8,600.

Chibuluma on average, taking account of ongoing capital expenditure, operating costs and debt servicing, needs to achieve $4,500/tonne to service its debt, said finance director Maritz Smith, adding the hedge represented about a third of the mine’s production.

Ruashi copper sales climbed to 8,052 tonnes in the December quarter from just below 5,000 tonnes the previous quarter. Cobalt sales fell 117 tonnes to 683 tonnes because of limited truck availability during December and copper cathode was given priority.

Operating costs were reduced by $822 to $2,829/tonne in the December quarter, giving Metorex a ten-fold increase in cash mining profit at Ruashi.

Five power outages, poor weather and limited face availability meant a three percent fall in mined tonnages at the Chibuluma operation in Zambia. Lower recoveries at the plant contributed to a 727 tonne fall in output to 3,846 tonnes.

The outlook for Chibuluma is improved production, but the increased recoveries and volumes will be offset by a four-day primary crush replacement in February.

The Sable treatment plant has seen increased deliveries of ore, which will boost its results. Lower ore deliveries in the December quarter led to a 672 tonne fall in cathode production to 1,271 tonnes.

Metorex’s revenue jumped 141% to R1.4bn in the six months. The group posted adjusted headline earnings of 12 cents per share to account for a spate of once-off items compared to a headline loss of one cent a year earlier. The number of shares in issue nearly doubled to 744m compared to a year earlier.

It unveiled a R750m refinancing package in January that will cut debt from the current R1.5bn to R1.2bn. The capital raising will be completed by mid-April. Through the asset sales, Metorex has already trimmed debt by a third to R1.5bn.

The refinancing package will also give Metorex the money to work on three DRC copper/cobalt prospects and take them to bankable feasibility study stage.

The Kinsenda project is an old mine on which Metorex spent $3m in the December quarter de-watering and paying off creditors. It has a Samrec-compliant resource of 17 million tonnes at five percent copper. Metorex will conduct a 7,500 metre diamond drilling programme from June.

Metorex has already spent $3.5m drilling the Lubembe prospect and will produce a Samrec-compliant resource by June.

The Dilala East deposit has a total resource of 19 million tonnes at 2.9% copper, of which five million tonnes is oxidised material at three percent copper.

Work on bankable studies for the three projects will be a long way down the track by the end of calendar 2010, Goodlace said. The combined spend on the three projects is $31m to bring them to either the end of a bankable study or close to that point.

The Consolidated Murchison antimony and gold mine, which Metorex is planning to sell or shut, turned in a loss because of operational issues. Goodlace said the decision should be made before the end of April. It is in talks with To The Point, which is run by Bernard Swanepoel, the former CEO of Harmony Gold, he said.

It is the final asset Metorex has earmarked for sale.