OZ Minerals Struggling to Stay Afloat

OZ Minerals, launched with much fanfare in July 2008 as a result of the merger of Oxiana Minerals and Zinifex, faced an uncertain future as of mid-January 2009. At the heart of the company’s problems were a dwindling supply of cash, reported at A$169.2 million at the close of business on December 23; a need for cash to complete development of its Prominent Hill copper-gold project in South Australia and for other operating exigencies; debt amounting to roughly A$1 billion in four separate loan facilities; and a reluctance on the part of some of its lenders to extend additional financing.

On January 12, OZ announced that it was making progress toward arranging a bridging loan facility and that its cash balance had declined to A$109.3 million on December 31 but had subsequently improved to A$132 million on January 8, “reflecting improved commodity prices and some very early benefits from its cost-cutting program.” Also, the company’s creditors’ accounts were in line with agreed terms, the company said, except for a small number of disputes as to delivery, quality, and similar considerations.

Trading in OZ Minerals shares was suspended at the company’s request on December 2, 2008, pending refinancing of some of its loan facilities. At the end of December, the suspension of trading of its shares was extended to February 27, 2009, again at the company’s request. OZ’s lenders also agreed to extend the company’s loan facilities to February 27, while negotiations continued for a possible bridging facility.

Construction at the Prominent Hill project was 88% complete on October 10, 2008, with commissioning scheduled to begin by year-end. Hopes were that the project would be up and running and cashflow positive by mid-year 2009. OZ Minerals has expressed a willingness to sell part or all of the Prominent Hill project and other assets as well, including its large Martabe gold project in Indonesia.

While funds to bring Prominent Hill into production were at the forefront of OZ Minerals’ concerns, they were not the company’s only problem. Its large Century zinc mine in Queensland was reported to be cash-flow negative at prevailing zinc prices, and on December 19, the company announced that it was placing its Avebury nickel mine in Tasmania on care-and-maintenance because the operation was unprofitable at prevailing nickel prices. The Avebury mine was commissioned in August 2008 and had produced 10,381 mt of concentrates prior to suspension of operations.

On January 13, 2008, OZ said it was placing its Scuddles mine on care and maintenance at its Golden Grove operations in Western Australia, where the company also operates the Gossan mine. Some Scuddles production resources are being transferred to Gossan.

These actions will result in a reduction of Golden Grove zinc production by about 25,000 mt/y to a range of 55,000 to 60,000 mt/y, while copper production will increase by about 5,000 mt/y to a range of 40,000 to 45,000 mt/y.”

As featured in Womp 09 Vol 01 - www.womp-int.com