=DJ UPDATE: OZ Minerals Struggling To Win Extension On Debt28/11/2008 04:25PM AEST (Adds comment from analysts)
By Alex Wilson Of DOW JONES NEWSWIRES
MELBOURNE (Dow Jones)--OZ Minerals Ltd. (OZL.AU) stunned the market Friday with the revelation that the deadline for refinancing of US$560 million of debt facilities is this Sunday and it has not yet been able to secure an extension.
The diversified miner has been hit hard by plunging commodity prices and is now struggling to refinance its loans in frozen credit markets, sparking concern among analysts and investors, although most expect an extension to be granted.
The dramatic decline of the Melbourne-based company, touted as a new mining major at the time of its creation in a merger of Oxiana and Zinifex in June, highlights the speed and severity of the impact the global economic slowdown is having on the resources sector.
OZ Minerals went into a trading halt Friday, saying it is awaiting an answer from lenders on its request for an extension of its debt facilities.
The miner said it had agreed with lenders that it would refinance two facilities, one of US$420 million and one of US$140 million, by Nov. 30. But it is now requesting more time - until Jan. 31 - to negotiate a proposed new syndicated facility.
"We have requested a response to this request from the lenders during the course of today," OZ Minerals said in a statement.
An OZ Minerals spokesman said the company had been close late Thursday to securing the extension of the deadline for the refinancing, which is designed to convert project facilities into a single corporate facility.
"Up until very late last night we were quite confident that we could secure the extension from the panel until one of the banks, whilst accepting the extension, put caveats on that which from our perspective were unworkable," an OZ Minerals spokesman told Dow Jones Newswires.
The spokesman would not discuss the nature of those caveats and said OZ Minerals is focused on concluding the negotiations.
OZ Minerals said the repayment of the US$140 million facility is due Jan. 31 while the US$460 million facility is due for repayment in periodic installments, with the first installment due Dec. 31.
Analysts said the fact that OZ Minerals has so far been unable to refinance the debt is ringing alarm bells and raising questions about management of the company, but at this stage they believe it is unlikely banks would force the company into administration.
Credit Suisse analysts said, until now, no timeline had been given for refinancing and they were shocked at the revelation of the Sunday deadline.
"This is extraordinary in our view and obviously raises suspicion about what else of a material nature management might be keeping from the market," the analysts said in a client note.
"With new management already under market scrutiny, a large black mark has now been recorded."
OZ Minerals this week announced deep cuts to spending on growth projects and cut annual production at its flagship Century zinc mine by 20,000 metric tons.
One analyst who did not want to be named said questions now have to be asked about why Chief Executive Andrew Michelmore did not cut spending earlier to arrest the company's cash burn and why production at Century was not cut earlier and harder in response to falling zinc prices.
He said that if OZ Minerals' banks didn't agree to refinance the debt it would be a shock to the Australian mining industry, which until the recent slowdown found it easy to raise funds.
"We just have to wait and pray that the banks will reschedule because otherwise it looks very ugly," he said.
"This would rock the industry, if the banks said no, but I can't see that they would do that."
Goldman Sachs JBWere analysts estimate OZ Minerals' A$300 million net cash position at Jun. 30 has now deteriorated to a net debt position of about A$400 million, consisting of A$900 million of debt and A$500 million of cash.
They said that if the company is not able to refinance its project debt facilities into a corporate debt facility it may be forced to carry out an equity raising, an unappealing prospect given the weakness of OZ Mineral's share price and the turmoil on equity markets.
At the time of the merger the combined market capitalizations of Oxiana and Zinifex were about A$12 billion, but the merged group's shares have since sunk to 55 cents, giving it a market capitalization of just A$1.7 billion.
"If OZL's banks play hard ball, the company is in no position to repay or re-negotiate its debt today," Credit Suisse analysts said.
While this rings alarm bells about possible insolvency, Credit Suisse said a more likely outcome is refinancing that results in materially higher debt costs.
-By Alex Wilson, Dow Jones Newswires; 61-3-9671-4313; [email protected]
(END) Dow Jones Newswires
November 28, 2008 00:25 ET (05:25 GMT)
Copyright (c) 2008 Dow Jones & Company, Inc.
OZL Price at posting:
$5.50 Sentiment: None Disclosure: Held
