Read this. Its the best update on OZL you'll get this week.
1. Prominent Hill
The economics of PH are amaaazing.PH is and will produce copper at U$1.00lb and as copper is US1.48lb tonight PH's EBIT is well in the money. Add gold at sold $750oz and and no cost as by product ....and on PH forecast production levels of copper and gold in 2009 PH is a cash cow !PH's EBIT is well in the money. Plus with 60kt of ore waiting to be milled at PH (see photos) = extra EBIT contribution of $94m for 2009
2. Century
Zinc prices at Century for next year will likely average US0.50-0.60lb means on average century will break even assuming no additional capex. Any upward movement in price and century is the US federal reserve bank .CF for Century is cureently break even to slightly positive today on $0.50lb. Lower fuel costs will help too move this to CF positive.
Century is a printing press if zinc rises...but really the economics for century are actually better now than when zinifex floated...ive read the zinifex prospectus.
Appears CBA havent exited, ANZ havent exited,Westpac has joined and if Westpac and NAB and RBS and BNP only want 200bp over LIBOR. Substantially better than 600bps as mentioned by the press. So CBA, if its the rogue, is possibly losing its status amongst the syndicate and risks becoming a syndicate member of last resort on any future deal let alone this one if it wants out. Big risk for CBA if its the rogue.. Untold damage would be done on interbank relationships if it has a tantrum on a 95% complete project and a company about to be gloablly rerated. What bank syndicate would ever trust them if they gain a release from their OZL obligations ?? The Australian is monitoring that now. Maybe Jamie Freed at the SMH can smell the coffee too and see that the company is also sufffering from being unnecessarily bullied by a rogue wanting to exit without cause. OZl will have a sound case against the rogue for unconscionable conduct and other argument too. It will be messy. My read is its a hardball negotiation tactic by the rogue. It will participate, maybe at a smaller allocation.
All Debtholders knew the refi dates, its the shareholders who were misinformed. Just my view. The rogue bank has a lot to answer for here (along with AM). Transparency never a problem for debtholders or Investment banks as they are on the other side of the chinese wall and have had access to every sceric of company info all year. Its possibly the rogue bank pulling a fast one in this situation not OZL or AM.
And some sell side analysts were also lazy on the refi details as they were all commenting on BHP/RIo so analysts complaining show poor work ethic. They may have not asked the right questions???
Two to three year funding is term funding and the best term this company has ever had. It appears by moving to LT funding that the syndicate is wanting to take their heel off OZL's throat and let it breathe, showing confidence in the underlying business and particularly PH coming on line...and they should because Prominent Hill is a national resource jewel and of strategic national importance. The Tenor argument will get resolved.(Tenor - amount of time left for the repayment of a loan or contract or the initial term length of a loan. Tenor can be expressed in years, months or days.e.g if a bank loan is initially extended with a 5yr tenor, after 3yr, the loan will be said to have a tenor of 2 yr.
I expect the tenor to be 1-2 years, 2 would be great, 3 amaaaazing.
5. New Participating Banks
OZL can still attract new banks (WESTPAC) to the syndicate so maybe SMH will lay off on their nonsense alarmism of the sky is falling.
6. Debt Service Capability
OZL is 100% NOT in default in any way...nor will it ever be. Banks about to renegotiate LT term facilities on the above terms dont foreclose or they would be stupid in this case. Admin risk whilst not zero has fallen from 10% to 5%. Just my view. PH is 95% complete thankfully. The workers of PH deserve real praise here.
The current $405m cash position + undrawn current facilities of $227m + Net OP Cash Flow $400-600m between now and end of FY2009 means the company will have $1-1.2 billion in cash access to cover all current debt service and repayment.
This may be $800m entering 2009 if the zinfex facility is repaid this year but maybe its rolled into the new mega facility too. I cant be sure of that though. Best to be conservative and say the company will have aprox $800m during FY2009 if facility rolled into one. Thats really great news.
Coverage ratios ranges are 4-8x till mid year CY2009, 10-15x FY09, 50-60x in FY10
This means NO RIGHTS ISSUE REQUIRED !!! Not even close really. Unless they call in the debt this year without sufficent notice to OZL and OZL will have a great legal case of unconscionable conduct and other legal argument too. and by the time to case makes it ot court, PH is up and running and CF positve.
Maybe the analysts covering OZL should go back to school. They arent very good at all. Macquarie and CS are the worst in my view.
7. Summary
As I have always said the refi gets done and the shares of OZL GAP up 75c -$1.00 as some Global RIO allocation will have to come into OZ minerals, plus retail short squeeze, plus new retail buying, plus new long Institutional buying and averaging, Hedge fund short covering off following Macquarie and credit suisse recommendations which will be proven horribly wrong, plus hedge fund arb buying to sell a parcel to MS buyer!!
Then if AM gets the chop we roar to $1.50 and then the chinese show their hand and we are back above $2.00.
Just my read. But its not over yet. Refi is NOT completed. Still some twists yet Im sure.
But OZL will be refinanced... or its 10 years in courts and 10 way lawsuit fest, National front page news for years !! All on a 100% viable company anyway. Madness.
Refi gets done. Maybe this week.
World Peace Man V
OZL Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
