sentiment turning positive

Has Oz turned the corner?

The Spectators
Bartholomeusz: Has Oz turned the corner?



Within Oz Minerals’ acknowledgement that it has yet to finalise the bridging facility it needs to tide it over until its Prominent Hill project is fully up and running in March, was the first glimmer of light at the end of what has been a threateningly dark tunnel.

Oz Minerals had fallen into the clutches of its bankers because of the frightening rate at which it had been burning cash.

Lower metal prices, the cost of shutting down cash-negative operations, the expansion and start-up costs associated with some of its projects, notably Prominent Hill, and negative provisional pricing payments to smelters had chewed through more than $1 billion in six months.

The trend looked inexorable. At December 23 the group had $169.2 million of cash left. By December 30 it was down to $109.3 million. By last weekend, however, it actually rose to $132 million.

While outflows remain modest the stabilisation of Oz Minerals cash position is encouraging and will be very helpful for the group in its negotiations with its banks, even though the ramp-up of Prominent Hill this month will cause those outflows to increase.

Metal prices have stopped falling, the Australian dollar has strengthened, the level of aberrational payments related to the mothballing of projects is winding down and presumably the scale of the provisional pricing payments is reducing. Also, the impact of the major cost-reduction program is starting to show up in the performance of the remaining projects.

The perfect storm that enveloped Oz Minerals and saw its hoard of cash evaporate is receding.

That doesn’t do away with the need for the bridging funding to tide the group through until Prominent Hill starts generating meaningful cash flows, probably in March, nor the need to restructure and replace its longer term debt.

It does, however, provide a less unsettling/more optimistic undertone to the discussions with the lenders precisely at the moment where they might be looking for some reassurance that they’ve seen the worst of Oz Minerals’ experience.

The deadline for the bridging facility – January 9 – was self-imposed by the banks, and missed because not because Oz Minerals wasn’t ready but because the banks weren’t able to get their act together. The time of year, the international nature of the lending group and the complexity of the negotiations conspired against the ambitious timetable. It would appear, however, that the negotiations are on track for completion within a week.

Oz Minerals would then have until February 27 to renegotiate its primary facilities, although it probably needs to complete, or at least lock in, a major asset sale between now and then. Its Martabe gold project in Indonesia and/or a minority stake in Prominent Hill, the South Australian copper-gold project, are the assets most speculated about.

Oz Minerals still hasn’t secured its future and taken the banks out of the near term equation. Its position, however, isn’t quite as parlous as it was before Christmas and, if commodity prices and exchange rates don’t conspire against it again, the underlying trends in that position are improving.