MMG to sell assets and refinance to strengthen balance sheet

China Minmetals’ overseas mining unit posts US$93 million loss for first six months, widened from US$48 million a year ago, as metal prices slump

PUBLISHED : Wednesday, 17 August, 2016, 5:03pm
UPDATED : Wednesday, 17 August, 2016, 10:32pm

MMG, the overseas mining unit of state-owned metals trading major China Minmetals, is studying options to bolster its debt-laden balance sheet through assets sales, after a copper mine it bought in Peru in 2014 cost the company a total of US$9.7 billion to bring on stream.

Officials said the firm, which has operations in Queensland and Tasmania besides Western Australia, has already received informal expressions of interest to buy its Golden Grove mine in Western Australia state, which produced around 55,000 tonnes of zinc and 26,000 tonnes of copper last year.

On Tuesday the company revealed its first-half revenue plunged 47 per cent, on the back of substantially lower zinc and copper prices and a decline in production.

Its shares closed 3.4 per cent lower on Wednesday at HK$1.98. They have surged 34.7 per cent year-to-date, outperforming a 4 per cent gain of the Hang Seng Index

Chief executive Andrew Michelmore said the company is now the process of appointing a financial advisor to conduct a formal sale process, and that’s expected to conclude by the end of the year.

As part of possible ways to shore up its balance sheet, he said MMG also wants to increase its shareholder base by issuing more shares, but added it is is no hurry to do so as it currently enjoys relatively low borrowing costs.

“Our loan costs, at 3.5 to 3.6 per cent above the London interbank offered rate, are highly competitive and we don’t need to pay them off for 18 years,” he said.

Chief financial officer Ross Carroll added that MMG is also looking at opportunities to tap the Asian bond market, besides rolling over US$800 million of loans from Chinese banks due for repayment mid next year.

MMG had US$1.18 billion of net debt at the end of June. That figure amounted to 56 per cent of the sum of net debt and total shareholders’ equity, up from 51 per cent a year ago, and it is now targeting to cut that to between 40 and 50 per cent “in the medium term”, said Carroll.

MMG posted a net loss of US$93 million for the year’s first six months, widened from a loss of US$48 million in the year-earlier period.

The company’s interim revenue also plunged 47 per cent year-on-year to US$586 million, on the back of lower metal prices and production declines after the closure of the mature Century zinc mine in Queensland state in Australia, and lower output from its Sepon copper and gold mine in Laos where it proved harder and more expensive to extract ore.

First-half sales volume of copper fell 14 per cent year-on-year, what that of zinc tumbled 69 per cent and that of gold slid 19 per cent.

The average copper price at the London Metals Exchange dropped 21 per cent in the first half, while zinc slid 16 per cent.

Michelmore expects copper prices to bottom out later this year to early next year on the back of a slim supply surplus and rising demand, while expecting zinc prices to surge over the course of this year until the end of next year, due to a rising supply deficit after the closure of major mature mines in different parts of the world.

The company’s Las Bambas copper project in Peru, acquired in 2014, started commercial production on July, but the acquisition and subsequent investment outlays to bring it to production cost MMG a total of US$9.7 billion.

The mine produced 118,612 tonnes of copper in the year’s first half, and MMG is targeting full year output of 250,000 to 300,000 tonnes. Its designed annual capacity is around 400,000 tonnes.

The firm is also aiming to cut the project’s costs from US$1 to US$1.1 per pound currently to US$0.8 to US$0.9, long term. The current cost ranks it among the lowest 25 per cent among copper projects globally, MMG said.

To help offset the absence of output from the closed Century mine, MMG expects to start production at the Dugald River zinc project in Queensland in the first half of 2018. It has a designed annual capacity of 170,000 tonnes of zinc metal contained in processed ore.