Boseto Mine gets P920m olive branch
Brian Benza | Wednesday April 2, 2014 11:26
The lifeline will also see the Botswana Stock Exchange (BSE) listed company reduce its net debt position by US$91 million from US$158 million to US$65 million.
Discovery Country Manager, Mokwena Morulane was yesterday optimistic the recapitalisation deal will turnaround the fortunes of the troubled copper producer as a larger portion of the funds will be used to undertake underground mining which brings better ore grades and tonnage.
Morulane told Mmegi Business that $65 million of the funding would be used to discharge obligations under existing debt facilities, while a further $40 million would be used for working capital purposes.
“Part of the reason the company has not been doing so well is that we have not been able to recover good copper grades. Going underground means we immediately access the sulphide zone, which has good grades. With copper prices still depressed, the re-capitalisation will also enable us to increase production to reach a certain level of revenues that covers our costs,” he said.
The proposal included a share placement of 100 million shares, at 5 cents each, to raise the first $5 million. The share placement would be completed in two tranches, with the second tranche subject to shareholder approval.
Also on the card is a US $100 million convertible note, under which Montesant Partners had agreed to subscribe for 100,000 five-year, 10 percent a year interest rate, secured convertible notes with a face value of $1,000 each.
Montesant Partners is a company formed amongst a group of New York based hedge funds to invest in Discovery. The funds have assets totalling $3 billion and have a keen desire to expand their exposure to the resource sector through their potential investment in Discovery.
The Chief Executive Officer of DML, Bob Fulker said, “this investment is an important element to ensuring the survival of the Boseto operation, and enables the Company to reduce its reliance on the currently loss-making open cut operations.
The Company will need to continue its focus on cost reduction while the new investment can be applied to the underground development, particularly in view of presently soft copper prices.
“This transaction demonstrates the value that Montesant Partners LLC places in the Boseto operations and the DML Group, and it will therefore be critical that DML maximises the value from this investment to ensure the long term future of the Boseto operation.”
The transaction is however still subject to shareholder approval and the execution of definitive transaction.
Last month, Discovery Metals reported a loss of US$18.9 million for the December 2013 half year up from the US$14.6 million for the corresponding period in 2012 as the company struggled to find fresh capital injections to counter mounting debts.
Discovery’s financial strain largely stemmed from last year’s collapse of the $100 million recapitalisation deal from a Singaporean firm, Blumont.
Early this year, Discovery Metals announced a restructuring of operations at the Boseto copper project, which resulted in the lay-off of 15 percent of the workforce.
Low international copper prices coupled with low ore grades recovered at Boseto has also exacerbated the company’s difficulties.
Copper prices have slumped to about $3.20 per pound from about $4.30 at the time the Bankable Feasibility Study (BFS) was compiled. Since commissioning in June 2012, the project has faced numerous challenges including inability to produce the quantities initially planned. Currently the company produces 1,500 tonnes of copper from the initial target of 3,000 tonnes established in the BFS.
DML is hoping to establish three underground mines to increase the mine life at Boseto as part of its strategic direction to unlock underground potential.